2014 (6) TMI 410 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the Act TDS on Pay channel charges as royalty payment - Failure to deduct TDS u/s 194J of the Act Held that - assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. Though the Explanation 6 to sec. 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the view entertained by the assessee gets support from the decision of Delhi High Court, referred above, we are of the view that the assessee cannot be held to be liable to deduct tax at source from the Pay Channel Charges. - Decision in the case of Asia Satellite Telecommunications Co. Ltd. Versus Director of Income-tax 2011 (1) TMI 47 - DELHI HIGH COURT followed Decided in favour of Assessee.

Summary

Issues:
Challenge against disallowance of pay channel charges under sec. 40(a)(ia) for failure to deduct tax at source.

Analysis:
The assessee contested the disallowance of Rs.163.30 lakhs for pay channel charges under sec. 40(a)(ia) due to failure in TDS deduction. The Assessing officer considered the payments as "royalty" under sec. 194J, requiring TDS. The assessee relied on Skycell Communications Ltd. case, but Assessing officer disagreed. The Assessing officer argued that the payments were for broadcasting services, falling under royalty. The Ld. CIT(A) upheld the disallowance, leading to the current appeal.

The Tribunal examined the definition of "royalty" under Explanation 2 to sec. 9(1). The Finance Act, 2012 added Explanation 6, clarifying "process" to include satellite transmission. As the assessee transmitted TV signals via satellite, it fell under the definition of "royalty". The Ld. Counsel argued against retrospective application of the amendment, citing the Asia Satellite Telecommunications Co. Ltd. case. The Tribunal reviewed related case laws and held that the subsequent amendments did not impose TDS liability.

The Tribunal found support for the assessee's position in the Asia Satellite Telecommunications Co. Ltd. case, concluding that pay channel charges were not subject to TDS as royalty. Despite alternative contentions by the assessee, the Tribunal ruled in favor of the assessee, directing deletion of the disallowance. The decision was pronounced on 06-06-2014.