40(a)(i): Amounts not deductible-Deduction at source- Royalty- Retrospective amendment of law- Due to retrospective amendment of law, No obligation for TDS as the law cannot compel a person to do something which is impossible to perform.( S.9(1)(vi).

The assessee is a company engaged in the business of financing , leasing, hire purchase, production and  distribution of internet media and manufacturing of  towels. In  the said  year the video channel started by the assessee became functional. In the course of Video channel business the assessee entered in to an agreement with with M/s Shan Statelite  Public  Co Ltd (SSA).During the year the assessee paid  the amount for the facility of up linking and telecasting  programmes, broad casting and telecasting ,the consultation charges to SSA in foreign exchange without  deduction of tax at source. The payment was made on the certificate issued by the Chartered accountant, that the said payment constituted business income of that non-resident party and since they did not have a Permanent Establishment (PE) in India, business income earned by them was not chargeable to tax in India in accordance with the Article 7 of DTAA  between India and Thailand,  and thus, no tax at source was therefore deductible. The Tribunal following the judgment of   Ahmedabad Tribunal in the case of Sterling Abrasive Ltd  dated 23-12-2010 held that the assessee cannot be held to be liable to deduct tax at source relying the subsequent amendments made in the Act with retrospective effect. Further, the Tribunal relied on the legal maxim ‘Lex non cogit ad  impossibia’  meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform, and on the decision of Honourable Supreme Court in the case of  Krishna Swamy S. PD  and another  v.UOI and other (2006) 281 ITR 305 where in the said legal Maxim was accepted by the Honourable Court.  Thus, Tribunal accordingly held  that  amount paid by the assessee to SSA  was not taxable in India in the hands of SSA  either under section 9(1)(vii) as per the legal position prevalent time and the assessee therefore was not liable to deduct tax at source from the said amount paid to SSA and there was no question of disallowing the said amount by invoking section 40(a)(i) . In view of above the addition confirmed by the Commissioner (Appeals) was deleted.(A.Y. 2004-05 ) (ITA nos 12221/ Mum/ 2006 / 579/ Mum/ 2006 Bench “L” dated 29-08- 2012)

Channel Guide India Ltd  v. ACIT ( Mum.) (Trib.)( www.itatonline.org)