Held that as between provisions in the DTAA and the Indian laws, the provisions more beneficial to the assessee should be considered. Thus, the payment made by the assessee to a non-resident entity for services rendered outside India should be considered in the light of the DTAA between India and Mauritius. The DTAA did not cover fees for technical services. By virtue of residual clause, article 22, in the case of anything not expressly provided in the DTAA, it could not be taxed in India, even if the sum came under the definition of “fees for technical services” under the Indian tax laws. Since the non-resident did not have permanent establishment in India, the payment could not be taxed as business profits. However, the issue was not taxability of the payment made by the assessee to non-resident entity for services rendered outside India as fees for technical services in terms of section 9(1)(vii) of the Act. The issue was disallowance of the sum paid to a non-resident without tax deduction at source under section 40(a)(i) of the Act. Although, the definition of “fees for technical services” was amended by the Finance Act, 2010 with retrospective effect from June 1, 1976 but, the law prevailing at the time of payment by the assessee to the non-resident was, as declared by the Supreme Court, that payment made to a non-resident for services rendered outside India cannot be brought to tax in India as fees for technical services in the absence of place of business or permanent establishment in India. The liability towards tax deduction at source could not be fastened on the assessee on the basis of a subsequent amendment to law with retrospective effect, because it was impossible of compliance. The Assessing Officer as well as the Commissioner (Appeals) erred in disallowing payment made to a non-resident under section 40(a)(i) of the Act for failure to deduct tax at source under section 195 of the Act.(AY. 2005-06)