TaxTMI 
TaxTMI 
2016 (11) TMI 113
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....erein the income of the assessee was determined at Rs. 95,26,058/- in view of the following disallowances/addition:- (i) Disallowance of professional fees under section 37(1)- Rs. 30,80,000/- (ii) Disallowance under section 40(a)(i) - Rs. 26,05,239/- 2.2 Aggrieved by the order of assessment dated 23.12.2011 for A.Y. 2009-10, the assessee preferred an appeal before the CIT (A)-14, Mumbai contesting the aforesaid two disallowances. The learned CIT (A) disposed off the appeal vide the impugned order dated 22.02.2013 allowing the assessee partial relief, i.e. by allowing the assessee's claim for the expenditure incurred of Rs. 30,80,000/- on account of professional fees. The learned CIT (A), however, upheld the disallowance of Rs. 26,05,239/- under section 40(a)(i) of the Act. 3. Aggrieved by the order of the CIT (A)-14, Mumbai, the assessee has preferred this appeal raising the following grounds:- "GROUND 1: DISALLOWANCE OF PROFESSIONAL FEES AMOUNTING TO Rs. 26,05,239/- UNDER SECTION 40(a)(ia) OF THE ACT: 1. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in upholding the action of the Additional Commi....
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....f the Hon'ble Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT 288 ITR 408 which then held the ground. Both the learned A.R of the assessee and the learned D.R. for Revenue submitted that the appeal may be decided on the short point of whether or not the disallowance under section 40(a)(i) of the Act can be made on the basis of Explanation to section 9(2) of the Act introduced by Finance Act, 2010 retrospectively w.e.f. 01.06.1976. In support of the proposition that the disallowance under section 40(a)(i) of the Act cannot be made on the basis of retrospective amendment by way of Explanation to Section 9(2) of the Act, the learned A.R of the assessee placed reliance on the following judicial pronouncements of various Benches of the Tribunal:- (i) Channel Guide India Ltd. v. Asstt. CIT [2012] 139 ITD 49 (Mum. - Trib.) (ii) Sterling Abraive Ltd. v. Asstt. CIT [2011] 44 SOT 652 (Ahd.) (iii) Infotech Enterprises Ltd. v. Addl. CIT [2014] 63 SOT 23 (Hyd. - Trib.) (iv) Dy. CIT v. Virola International [2014] 147 ITD 519 (Agra - Trib.) (v) Asstt. CIT v. Ajit Ramakant Phatarpekar [2015] 154 ITD 144 (Panaji - Trib.) The learned D.R., though, reli....
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....f ITAT cited by learned A.R. 4.3.2 We may observe, the aforesaid legal issue argued by the learned A.R. was not raised either before the AO or before the CIT (A). However, as per the submissions counsels of both the parties that the appeal can be decided on this limited issue, we proceed to deal with the same. The question for consideration before us is whether or not the disallowance under section 40(a)(i) of the Act can be made based on the effect of the retrospective amendment in Explanation to section 9(2) of the Act which was inserted by Finance Act, 2010 w.e.f. 01.06.1976. In the decision of the Agra Bench of ITAT in Virola International's case (supra) the Bench was of the view that the legal position was that unless the services are rendered in India, the same cannot be brought to tax as 'FTS' under section 9 of the Act, but that this legal position did undergo a change when the Finance Act, 2010 received the assent of the President of India on 08.05.2010. The Tribunal further observed at para 8 thereof that till 08.05.2010, the prevailing legal position was that unless technical services were rendered in India, the fees for such services could not be brought ....
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....he Assessee has paid a sum of Rs. 11,44,950/- to De Long Minerals and Logistics Pte Ltd., Singapore for supervision of the vessel at the discharge port. The payment has been made through DBS Bank Ltd., Singapore. Details of the payments made are given at pg. 133 of the paper book. From these payments, it is apparent that the payment of Rs. 2,58,506/- does not relate to the impugned assessment year. Rest of the payments was made prior to 31.3.2010. The Revenue was of the opinion that due to retrospective amendment made by the Finance Act, 2010 w.e.f. 1.6.1976 the income of the non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of sub-section (1) and shall be included in the total income of the non-resident whether or not the non-resident has residence or place of business or business connection in India or the non-resident has rendered services in India. The destination sample charges are consultant/technical charges paid for gradation of the iron ore exported and due to explanation-2 to Sec. 9(1)(vii) fee for technical services means any consideration including any lump sum consideration for rendering of any managerial, technical or consultan....
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....nnection 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. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 10. The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income earned within its borders. Under this system, any foreign income that is earned outside of its borders is not taxed by the tax jurisdiction, but then apart from tax heavens, the only prominent countries that are 11 ITA NOS. 145 & 146/PNJ/2014 (A.Y 2010-11) considered territorial tax systems are France, Belgium, Hong Kong and the Netherlands, and in those countries also this system comes with certain anti abuse riders. In other major tax systems, the source and residence rules are ....
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....the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as there was no provision under Sec. 9(1), 12 ITA NOS. 145 & 146/PNJ/2014 (A.Y 2010-11) the income received by the non-resident as per the existing law at the time when the Assessee made the payment, in our opinion, was not taxable in India under the Income Tax Act. We are not going through the tax treaty which under Article 12 provides that any fees for technical/consultancy services arising in a contracting state and paid to a resident of other contracting state may be taxed in that other state. This article also provides that such royalty and technical/consultancy fees may also be taxed in the contracting state in which they arise or accrue according to the laws of the state. Prior to the insertion of explanation to Sec. 9(1) by the Finance Act, 2010 with retrospective effect, the professional and consultancy services even though rendered outside India were not deemed to accrue or arise in India irrespective of the fact whether the party who rendered the services is having place of residence or pl....
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....(1)(vi) or 9(1)(vii) as per the legal position prevalent at the relevant time and the assessee therefore was not liable to deduct tax at source from the said amount paid to M/s. SSA and there was no question of disallowing the said amount by invoking the provisions of sec.40(a)(i). In that view of the matter, we delete the disallowance made by the AO u/s.40(a)(i) and confirmed by Ld. CIT (A) and allow ground no. 1 of the assessee's appeal." The ld. DR even though vehemently contended but did not deny that the Finance Act, 2010 got the assent of the President on 8.5.2010 much later than the date when the Assessee had made the payment to these parties. Even the ld. DR could not site any contrary decision. Therefore, we hold that the aforementioned amendment does not create any liability against the Assessee as the legal position prevailing at the relevant time has to be considered when the payment was made by the Assessee to the non-resident party. Accordingly, we hold that the Assessee was not liable for deduction of tax u/s. 195 of the Income Tax Act. Since the Assessee was not liable at that time to deduct the tax, the disallowance u/s. 40(a)(i) cannot be made. We according....