Whether payer can be held liable to deduct TDS on payment made and suffer disallowance u/s 40(a)(ia) on account of subsequent retrospective amendment?

IN THE INCOME TAX APPELLATE TRIBUNAL

COCHIN BENCH, COCHIN

I.T.A. No. 794/Coch/2013

Assessment Year: 2009-10

M/s. Kerala Vision Ltd.,

(Assessee -Appellant)

Versus.

The Assistant Commissioner of

Income-tax, Circle-1(1), Trichur.

(Revenue-Respondent)

Assessee by: Shri C.V. Rajan, CA

Revenue by: Shri K.K. John, Sr. DR

Corum:

BEFORE HON’BLE S/SHRI N.R.S.GANESAN, JM and HON’BLE  B.R.BASKARAN, AM

Date of hearing: 29/04/2014

Date of pronouncement: 06/06/2014

Judgement and facts of the case

O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated 26-09-2013 passed by the Ld. CIT(A)-V, Kochi and it relates to the assessment year2009-10.

2. The assessee is challenging the decision of the Ld. CIT(A) in confirming the disallowance of Rs.163.30 lakhs, being the amount paid to pay channels by the assessee as “Pay Channel charges”, by invoking the provisions of sec.40(a)(ia) of the Act for the failure to deduct tax at source from the said payment in terms of sec. 194J of the Act, as according to the assessing officer the said payments fall in the category of “royalty”.

3. The facts relating to the said issue are stated in brief. The assesse company is engaged in the business of distributing cable signals. It receives satellite signals from various channel companies like Star Den Media Ltd., Zee Turner Limited, M.S.M. Discovery P. Ltd., U.T.V. Global Broadcasting P. Ltd. etc.in the capacity of Multi System Operator. The assessee is liable to make payment to the above said companies for receiving the signals. During the course of assessment proceedings, the Assessing officer noticed that the assessee has paid/credited to various channel companies a sum of Rs. 163.30lakhs as “Pay channel charges”. The Assessing officer took the view that the“Pay channel charges” referred above falls in the category of “royalty” and is liable for deduction of tax at source under section 194J of the Act. The assessee, however, placed reliance on the decision of the Hon’ble Madras High Court rendered in the case of Sky cell Communications Ltd. vs. DCIT reported in251 ITR 53 and contended that it is not required to deduct tax at source from payments made to the Pay channel companies. However, the Assessing officer held that the decision rendered in the case of Sky cell Communications Ltd.(supra) is not applicable to the facts of the instant case. The Assessing officer held that the assessee is liable to deduct tax at source u/s. 194J of the Act on the pay channel charges paid by it. The relevant observations made by the Assessing officer are extracted below for the sake of convenience:

“3. What is emphasized above is that the technical service given to subscriber to make use of the result of scientific and technological development for a fee to individual house holder and consumers. Here in the present case under consideration, the assessee company is a Multi System Operator Company, who as per definition given by Telecom Regulatory Authority an MSO means any person who receives a broadcasting service from a broadcaster/or their authorized agencies and retransmits the same to consumers/or retransmits the same to one or more cable operators. Thus, a MSO assumes the character and status which is totally different from the individual consumer.

4. The MSO pays a tariff to the pay channels. This is covered under the definition of royalty as used in clause (c) of sub-section (1) of Section 194J of the I.T. Act, 1961. As per Explanation 2(v) below clause (vi) of sub-section 1of Section 9, royalty means the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clause (i) to (iv), (iva) and (v).

5. From the above, what transpires is that the assessee’s case falls under royalty payment liable for tax deduction at source as per the provisions of Section 194J as that the assessee paid/credited is towards the charges for receiving a broadcasting service from a broadcaster/or their authorized agencies for retransmission of the same to consumers or one or more cable operators. Thus, the case is distinguishable from the decision relied on by the assessee. In view of the above, an amount of Rs. 1,63,30,205/-paid/credited as pay channel charges to various pay channel companies is disallowed u/s. 40a(ia) for violation of making TDS as per the provisions of Section 194J of the I.T. Act, 1961.”

4. The assessee challenged the addition made by the Assessing officer by filing the appeal before the Ld. CIT(A) but could not succeed, hence the assessee has filed this appeal before us.

5. We have heard the rival contentions and carefully perused the record. For the purpose of sec. 194J, the term “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of sec. 9. The said Explanation reads as under:-

“Explanation 2 – For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for –

i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trademark or similar property;

iii)the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films orvideo tapes for use in connection with television or tapes for use inconnection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematographic films;

To read the full judgement, please find the attached file.

Attached File: 

http://www.itatonline.in:8080/itat/upload/-250365867535991299313$5%5E1REFNOKerala_Vision_Ltd-ita_794-13.pdf