No Income Tax payable on fee for Technical Services not rendered in India: ITAT [Read Order]

Income Tax - fee for Technical Services - ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that no Income Tax payable on a fee for Technical Services not rendered in India.

The case of the assessee, McCANN Erickson (India) Pvt. Ltd. was reopened for assessment and the assessment was framed u/s 147 of the Income Tax Act, 1961 While framing the assessment, the Assessing Officer did not accept the explanation offered by the assessee regarding non-applicability of provision for deduction of tax, therefore, he proceeded to make the addition of Rs.57,38,948/- on account of non-deduction of tax in respect of Global Account Coordination cost.

The assessee preferred appeal before CIT(A) who after considering the submissions and perused material available on record, dismissed the appeal of the assessee.

The assessee reiterated the submissions made in the appellate proceedings. He contended the appeal as against the order of the Assessing Officer who made disallowance by invoking the provision of 40(a)(i) of the Act on account of the treatment of Global Account Coordination Cost of Rs.57,38,948/- as per provisions of section 195 read with explanation 2 of section 9(1)(vii)(b) of the Act. He contended that so far as the provision of section 9(1)(viii) and relevant Articles of DTAA is concerned, no tax should be deducted under section 195 of the Act hence, no disallowance can be made under section 40(a)(i) of the Act. He further submitted that CIT(A) failed to consider that retrospective amendment in law cannot charge the tax withholding liability with retrospective effect unless such services were rendered in India.

The Coram of Accountant Member, Dr. B.R.R.Kumar and Judicial Member Kul Bharat relied on the case of Ashapura Minichem Ltd. vs ADIT wherein it was held that 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 the clairvoyance of knowing how the law will change in the 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 at that point of time.

The ITAT held that the Assessing Officer was not justified in fastening the liability of tax deduction by relying on the amendment which was inserted in the year 2010 with retrospective effect from 01.04.1976. The Assessment Year in question is 2008-09, therefore, provision of section 40(a)(i) of the Act ought not to have been invoked in the case of the assessee. Therefore, directed the Assessing Officer to delete the addition.

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