2021 (7) TMI 103 - AT - Income Tax

TDS u/s 195 - Disallowance u/s 40(a)(i) - deduction of tax in respect of Global Account Coordination cost - scope of amendment - HELD THAT - As decided in ASHAPURA MINICHEM LTD. VERSUS ADIT (INT L TAXATION) 2010 (5) TMI 523 - ITAT, MUMBAI prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under section 9(1)(vii). The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The taxdeductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195, require that the person making the payment at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income -tax thereon at the rates in force . When these obligations are to be discharged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. We are in agreement with the view expressed by the Co-ordinate Bench. Therefore, we hold that the Assessing Officer was not justified in fastening the liability of tax deduction by relying on the amendment which was inserted in the year 2010 with retrospective effect from 01.04.1976. The Assessment Year in question is 2008-09, therefore, provision of section 40(a)(i) of the Act ought not to have been invoked in the case of the assessee. Therefore, we direct the Assessing Officer to delete the addition. Thus, grounds raised by the assessee in this appeal are allowed.

Summary

Issues Involved:
1. Disallowance under section 40(a)(i) of the Income Tax Act.
2. Treatment of Global Account Coordination Cost as Fees for Technical Services.
3. Retrospective amendment in law affecting tax withholding liability.

Analysis:

Issue 1: Disallowance under section 40(a)(i) of the Income Tax Act
The appellant contested the disallowance made by the Assessing Officer under section 40(a)(i) of the Act concerning the Global Account Coordination Cost. The contention was that as per section 9(1)(viii) and relevant Double Taxation Avoidance Agreement (DTAA) articles, no tax should be deducted under section 195 of the Act, hence no disallowance should be made. The appellant also argued that retrospective amendments in law cannot impose tax withholding liability unless the services were rendered in India. The appellant relied on various judgments to support their position, emphasizing that the payment did not attract the provisions of section 195 of the Act.

Issue 2: Treatment of Global Account Coordination Cost as Fees for Technical Services
The Assessing Officer held that the Global Account Coordination Cost required tax deduction under the Act, invoking section 40(a)(i). The Assessing Officer analyzed the nature of services provided under the Multinational Client Coordination Service Agreement and concluded that the payment fell under the purview of technical services, necessitating tax deduction under section 195. The Ld. CIT(A) upheld the disallowance, considering the explanation to section 9(1)(vii) defining Fee for Technical Services (FTS) and Article 12(a) of the DTAA. The Ld. CIT(A) reasoned that the payment attracted section 195 due to the technical nature of the services provided.

Issue 3: Retrospective amendment in law affecting tax withholding liability
The Co-ordinate Bench of the Tribunal held that the tax withholding liability depends on the law at the time of payment and cannot be retrospectively altered. In this case, the retrospective amendment in 2010 could not be applied to the assessment year 2008-09. Therefore, the Assessing Officer was not justified in invoking section 40(a)(i) based on the retrospective amendment. The Tribunal directed the Assessing Officer to delete the addition, allowing the appeal of the assessee.

In conclusion, the Tribunal allowed the appeal, holding that the Assessing Officer was not justified in applying the retrospective amendment to impose tax withholding liability for the assessment year 2008-09, thereby directing the deletion of the addition made under section 40(a)(i) of the Act.