2016 (2) TMI 1202 - AT - Income Tax

TDS u/s 195 - payments to non-residents under the heads training fee,service fee and royalty payment - PE in India - scope of amendment of act - Held that - The payments in question are covered by the provisions of section 9, that the non residents had no PE in India, that the assessee was not liable to deduct tax at source for these payments. We are of the opinion that his order does not suffer from any legal infirmity. Here, we would also like to mention that the issue of taxability of these three payments had arisen because of the retrospective amendment to section. The assessee had managed its affairs as per the provisions of existing law and at the time of filing of return, it had not to deduct the tax. The settled principle of jurisprudence stipulates that impossible acts cannot be expected to be performed by an assessee. In the case of IDBI Capital Market Services Ltd.(2015 (5) TMI 1169 - ITAT MUMBAI)the Tribunal has, in almost similar circumstances, held that if at the time of filing of its return the assessee is not required to deducted tax as per the existing provisions and later on because of the retrospective amendment or judgment of a court liability to deduct Tax at Source arises, the assessee cannot be held responsible for not deducting of tax at the time of filing of return. - Decided against revenue

Summary

Issues:
1. Addition of payments made to non-residents without deduction of tax at source under section 40(a)(ia) of the Act.
2. Taxability of training fee, service fee, and royalty payment made to non-residents.

Analysis:
1. The Assessing Officer (AO) disallowed a sum of Rs. 37,84,750/- as the assessee had made payments to non-residents without deducting tax at source. The AO held that the provisions of section 40(a)(ia) of the Act were applicable. The First Appellate Authority (FAA) considered the nature of transactions and held that the non-resident entities had no business presence in India, and the services were provided on a principal to principal basis. The FAA deleted the addition made towards service charges, stating that the income received by non-residents was not taxable in India.

2. Regarding the training fee, the FAA found that the personnel of the assessee firm were trained by equipment suppliers abroad. The FAA concluded that the training fee paid to non-residents was not covered by the provisions of section 9 and was not akin to royalty payment as per section 9(1)(vii). The Departmental Representative (DR) contended that the training fee was for technical services and covered under section 9. However, the Tribunal found that the payments were reimbursement of actual expenses and not subject to TDS. The Tribunal upheld the FAA's decision, emphasizing that the payments were not taxable in India as per section 9.

3. The Tribunal noted that the retrospective amendment to section 9 had caused confusion regarding the taxability of the payments. It cited a previous case where it was held that if the assessee was not required to deduct tax at the time of filing the return, they cannot be held liable later due to retrospective amendments. The Tribunal confirmed the FAA's order, stating that the assessee had followed the law in place at the time of filing the return and dismissed the appeal filed by the AO.

In conclusion, the Tribunal upheld the FAA's decision to delete the additions made by the AO, stating that the payments to non-residents were not taxable in India as per section 9. The Tribunal considered the retrospective amendment and the principle that an assessee cannot be held responsible for non-compliance due to subsequent changes in the law.