Brief of the case:
ITAT Kolkata held in the case of DCIT Vs Shri Subhotosh Majumder that the amended law of the deduction of tax at source of services which were to be utilized in India would be taxable in India would not have retrospective effect on the tax liability of withholding taxes. The tax deductor was not expected to know how the law would change in future. A retrospective amendment in law would change the tax liability in respect of an income, with retrospective effect, but it could not change the tax withholding liability, with retrospective effect. ITAT relied on the decision given by Hon’ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd Vs DIT (288 ITR 408) in which it was held that in order to bring a fees for technical services to taxability in India, not only that such services should be utilized in India but these services should also be rendered in India.
As the above case was related to the F.Y before the amendment so the retrospective amendment of only utilization in India would not be applicable in the above case.
Facts of the case:
Assessee was a patent law practitioner as an advocate specialized in Intellectual Property Laws (IPR) and renders services only in IPR services. The main claim of the assessee was that the services of assessee were utilized by its clients in India and its clients include multinationals, major corporate etc. The assessee also facilitates the filing of Patents in foreign countries for its clients and for the purpose interfaces the patent filing and granting process and deals and communicates with the foreign lawyers and law firms chosen by its clients. The assessee used to render the fees of the non-resident expert through him as the client of the assessee gave the money to the assessee and assessee in turn render to the non-resident expert.
Contention of the assessee:
The assessee was of the view that where clients of assessee express interest in protecting their IPR in foreign territories, assessee acts as a facilitator and entrusts the work to a foreign attorney in respective
jurisdictions who renders services to the clients of assessee and acts in their respective countries on behalf of the clients of assessee. All communications were routed through assessee and assessee facilitates the process and charges a nominal fee. The fees of the foreign attorneys are remitted by assessee upon receipt of payments/instructions from its clients and such amounts including the fees of assessee for the facilitation are borne by the clients. The job of assessee is to act as an interface between the client and foreign law firms and does not make any utilization of the services but acts merely as a facilitator. The assessee had not utilized the services at all and had only merely acted as a
liaising entity for a small amount of fees compared to the fees charged by the foreign attorney.
So, as the assessee had not utilized the services but only acted as facilitator so, TDS should not be applicable in the assessee case.
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. So, as the payment had been made before the law gets amended, the amendment could not be applied in the above case.
Contention of the revenue:
The revenue was of the view that assessee was deriving professional fee for rendering services in India to Indian principals and for effective rendering of services in India. The assessee has availed professional services of expert who were nonresidents.He had also arrived at the finding that though services were performed outside India they were for the benefit of the assessee’s profession, which was carried out in India and therefore payments made to non-residents resulted in accrual of income in India within the meaning of section 9(1)(vii)(b) of the Act and therefore assessee had obligation to deduct TDS u/s. 195 of the Act. According to AO, failure to do so had attracted provisions of section 40(a)(i) of the Act.
Moreover, Under the amended Explanation to s. 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and should be included in his total income, whether or not (a) the nonresident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India.
Held by ITAT:
ITAT was of the view that the law amended was undoubtedly retrospective in nature but so far as tax withholding liability was 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 was not expected to know how the law will change in future. A retrospective amendment in law did not change the tax liability in respect of an income, with retrospective effect, but it could not change the tax withholding liability. The tax withholding obligations from payments to non-residents, as set out in Section 195 of the Act, require that the person making the payment “at the time of credit of such income to the account 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 were to be charged at the point of time when payment was made or credited, whichever was earlier, such obligations could only be discharged in the light of the law as it stands that point of time.
So the assessee was could not be held faulted for non-deduction of TDS. So, the deletion of CIT(A) was allowed.
Appeal of the revenue was dismissed.