ACIT vs. Ajit Ramakant Phatarpekar and Neelam Ajit Phatarpekar ITAT Panaji Bench, Panaji Before P. K. Bansal (A. M.0 and D.T. Garasia (J. M) ITA NO. 145 & 146/PNJ/2014 Assessment Year 2010-11. Decided on 16/03/2015 Counsel for Revenue /Assessee: Jitendra Jain / B. Balakrishna

Facts:
The Assessee had paid a sum of Rs. 28.88 lakh towards sampling charges i.e. consultant/technical charges, to the parties in Hong Kong and Singapore but had not deducted any TDS on the belief that the services were rendered outside India and India is having DTAA with China and Singapore, therefore, these charges are taxable in those countries. According to him, the fee for technical services/ professional services is taxable in the hands of the party who received it outside India. According to the AO, the Finance Act, 2010 amended section 9(1)(vii) retrospectively w.e.f. 1.6.1976 and as per the amended provisions, income of non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of s/s. (1) and shall be included in the total income of the nonresident whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has rendered the services in India. Therefore, according to him the Assessee was liable to deduct TDS as per the provisions of section 195.

Before the CIT(A) the assessee submitted that no income accrued in India. Explanation to section 9 inserted by the Finance Act, 2010 is not applicable as all the payments were made before the Finance Act received assent of the President on 8.5.2010. The CIT(A) allowed the appeal of the assessee.

Held:
The Tribunal noted that the Finance Act, 2010 received the assent of the President on 8.5.2010 and all the payments have been made by the Assessee to the non-resident party prior to receiving of assent of the President making the retrospective amendment by adding Explanation to section 9. At the time when the Assessee made the payment there was no provision u/s. 9 making the technical fees deemed to accrue or arise in India whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. The source of the income in the hands of the non-resident was outside India. Even 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 per the law then prevailing, the tribunal held that the payment made was not taxable in India.