S. 40(a)(ia): If an amount is made taxable by a retrospective amendment, the payer cannot be held liable to deduct TDS on a payment made earlier and to suffer disallowance u/s 40(a)(ia)

The assessee paid an amount of Rs.163.30 lakhs as “Pay Channel charges” to satellite channel companies on which TDS was not deducted. The AO held that the said payment constituted “royalty” and that the assessee ought to have deducted TDS u/s 195. As the assessee had failed to do so, the expenditure was disallowed u/s 40(a)(ia). Before the Tribunal, the Department argued that though the said charges did not constitute “royalty”, and the assessee was not obliged to deduct TDS, as per the law laid down in Asia Satellite 332 ITR 340 (Del), the same was not good law in view of the retrospective insertion of Explanation 6 to s. 9(1)(vi) which treats payment for transmission by satellite as “royalty” defines the expression “process”. It was argued by the department that the effect of the retrospective amendment is that the assessee ought to have deducted TDS and that as it had failed to do so, the expenditure had to be disallowed. HELD by the Tribunal:

In view of the retrospective insertion of Explanation 6 by the Finance Act, 2012, the payment made by the assessee as “Pay Channel Charges” constitutes “royalty” as defined in clause (i) of Explanation 2 to s. 9(1) of the Act. However, as the decision of the assessee not to deduct TDS was supported by Asia Sat, the assessee cannot be held to be liable to deduct tax at source by relying on the subsequent amendments made in the Act with retrospective effect (Channel Guide 139 ITD 49 (Mum), Sonata Information Technology & Infotech Enterprises followed)