2016 (4) TMI 567 - AT - Income Tax

TDS u/s 194J - Payments made to pay channels (Royalties & Commission) - Held that - The view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact gets support from the decision rendered by Hon ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd (2011 (1) TMI 47 - DELHI HIGH COURT ). 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. Hence we are of the view that the assessing officer was not justified in disallowing the claim of pay channel charges by invoking the provisions of sec. 40(a)(ia) Payments to cable operators Programme & News Expenses Legal & Professional charges Rent, Consumables & Cable Laying Charges and Advertisement - TDS liability - Held that - The disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. Disallowance of provision of expenses - Held that - AO s remand report as extracted by Ld. CIT(A) in para (iv) in page 6 of the order indicate that assessee has not furnished any objections or information regarding the said addition even during the remand proceedings. On what basis Ld. CIT(A) has restricted the amount only to statutory disallowance u/s. 43B is not known. Unless one examine the nature of expenses the crystallisation of liability and payment at a later point of time the same cannot be allowed. Since no details are on record we have no option than to set aside the order of Ld. CIT(A) on this and restore the same to AO for fresh examination. Needless to say that assessee should be given due opportunity.

Summary

Issues Involved:
1. Share capital addition and purchase of Direct Point Connections.
2. Investment in share capital by an individual.
3. Disallowance of donations claimed.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.
5. Provision for expenses.

Detailed Analysis:

1. Share Capital Addition and Purchase of Direct Point Connections:
- Direct Point Connections: The assessee claimed to have purchased direct point connections worth Rs. 3 Crores from an individual, which was paid by cheque and recorded in the books. The AO observed that the amount was returned to the company as share capital by another individual, deeming the transaction sham and adding Rs. 3 Crores as unexplained investment under Section 69. The CIT(A) upheld the AO's findings, treating the transaction as a loan to a shareholder under Section 2(22)(e) but did not allow depreciation on the claimed assets.
- Investment in Share Capital: An individual from the USA invested Rs. 2,02,50,000 in share capital. The AO initially added this amount under Section 68 due to lack of proper confirmation. However, during remand, the AO accepted the transaction as genuine, but the Addl. Commissioner disagreed. The CIT(A) deleted the addition based on the remand report. The Tribunal upheld the CIT(A)'s decision on direct point connections and remitted the issue of share capital investment back to the AO for re-examination.

2. Disallowance of Donations Claimed:
- The AO disallowed Rs. 11,21,000 in donations, but the CIT(A) noted that Rs. 9 Lakhs were supported by receipts. The CIT(A) did not finalize the issue, leading to the Tribunal restoring the matter to the AO for examination of eligibility under Section 80GGB and verification of documentary proof.

3. Disallowance under Section 40(a)(ia):
- Payments to Pay Channels (Royalties & Commission): The AO disallowed Rs. 5,78,85,998 for non-deduction of TDS under Section 194J. The CIT(A) deleted the disallowance for Rs. 4,85,67,151 paid to signal providers, citing the term "royalty" was not in the IT Act during the relevant period. The Tribunal upheld this deletion, referencing the Delhi High Court's decision in Asia Satellite Telecommunication Co. Ltd. and the Cochin ITAT's decision in Kerala Vision Ltd.
- Programme & News Expenses: The CIT(A) deleted disallowances for machinery hire and up-linking charges, which the Tribunal upheld.
- Legal & Professional Charges: The CIT(A) allowed partial relief, but the Tribunal restored the issue to the AO to verify outstanding amounts at year-end.
- Rent: The CIT(A) allowed partial relief, and the Tribunal restored the issue to the AO for verification of outstanding amounts.
- Consumables & Cable Laying Charges: The CIT(A) gave partial relief, and the Tribunal restored the issue to the AO for verification of outstanding amounts.
- Advertisement: The CIT(A) allowed partial relief, and the Tribunal restored the issue to the AO for verification of outstanding amounts.

4. Provision for Expenses:
- The AO disallowed Rs. 92,06,352 as provision for expenses. The CIT(A) restricted the disallowance to statutory liabilities under Section 43B. The Tribunal found the details insufficient and restored the issue to the AO for fresh examination.

5. Rule 46A Compliance:
- The Revenue's ground on non-compliance with Rule 46A was rejected as the CIT(A) had sent additional evidence to the AO for remand.

Conclusion:
- Both the Revenue's and the assessee's appeals were partly allowed for statistical purposes, with several issues remitted back to the AO for further examination and verification. The Tribunal emphasized the need for proper documentation and adherence to statutory provisions in determining the allowability of expenses and investments.