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TMI Blog2014 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... see in respect of phase one and two outside India, then same cannot become chargeable to tax in hands of foreign company in India - Unless amount paid by assessee company to foreign company does not become chargeable to tax in India then question of applicability of section 195 does not arise - No liability of assessee to deduct tax at source on payment made by it with respect to work relating to phase one and two - Amount in question paid by assessee to SSA was not taxable in India in hands of SSA either u/s.9(l)(vi) or 9(1)(vii) - Assessee therefore was not liable to deduct tax at source from said amount paid to M/s. SSA and there was no question of disallowing amount by invoking provisions of sec.40(a)(i) - Delete disallowance made by AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... London on 6/10/2005 to carry out work of designing etc. in three phases. The assessee did not deduct tax with regard to two phases on the ground that the technical designs and drawings which were prepared in London were to be transported to India under both theses phases. Under phase one the project Orange was to prepare project time schedule, scales, design report and other documents which were to be prepared in London. In phase two the technical design and drawings so prepared were to be transported to India and these were imported to India under Customs Regulations. According to assessee the payment made by it under phase one and two were not chargeable under Income Tax Act, 1961 (the Act) as the same do not constitute income in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the case of the assessee that the technical design and drawings were prepared in London and no part of work pertaining to phase one and two were carried out in India, therefore, the entire work pertaining to phase one and two have been carried out side India and accordingly the payment made in relation to the same is neither an income within the meaning of section 9(1)(vii) nor the same is an income within the meaning of Article-12 of India U.K. Treaty, therefore, assessee was not liable for deduction of tax at source . He submitted that according to the decision of Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries v. DIT(IT)[2007] 288 ITR 408, the amount receivable by the foreign company in respect of off shore s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these payments was a composite agreement and all the three phases cannot be segregated for determining the liability of the assessee under section 195 of the Act. She submitted that if phase three is considered to be liable for deduction of tax by the assessee, then there is no reason to grant exemption from such liability in respect of payment made by the assessee with regard to phase one and two. Therefore, she submitted that Ld. CIT(A) was right in confirming the action of AO and his order should be upheld and the appeal filed by the assessee should be dismissed. 5. In the re-joinder it was submitted by Ld. AR that the relevant issue which is required to be considered in the present case is that whether or not, in respect of phase one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forementioned decision of the Tribunal in the case of Channel Guide India Ltd. (supra). We may quote para-24 to 26 of the said decisions as under: "24. As already observed, the Ld. DR in support of revenue's contention on the issue under consideration has relied on Explanation 5 to sec.9(l)(vi) which, according to him, clarifies the scope of clause (iva) of Explanation 2 to sec.9(l)(vi) dealing with use or right to use any industrial, commercial or scientific equipment. He has also relied on Explanation 6 to sec.9(1)(vi) which, according to him, clarifies the expression "process" used in clause (i) (ii) & (iii) of Explanation 2 to sec.9(l)(vi). The provisions of both these Explanations 5 & 6 have been inserted in the statute by the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal based its decision on a legal Maxim lex non cogit ad impossiblia meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform and relied on the decision of Hon'ble Supreme Court in the case of Krishna Swamy S. PD v. Union of India [2006] 281 ITR 305 wherein the said legal Maxim was accepted by the Hon'ble apex court. 26. In view of the above discussion, we are of the view that the amount in question paid by the assessee to SSA was not taxable in India in the hands of SSA either uls.9(l)(vi) or 9(1)(vii) as per the legal position prevalent at the relevant time and the assessee therefore was not liable to deduct tax at source from the said amount paid to M/s. SSA and there was no question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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