2017 (1) TMI 572 - AT - Income Tax

TDS u/s 194C or 194J - payment on account of placement charges - short deduction of tds - rendering of services by the cable operators/MSO s - invocation of section 201(1)/201(1A) - Held that - On verification of various clauses of such agreements which were found to be similarly worded it is seen that the Broadcasters are paying carriage fees not just for the purpose of utilizing the services of cable operators for transmitting its Channels but for placing its channels on price bands. The placement of channels on prime bands is the crux of the entire contract agreements and the payments made are directly in relation to fulfillment of condition of placement of channel in such prime band. It is worth mentioning that as is clear from nature of services rendered by cable operators as mentioned in preceding paragraphs, the payment on account of placement charges may be said to be in nature of commission as defined in Explanation to section 194H of the Income-tax Act, 1961. In view of the nature of services provided it is clear that the Cable Operators / Multi System Operators facilitates delivery of products of the broadcaster to the viewer and thus viewed this is the payment is in the nature of commission or brokerage as defined in Explanation to section 194H of the Income-tax Act,1961. There is uncontroverted finding in the impugned order that the assessee has already deducted TDS under section 194C of the Act on placement fee, therefore, we are in agreement with the stand of the Ld. Commissioner of Income Tax (Appeals) that the assessee may not be treated as assessee in default under section 201(1)/201(1A) of the Act as there is no short deduction of tax by the assessee, consequently, we affirm the stand of the Ld. Commissioner of Income Tax (Appeals). - Decided in favour of assessee

Issues Involved:
1. Applicability of TDS on payment and placement charges to cable operators/MSOs under Section 194C.
2. Classification of placement fees as "fees for technical services" under Section 194J.
3. Consideration of placement fees as "commission or brokerage" under Section 194H.
4. Invocation of Section 201(1)/201(1A) for short deduction of TDS.

Detailed Analysis:

1. Applicability of TDS on Payment and Placement Charges to Cable Operators/MSOs under Section 194C:
The core issue revolves around whether the payments made by the appellant to cable operators/MSOs for channel placement should be subjected to TDS under Section 194C or Section 194J of the Income Tax Act. The First Appellate Authority concluded that the payment made for placement charges should be regarded as part of the broadcasting and telecasting work, thus falling under Section 194C. The Authority cited the Punjab & Haryana High Court’s decision in the case of Kurukshetra Darpans (P) Ltd. vs. CIT, which supports the view that such payments are for broadcasting and telecasting work and should be subjected to TDS under Section 194C.

2. Classification of Placement Fees as "Fees for Technical Services" under Section 194J:
The Revenue's argument was that the placement fees should be classified as fees for technical services under Section 194J, which would attract a higher TDS rate. However, the First Appellate Authority disagreed, stating that merely because technical equipment is used, it does not transform the service into a technical service. The Authority referenced the Madras High Court's decision in Skycell Communications Ltd., which clarified that the use of technical equipment does not necessarily mean that technical services are being provided. Therefore, the placement fees should not be classified under Section 194J.

3. Consideration of Placement Fees as "Commission or Brokerage" under Section 194H:
The Assessing Officer also argued that the placement fees should be treated as commission or brokerage under Section 194H. The First Appellate Authority rejected this argument, explaining that commission or brokerage typically involves a person acting as an intermediary without engaging in independent business. In contrast, cable operators/MSOs operate independently, using their own resources and assets. Therefore, the placement fees do not fit the definition of commission or brokerage under Section 194H.

4. Invocation of Section 201(1)/201(1A) for Short Deduction of TDS:
The First Appellate Authority found that the appellant had already deducted TDS under Section 194C on the placement fees. As there was no short deduction of tax, the appellant could not be treated as an assessee in default under Section 201(1)/201(1A). Consequently, the demand for tax and interest under these sections was deleted.

Conclusion:
The Tribunal upheld the First Appellate Authority's decision, affirming that the placement fees paid to cable operators/MSOs should be subjected to TDS under Section 194C and not under Sections 194J or 194H. The Tribunal agreed that the appellant should not be treated as an assessee in default under Section 201(1)/201(1A) as there was no short deduction of tax. As a result, the appeals of the Revenue were dismissed.

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