The Tax Publishers2013 TaxPub(DT) 0056 (Mum-Trib) : (2012) 139 ITD 0049 : (2013) 153 TTJ 0432 : (2013) 083 DTR 0321 : (2012) 020 ITR (Trib) 0438

INCOME TAX ACT, 1961

--TDS--Disallowance under section 40(a)(i)Payment of service charges to non-resident--In the course of video channel business assessee had entered into an agreement with SSa a tribunal based company for availing facility of satellite uplinking and Telecasting programes, for which certain sums was paid without deducting tax at source. The treated the same as consultancy charges and disallowed the assessee's claim under section 40(a)(i) in view of non TDs. Held: ,/b>As Thailand company was licensee of satellites owned by government of Thailand and for providing facility of broad casting it merely recovered service charges and said payment was business income of Thailand company under article 7 of DTAa no disallowance under section 40(a)(i) could be made.

M/s. SSA to whom the payment in question was made by the assessee is a licensee of certain satellite owned by Government of Thailand and it is in the business of providing TV Channels facility of broadcasting their programmes through the transponders located in the said satellite. For the said facility, M/s. SSA recovers service charges from TV Channels like the amount in question recovered from the assessee. Keeping in view this nature of business of M/s. SSA, the amount paid by the assessee certainly constitutes business income of M/s. SSA and when the same is not in the nature of royalty or fees for technical services, it is covered by article 7 of the Indo-Thailand Treaty dealing with business income. There is thus no need to take recourse to Article 22 of the treaty which covers only the items of income which are not covered expressly by any other article of the Treaty. the issue involved in the present case however, is relating to disallowance made under section 40(a)(i) for non-deduction of tax-at-source from the payment made by the assessee to SSA and as held by Ahmedabad Bench of this Tribunal in the case of Sterling Abrasives Ltd v. ITO [I.T. Appeals 2243 & 2244 (Ahd.) of 2008] by its order dated 23-12-2010 cited by the learned Counsel for the assessee, the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. In the said case Explanation to section 9(2) was inserted by the Finance Act, 2007 with retrospective effect from 1-6-1976 and it was held by the Tribunal that it was impossible for the assessee to deduct tax in the financial year 2003-04 when as per the relevant legal position prevalent in the financial year 2003-04, the obligation to deduct tax was not on the assessee. The Tribunal based its decision on a legal Maxim lex non cogit ad impossiblia meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform and relied on the decision of Hon'ble Supreme Court in the case of Krishnaswamy S. Pd v. UOI (2006) 281 ITR 305 (SC) : 2006 TaxPub(DT) 1378 (SC)  wherein the said legal Maxim was accepted by the Hon'ble Apex Court. The amount in question paid by the assessee to SSA was not taxable in India in the hands of SSA either under section 9(1)(vi) or 9(1)(vii) as per the legal position prevalent at the relevant time and the assessee therefore was not liable to deduct tax at source from the said amount paid to M/s. SSA and there was no question of disallowing the said amount by invoking the provisions of section 40(a)(i). In that view of the matter, we delete the disallowance made by the assessing officer under section 40(a)(i) and confirmed by Commissioner (Appeals). [Para 26]

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