2023 (6) TMI 773 - HC - Income Tax

TDS u/s 195 - scope of amendment of Finance Act, 2010 in section 9 - Liability to deduct tax on payments made on sub-contract work done - outsourcing a portion of on-site work to its subsidiary in China - default u/s Section 201(1) 201(1A) - whether services are not rendered in India? - amendment of Finance Act, 2010 in section 9 whereby Explanation below section 9(2) has been substituted with retrospective effect from 01/06/1976 whereby pre-requisition condition of rendering services in India had been done away - HELD THAT - Admittedly, explanation to Section 9 of the Act has been substituted by the Finance Act, 2010. Therefore, it is applicable from and after A.Y. 2011-12. Admittedly, relevant assessment years for consideration in these appeals are 2009-10 and 2010-11. The substitution has taken place in the Finance Act, 2010, which is effective from 2011-12. In view of the authority in Engineering Analysis. 2021 (3) TMI 138 - SUPREME COURT wherein held person mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of royalty inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute. Decided against the Revenue.

Summary

Issues involved:
The issue in this case revolves around whether the assessee is liable to deduct tax on payments made to a company for sub-contract work done by them, considering the services were not rendered in India and the retrospective effect of an amendment in the Finance Act, 2010.

Judgment Details:
The two appeals filed by the Revenue challenge the ITAT's order regarding tax deduction on payments made to a company for sub-contract work. The Revenue contended that the assessee was liable to deduct tax under Section 9(1)(vii) of the Income Tax Act, 1961, due to an explanation made effective from 01.06.1976. However, the respondent argued that for the relevant assessment years 2009-10 and 2010-11, there was no such amendment, citing precedents like Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income Tax.

The A.O. held that the assessee failed to deduct tax at source under Section 195 of the Act, leading to a demand raised for the relevant assessment years. The CIT(A) dismissed the appeal, but the ITAT allowed the assessee's appeal, prompting the Revenue to approach the High Court.

The High Court considered the applicability of the amendment to Section 9 of the Act, noting that it came into effect from A.Y. 2011-12. Referring to the Engineering Analysis case, the Court emphasized that the assessee cannot be expected to comply with a provision that did not exist during the assessment years in question. Therefore, the appeals were dismissed, and the question of law was answered in favor of the assessee.

In conclusion, the High Court ruled in favor of the assessee, stating that the appeals lacked merit due to the absence of the relevant amendment during the assessment years in question. The Court highlighted that the amendment in the Finance Act, 2010, was effective from A.Y. 2011-12, and the assessee could not be held liable for tax deduction retrospectively.