A very popular company called Procter & Gamble Distribution Company Limited went for an appeal before Mumbai ITAT where the bench allowed their appeal and said that the amendment to the provisions of section 40(a)(i) of the Income Tax Act, 1961 cannot be invoked retrospectively.
The said company, engaged in the business of marketing and selling of toilet soaps file its return of income declaring total income at Rs.1.28 crores. The Assessing Officer after completing the assessment u/s 143(3) of the Act concluded with income of 29.38 crores.
Assessee challenged the same before First Appellate Authority and made a claim about rendering of services by the foreign entity outside India called Asian Today Ltd. Hong Kong that provisions of section 195 were applicable, that the assessee was not obliged to deduct at source for the payments made to the Hong Kong Company, that the AO was not justified in invoking the provisions of section 40(a)(i) of the Act.
After hearing submissions of assessee, the lower authority held that the said claim of Assessee was invalid since the Act was amended with a retrospective effect for rendering of services was no more a decisive factor for application of section 9 r.w.s.195 of the Act, also added that everything took place here in India and taxable one too. Accordingly Appellate authority upheld the action of AO. Being aggrieved Assessee carried the matter to this tribunal.
Haresh G. Buch, the advocate for Assessee contended that the order of AO was invalid since the Tribunal had passed order in the name of PGDCL, instead of giving effect to the said order the AO made the assessment in the case of PGPHL.
The Assessee also brought to the notice of various case laws and submitted that the matter under dispute to the concerned year was not matching with the year under which service has rendered on the ground that amended provisions of section 9 and resultant violation of section 40(a) (ia)of the Act was not applicable to such services offered to outside India.
The bench after having both the parties contentions, found that before adjudicating the second appeal name of the assessee had changed as per the orders of the High Court which had specifically mentioned by tribunal in the order that the name of PGHPL was replaced by new name called PGDCL.
Regarding the retrospective applicability the bench noted that in the year under appeal how the assessee could have deducted tax at source when there was no provision in the statute.
Finally bench observed that “bench is unable to understand the logic of the FAA that he knew that explanation was retrospective and that he had to act as per law. As he was aware that the amendment to section was not part of the Act at the time of making the payment to the foreign entities, he should not have endorsed the action of the AO”
Accordingly, the Tribunal comprising Ramlal Negi, Judicial Member & Rajendra, Accountant Member decided that said provision is not applicable since it has retrospective effect.
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