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Issues Involved:
1. Disallowance u/s 40(a)(i) for non-deduction of tax at source on payment for transponder usage. 2. Disallowance of consultancy fees as capital expenditure. Summary: Issue 1: Disallowance u/s 40(a)(i) for non-deduction of tax at source on payment for transponder usage The assessee, a company engaged in broadcasting, made payments to Pan Amsat International Systems Inc. for using transponder capacity. The Assessing Officer, applying the judgment in New Skies Satellites N.V. Vs. Asst. DIT, held that the payment constituted 'Royalty' and was liable to tax in the hands of the recipient. Consequently, the assessee was required to deduct tax at source, and failure to do so led to disallowance u/s 40(a)(i). The first appellate authority upheld this disallowance based on CIT Vs. Samsung Electronics Co. Ltd., which was later reversed by the Supreme Court in GE India Technology Centre P. Ltd. Vs. CIT. The Supreme Court clarified that TDS provisions apply only to sums "chargeable to tax" under the IT Act. The Delhi High Court in Asia Satellite Telecommunications Co. Ltd. Vs. DIT held that payments for transponder usage do not constitute 'Royalty' and are not taxable in India. Thus, the amount paid by the assessee to Pan Amsat International Systems is not assessable to tax, and the assessee was not required to deduct tax at source. Consequently, the disallowance u/s 40(a)(i) was not warranted, and this ground of the assessee was allowed. Issue 2: Disallowance of consultancy fees as capital expenditure The assessee paid consultancy fees to M/s. Ernst & Young for a feasibility study on setting up a new channel. The Assessing Officer disallowed this expenditure, treating it as capital expenditure. The first appellate authority confirmed this view. However, the Tribunal held that the expenditure was in the revenue field as it did not bring any new assets into existence nor provide any enduring benefit in the capital field. It relied on the Supreme Court's decision in Empire Jute (124 ITR 1), distinguishing the case laws relied upon by the first appellate authority. Therefore, this ground of the assessee was also allowed. Conclusion: In the result, the appeal of the assessee was allowed. The order was pronounced on 13th January 2012.
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