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2019 (10) TMI 262 - HC - Income TaxTDS u/s 195 - Payment for services received by the respondent outside India - Permanent Establishment (PE) in India - Indo-China DTAA - HELD THAT - Application of DTAA which results in no income arising for the service providers in India is a concluded issue. Therefore, the occasion to examine Section 195 of the Act in these facts would not arise. No occasion to deduct tax at source would arise in the absence of any income in the hands of the service providers outside India in view of Section 195 of the Act. Even otherwise a retrospective amendment cannot cast an obligation to deduct tax when not in force at the relevant time i.e. when payment was made. This Court in Commissioner of Income Tax V/s. M/s. NGC Networks (India) Pvt. Ltd. 2018 (5) TMI 1148 - BOMBAY HIGH COURT has held that a party cannot be called upon to perform an impossible act i.e. to comply with the provision which was not in force at the relevant time. Admittedly, the Explanation if applicable is introduced later by a retrospective amendment. Thus, there could be no obligation to deduct tax at source when the payments have been made to the service providers abroad in the absence of a specific provision at the time when the payments were made. - Decided against revenue
Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 for Assessment Year 2008-09 regarding disallowance of professional fees paid outside India without TDS deduction. Analysis: 1. The respondent paid fees for professional services outside India without TDS deduction to various service providers. The Assessing Officer disallowed the fees under Section 40(a)(i) of the Act for non-deduction of tax at source. The CIT(A) held that the payments were governed by Double Taxation Avoidance Agreement (DTAA) and deleted the disallowance, except for payments to a service provider in China. 2. Both the Revenue and the Assessee appealed to the Tribunal. The Tribunal found that services received outside India were not taxable in India under DTAA as they did not involve technical knowledge transfer and the service providers had no Permanent Establishment in India. The Tribunal dismissed the Revenue's appeal and allowed the Assessee's appeal for Assessment Year 2008-09. 3. The Tribunal also held that there was no obligation to deduct tax at source for the fees paid to service providers based on deemed income under Section 9(1)(vii) of the Act. The retrospective amendment by the Finance Act, 2010 did not create an obligation to deduct tax when it was not in force at the time of payment to service providers. 4. The Revenue did not challenge the findings that payments to service providers were covered by DTAA and not subject to tax in India. As per Section 90(2) of the Act, the Assessee could adopt either DTAA or the Act, and since the service providers did not receive income under DTAA, no tax deduction was required. 5. The Tribunal's decision that payments to service providers were not taxable in India under DTAA was not challenged by the Revenue. Therefore, the appeal was dismissed as the questions raised by the Revenue were deemed academic in light of the DTAA provisions and absence of income in India for service providers. In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the payments made to service providers outside India were not subject to tax in India under the DTAA, and the retrospective amendment did not create an obligation to deduct tax at source. The appeal was dismissed based on the findings that the service providers did not have income in India as per the DTAA provisions.
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