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2021 (4) TMI 182 - HC - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(i) - scope of retrospective amendment to the Income Tax Act by Finance Act 2010 to Section 9(1) - Whether the amended explanation to 9(2) relating to the income of the non-resident shall be deemed to accrue or arise in India and shall be included in the total income of the non-resident whether or not he has a resident or place of business or business connection in India or has done services in India? - Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the deduction under Section 80-IA is to be done without setting off losses on optional basis inspite of clear provisions of Section 80-IA stipulating that the said undertaking should be considered as only source of income of the assessee for the purpose of determining eligible profit? - HELD THAT - As following the ratio laid down by the Hon'ble Division Bench of this Court reported in Fluidtherm Technology (P). Ltd 2015 (4) TMI 191 - MADRAS HIGH COURT and Commissioner of Income Tax, Salem VS. Chola Spinning Mills (P.) Ltd. 2019 (11) TMI 934 - MADRAS HIGH COURT the questions of law are decided against the appellant - Revenue and in favour of the respondent assessee
Issues Involved:
1. Disallowance under Section 40(a)(i) amounting to ?87.72 lakhs. 2. Consideration of retrospective amendment to Section 9(1) by Finance Act 2010. 3. Application of amended explanation to Section 9(2) regarding income of non-residents. 4. Deduction under Section 80-IA without setting off losses on an optional basis. Detailed Analysis: 1. Disallowance under Section 40(a)(i): The primary issue was whether the disallowance made under Section 40(a)(i) amounting to ?87.72 lakhs was proper. The court referenced a previous decision in [2015] 57 taxmann.com 87 (Madras) [Commissioner of Income Tax, Chennai Vs. Fluidtherm Technology (P). Ltd.], which held that commission paid to non-resident agents for services rendered outside India does not fall under "fees for technical services" and is thus not subject to tax deduction at source under Section 195. The court reiterated that the non-resident agents did not provide technical services for the running of the business in India but merely facilitated the export commitment, which does not attract Section 9 of the Act. Consequently, the disallowance under Section 40(a)(i) was deemed improper. 2. Retrospective Amendment to Section 9(1): The second issue was whether the Income Tax Appellate Tribunal (ITAT) erred in not considering the retrospective amendment to Section 9(1) by the Finance Act 2010. The court cited the same previous decision, which clarified that the retrospective amendment to Section 9(1) and its explanations do not apply to commission payments to non-resident agents for services rendered outside India. The amendment would only be relevant if the payments were classified as interest, royalty, or fees for technical services, which was not the case here. 3. Amended Explanation to Section 9(2): The third issue addressed whether the income of the non-resident should be deemed to accrue or arise in India under the amended explanation to Section 9(2). The court, referencing the same case, concluded that the non-resident agents did not conduct any business operations in India, and their commission for services rendered outside India could not be deemed to accrue or arise in India. Thus, the amended explanation to Section 9(2) was not applicable in this context. 4. Deduction under Section 80-IA: The fourth issue was whether the deduction under Section 80-IA should be allowed without setting off losses on an optional basis. The court referred to the decision in [2020] 114 taxmann.com 642 (Madras) [Commissioner of Income Tax, Salem VS. Chola Spinning Mills (P.) Ltd.], which upheld that the assessee has the option to choose the initial assessment year for claiming the deduction under Section 80-IA. The Central Board of Direct Taxes (CBDT) Circular No.1/2016 clarified that the term "initial assessment year" means the first year opted by the assessee for claiming the deduction, allowing the assessee to claim the deduction for ten consecutive years out of a fifteen or twenty-year period without setting off losses. Conclusion: The court dismissed the appeal, confirming that no substantial question of law arises. The decisions were in favor of the respondent-assessee, aligning with the precedents set by the cited cases. The appeal was dismissed with no costs.
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