In a major relief to the ETH Ltd, the Calcutta High Court deleted the disallowance on account of professional and consultancy charges to non residents.
The revenue has contended that the Tribunal erred in law in deleting the disallowance of Rs.1,30,77,646/- under Section 40(a)(i) on account of professional and consultancy charges to non residents by ignoring the fact that such fees are subject to tax in India under Section 9(1) read with Section 195 of the act.
The Division Bench in its judgement dated 23rd July, 2018 found that the Tribunal held the addition to be erroneous and has considered in detail the nature and expenses in respect of which the assessee was sought to be penalized for not deducting the tax deducted at sources, holding that these expenses were in respect of the income accrued outside the territory for services rendered.
The division bench of Justice T.S.Sivagnanam and Justice Hiranmaya Bhattacharya while rejecting the application held that the “person” mentioned in Section 195 of the Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by Explanation 4 to Section 9(1)(vi) of the Act for the assessment years in question, at a time when such Explanation was not actually and factually in the statute.
“The Tribunal rightly held the amendment to Section 194J was with effect from 1st July, 2012 and the assessment year under consideration being 2008-09, the same cannot be made applicable,” the Court said.
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