DCIT Vs Amol Dicalite Ltd. (ITAT Ahmedabad)
It is clear that till 8th May 2010, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9 (1)(vii). The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195, require that the person making the payment “at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force”. When these obligations are to be discharged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. Section 40(a)(i) provides that, inter alia, notwithstanding anything to the contrary in sections 30 to 38, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head ‘profits and gains of business or profession’ “on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted”. The disallowance under section 40(a)(i) is not for the payments made to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has not been deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessee’s failure to deduct tax at source from such payments.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeals have been filed at the instance of the Revenue against the two separate order of the Commissioner of Income Tax (Appeals) dated 12/02/2016 & 22/12/2017 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) dt.15/03/2013 & 28/03/2016 relevant to Assessment Years 2008-2009 & 2010-11 respectively.
2 First, we take ITA bearing No. 539/Ahd/2018 for A.Y. 2008-09.
Revenue has raised following ground of appeal:
“1.That the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.1,22,19,321/- made under section 40(a)(i) of the Act on account of payment to non-residents without deduction of tax at source.”
2.1 The issue in the appeal relates to non-deduction of tax at source on the payment to non-residents amounting to Rs. 1,26,63,364/- which was disallowed u/s 40(a)(i) of the Act.
3. It is the second round of appeal. ITAT in the first round of appeal in ITA No. 3103/AHD/2011 remitted the issue to the file of AO to decide afresh vide order dated 17/10/2014 as assessee filed additional evidence in the form of a note on duties of consultant and plant superintendent, a copy of consultancy agreement, etc. which were not placed before the lower authorities.
4. Subsequently, the AO issued the notice and accordingly the assessee in response to the notice of AO files the party wise breakup of expenses as detailed under:
