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2012 (5) TMI 503 - AT - Income TaxDis-allowance 40(a)(i) on payment of hiring charges for transponder by assessee(Mauritius company), to foreign companies on the ground that no tax has been deducted at source by the assessee u/s 195 - Revenue contending such hiring charges to be Royalty - DTAA between India and USA - Held that:- As we have held that there is no PE, the question of a claim being made and disallowing such a claim for expenditure u/s. 40(a)(i) does not arise. However on merits it is held that issue stands covered in favour of the assessee by the decision of High Court in the case of Asia Satellite Communication Co. Ltd. Vs. DIT(2011 (1) TMI 47 (HC)) wherein it is held that payment made by the telecast operators situated abroad to the assessee which was also a non-resident did not represent income by way of royalty as defined in Explanation 2 to section 9(1)(vi). Further, in the case of DIT Vs. Guy Carpenter & Co. Ltd.(2012 (5) TMI 31 (HC)) it was held that to “make available” technical knowledge, mere provisions of service was not enough and the payer had to be enabled to perform services himself. The department’s argument that the amendments by the Finance Act, 2012 changes the position is not acceptable, since there is no change in the DTAA between India and USA and the DTAA prevails where it is favorable to the assessee; Even otherwise as the payment is made from one non-resident to another non-resident outside India on the basis of contract executed outside India, section 195 will not apply to such cases as held by in the case of Vodafone International Holdings B.V.(2012 (1) TMI 52 (SC)). Further, as prior to the insertion of Section 40(a)(i) in AY 2004-05, payments to a resident did not require TDS. Under the non-discrimination clause in the DTAA, the dis-allowance u/s 40(a)(i) in the case of non-residents cannot be made. See Herbalife International (2006 (2) TMI 220 (Tri)). Aforesaid view squarely apply in respect of payments made to Advanced Satellite( UK based company) for equipment and technical fees. As there is no change in the DTAA between India and UK, we have to hold that no dis-allowance can be made u/s 40(a)(i). No dis-allowance can be made in view of the nondiscrimination clause also. Dis-allowance u/s 40(a)(i) in respect of payments made to LMB(Mauritius) Ltd. for purchase of programmes - revenue contending the same to be payment for grant of broadcasting right - Held that:- Following proposition laid down in case of CIT vs B. Suresh (2009 (3) TMI 4 (SC)) and others it is held that that there is a sale of programmes, section 195 cannot be invoked in case of purchases. Further, it is a payment by a non-resident to another non-resident and as nondiscrimination clause also applies.
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