TMI Blog2012 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... the viewers in their homes. Viewers can also gather the signals through their dish antenna. The Assessing Officer applied the Judgement of Special Bench of the Tribunal in the case of New Skies Satellites N.V. Vs. Asst. DIT, 121 ITD 1 (SB) and held that the payment made for the use of the transponder falls within the definition of Royalty and is liable to tax in the hands of the recipient i.e. Pan Amsat International Systems. He further held that the assessee ought to have deducted tax at source and as tax was not deducted at source, the claim of expenditure was disallowed u/s. 40(a)(i) of the Act. 3. Further the assessee had paid consultancy charges to M/s. Ernst Young for conducting feasibility study for a new channel. The Assessing Officer disallowed the same on the ground that the expenditure was in capital field. 4. On appeal, the first appellate authority confirmed the order of the Assessing Officer. Aggrieved, the assessee is in appeal on the following grounds :- 1) On the facts and circumstances of the case and in law, learned CIT(A) erred in upholding the disallowance of ` 89,53,336/- made under section 40(a)(i) of the Income Tax Act, 1961 by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the IT Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. Sec. 237 r/w s. 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no terri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in respect of royalties, fees or other sums chargeable under the IT Act. In a given case where the payer is an assessee he will definitely claim deduction under the IT Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the IT Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1st April, 2008 sub-s. (6) has been inserted in s. 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1st April, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. 6. Thus, the basis on which the first appellate authority confirmed the disallowance is no more good law. Reliance was placed by the Assessing Officer on the decision of the Special Bench in the case of Asia Satellite Telecommunications Co. Ltd. Vs. DIT, 332 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who had a dish antenna, could also catch the signals relayed from these satellites. The role of the assessee was that of receiving the signals, amplifying them and after changing the frequency relaying them on the earth. For this service, the television channels made payment to the assessee. The assessee was the operator of the satellites and was in control of the satellite. It had not leased out the equipment to the customers. The assessee had merely given access to a broadband width available in a transponder which can be utilized for the purpose of transmitting the signals of the customer. A satellite is not a mere carrier, nor is the transponder something which is distinct and separable from the satellite as such. The transponder in fact cannot function without the continuous support of various systems and components of the satellite. Consequently, it is entirely wrong to assume that a transponder is a self-contained operating unit, the control and constructive possession of which is or can be handed over by the satellite operator to its customers. The terms lease of transponder capacity , lessor , lessee and rental used in the agreement would not be the determina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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