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2022 (3) TMI 1023 - AT - Income TaxDisallowance of expenses u/s.40(a)(ia) - Non deduction of TDS u/s 195 - payment towards Internet Private Line Charges (IPLC) - AO considering amendment to provisions of section 9(1)(vi) / 9(1)(vii) by the Finance Act, 2012, with retrospective effect from 01.06.1976, held that payment made by the assessee to non-resident is in the nature of royalty within the meaning of section 9(1)(vi) read with Article 12 of the DTAA between India and USA - HELD THAT:- In the present case, payment made by the assessee to non-residents was prior to amended definition of royalty by the Finance Act, 2012. Further, at the time of payment made by the assessee to non-residents, there was an ambiguity in the definition of royalty and because of this the assessee could not deduct TDS as per provisions of section 195 - Although, the definition has been amended by the Finance Act, 2012, with retrospective effect, but because there was an ambiguity in the definition, the assessee cannot do impossible things by foreseeing an amendment to the definition of royalty and deduct TDS on payment made to non-residents. This principle is supported by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd . [2021 (3) TMI 138 - SUPREME COURT] where it was held that “person” mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by Explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute. Therefore, we are of the considered view that the Assessing Officer was erred in making addition towards payment made to non-residents u/s.40(a)(ia) of the Act, for non-deduction of TDS u/s.195 - Assessee appeal allowed.
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