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The Commissioner Of Income Tax-11 v. M/S. Ngc Networks (India) Pvt. Ltd. .
Factual and Procedural Background
This appeal under Section 260-A of the Income Tax Act, 1961 challenges the order dated 9 July 2014 passed by the Income Tax Appellate Tribunal (the Tribunal) concerning the Assessment Year 2009-10. The Respondent-Assessee had paid a channel placement fee of Rs. 7.18 Crores to cable operators and deducted tax at source under Section 194C at 2%. The Assessing Officer contended that tax should have been deducted under Section 194J at 10%, treating the payment as royalty under Explanation 6 to Section 9(1)(vi). Consequently, the Assessing Officer disallowed the expenditure under Section 40(a)(ia) for failure to deduct tax correctly. The Dispute Resolution Panel (DRP) upheld the Respondent's objection, confirming deduction under Section 194C was appropriate as the payment was not royalty under Section 9(1)(vi). The Tribunal dismissed the Revenue's appeal, relying on a prior decision and the principle that retrospective amendments cannot impose obligations not in force at the relevant time.
Legal Issues Presented
- Whether the Tribunal was justified in holding that disallowance of Channel Placement Fee cannot be made under Section 40(a)(ia) of the Income Tax Act when tax was deducted under Section 194C instead of Section 194J?
- Whether the Tribunal was justified in holding that the Channel Placement Fee is not in the nature of royalty under Section 9(1)(vi) and thus tax was not required to be deducted under Section 194J despite Explanation 6 thereto inserted with retrospective effect?
Arguments of the Parties
Revenue's Arguments
- The tax deducted at source on the channel placement fee should have been under Section 194J at 10%, not under Section 194C at 2%, as the payment was in the nature of royalty as per Explanation 6 to Section 9(1)(vi).
- Failure to deduct tax under the correct provision justified disallowance of the expenditure under Section 40(a)(ia).
Respondent-Assessee's Arguments
- Tax deduction under Section 194C at 2% was appropriate as the payment for channel placement fee did not constitute royalty under Section 9(1)(vi).
- The disallowance under Section 40(a)(ia) was not justified.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Channel Guide India Ltd. v. ACIT (ITXA No. 1221/M/2006) | Held that retrospective amendment cannot impose new tax deduction obligations on payments made before amendment. | The Tribunal relied on this decision to hold that the assessee was not liable to deduct tax at higher rates due to retrospective amendment. |
| CIT v. Cello Plast (2012) 209 Taxmann 617 | Legal maxim lex non cogit ad impossibilia (law does not compel performance of impossible acts). | The Court applied this principle to affirm that a party cannot be required to comply with provisions not in force at the relevant time. |
Court's Reasoning and Analysis
The Court analyzed that the payment of channel placement fee was made during the relevant assessment year with tax deducted under Section 194C at 2%. The Assessing Officer's view that tax should have been deducted under Section 194J at 10% was based on a retrospective amendment introduced in 2012, effective from 1976, which was not in force at the time of payment. The Court held that it would be impossible and unfair to require compliance with a provision introduced retrospectively after the payment was made, invoking the maxim lex non cogit ad impossibilia. Further, the Court noted that disallowance under Section 40(a)(ia) depends on the definition of royalty as per Explanation 2 to Section 9(1)(vi), not Explanation 6, and the channel placement fee did not qualify as royalty under Explanation 2. Since the disallowance was thus not sustainable, the Court found no substantial question of law arising from question (a). Consequently, question (b) was considered academic and not entertained. The appeal was dismissed accordingly.
Holding and Implications
DISMISSED.
The Court dismissed the Revenue's appeal, confirming that retrospective amendments cannot impose new tax deduction obligations on payments made before such amendments came into force. The channel placement fee was not considered royalty under the relevant definition, and the deduction of tax under Section 194C was appropriate. The direct effect is that the expenditure could not be disallowed under Section 40(a)(ia). No new precedent was established beyond affirming existing legal principles regarding retrospective amendments and the specific tax provisions involved.
1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 9 July, 2014, passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 9 July, 2014 is in respect of Assessment Year 2009-10.
2. Revenue urges the following question of law, for our consideration:
“(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal is justified in holding that the disallowance of Channel Placement Fee cannot be made u/s. 40(a)(ia) of the I.T. Act when the tax was deducted thereon u/s. 194C instead of Sec. 194J of the I.T. Act?
(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that the Channel Placement Fee is not in the nature of royalty u/s. 9(1)(vi) and so the tax is not required to be deducted u/s. 194J of the I.T. Act despite Explanation 6 thereto inserted w.e.f. 01/06/1976?”
3. Re Question (a):—
(a) During the subject Assessment Year, the Respondent-Assessee had paid channel placement fee of Rs. 7.18 Crores to the cable operators. On the aforesaid payment of tax, it had deducted tax at source under Section 194 C of the Act at the rate of 2%. During the Assessment Proceedings, the Assessing Officer was of the view that the tax deducted at source on payment of Rs. 7.18 Crores to the cable operator, had to be at the rate of 10% and not at the rate of 2%. This on the ground that, the provision applicable was Section 194J of the Act and not 194C of the Act, as the payment made, was in the nature of royalty, as defined in Explanation 6 to Section 9(1)(vii) of the Act. In the above view, in the draft Assessment Order dated 25 March, 2013 passed under Section 144C of the Act, the Assessing Officer disallowed the entire expenditure of Rs. 7.18 Crores under Section 40(a)(ia) of the Act, for failure to deduct tax under Section 194J of the Act;
(b) On receipt of the draft assessment order dated 25 March, 2013, the Respondent preferred its objections to it before the Dispute Resolution Panel (DRP). By an order dated 31 December, 2013, the DRP upheld the objections by holding that deduction of tax at source under Section 194C of the Act, was appropriately made by the Respondent as the payment made for channel placement fee, would not fall within the ambit of royalty as defined in Section 9(1)(vi) of the Act.
(c) Consequent to the directions dated 31 December, 2013 of the DRP, the Assessing Officer passed as Assessment Order dated 20 January, 2014 under Section 143(3) r/w. 144C(13) of the Act. Being aggrieved with the Assessment Order dated 20 January, 2014, the Revenue filed an appeal to the Tribunal. By the impugned order dated 9 July, 2014, the Tribunal by following a decision of Co-ordinate Bench in the case of Channel Guide India Ltd. v. ACIT (ITXA No. 1221/M/2006 rendered on 29 August, 2012) - held that Assessee is not liable to deduct the tax at source, at higher rates only on account of subsequent amendment made in Act, with retrospective effect from 1976. Thus, dismissed the Revenue's Appeal.
(d) We find that view taken by the impugned order dated 9 July, 2014 of the Tribunal that a party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. This is in accord with the view taken by this Court in CIT v. Cello Plast, (2012) 209 Taxmann 617 - wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform).
(e) In the present facts, the amendment by introduction of Explanation-6 to Section 9(1)(vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not be have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect.
(f) Further, we also notice that under Section 40(a)(i) of the Act, under which the expenditure has been disallowed by the Revenue, meaning of royalty as defined therein, is that as provided in Explanation 2 to Section 9(1)(vi) of the Act and not Explanation 6 to Section 9(1)(vi) of the Act. Thus, the disallowance of expenditure under Section 40(a)(i) of the Act can only be if the payment is ‘Royalty’ in terms of Explanation 2 to Section 9(1)(vi) of the Act. Undisputedly, the payment made for channel placement as a fee, is not royalty in terms of Explanation 2 to Section 9(1)(vi) of the Act. Therefore, no disallowance of expenditure under Section 40(a)(vi) of the Act, can be made in the present facts.
(g) In the above view, as it is a self evident position from the reading Section 40(a)(i) of the Act, no substantial question of law. Thus, question (a) not entertained.
4. Re Question (b):—
(a) In view of the appeal not being entertained on question (a), as pointed out herein above, the issue raised in question(b) becomes academic. This is so, as irrespective of the nature of payment made in the present facts, no expenditure can be disallowed under Section 40(a)(i) of the Act in respect of fee paid for Channel Placement.
(b) Thus, question (b) in these facts being academic, does not give rise to any substantial question of law. Thus, not entertained.
5. Accordingly, Appeal dismissed. No order as to costs.
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