Sec. 9 of Income Tax Act, 1961—Income—Income deemed to accrue or arise in India- A retrospective amendment cannot fasten obligation to deduct tax when not in force at the relevant time i.e when payment was made.

Facts: Assessee appeal is disallowance of payments towards inspection, verification, testing and certification services, (IVTC) u/s 40(a)(i) for failure to deduct tax at source u/s. 195.

Held, that facts with regard to taxability of FTS u/s 9(1)(vi) in the hands of nonresidents in India, even though services were rendered by such non-residents outside India is not disputed, because the law has been amended by the Finance Act, 2010 with retrospective effect from 1976 to the provision of section 9(1)(vi) and amended the definition of FTS and accordingly, even non-residents are liable to pay tax on FTS in India, even though services were rendered in outside India. But, fact remains that whether, the assessee was liable to deduct TDS u/s 195 in a situation, where the non-residents service provider are not liable to tax in respect of FTS u/s 9(1)(vii), at the time of remittance, but became liable to tax by virtue of a retrospective amendment made in the year, 2010 i.e two years after the end of financial year 2007-08 was exmained by the courts. We find that the Hon’ble Bombay High Court in the case of CIT vs KPMG in ITA No. 609 of 2017 had considered identical issue and after considering relevant amendments to provision of section 9(1)(vii) of the I.T.Act, 1961 held that a retrospective amendment cannot fasten obligation to deduct tax when not in force at the relevant time i.e when payment was made. The Hon’ble Court, further held that the party cannot be called upon to perform an impossible Act i.e to comply with the provision, which was not in force at the relevant time. In this view of the matter and respectfully following the decision of Hon’ble Bombay High Court, in the case of CIT vs KPMG, we are of the considered view that no disallowance could be made u/s 40(a)(i), in respect of payments made towards IVTC charges for failure to deduct tax at source u/s 195 on the basis of retrospective amendment to the provision of section 9(1)(vii). - SGS INDIA (P.) LTD. V/s ADDI. CIT - [2020] 182 ITD 498 (ITAT-MUMBAI)