The Income Tax Appeal Tribunal (ITAT), Delhi Bench, ruled that no income tax was payable on charges for technical services not rendered in India.
The case of the person assessed, McCANN Erickson (India) Pvt. Ltd. was reopened for appraisal and the appraisal was drafted under Section 147 of the Income Tax Act of 1961. Therefore it proceeded to add Rs.57,38,948 / – due to the non-deduction of tax with respect to the cost of coordinating the global account.
The assessed person preferred to appeal to CIT (A) who, after reviewing the observations and reviewing the documents available in the file, dismissed the assessed person’s appeal.
The assessed person reiterated the observations made in the appeal proceedings. He challenged the appeal against the order of the appraisal officer which set aside citing provision 40 (a) (i) of the law due to the treatment of the coordination cost of the aggregate account of Rs.57, 38,948 / – provisions of section 195 read together with explanation 2 of section 9 (1) (vii) (b) of the Act. He argued that with respect to the provision of section 9 (1) (viii) and the relevant sections of the DTAA, no tax should be deducted under section 195 of the Act, therefore, no release may be made under section 40 (a) (i) of the Act. He added that CIT (A) had failed to take into account that a retroactive amendment to the law could not apply withholding tax retroactively unless those services were rendered in India.
Accountant Member’s Coram Dr BRRKumar and Judicial Member Kul Bharat relied on the Ashapura Minichem Ltd. case. v ADIT in which it was held that the dominant legal position was that unless the technical services were rendered in India, the fees for such services could not be subject to tax under section 9 ( 1) (vii). The amended law was undoubtedly retroactive in nature, but as to the subject to withholding tax, it depends on the law as it existed at the time the payments, on which the taxes should have been withheld. , have been done. The taxpayer cannot be expected to have the foresight as to how the law will change in the future. A retrospective modification of the law modifies the tax obligation in respect of income, with retroactive effect, but it cannot modify the tax obligation at source, with retroactive effect. The withholding tax obligations on payments to non-residents, as set out in section 195, require that the person making the payment “at the time of crediting such income to the beneficiary’s account or at the time of payment. payment in cash or by issuing a check or draft or by any other method, whichever is earlier, withhold income tax thereon at the rates in force. âWhen these obligations must be discharged at the time the payment is made or credited, whichever comes first, these obligations can only be discharged in light of the law in force at that time.
The ITAT considered that the Assessing Officer was not justified in fixing the liability for the tax deduction on the basis of the modification which was inserted in 2010 with retroactive effect to 01.04.1976. The assessment year in question is 2008-09, therefore the provision of section 40 (a) (i) of the Act should not have been invoked in the case of the assessor. Therefore, ordered the assessment officer to remove the addition.
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