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4. It was contended by the assessee that unless TUV GmbH is liable to be taxed in India, in respect of the income embedded in the remittances made to them, the assessee did not have any obligations to deduct the taxes at source. It was also contended that the services rendered by way of leather testing charges were not rendered in India. While stating that, "the intention of introducing the source rule was to bring to tax interest, royalty or fees for technical services by way of creating a fiction in Section 9, the source rule would mean that irrespective of the situs of services, the situs of taxpayer and the situs of utilization of services will determine the tax jurisdiction", assessee referred to the judgment of Hon'ble Supreme Court, in the case of Ishikwajima Harima Heavy Industries Ltd Vs DIT ( 288 ITR 708) wherein it is said to have been held that there must be sufficient territorial nexus between income sought to be taxed in India and the territory of India. It was thus contended that unless the services are rendered in India, the same cannot be brought to tax in India. As regards amendment in Section 9 post the Hon'ble Supreme Court decision in the case of Ishikwajima (supra), reliance was placed on Hon'ble Karantaka High Court's decision in the case of Jindal Thermal Power Co Ltd Vs DCIT ( 321 ITR I .T . A . No . : 3 9 3/ A g r a / 2 0 1 2 A s s e s s m e n t y e ar : 2 0 0 8 - 0 9 31 ) in support of the proposition that the said amendment has not really nullified the impact of Hon'ble Supreme Court's judgment in the case of Ishikwajima (supra). It was submitted that no testing operations were carried out by the TUV GmbH in India, and that, accordingly, income cannot be said to accrue or arise in India. It was also contended that unless TUV GmbH can be said to have a PE in India, which cannot be said in the present case, and unless the services are rendered in India, which is not the case here, the income of the TUV GmbH cannot be brought to tax in India. It was also submitted that the assessee that the testing services for which impugned payments are made donot benefit the assessee in any other way except for compliance with statutory requirements in Germany with regard to the safety of products. With this factual contention, reliance was placed on the decisions of the Authority for Advance Ruling in the cases of Cushman & Wakefields Pvt Ltd In Re (305 ITR

208) and Joint Accreditation Committee of Australia and New Zealand ( 2010- TII-28-ARA-INTL). None of these submissions, however, impressed the Assessing Officer. He was of the considered view that Explanation to Section 9 clearly states that for accrual of FTS, there is no requirement of residence, place of business or business connection in India. It was observed that if any payment is made by any person resident in India to a non resident person by way of fees for technical services, income is deemed to accrue or arise in India. It was because of this deeming fiction, according to the Assessing Officer, that the income is taxable in India. It was also observed that the double taxation avoidance agreement between India and Germany (Indo German tax treaty, in short) does not come to the rescue of the assessee since this treaty itself provides that the income on account of fees for technical services may be taxed in the source state as well. The Assessing Officer thus concluded that, "on the facts and in the circumstances of the case as discussed above, it is crystal clear that testing charge is payment on account of technical cum consultancy services only and is deemed to accrue or arise in India..and, therefore, leather testing charges paid ....of Rs 52,07,833, without deduction of tax at source as required under section 195, is disallowed under section 40(a)(i) of the Act and added to the income of the assessee". Aggrieved, assessee carried the matter in appeal I .T . A . No . : 3 9 3/ A g r a / 2 0 1 2 A s s e s s m e n t y e ar : 2 0 0 8 - 0 9 before the learned CIT(A) but without any success. In broad terms, he rejected the theory of territorial nexus on the basis of analysis in, which he extensively reproduced from, a coordinate bench decision in the case of Ashapura Minichem Ltd Vs ADIT (131 TTJ 291), and held that post 2010 amendment in Section 9(1), this theory of territorial nexus between the situs of activity and the tax jurisdiction is no longer relevant. It was also held that the decisions of Hon'ble Supreme Court in the case of Ishikwajima and of Hon'ble Karnataka High Court in the case of Jindal Power are no longer good law, as Section 9(1) itself stands materially altered now. Learned CIT(A) also rejected assessee's contention that since the assessee is a one hundred percent exporter, the source of his income is outside India, and accordingly, by the virtue of exception visualized in Section 9(1)(vii)(b) the said income cannot be brought to tax in India. Learned CIT(A) held that while the sale may have been made to the persons outside India, the business is clearly carried on in India and as such it cannot be said that the source of income was outside India. It was in this backdrop that he distinguished decision of a coordinate bench of this Tribunal, in the case of Havel India Pvt Ltd Vs ACIT ( 140 TTJ 283) and noted that it was case in which assessee had the customers as also the manufacturing facilities outside India and, therefore, the Tribunal's decision that the business was carried out outside India was on different set of facts. Learned CIT(A) also rejected assessee's reliance on Hon'ble Supreme Court's judgment in the case of GVK Industries Ltd Vs ITO (332 ITR 130), on the ground of that this decision does not hold Section 9(1)(vii) to be unconstitutional and that the observations made by Their Lordships are being read out of context. He also referred to and relied upon the decision of another coordinate bench of this Tribunal, in the case of Indian Summer Vs ACIT [4 ITR (Tribu) 181] in support of the proposition that the only requirement of Section 9(1)(vii) is that the fees paid the fees for technical services paid by a person, who is a resident of India, to a non resident and that such services should not be used in a business carried on the resident person outside India. Learned CIT(A) observed that, " ..in leather testing, for determination of quality, contents in leather, and doing the necessary testing and doing the necessary checking whether the material has any toxic chemicals I .T . A . No . : 3 9 3/ A g r a / 2 0 1 2 A s s e s s m e n t y e ar : 2 0 0 8 - 0 9 or not, before issuing the requisite certificate if its suitability to be used in manufacturing of shoes, an expertise in leather technology is required in which knowledge and skill of a technical expert is used, and, therefore, the leather testing is apparently in the nature of 'technical services'". He then referred to the provisions of Article 12 of Indo German tax treaty, analyzed the same and came to the conclusion that the testing charges , being consideration for technical services of testing leather, were clearly in the nature of technical services within the scope of Article 12(4) of the said tax treaty. Learned CIT(A) also rejected the assessee's plea to the effect that he cannot be expected to discharge the onus of tax deduction when law is amended with retrospective effect , by stating that the amendment was only clarificatory in nature and that, in any event, it was open to the assessee to move application under section 195(2) in case he had any doubts on the issue of taxability. It was also observed that the judicial precedents cited by the assessee, with regard to non applicability of penal provisions in respect of retrospective amendments, were on different facts and not applicable in the present context. In a very erudite and detailed order, thus, learned CIT(A) confirmed, and in fact fortified, the stand of the Assessing Officer. The assessee is not satisfied and is in further appeal before us.

(a)(i) disabling the deduction for testing charges so paid to TUV GmbH.

6. So far as taxability of leather testing fees in the hands of the TUV GmbH, in terms of the provisions of Indo German tax treaty is concerned, while learned I .T . A . No . : 3 9 3/ A g r a / 2 0 1 2 A s s e s s m e n t y e ar : 2 0 0 8 - 0 9 counsel fairly accepts that the issue of testing fees in terms of the treaty provisions is covered against him by a decision of the coordinate bench in the case of Ashapura Mibnichem Ltd (supra), he submits one aspect of the matter has been overlooked in this decision. The point is this. While Article 12(1) of the India German Double Taxation Avoidance Agreement does provide for taxation of the 'fees for technical services', it merely states that such fees "may be" taxed in the other contracting states, and that the expression "may" has a connotation much narrower than "shall" which alone can justify levy of taxes in the other contracting state. Learned counsel makes elaborate submissions on the connotations "may", "shall" in the context of the levy of taxes. Learned Departmental Representative, on the other hand, submits that even though the expression used is "may", it does entitle the other contracting state, i.e. the source state, to levy taxes in accordance with its domestic law. It is pointed out that the terminology used in the tax treaties is different from the tax laws but the scheme of taxation of fees for technical services, which are to be taxed in the source state as well, is free from doubt.

22. The next plea of the assessee is whether the fees paid by the assessee, on account of leather testing charges, is in the nature of technical services within meanings of Section 9(1)(vii) or not is absolutely academic on the facts of this case because the assessee being a one hundred percent exporter, and the source of income thus being outside India, the exception visualized in Section 9(1)(vii)(b) will come into play.

23. Learned counsel's next argument is that since assessee is one hundred percent exporter, we have to proceed on the basis that the source of assessee's income, for which testing services are used, is outside India, and, accordingly, by the virtue of exception visualized in Section 9(1)(vii)(b), the fees for technical services paid to TUV GmbH will not be taxable in India.