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The Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal), in the case of NGC Networks (I) Pvt. Ltd. (the taxpayer), held that payment made by the taxpayer towards placement charges is not ‘royalty’ in terms of Explanation 2 to Section 9(1)(vi) of the Income-tax Act, 1961 (the Act). Further, the retrospective insertion of Explanation 6 to Section 9(1)(vi) of the Act cannot be pressed into service for purposes of Section 40(a)(ia), as the same was not in statute when the taxpayer deducted tax at source.
The Tribunal also noted that no disallowance under Section 40(a)(ia) can be made on account of short deduction of taxes at source.