|COURT:||Bombay High Court|
|CORAM:||M. S. Sanklecha J, Riyaz I. Chagla J|
|GENRE:||Domestic Tax, International Tax|
|CATCH WORDS:||royalty, TDS disallowance|
|DATE:||January 29, 2018 (Date of pronouncement)|
|DATE:||February 16, 2018 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 40(a)(i) TDS disallowance: A party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. S. 40(a)(i) disallowance can be made only if the royalty falls under Explanation 2 to s. 9(1)(vi) but not if it falls under Explanation 6 to s. 9(1)(vi)|
The High Court had to consider the following questions of law in an appeal filed by the Revenue:
“(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal is justified in holding that the disallowance of Channel Placement Fee cannot be made u/s. 40(a)(ia) of the I.T.Act when the tax was deducted thereon u/s. 194C instead of Sec. 194J of the I.T. Act?
(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that the Channel Placement Fee is not in the nature of royalty u/s. 9(1)(vi) and so the tax is not required to b e deducted u/s. 194J of the I.T. Act despite Explanation 6 thereto inserted w.e.f.01/06/1976?”
HELD by the High Court dismissing the appeal:
(i) The Tribunal by following a decision of Coordinate Bench in the case of M/s. Channel Guide India Ltd., v/s. ACIT (ITXA No. 1221/M/2006 rendered on 29th August, 2012) (139 ITD 49 (Mum))– held that Assessee is not liable to deduct the tax at source, at higher rates only on account of subsequent amendment made in Act, with retrospective effect from 1976.
(ii) The view taken by the Tribunal that a party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. This is in accord with the view taken by this Court in CIT v/s. Cello Plast (2012) 209 Taxmann 617 – wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform).
(iii) In the present facts, the amendment by introduction of Explanation 6 to Section 9(1)(vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not be have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect. S
(iv) Further, we also notice that under Section 40(a)(i) of the Act, under which the expenditure has been disallowed by the Revenue, meaning of royalty as defined therein, is that as provided in Explanation 2 to Section 9(1)(vi) of the Act and not Explanation 6 to Section 9(1)(vi) of the Act. Thus, the disallowance of expenditure under Section 40(a)(i) of the Act can only be if the payment is ‘Royalty’ in terms of Explanation 2 to Section 9 (1)(vi) of the Act. Undisputedly, the payment made for channel placement as a fee, is not royalty in terms of Explanation 2 to Section 9(1)(vi) of the Act. Therefore, no disallowance of expenditure under Section 40(a)(vi) of the Act, can be made in the present facts.