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TMI Blog2008 (9) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the second fold of submission is concerned since an Explanation has been appended with cl. (vii) of s. 9(1) of the Act, this Explanation is applicable with retrospective effect. According to this Explanation, if services have been used by the assessee within India, then it is immaterial whether the non-resident has a residence or place of business or business connection in India, if the services are used in India and payment made to non-resident then that sum would be included in the income, which will be deemed to have accrued to the non-resident, therefore, there is no merit in this fold of submission also. We find that the provisions of s.195(2) are not provisions of convenience which the assessee may use or may not use. If a person wants to make payments to a non-resident and those payments are not explicitly declared exempt by the provisions of the IT Act, the person making the payments has to deduct tax at source and he can free himself of the liability to deduct tax source only if he gets the concurrence of the AO under sub-s. (2) of s.195. If the person making the payments has not fulfilled his obligations under the provisions of sub-s. (1), (2) or (3) of s. 195, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Dr. Hutarew Partner, Germany. He treated this payment also as fee for technical services under Section 9(1)(vi) of the Act. Since assessee failed to deduct the TDS while making the payment, he applied Section 40(a)(i) of the Act and disallowed the claim of the assessee. 5. Appeal to the learned Commissioner (Appeals) did not bring any relief to the assessee. 6. Before us, the learned Counsel for the assessee submitted that on license fees assessee has been deducting the TDS. With regard to the fees for data processing, he raised two-fold submissions; firstly he contended that it is not the payment for any technical services which can be brought within the ambit of Section 9(1)(vii) of the Act. There is no transfer of any technology to the assessee. For buttressing his contention, he took us through the agreement between the assessee and Dr. Hutarew Partner, Germany. In order to appraise us the exact nature of service, he drew our attention towards the flow chart available at page 4 of the paper book which reads as under: Start I Input Design Data prepared by DHPI Data pertaining to technical problem sent via e-mail, fax or courier etc. to the German Office (DHP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simple information as contended by the learned Counsel of the assessee. Apart from the above, learned Departmental Representative has contended that according to Section 195 of the Act whenever any sum was paid to a non-resident then TDS has to be deducted. He relied upon the decision of Hon'ble Supreme Court rendered in the case of Transmission Corporation of AP Ltd. v. CIT (1999) 239 ITR 587. He also relied upon the order of the ITAT in Cheminor Drugs Ltd. v. ITO (2001) 76 ITD 37 (Hyd.). Learned Departmental Representative further pointed out that in the next year, assessee itself has started deducting the TDS on the data processing charges. 9. We have duly considered the rival contentions and gone through the records carefully. Section 9(1)(vii) of the Act Explanation (2) with Sub-clause (vii) and the Explanation added by Finance Act, 2007 with retrospective effect from 1-6-1976 have a direct bearing on the controversy in hands, thus, it is imperative upon us to take note of these Explanation and Clauses : Section 9: The following incomes shall be deemed to accrue or arise in India: (vii) income by way of fees for technical services payable by? (a) the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the assessee. The contention of the learned Counsel for the assessee is that payment made by the assessee does not fall within the meaning of expression fees for technical services. He heavily relied upon the decision of Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra). In this decision the facts are that assessee has established the necessary infrastructure for the mobile communication network consisting of mobile switching centre which is an electronic exchange where switching communication and call routing take place. The customer who subscribes to the network pays for the air time used by him or her. The payment so made by the customer, according to the revenue, constitutes a fees paid by the customers for technical services attracting Section 194-J of the Act which, inter alia, requires persons not being individuals or HUFs who are responsible for paying to a resident any sum by way of technical services, to deduct an amount equal to 5 per cent of such sum as income-tax on income comprised therein, if the aggregate of the amount so paid exceeds Rs. 20,000 in any financial year. 11. In that background, Hon'ble High Court has examined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Madras High Court is not applicable on the facts of the present case. Similarly, the facts in the case of Parasrampuria Synthetics Ltd. (supra) relied upon by the assessee with the present case are quite distinguishable. In that case, assessee had made the payment to a contractor in respect of inspection and maintenance support agreement. The ITAT recorded a finding that no technical knowledge were made available to the assessee. The assessee had only used technical knowledge of the contractee and, therefore, payment made was not for fees for technical services. In the present case, assessee has obtained information which has been used for finalizing its design or removing the defects in its power project's design. The information supplied to the assessee is a technical information which has been used in further generating the product of the assessee. As far as the second fold of submission is concerned, since an Explanation has been appended with Clause (vii) of Section 9(1) of the Act. This Explanation is applicable with retrospective effect. According to this explanation, if services have been used by the assessee within India, then it is immaterial whether the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -contractors and the payment of insurance commission. It is true that in some cases, a trading receipt may contain a fraction of the sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain a large sum so taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose of Sub-section (1) of Section 195 is to see that the sum which is chargeable under Section 4 of the Act for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax, the rights of the parties are not, in any manner, adversely affected. Further, the rights of the payee or recipient are fully safeguarded under Sections 195(2), 195(3) and 197.The only thing which is required to be done by them is to file an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, he can made an application to the assessing officer to determine the issue and decide whether tax is to be deducted at source or not and if it is to be deducted, to what extent. The facility of consulting the assessing officer is available not only to the payer but also to the recipient non-resident who can request for the issue of a certificate under the provisions of Section 195(3). Deduction of tax at source is excluded from such payments to a non-resident, in the statute itself, like interest on securities or salary income. In all other cases, the person making the payment has a duty to deduct tax at source. For the purpose of deciding whether any payment is in the nature of income chargeable or not, law provides an opportunity to the payer to approach the assessing officer under Sub-section (2) of Section 195. The consultation provided under Sub-section (2) of Section 195 is, therefore, to be mandatorily followed by the person making the payment to the non-resident; he is otherwise liable to deduct tax at source under the provisions of Sub-section (1). It is thus clear that the person making the payments to a non-resident cannot take a unilateral decision that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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