Asstt. CIT v. BSR & Co - Taxpublishers.in

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The Tax Publishers2016 TaxPub(DT) 2238 (Mum-Trib) Asstt. CIT v. BSR & Co. INCOME TAX ACT, 1961 --Income deemed to accrue or arise in India--Under section 9(1)(vii)Fees for technical services--Applicability of retrospective amendment by Finance Act, 2010--Ostensibly, the requirement of rendering services in India in order to attract section 9(1)(vii) was removed by insertion of Explanation by the Finance Act, 2010 with retrospective effect from 1-4-1976. 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 TDS on the date of payment. Therefore, assessee could not be held to be in default in not deducting TDS so as to trigger the disallowance under section 40(a)(i)--Assessee-firm of Chartered Accountants, part of the KPMG network group of professional accounting firms, had to pay for various audit, tax, consultancy, IT, background check, VAT advisory services payments to 12 of its KPMG entities worldwide without effecting TDS. Thus, they were held to be fees for technical services under section 9(1)(vii) and since no TDS was done disallowance was applied under section 40(a)(ia). *Held:* If it was accepted, for the sake of argument, that the services by the entities were in the nature of fees technical services and were rendered and utilized in India so as to be taxable in terms of section 9(1)(vii), even then the disallowance under section 40(a)(i) was not warranted. Ostensibly, the requirement of rendering services in India in order to attract section 9(1)(vii) was removed by insertion of Explanation by the Finance Act, 2010 with retrospective effect from 1-4-1976. This had been understood by the Revenue to say that in spite of the services having been rendered by the recipients outside India, the same was taxable in India by applying the aforesaid amendment. 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 was held against assessee was the failure to deduct TDS at the time of payment of such income. Ostensibly, de hors the aforesaid amendment, the impugned income was not subject to TDS 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 assessee-payer to an impossible situation of requiring deduction of tax at source on the date of payment. Therefore, on this count also assessee could not be held to be in default in not deducting tax at source so as to trigger the disallowance under section 40(a)(i) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 2238 (Mum-Trib)

Asstt. CIT v. BSR & Co.

INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India--Under section 9(1)(vii)Fees for technical services--Applicability of retrospective amendment by Finance Act, 2010--Ostensibly, the requirement of rendering services in India in order to attract section 9(1)(vii) was removed by insertion of Explanation by the Finance Act, 2010 with retrospective effect from 1-4-1976. 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 TDS on the date of payment. Therefore, assessee could not be held to be in default in not deducting TDS so as to trigger the disallowance under section 40(a)(i)--Assessee-firm of Chartered Accountants, part of the KPMG network group of professional accounting firms, had to pay for various audit, tax, consultancy, IT, background check, VAT advisory services payments to 12 of its KPMG entities worldwide without effecting TDS. Thus, they were held to be fees for technical services under section 9(1)(vii) and since no TDS was done disallowance was applied under section 40(a)(ia). Held: If it was accepted, for the sake of argument, that the services by the entities were in the nature of fees technical services and were rendered and utilized in India so as to be taxable in terms of section 9(1)(vii), even then the disallowance under section 40(a)(i) was not warranted. Ostensibly, the requirement of rendering services in India in order to attract section 9(1)(vii) was removed by insertion of Explanation by the Finance Act, 2010 with retrospective effect from 1-4-1976. This had been understood by the Revenue to say that in spite of the services having been rendered by the recipients outside India, the same was taxable in India by applying the aforesaid amendment. 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 was held against assessee was the failure to deduct TDS at the time of payment of such income. Ostensibly, de hors the aforesaid amendment, the impugned income was not subject to TDS 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 assessee-payer to an impossible situation of requiring deduction of tax at source on the date of payment. Therefore, on this count also assessee could not be held to be in default in not deducting tax at source so as to trigger the disallowance under section 40(a)(i)