2016 (10) TMI 205 - HC - Income Tax

Vires of Rule 28AA of the Income Tax Rules 1961 - Certificate for deduction at lower rates or no deduction of tax from income other than dividends - whether no TDS need be reduced from the payments made by TV channels to the petitioner with respect to sale/distribution/exhibition of cinematographic films by the petitioner to such TV channels for exhibition by such TV channels - Held that - We do not think that this Court should delve into the merits of the contentions urged especially on account of the fact that any exemption for the deductor not to deduct tax in terms of Rule 28AA has to be considered by the competent authority. As far as Ext.P6 is concerned it is with reference to the application submitted by the petitioner for exemption of payment of tax for the year 2009. Substantial change has now been made in Rule 28AA so far as assessing officer is entitled to issue a certificate if the tax liability of person justify deduction of tax at lower rate and no deduction of tax could be made. The earlier restriction imposed under Rule 28AA has been taken away by the present amendment. Under such circumstances it is for the petitioner who is involved in such transactions to approach the assessing officer concerned and seek for necessary concession in terms of Rule 28AA. I do not think that any further direction is required to be issued as statutory provision is available to take care of such situations. An interim order had been passed by this Court permitting tax to be deducted by the respective deductors only at 3% in terms of Ext.P4. The said situation shall continue for a period of one month to enable the petitioner to approach the assessing officer with a proper representation and on receipt of the said representation the assessing officer shall consider the same and pass appropriate orders within a period of one month from the date of receipt of the representation.

Summary

Issues:
1. Interpretation of Rule 28AA of the Income Tax Rules, 1961.
2. Applicability of TDS on payments made by TV channels to the petitioner for exhibition of cinematographic films.
3. Validity of the certificate issued under Section 197(1) of the Income Tax Act.
4. Challenge to the vires of Rule 28AA and seeking a declaration that no TDS is required to be deducted.

Interpretation of Rule 28AA:
The judgment delves into the interpretation of Rule 28AA of the Income Tax Rules, 1961, which deals with the issuance of certificates for deduction at lower rates or no deduction of tax from income. The rule specifies the conditions under which an Assessing Officer may issue such certificates, taking into account various factors like tax liabilities, advance tax payments, and tax deducted at source. The judgment highlights that the rule has undergone changes, and the current provisions do not necessitate a consideration of its vires.

Applicability of TDS on Payments to Petitioner:
The petitioner, engaged in purchasing Satellite TV broadcast/exhibition rights of cinematographic films, argues that the royalty paid to them for the sale/distribution of films does not attract TDS. The petitioner contends that as per Section 194J of the Income Tax Act, the payment of royalty does not fall under the definition of "royalty" as per Explanation 2 of Section 9(1) of the Act. The judgment discusses the definition of royalty and the petitioner's claim that no TDS should be deducted from payments received for the exhibition of cinematographic films.

Validity of Certificate under Section 197(1):
The petitioner sought a declaration that no TDS should be deducted from payments made by TV channels for exhibiting films. The certificate issued under Section 197(1) of the Income Tax Act, allowing a reduced rate of 3% TDS by a TV company, was challenged. The petitioner's application for exemption from TDS was rejected based on Rule 28AA and a clarification from the Central Board of Direct Taxes. The judgment analyzes the validity of this certificate and the grounds on which the petitioner contested its issuance.

Challenge to Vires of Rule 28AA:
The petitioner challenges the vires of Rule 28AA and seeks a declaration that no TDS should be deducted from payments received for the exhibition of cinematographic films. The judgment discusses the petitioner's contentions that the rule is ultra vires the statute and argues for the quashing of the certificate issued under Section 197(1) of the Act. The judgment emphasizes the need for the petitioner to approach the assessing officer for necessary concessions under Rule 28AA and concludes by providing directions for the petitioner to seek appropriate relief through statutory provisions.

In conclusion, the judgment provides a detailed analysis of the issues raised by the petitioner regarding TDS deductions on payments received for exhibiting cinematographic films, the interpretation of Rule 28AA, the validity of the certificate issued under Section 197(1), and the challenge to the vires of the rule. It emphasizes the need for the petitioner to engage with the assessing officer for seeking concessions under the applicable provisions, ultimately disposing of the writ petition with specific directions for further action by the petitioner.