9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (7) TMI 953 - AT - Income TaxTDS u/s 195 - Payment of Euro towards purchase of Basic Engineering Design Package - withholding tax as being a payment for technical services - Held that - The position of law as it stood then including the taxing of the income under section 9(1)(vii) was that if the services which are source of income is sought to be taxed have to be rendered in India as well has to be utilized in India so as to be held to be taxable in India. Both the conditions have to be satisfied simultaneously that is the services which are source of income should be utilized in India and services should have been rendered in India. However if the second limb is not satisfied that is services have been rendered outside India then same was held to be outside the purview of taxability in India. The Ld. CIT(A) has also admitted to this position however he held that the Explanation to section 9(1)(vii) inserted by the Finance Act 2010 with retrospective effect from 01.06.1976 was brought specifically to overcome the said decisions of Hon ble Supreme Court as well as the other Courts. Once this is an admitted position then it is very difficult to comprehend that assessee should have deducted TDS on such payment when law of the land did not permit so or envisage any withholding of tax on the basis of law which was brought from subsequent date albeit with retrospective date stating that now all such payment for services even rendered outside India is taxable in India. Here the maxim of lex non cogit ad impossibilia is fully applicable that is the law does not possibly compel a person to do something which is impossible that is when there was no provision for taxing an amount in India at the relevant time then how it can be expected that a tax should be deducted on such a payment. Here in this case the decision of Hon ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd vs. DIT (2007 (1) TMI 91 - SUPREME COURT ) was rendered on 4th January 2007; agreement was entered by the assessee with SP Italy on 26th April; 2007; application was made before the AO on 23rd August 2007 for the payment to be made in September 2007; therefore assessee had a valid reason and reasonable ground for not with holding the tax at that time because as observed above there was no such provision or any explanation in the statute. Thus we hold that assessee was not liable to deduct TDS under section 195 at the time of making the payment. - Decided in favour of assessee
ISSUES PRESENTED and CONSIDERED
The primary issue considered by the Tribunal was whether the payment of EUR490,000 made by the assessee to SnamProgetti, SpA Italy for the Basic Engineering Design Package (BEDP) was subject to withholding tax under section 195 of the Income Tax Act, as it was considered a payment for "fee for technical services" (FTS) under section 9(1)(vii). ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework involved sections 9(1)(vii) and 115A of the Income Tax Act, which pertain to the taxation of fees for technical services. The case also involved the interpretation of the retrospective amendment to section 9(1)(vii) introduced by the Finance Act, 2010, which clarified that FTS is taxable in India if the services are utilized in India, irrespective of where they are rendered. The Tribunal considered the precedent set by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd. vs. DIT, which held that for FTS to be taxable in India, services must be rendered and utilized in India. Court's Interpretation and Reasoning The Tribunal examined whether the payment for BEDP constituted FTS and whether the assessee was required to deduct tax at source under section 195. The Tribunal noted that the payment was for services rendered entirely outside India by SP Italy, as per the agreement. The Tribunal also considered the retrospective amendment to section 9(1)(vii) and its impact on the requirement to deduct tax at source. Key Evidence and Findings The Tribunal found that the BEDP was developed by SP Italy in Italy, and the payment was made for acquiring technical know-how, not for rendering services in India. The Tribunal noted that the assessee had relied on the prevailing legal interpretation at the time of payment, which was supported by the Supreme Court's decision in Ishikawajma Harima Heavy Industries Ltd., indicating that services rendered outside India were not taxable in India. Application of Law to Facts The Tribunal applied the law as it stood at the time of payment, considering the Supreme Court's decision and the absence of the retrospective amendment at that time. The Tribunal concluded that the assessee could not have been expected to deduct tax on the payment made for services rendered outside India, as the law did not require it at that time. Treatment of Competing Arguments The Tribunal considered the arguments from the Department, which relied on the retrospective amendment and the view that such payments were always taxable in India. However, the Tribunal emphasized the principle that the law does not compel a person to do something impossible, such as deducting tax based on a future retrospective amendment. Conclusions The Tribunal concluded that the assessee was not liable to deduct TDS on the payment made to SP Italy for the BEDP, as the services were rendered outside India, and the prevailing legal interpretation at the time did not require such deduction. SIGNIFICANT HOLDINGS The Tribunal held that the assessee was not liable to deduct TDS on the payment of EUR490,000 made to SP Italy for the BEDP in 2007. The Tribunal emphasized that the retrospective amendment to section 9(1)(vii) could not impose a requirement to deduct tax that was not present at the time of payment. The Tribunal relied on the principle of lex non cogit ad impossibilia, stating that the law does not compel a person to do something impossible. The Tribunal's decision was based on the understanding that the law at the time of payment, as interpreted by the Supreme Court, did not require TDS for services rendered outside India. The Tribunal allowed the appeal of the assessee, setting aside the decision of the CIT(A) and the AO.
|
