Channel Guide India Limited v. ACIT [ITA No.1221/Mum/2006] Article 12 of India-Thailand DTAA, section 9(1)(vi), 40(a)(i) of the IT Act 2004-05 29 August 2012 Present for the Appellant: Shri P.J. Pardiwalla Present for the Respondent: Shri Jitendra Yadav

During the relevant year i.e., AY 2004-05, the amount paid was not taxable as per the legal position prevalent at the relevant time and hence, Taxpayer was not liable to withhold tax on the amount paid, irrespective of the retrospective amendment to bring to tax such payments. Accordingly, the provisions of section 40(a)(i) of IT Act, triggering disallowance for not withholding tax, cannot be invoked. Facts The Taxpayer, an Indian Company (ICO), entered into an agreement with a Thailand Company (FCO), for satellite up-linking and telecasting programmes. The amount paid to FCO was claimed by ICO as expenditure on account of broadcasting and telecasting. In addition, consultancy charges were also paid by ICO to FCO. Tax Department considered the payments made by the ICO to FCO as royalty/FTS under the DTAA/IT Act and disallowed the amount paid to FCO on the ground that tax withholding was not made by ICO.

Held:

On Characterisation of payments made to FCO As the ICO does not utilise the process or equipment involved in the operations, relying on Delhi HC decision in the case of Asia Satellite Telecommunication Co. Ltd. (332 ITR 340), ITAT held that the charges paid can neither be treated as royalty nor be treated as FTS under the IT Act. The receipt is in the nature of business income which is not chargeable in the absence of PE.

There is no need to take recourse to other income Article of the DTAA which covers only the items of income not covered expressly by any other article in the DTAA. On deduction of taxes at source on account of retrospective amendment

On Tax Department’s contention that the payments were taxable due to the clarificatory retrospective amendments made by Finance Act 2012, the ITAT held that during the relevant year i.e., AY 2004-05, the amount paid was not taxable as per the legal position prevalent at the relevant time and hence, ICO was not liable to withhold tax on the amount paid irrespective of the retrospective clarificatory amendment carried out by Finance Act 2012 in section 9 of IT Act, which seeks to tax such payments.

Reliance was placed on SC’s decision in the case of Krishnaswamy S.PD (281 ITR 305) and Ahmedabad ITAT’s decision in the case of Sterling Abrasive Ltd (ITA No. 2243,2244 Ahd/2008) where emphasis was placed on the legal maxim ‘lex non cogit ad impossiblia’ meaning that the law cannot possibly compel a person to do something which is impossible to perform.