DCIT 14(1)(2), MUMBAI vs. CHEMICAL PROCESS PIPING P.LTD, MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

2. "Even without the clarificatory amendment by insertion of Explanation (ii) below Section 9(2) of the Act, the concerned payment would be liable to tax as the relevant source of income of the non- resident was located in India."

M/s. Chemical Process Piping Pvt. Ltd., 3. "The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.

4. "The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored."

There is a delay in filing the appeal by the Revenue. We have heard the reasons for delay, considering the substantial interest of justice, we condone the delay and appeal is heard on merit.

M/s. Chemical Process Piping Pvt. Ltd., 4.6 The appellant had placed few main & few alternate submissions and they are dealt with as follows: i) The appellant stated that Section 9(l)(vii) (b) of the Act provides an exception to the general source rule by providing that where the services rendered by the non-resident service provider (recipient of income) are utilized by the resident payer for purpose of earning income from any source outside India, then, in that situation, such fees would not be deemed to accrue or arise in India. Since the appellant had exported its goods, the income is sourced outside India. Reliance was placed on decisions in case of Aktiengesellschaft Kubule Kopp & Kausch W. Germany by BHEL, 2003 262 ITR 513 (Mad) & CVK Industries Ltd Vs ITO 371 ITR 453 & Lufthansa Cargo India (20I5) TS- 209-HC dated 27 May 2015 . This contention of the appellant is based on the later part of exception provided in the Section 9(l)(vii)(b), ie. "9(l)(vii) income by way of fees for technical services payable by (a)……….. (b) a person who is a resident, except where the fees are payable in respect of services utilised 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 , , The contention of the appellant that the "export of goods from India" should be covered in the exception provided as "for the purposes of making or earning any income from any source outside India" and hence the payment of fees for & in relation to export of goods from India, are not liable to tax in India. The appellant had cited and' relied on few decisions to substantiate its claim. This contention of the appellant is rejected and not acceptable, as there is specific decision of the Delhi High Court against the Assessee/ wherein it is: decided that the "export of goods" is not considered as "income sourced from outside India". The Delhi High Court (High Court) in the case of CIT v. Havells" ;" India Ltd (ITA No 55/2012 and held that the fees for testing and certification of exported products paid to a US company are treated as Fee for Technical Services' (FTS) under the Income-tax Act, 1961 (the Act). The High Court overruled the Delhi Income-tax Appellate Tribunal's (the Tribunal) decision and relying on the decision of Anglo French Textiles Ltd CIT v. Anglo (French Textiles Ltd [1993] 199 1TR 785 (Mad) held that the export activity having taken place or having been fulfilled in India, the source of income was located in India and not outside. It also held that mere export proceeds emanated from persons M/s. Chemical Process Piping Pvt. Ltd., located outside India did not constitute them as the source of income. Further, the High Court remanded the matter back to the Tribunal for examining. Flexibility of fees under the India-USA tax treaty (the tax treaty). (ii) The appellant had placed alternate submission, that since there was no amount "payable" at the end of year, as entire amount which was disallowed u/ s 40(a)(ia), was full paid during the year, the disallowance u/s 40(a)(ia) is to be deleted. The appellant relied on various decisions as cited. This contention of the appellant is not accepted, following specific decision in case of PMS Diesels v CIT (1TA No. 716 or 2009 dated April 2015) wherein Punjab and Hariyana HC, held as under: i. The argument that section 40(a)(ia) applies only to amounts which are "payable" and not to amounts that are already "paid" is also not acceptable (Commissioner of Income Tax vs. Crescent Export Syndicate (2013) 2'J6 Taxman 258 (Cal) and Commissioner of Income .Tax vs. Sikandar Khan N. Tunwar (2013) 357 ITR 312 (Guj) followed) ii. Though in Commissioner of Income Tax vs. M/s Vector Shipping Services Pvt. Ltd (2013)262 CTR (All) 545, 357 ITR 642 it was held that no disallowance could be made u/s 40(a)(ia) as no amount remained payable at the year end and the Special Bench decision of the Tribunal in Merilyn Shipping & Transports, 136 ITD 23 (SB) (Vishakhapatnam) was noted, this cannot be agreed with as there is no reasoning for the finding. The dismissal of the department's petition for special leave to-appeal (SLP) was in limine. The dismissal of the SLP, therefore, does not confirm the view of the Allahabad High Court. As held by the Supreme Court in V.M, Salgaocar & Bros. (P) Ltd., etc. Vs. Commissioner of Income Tax, etc. (2000) 243 ITR 383 (SC) and in Supreme Court Employees Welfare Association vs. Union of India (1989) 4 SCC 187, when an SLP is summarily dismissed under . Article 136 of the Constitution, the Court does not lay down any law and that the dismissal of an SLP in limine by a non speaking order does " not justify any inference that the contentions raised on the merits of the case have been rejected. iii) The appellant's another alternate claim was that the CBDT has issued Circular No. 3/-2015 dated 12.02.2015 and issued a clarification regarding the expression "amounts not deductible" under section 40(a)(i) of the income-tax Act, 1961. The CBDT 'has referred to its earlier Instruction No. 02/20:14 dated. 26.02.2014 and clarified that for the purpose of making disallowance of 'other sum chargeable" under section 40(a)(i) of the Act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such M/s. Chemical Process Piping Pvt. Ltd., disallowance and shall be the same as determined by the AO having jurisdiction for the purpose of section 195(1) of the Act. Further, where determination of "other sum chargeable" has been made under sub- sections (2), (3) or (7) of section 195 of the Act, such a determination will form the basis for disallowance, if any, under section 40(a)(i) of the Act. This contention of the appellant is not accepted, as the said Circular was not applicable nor available to the appellant for the Assessment Year of this Appeal. (iv) The appellant also contended that the retrospective amendment was vide the Finance Act, 2010, which was presented in Lok Sabha on 26 Feb 2010 and received assent from the president on 6th May 2010. Before the amendment the conditions of rendering services outside would be considered as deemed to accrue or arise in India was not in existence. If the services are rendered outside India before the amendment to explanation to section 9(2) then such payment was not liable to tax under the provision of section 9(l)(vii) in respect of FTS. Reliance was placed on decisions in case of M/s United Helicharters Pvt. Ltd vs ACIT (2013) 37 Taxmann.com 343 (Mum) & Channel Guide India Ltd vs ACIT (T'S 062 IT AT 2012) Mum. In Sterling Abrasive Ltd Vs ACIT 44 SOT 652 dated 23-12-2010 Ahm ITAT similar issue was decided in favour of Assessee relying on Honourable Supreme Court in the case of Krishna Swamy S. PD and another v. UOI and other (2006) 281 ITR 305 where in the said legal Maxim was accepted by the Honourable Apex Court, as under: - "The maximum of equity, namely, actus curiae neminem gravabit - an act of court shall 'prejudice no man, is founded upon justice and good sense which serves .a safe and certain guide for the administration of law. The other relevant maxim is, lex non cogit ad impossibiita - the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases, (see U.P.S.R.T.C. v. Imtiaz Hussain [2006] 1 SCC 380, Shaikh Salim Haji Abdul Khagumsab v. Kumar [2006] 1 SCC 46, Mohammad Gazi v. State of MP [2000] 4 SCC 342 and Gursharan Singh v. New Delhi Municipal Committee [1996] 2 SCC 459." The contention of the appellant is accepted by respectfully following the above decisions of Jurisdictional Hon. ITAT, which is based on the legal maxim of "the law does not compel a man to do what he cannot possibly perform" as held by Hon. Supreme Court (supra). It is evident M/s. Chemical Process Piping Pvt. Ltd., from the records submitted, that the payments of Fees were made to non-residents for the services performed outside India for the export jobs of the appellant and hence not liable to tax in India, prior to the amendment, wherein the Explanation (ii) to Section 9(2) was inserted. The AO is directed to delete entire disallowance of Rs.1,33,73,941/ - u/s 40(a)(ia) as these amounts pertains to period prior to 31.3.2010 and the amendment, .though with retrospective effect/ was subsequent to these payments. v) The appellant had also contended that as per provision of section 90 of. the Act, the provision of the income tax Act or the Double Taxation Avoidance Agreement (DTAA) whichever is beneficial to the Assessee should be considered,, and had explained the details of applicable Articles under the DTAT with the respective countries. Since the issue is decided in favour of the appellant as per preceding para, this issue is not discussed for adjudication, as same is considered in fructuous for this Assessment Year. Thus, this ground of the appellant is allowed.

6. Learned AR relied on the decision of Co-ordinate Bench in case of BSR & Co., order dated 06/05/2016, wherein Tribunal observed as under:-

5.5 Apart therefrom, even if we were to accept, for the sake of argument, that the services by the aforesaid entities are in the nature of technical services and are rendered and utilized in India so as to be taxable in terms of section 9(1)(vii) of the Act, even then the disallowance is not warranted as the following discussion would show. Ostensibly, the requirement of rendering services in India in order to attract section 9(1)(vii) of the Act was removed by insertion of Explanation by the Finance Act, 2010 with retrospective effect from 1/4/1976. This has been understood by the Revenue to say that inspite of the services having been rendered by the recipients outside India, the same is taxable in India by applying the aforesaid amendment. In our view, such retrospective amendment would be determinative of the tax liability in the hands of the recipients of income. So however, in the present case, what is held against the assessee is the failure to deduct tax at source at the time of payment of such income. Ostensibly, dehors the aforesaid amendment, the impugned income was not subject to tax deduction at source in India as per the prevailing legal position. Taxability of a sum in the hands of recipient, on account of a subsequent retrospective amendment would not expose the assessee- payer to an impossible situation of requiring deduction of tax at source M/s. Chemical Process Piping Pvt. Ltd., on the date of payment. Therefore, on this count also the assessee cannot be held to be in default in not deducting tax at source so as to trigger the disallowance under section 40(a)(i) of the Act. Ld. Representative for the assessee has relied upon the decision of the Mumbai Bench of the Tribunal in the case of Channel Guide India Ltd. vs. ACIT, 25 taxmann.com 25 (Mum.) in support of the above said proposition. In the absence of any contrary decision, the said plea of the assessee is also liable to be upheld and the disallowance made by the Assessing Officer under section40(a)(i) of the Act is untenable. The disallowance has been rightly deleted by the CIT(Appeals), which we hereby affirm.