TaxTMI 
TaxTMI 
2018 (12) TMI 1146
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....nal has erred in law and on facts in deleting the disallowance made under Section 40 [a](i) of the Act ?" [B] "Whether the Appellate Tribunal has erred in law and on facts in not holding that the said payment received by PHP, Philippines was deemed to be income of PHP Philippines in terms of Section 9[1](vii) read with Section 5 [2] of the Income Tax Act as it was not saved by the exclusion clause of the said sub-section ?" The respondent assessee is a company engaged in software development. It provides software related services to its overseas clients. During the course of scrutiny assessment for AY 20092010, the Assessing Officer raised question of non deduction of tax at source, while making payment of a sum of Rs. 5.51 Cror....
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....d outside India. Revenue carried the matter in appeal. The Tribunal reiterated the factual findings and legal conclusion of the Commissioner. While rejecting the Revenue's appeal, the Tribunal further observed as under : "7. We further observe that revenue has not disputed the fact that the payee M/s. PHC, Philippines do not have any permanent establishment in India and further the services were provided outside to the overseas clients of the assessee in order to perform the services of providing human resources and infrastructure services. Further, under the provisions of Section 9 [1] (vii) (b) of th Act, an exception is provided, wherein, if the fees for technical services are paid in respect of services utilized outside Indi....
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....ing payments for such services, deduction of tax at source was necessary. In the case of G.E India Technology Center P. Limited vs. Commissioner of Income Tax & Anr., reported in [2010] 327 ITR 456 (SC), the ratio laid down by the Supreme Court was that mere remittance of money to a non resident would not give rise to the requirement of deducting tax at source, unless such remittance contains wholly or partly taxable income. It is true that after such judgment was rendered, the legislature had amended Section 195 of the Act by inserting Explanation II by the Finance Act, 2012, but with retrospective effect from 1st April 1962. Such explanation provides that for removal of doubts, it is clarified that the obligation to comply with sub-sec....
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....ffect from 1st April 1962. Such explanation reads as under : Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has - [i] a residence or place of business or business connection in India; or [ii] any other presence in any manner whatsoever in India. It is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with sub-section [1] of Section 195 would extend to any perso....
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.... or arise in India. [1] xx xx xx (a) xx xx xx (b) xx xx xx (i) to (vi) xx xx xx (vii) income by way of fees for technical services payable by (a) the Government; or (b) a person who is resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or .. .. " As per clause (b) thus, the income by way of fees for technical services payable by a person who is a resident would be deemed to accrue or arise in India. However, this clause contains two explanations namely where the fees are payable in respect of services u....