Section 194C, read with sections 201 and 201(1A)

HIGH COURT OF PUNJAB AND HARYANA Kurukshetra Darpans (P.) Ltd. v. Commissioner of Income-tax, Karnal SATISH KUMAR MITTAL AND RAKESH KUMAR GARG, JJ. IT APPEAL NO. 260 TO 262 OF 2007 March 3, 2008 Section 194C, read with sections 201 and 201(1A) of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to - Assessment year 2006-07 - Assessee, cable operator entered into a contract with licensor of various TV channels for obtaining telecast signals for distribution through its cable network - Assessee paid subscription charges to licensor but did not deduct tax under section 154C on such payment - Assessee was treated as assessee-in-default under sections 201, 201(1A) and 194C - Whether on payment made by assessee to licensor section 194C was attracted as licensor, was a person who was performing work which is covered within meaning of clause(b) of Explanation III to section 194C(2) - Held, yes - Whether since licensor was engaged in business of distribution of satellite based TV channels and had exclusive rights to market and distribute said services in India, service availed by assessee was that of broadcasting and telecasting of TV signals and, therefore, assessee was liable to deduct tax at source in terms of section 194C on payment made to licensor - Held, yes Words and Phrases : ‘Work’ as occurring in clause (b) of Explanation III to section 194C of Income-tax Act, 1961 FACTS The assessee was a cable network operator who was in the business of distributing cable connections to the customers and charged subscription fee from them. It entered into a contract with the licensor of various TV channels for local cable distribution system. As per the contract the assessee as a subscriber or affiliate made payment to licensor for airing charges for broadcasting of programme. The assessee had not deducted tax at source under section 194C on payments made to licensor and, therefore, a show-cause notice was issued to it treating it as an assessee-in-default in terms of sections 201, 201(1A) and 194C. The assessee contended that the provisions of Act were not applicable since it was not carrying on any work for broadcasting and telecasting including production of programme as such broadcasting and telecasting of progamme were being done by channels owners. The Assessing Officer held that the assessee was serving as cable operator/distributor and was airing programmes after executing the contract with various T.V. channels for which, he had paid subscription charges and the assessee was covered under sub-clause(b) of Explanation III to section 194C. Accordingly, the assessee was held in default under section 201, read with section 194C. On appeal, the Commissioner (Appeals) held that the case under consideration for payment of subscription to the licensor was not covered under any provisions of section 194C. On appeal, the Tribunal held that the Assessing Officer was correct in holding that the assessee was required to deduct tax at source in terms of section 194C on payments made to the licensor. On appeal under section 260A: HELD Section 194C creates an obligation on a person responsible for paying any sum specified therein to a person for carrying out any work, to deduct the tax at source. In terms of the Explanation III to section 194C(2) it is provided that expression ‘work’ shall include inter alia broadcasting and telecasting including production of programmes for such broadcasting and telecasting. By way of such Explanation, it is evident that where the payment is for a work involving broadcasting and telecasting, the same shall be subject to deduction of tax at source in terms of section 194C. The assessee was a cable network operator through which it provided telecasting of programmes to the ultimate consumers/subscribers. The assessee in turn entered into a contract with the licensor of various TV channels. On the payment so made, section 194C was attracted. That was for the reason that the licensor, was a person who was performing the work which is covered within the meaning of clause (b) of Explanation III to section 194C(2). [Para 13] In the agreement between the assessee and the licensor, the licensor was referred to as ‘company engaged in the business of distribution of satellite based television channel(s) services including the service and had exclusive rights to market and distribute the services in India to various customers and users of the service’. Further, the agreement refered to the assessee as a party, which was desirous to subscribe for and receive the telecast signals of the service from the company in order to further distribute the same to the customer(s). [Para 14] From the recital of the agreement itself, it was clear that the service that the assessee was availing was the receipt of ‘telecasting signals’ from the licensor or the company. The expression ‘service’ had also been referred to mean the TV channel which was dealt with by the licensor or the company. Therefore, what the assessee had transacted for with the licensor or company certainly included within its ambit broadcasting and telecasting facility. The essence of the contract was to obtain broadcasting and telecasting of TV channels and, thereafter, its distribution amongst ultimate customers through the cable network of the assessee. [Para 15] Another plea of the assessee/subscriber that the licensor or the person to whom the assessee was making payment by itself did not do the work of broadcasting and telecasting and was, therefore, outside the purview of section 194C, deserved to be negated at the threshold. As what the assessee was looking for was to obtain the telecast signals from the licensor, which was enough to deduce that the impugned contract involved broadcasting and telecasting of TV signals. Moreover, the licensor or the company, as was evident from the specimen agreement on record, was in the business of distribution of satellite based TV channels and had exclusive rights to market and distribute said services in India, the service that was referred to in the agreement was the broadcasting and telecasting of TV signals. [Para 16] Hence, the Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of section 194C on payments made to the licensor for obtaining TV signals, Cable TV net work owned by the assessee. [Para 17]