2019 (9) TMI 484 - AT - Income Tax

TDS u/s 194J or 194C - arriage fees/Placement fees - whether payments made for use of process are royalty as per Explanation 6 to section 9(1)(vi)? - HELD THAT - Issue involved in the present appeal is squarely covered by the judgment of M/S. NGC NETWORKS (INDIA) PVT. LTD. 2018 (5) TMI 1148 - BOMBAY HIGH COURT held as the amendment by introduction of Explanation 6 to Sec. 9(1)(vi) took place in the year 2012 with retrospective effect from 1976, therefore, the assessee could not have contemplated the said retrospective amendment at the time he had made the payment after subjecting the same to deduction of tax at source under Sec. 194C. The Hon ble High Court while upholding the view taken by the Tribunal that as the channel placement fees was rightly subjected to deduction of tax at source by the assessee under Sec.194C and not Sec. 194J of the IT Act, therefore, no disallowance of the said expenditure was called for under Sec. 40(a)(i) of the Act in the hands of the assessee ' As the definition of royalty as envisaged in Explanation to Sec. 40(a)(i) and that in Explanation(vi) to Sec. 40(a)(ia) are similarly placed, therefore, the aforesaid judgment of the Hon ble High Court would be applicable to the case of the present assessee where the disallowance had been made by the A.O under Sec. 40(a)(ia). Apart therefrom, we also find that the issue that channel placement fees is liable for deduction of tax at source under Sec. 194C, had also recently been looked into by a coordinate bench of the Tribunal in the case of ACIT, Mumbai Vs. M/s Star Den Media Services Pvt. Ltd. 2018 (6) TMI 688 - ITAT MUMBAI - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under Sec. 40(a)(ia) rws 194J for 'Carriage fees/Placement fees'
2. Disallowance under Sec. 40(a)(ia) rws 194J for 'Carriage fees/Channel Placement fees'
3. Disallowance under Sec. 40(a)(ia) based on Kerala High Court judgment
4. Applicability of Sec. 40(a)(ia) regarding channel placement fees

Analysis:

1. The appeal concerned the disallowance under Sec. 40(a)(ia) rws 194J for 'Carriage fees/Placement fees'. The AO disallowed an amount under this section as the assessee had wrongly deducted tax under Sec. 194C instead of Sec. 194J. The CIT(A) accepted the assessee's contention that the payment did not fall under the definition of 'royalty' under Sec. 9(1)(vi) and directed the deletion of the disallowance. The Tribunal noted that the issue was covered by the Bombay High Court judgment in a similar case, where it was held that the payment was not royalty, hence no disallowance was warranted.

2. Another issue was the disallowance under Sec. 40(a)(ia) rws 194J for 'Carriage fees/Channel Placement fees'. The AO disallowed the amount based on the view that the payment for 'process' use was royalty under Sec. 9(1)(vi). However, the CIT(A) relied on precedents to conclude that the payment did not constitute royalty. The Tribunal referred to the Bombay High Court judgment, stating that no disallowance was justified as the payment was not royalty.

3. The third issue involved the disallowance under Sec. 40(a)(ia) without appreciating a Kerala High Court judgment. The Tribunal found that the Bombay High Court's interpretation of 'royalty' under Sec. 40(a)(ia) was applicable, rendering the disallowance unnecessary based on the facts of the case.

4. The final issue was the applicability of Sec. 40(a)(ia) regarding channel placement fees. The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court judgment and a Tribunal decision on a similar matter. It emphasized that the payment for channel placement fees did not qualify as royalty, hence no disallowance was warranted. The appeal by the revenue was subsequently dismissed based on these considerations.