TaxTMI 
TaxTMI 
2019 (5) TMI 458
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....thout deduction of tax at source.'' 2.1 The issue in the appeal relates to non-deduction of tax at source on the payment to non-residents amounting to Rs. 1,26,63,364/- which was disallowed u/s 40(a)(i) of the Act. 3. It is the second round of appeal. ITAT in the first round of appeal in ITA No. 3103/AHD/2011 remitted the issue to the file of AO to decide afresh vide order dated 17/10/2014 as assessee filed additional evidence in the form of a note on duties of consultant and plant superintendent, a copy of consultancy agreement, etc. which were not placed before the lower authorities. 4. Subsequently, the AO issued the notice and accordingly the assessee in response to the notice of AO files the party wise breakup of expenses as detailed under: A Fees for Technical Services to Anderson Kill & Click Paid of Rs. 1,78,922 B Consulting charges paid to Mr.W.H. Waugh (USA) Rs. 51,24,214 Consulting charges paid to Mr.Luis Spelzinl Rs. 3,73,060 Re-imbursement exps. Paid to Mr. Luis Spelzini Rs. 70,983 Total Rs. 55,68,257 C Foreign Technician Supervision charges paid to Mr. Kenneth Harmston (UK) Rs. 3....
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....(134 ITD 312). 8. In respect of balance payment made towards consultancy & retainership fees paid, the assessee contended that these were paid outside India to Nonresidents for the services rendered outside India. Therefore, the same is not chargeable to tax in India under section 4, 5 and 9 of the Act. Accordingly, there is no question of deducting the tax at source u/s 195 of the Act. The assessee in support of its contention relied on Apex court in case of GE India technology Cen. P. Ltd. Vs. CIT (193 Taxmann 234). 9 Without prejudice, the assessee also contended that the fees for technical services in India are taxable in India only when these services are utilized in India and also rendered in India as held by the Hon'ble Apex Court in the case of Ishikawajma Harima heavy industries Ltd (288 ITR 408). The assessee also contended that the same decision was followed by the Bombay high court in case of Clifford Chance (318 ITR 237). 9.1 The assessee also relied on the decision of ITAT Agra in case of Virola international (147 ITD 419) wherein it was held that the position for the fees of technical services cannot be taxed in India unless it is rendered in India, has been....
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....n Kill & Click for imparting his technical knowledge and skill at our project site carried out at abroad and likewise, consultation charges were paid to W.H.Waugh and supervision charges were paid to Kenneth Harmston and Hunt Waugh Jr. for imparting their services and knowledge at our project site carried out at abroad and these facts have not been disputed by the then AO. Thus, such technical services rendered by these persons are similar like services rendered by persons who were paid fees in regard to issuance of GDR in cases of 1] Raymond Ltd. and 2] Mahindra and Mahindra Ltd. [Supra] and such services were performed at the abroad project site by Payees and nothing was made available by way of such service related technology being transferred in India to our company. Such fact can be verified from the duties of Consultants and Plant Superintendent submitted hereinabove under para -1 being the requirement met with para-4 of your present notice.'' 9.5 The assessee also relied on several case laws and contended that these services could be held taxable only when services fall under the category of "make available, and the recipient was enabled to apply the technology," but in t....
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....bserved that it is mentioned in the agreements that in case of the retainership in India the rate will be GBP 14.19 per hour. Further, in these agreements, the provisions of reimbursement are also mentioned. Therefore, the services have been rendered in India and the amount has been shown in the accounts. 10.5 The AO also countered the case laws relied upon by the assessee and differentiated them with the present facts of the case as detailed under: 1. In the case of G. E. India technology (supra) issue related to taxability was Royalty whereas in instant case it is related to "fees for technical services." 2. In the case of Ishikawajma Harima Heavy Industries Ltd (supra) assessee has relied only on the catch note without going into the details of judgment. In this case, the Hon'ble Apex court held that section 9(1)(vii) read with the memo, cannot be given a wide meaning to held that amendment was only to include the income of nonresident taxpayers received by them outside India for services rendered outside India. In the instant case, the services of consultants were utilized in India, and the "live- link" was established which is very much evident from the co....
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....working on the plants to be installed at the client's job work sites, and they were working on behalf of the assessee on the plants of the appellants. Therefore, the facts of the case are totally different from the case of Mahindra & Mahindra Ltd (supra). In the view of above, AO finally held that appellant is clearly covered in sub-clause (c) of clause 4 of article 13 of UK DTAA and article 2 of USA DTAA. Accordingly, the AO disallowed the expenses as discussed above due to non-deduction of TDS under section 40(a)(i) of the Act and added to the total income of the assessee. 11. Aggrieved assessee preferred an appeal to ld. CIT-A wherein it submitted as under: 1. There are two types of agreement, i.e., retainer ship agreement & consultancy agreement. The retainer ship agreement was entered with Mr. Kenneth Harmstone (UK) and Mr. W. hunt Waugh Jr. (USA) both on 01.04.2007. The consultancy agreement was entered with Mr. Whitney Waugh (USA) and with Mr. Luis Spelzini (Argentina) on 01.04.2007. 2. Even if agreement is almost the same but in the case of Mr. Luis Spelzini (Argentina) services were provided in India as evident from invoices issued by him and in cas....
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....der of his predecessor pertaining to the AY 2012-13 as detailed under: Mr. W.H. Waugh (USA) Rs. 51,24,214/- No evidence placed on record by AO that Mr. W.H. Waugh has ever visited India to render services. It is also not the case that Mr. W.H. Waugh had a fixed base which was made available by the appellant. Accordingly, no question of attributing the income to the fixed base arise. Further, stay of Mr. W.H. Waugh does not exceed 90 days in India, therefore, as per Article 15 of DTAA income for rendering professional services would be taxable in the country in which the person is resident. CIT-A also relied on the judgment of GE India (193 taxman 234) Mr. Hunt Waugh Jr.(USA) Rs. 37,33,847/- As per the note, Mr. Hunt Waugh Jr. was present in India for 63 days. However, the stay of Mr. Hunt does not exceed 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. Mr. Kenneth Harmston (UK) Rs. 31,58,605/- Similarly, Mr. Kenneth Harmston was in India for 73 days which is less than 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. 12.1 Similarly th....
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....of making payment or credit towards remittances. It is thus the contention on behalf of the assessee that retrospective amendment in law may possibly change the course of tax liability in respect of any income with retrospective effect but, nonetheless, it cannot fasten withholding tax liability with retrospective effect after the expiry of event. The Ld.Senior Counsel relied upon the decision of the Coordinate Bench in DCIT vs. Virola International (2014) 42 taxmann.com 286 (Agra-Trib.) and Ashok Piramal Management Corporation Ltd. vs. ACIT (2016) 74 taxmann.com 111 (Mumbai-Trib.) to buttress this aforesaid proposition. The Ld.Senior Counsel contended that the assessee cannot be expected to implement a retrospective amendment carried out at a later point of time after the event of payment/credit in favour of the non-resident. The Ld.Senior Counsel also contended on merits with reference to various clauses of DTAA to demonstrate that the payee non-residents are not chargeable to tax in India under the provisions of DTAA and therefore obligation to deduct TDS under s.195 of the Act does not arise. 13. The Ld.DR relied upon the order of the AO to fasten the obligation under ....
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....ase of Clifford Chance v. Dy. CIT [2009] 318 ITR 237/176 Taxman 458, observed as follows: "The apex Court had occasion to consider the above question in the case of Ishikawajma-Harima Heavy Industries Ltd. v. Director of IT [2007] 288 ITR 408 (SC), wherein, while interpreting the provisions of s. 9(1)(vii)(c) of the Act, the Supreme Court held as under (p. 444): 'Sec. 9(1)(vii)(c) of the Act states that 'a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India, or for the purposes of making or earning any income from any source of India'.' Reading the provision in its plain sense, as per the apex Court it requires two conditions to be met-the services which are the source of the income that is sought to be taxed, has to be rendered in India, as well as utilized in India, to be taxable in India. Both the above conditions have to be satisfied simultaneously. Thus for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be part of a business or profession carried on by such person in India....
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....ble in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India'. It is thus, evident that s. 9(1)(vii)(c), read in its plain, envisages the fulfilment of two conditions : services, which are source of income sought to be taxed in India must be (i) utilized in India, and (ii) rendered in India. In the present case, both these conditions have not been satisfied simultaneously." 7. The law laid down by Hon'ble Supreme Court, in the case of Ishikawajma- Harima Heavy Industries Ltd. (supra) , binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as 'fees for technical services' under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on 8th May 2010. Explaining the scope of this amendment, a coordinate bench of this Tribunal, in the case of Ashapura Minichem Ltd. v. Asstt. DIT [2010] 40 SOT 220 (Mum.), has explained thus: "......(this legal position)doe....
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....thstanding anything to the contrary in sections 30 to 38, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' "on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted". The disallowance under section 40(a)(i) is not for the payments made to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has not been deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services ....
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....ayment under consideration. The Non-resident payees were not alleged to have a redence or place of business or business connection in India either. On the contrary, we find that two of the three consultants; namely, Mr.Kenneth Harmston and Mr.W.H.Waugh did not visit India at all during the financial year 2007-08 relevant to AY 2008-09. Another consultant Mr.W.Hunt Waugh Jr. visited India for barely nine days during the relevant financial year. On these facts, it is clearly a case where such services stands excluded from the purview of preamended S.9(1)(vi)/(viii) of the Act. Prior to the amendment, it was well settled that services provided offshore or outside India could not be taxed in India. The amendment to Explanation-9(2) brought in by Finance Act, 2010 has sought to amend this position whereby only requirement for taxing such income shall be the utilization of services in India and not place of rendering services. Thus, at the time of occurance of event of obligation to apply providing S.195, the preamended provisions towards chargeability of income was in place, where income from services outside India were outside tax net. 14.4. Hence, for the parity of reasons no....
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.... in deleting the addition made by the AO for Rs.85,75,341.00 on account of additional depreciation under section 32(iia) of the Act. 20. AO during the assessment proceedings noted that assessee had purchased plant & machinery of Rs. 8,57,53,410/- on which additional depreciation of Rs. 85,75,341/- (less than 180 days) has been claimed. The AO also noted that assessee during the year has leased the plant & machinery and declared rental income of Rs. 3,91,68,000/-. Thus AO was of the view that since assessee is engaged in the business of leasing; therefore, additional depreciation is not available to the assessee. Accordingly, the AO issued show cause notice to the assessee. 21. In response to the notice, the assessee submitted that it has rightly claimed additional depreciation at the rate of 10% since it was used for less than 180 days. As per the provision of section 32(iia) of Act assessee is required to be engaged in the business of manufacture or production of any article or thing and it is not necessary whether new machinery is used for the business of manufacture or production. 22. Further, it is also important to note that assessee is engaged in manufacture or produ....
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....n'ble Gujarat High Court in the case of Diamines & Chemicals Ltd (supra) wherein it was held as under: "At the outset, it is required to be noted that the assessee claimed the deduction under Section 32(1)(iia) of the Income-tax Act with respect to the cost incurred by it for installation of the Wind Electric Generator. The Assessing Officer disallowed the same and made the addition of Rs. 1,17,98,030/- by observing that as the assessee is not in the business of generation and distribution of power, the assessee shall not be entitled to deduction under Section 32(1)(iia) of the Income-tax Act of Rs. 1,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant sho....