2015 (3) TMI 876 - AT - Income Tax

Disallowance u/s 40(a)(i) - CIT(A) deleted disallowance - reopening of assessment - assessee had not deducted TDS u/s 195 as paid a sum as service charges rendered in Qatar for its Nigerian projects - Held that - The CIT(A) has held that the payments in question are fee for technical services and they are covered by exclusion u/s 9(1)(vii) of the Act with reference to the case law of Ajapa Integrated Project Management Consultant Pvt. Ltd.(2012 (6) TMI 404 - ITAT CHENNAI ). The Revenue s plea that its appeal is pending u/s 260A of the Act does not point any distinction on facts. So, there is no ground to adopt a different approach in the present case. The Revenue also pleads that the assessee s headquarter is in India. So, this exclusion clause does not apply. We notice that in case law Lufthansa Cargo India (P) Ltd vs DCIT 2004 (6) TMI 273 - ITAT DELHI-B , head office or place of control of business have been held to be immaterial factors for this exclusion principle u/s 9(1)(vii)(b) of the Act. The Revenue does not dispute applicability of this decision in its grounds. The Revenue further contention that in view of explanation inserted by the Finance Act, 2010 with retrospective effect from 1.6.1976, it is immaterial as to whether the services have been rendered outside India or the payee does not have a permanent establishment in India, in our view, cannot be any issue about the insertion of this explanation. However, the assessment year before us is 2003-04 and this explanation came only in the year 2010. In these circumstances only, we hold that once the assessee had made all these payments, finalized accounts well before insertion of the explanation, it is not supposed to take the clock back and deduct TDS. We disagree with the Revenue s ground on this reasoning. So far as the case law quoted by the Revenue of ACIT vs Evolv Clothing Co. (P) Ltd (2013 (9) TMI 232 - ITAT CHENNAI) is concerned, there was no specific issue as to whether the retrospective explanation mandated TDS deduction or not. So, this decision stands distinguished - Decided against revenue.

Summary

Issues:
- Disallowance of 44,22,208/- under section 40(a)(i) of the Income-tax Act, 1961 for assessment year 2003-04.

Analysis:
1. Regular Assessment and Re-Assessment: The assessee, a company providing various services, filed a return admitting a loss which was later reduced through a regular assessment. Subsequently, the Assessing Officer issued a notice for re-assessment based on reasons to believe that income had escaped assessment. In the re-assessment, it was found that the assessee had made payments in foreign currency without deducting TDS u/s 195 of the Act, leading to the disallowance of 44,22,208/- under section 40(a)(i).

2. CIT(A)'s Decision: The CIT(A) analyzed the nature of payments made by the assessee and the applicability of section 9(1)(vii) of the Act. He concluded that the payments were for services utilized in the business carried outside India and fell under the exclusion clause u/s 9(1)(vii)(b). Referring to a tribunal case, he held that TDS deduction was not required for such payments. Consequently, the CIT(A) deleted the disallowance made by the Assessing Officer.

3. Revenue's Appeal: The Revenue challenged the CIT(A)'s decision, arguing that the payments should have been subject to TDS deduction as the services were related to Nigerian projects of the assessee, whose head office was in India. The Revenue also cited the Finance Act, 2010, to support its claim that such payments were taxable in India regardless of the place of service. However, the Tribunal noted that the Finance Act's retrospective explanation did not apply to the assessment year in question and upheld the CIT(A)'s decision.

4. Tribunal's Decision: After considering both parties' arguments and relevant case laws, the Tribunal focused on whether TDS deduction was required for the payments made by the assessee for services in Qatar related to Nigerian projects. Emphasizing that the source of income was outside India and the payments were for services utilized abroad, the Tribunal agreed with the CIT(A)'s interpretation of the exclusion clause u/s 9(1)(vii). The Tribunal dismissed the Revenue's appeal, stating that the retrospective explanation of the Finance Act, 2010, did not apply to the assessment year under consideration, and the payments were not subject to TDS deduction.

In conclusion, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal, emphasizing that the payments made by the assessee for services utilized outside India did not attract TDS deduction under section 40(a)(i) of the Income-tax Act, 1961 for the assessment year 2003-04.