2012 (7) TMI 120 - AT - Income Tax

TDS - Discount on advertisements Assessing Officer stated that advertising agents collect money from clients who want to place their advertisements in the various media published/run by it and pass on the money to the assessee after deducting the discount/commission at 15% - AO proposed to treat the assessee as defaulter u/s 201 Held that - Assessee cannot be held as an assessee in default - amounts are nothing but discounts and are recognised as such by the entire trade - A trade discount, and admittedly it is not in dispute that the subject matter of the claim is a trade discount, and not an expenditure, clearly therefore there does not arise the question of applicability of section 40A(2)(b) - assessee is not liable to deduct tax u/s 194H In favor of assessee Payment of data circuit rentals - Assessing Officer noticed that in the publication division and ETV other channels division, the assessee made payments towards use of data circuit lines to BSNL and that the assessee has not made TDS on these payments Held that - Payment of data circuit rentals cannot be regarded as fees for technical services - tax is not deductible on payment Data circuit rentals In favor of assessee Payment of band width charges Held that - Payment made for using bandwidth and network operation are not technical services and tax needed not be deducted from such payments u/s 194J - payments of bandwidth are not liable for TDS under section 194J In favor of assessee Payments of internet charges - Held that - payments of Internet Charges are not liable for TDS In the case of Skycell Communications Ltd. (2001 (2) TMI 57 (HC)) - provisions of section 194J are not applicable to the impugned payments In favor of assessee Payment of Data Circuit Rental Charges assessee not deducted TDS - Held that - connectivity charges cannot come under the purview of technical/professional services. It is similar to telephone connection and therefore, provisions of section 194C are inapplicable In favor of assessee TDS - Payment of transponder Rent Assessing Officer held that the services provided are of very technical nature requiring highly skilled professionals - AO held that the assessee was liable to make deduction of tax at source u/s 194J on the transponder rent and raised demand accordingly Held that - Nature of facility that the assessee has obtained by making the impugned payment - payment of transponder charges is not fee for technical services - Income arising to IGL out of payments received from applicant is neither in nature of royalty under Act nor is fee for technical service - Revenue s appeals dismissed Payments to News service agencies - assessee deducted tax at source u/s 194C from payments made to various news service agencies - Assessing Officer held that the payments fall u/s 194J - work carried out by news paper agents requires professional qualifications and skills. Though, the data collected by such reporters has to be reviewed glossed up and made fit to be published/presented. Nevertheless, procurement of the basic data cannot be done without qualified reporters who utilise their professional skills for collection of the same. Further, the newspapers employ reporters who have been trained to have interrogative ability, presence of mind and have specialised in a way for doing their work and hence they are rendering work in their professional capacity - CIT(A) is right in deducting TDS u/s 194J and not under section 194C and dismiss the assessee s appeal on this issue Against assessee TDS - Payment of software expenses - Assessing Officer treated the assessee as defaulter u/s 201(1) r.w.s. 194C for non deduction of TDS on software expenses paid by the assessee - assessee submitted that the provisions of section 194C are not attracted for the reason that these parties did not carry out any work for the assessee within the meaning of section 194C of the Act Held that - Assessee is making payments to various agencies on revenue sharing basis from the income generated through advertisements by way of telecasting the serials or programmes produced by the agencies - mode of payment is nothing but a payment for contract of work and is squarely covered by explanation III to section 194C which says work shall include programmes for such broadcasting or telecasting - nature of payments fall within the purview of section 194C

Summary

Issues Involved:
1. Discount on advertisements
2. Payment of data circuit rentals
3. Payment of bandwidth charges
4. Payment of internet charges
5. Payment of transponder rent
6. Payments to news service agencies
7. Payment of software expenses

Detailed Analysis:

1. Discount on Advertisements:
The Assessing Officer (AO) deemed the assessee a defaulter under Section 201 for not deducting tax at source from discounts given to advertising agents. The CIT(A) disagreed, stating the assessee cannot be held as a defaulter. The Tribunal upheld the CIT(A)'s decision, citing the Delhi Bench's decision in M/s TV Today Network Ltd., which determined that such discounts do not require TDS under Section 194H.

2. Payment of Data Circuit Rentals:
The AO observed that the assessee made payments to BSNL for data circuit lines without deducting TDS. The CIT(A) held that these payments do not fall under professional or technical services as defined under Section 194J, relying on the Madras High Court decision in Skycell Communications Ltd. and the Delhi High Court decision in CIT vs. Estel Communications P Ltd. The Tribunal confirmed this view, stating that the payments are akin to telephone line rentals and not technical services.

3. Payment of Bandwidth Charges:
The AO considered bandwidth charges liable for TDS under Section 194J. The CIT(A) disagreed, classifying these payments as rent for space on a transponder, not technical services, referencing the Madras High Court decision in Skycell Communications Ltd. The Tribunal upheld the CIT(A)'s decision, citing the Mumbai Bench's ruling in Pacific Internet (India) P Ltd., which held that bandwidth payments are not technical services requiring TDS under Section 194J.

4. Payment of Internet Charges:
The AO treated internet charges similarly to bandwidth charges, requiring TDS under Section 194J. The CIT(A) found that these payments are akin to telephone line charges and not subject to TDS under Section 194J, referencing the Madras High Court decision in Skycell Communications Ltd. The Tribunal upheld this view, relying on the same case law and other relevant decisions.

5. Payment of Transponder Rent:
The AO held that transponder rent payments to VSNL required TDS under Section 194J, considering them technical services. The CIT(A) disagreed, stating that these payments are for a facility, not a service, relying on the Madras High Court decision in Skycell Communications Ltd. and the Tribunal's decision in Raj Television Network. The Tribunal upheld the CIT(A)'s decision, referencing the AAR ruling in ISRO Satellite Centre, which held similar payments are not for technical services.

6. Payments to News Service Agencies:
The AO and CIT(A) classified payments to news service agencies under Section 194J, considering them professional services. The Tribunal agreed, noting that the work of news reporters requires professional skills and qualifications, thus falling under professional services subject to TDS under Section 194J.

7. Payment of Software Expenses:
The AO applied Section 194C to software expenses paid to M/s Usha Kiron Television and others, treating them as contractual payments. The CIT(A) upheld this view, noting that the payments were for revenue sharing from telecasting programs, which constitutes a contract for work under Section 194C. The Tribunal agreed, stating that the payments fall within the scope of Section 194C as they are for broadcasting or telecasting work.

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals, upholding the CIT(A)'s decisions on all issues. The Tribunal's rulings were based on relevant case law and the interpretation of Sections 194H, 194J, and 194C of the Income Tax Act.