2001 (10) TMI 1153 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct TDS u/s 195 of the Indian Income Tax Act.
2. Applicability of DTAA (Double Taxation Avoidance Agreement) versus the normal provisions of the IT Act.
3. Disallowance of payments under Section 40(a)(i) of the IT Act.

Summary:

1. Liability to Deduct TDS u/s 195:
The primary issue was whether the assessee (Raj TV) was liable to deduct tax at source (TDS) on payments made to Reuter Television Ltd. (RTV) for transponder and uplinking services. The Income Tax Officer (ITO) held that Raj TV should have deducted TDS u/s 195 as the amount paid to RTV was considered income accrued in India. Consequently, the assessee was treated as a defaulter under Section 201(1) and interest was charged under Section 201(1A).

2. Applicability of DTAA:
The CIT (Appeals) considered the DTAA between India and the UK, which was notified on 11.2.1994. It was held that RTV did not have a permanent establishment in India, and thus, according to Article 7 of the DTAA, RTV's profits were not taxable in India. The CIT (Appeals) relied on the Karnataka High Court's decision in CIT v. R.M. Muthiah (202 ITR 508) and concluded that no tax was deductible u/s 195, and hence, the assessee should not be treated as a defaulter under Section 201(1).

3. Disallowance under Section 40(a)(i):
For the assessment year 1997-98, the Assessing Officer disallowed transponder hire charges and production expenses under Section 40(a)(i) due to the failure to deduct TDS. The CIT (Appeals) remitted some issues back to the Assessing Officer for re-examination. The Tribunal upheld that the payments made by Raj TV to RTV were not in the nature of 'Royalty' or 'Fees for Technical Services' as defined under the IT Act. Consequently, Section 40(a)(i) was not applicable, and the disallowance was deleted.

Conclusion:
The Tribunal concluded that the payments made by Raj TV to RTV were for hiring transponder services and did not fall under the definitions of 'Royalty' or 'Fees for Technical Services' under the IT Act. Therefore, Raj TV was not liable to deduct TDS on such payments, and Section 40(a)(i) was not applicable. The appeals filed by the Revenue were dismissed, and the appeals filed by the assessee were allowed, directing the Assessing Officer to give appropriate effect. The Tribunal also remitted certain issues back to the CIT (Appeals) for re-examination on merits.