2019 (12) TMI 315 - AT - Income Tax

TDS u/s 194C OR 194J - Carriage Fees/Channel Placement fees - payments made for use/right to use of 'process' are 'royalty' as per Explanation 6 to section 9(1)(vi) - HELD THAT - Hon ble High Court of Bombay in the case of CIT, TDS-2, Mumbai Vs. UTV Entertainment Television Ltd. 2017 (11) TMI 915 - BOMBAY HIGH COURT had observed, that in case of an assessee carrying on the business of broadcasting television channels, the payments made towards placement charges would fall within the meaning of work covered in Clause (iv) of Explanation to Sec.194C. On the basis of our aforesaid observations, we are of the considered view, that the CIT(A) had rightly vacated the disallowance that was made by the A.O under Sec. 40(a)(ia) of the Act.

Summary

Issues:
1. Disallowance under section 40(a)(ia) regarding 'Carriage Fees/Channel Placement fees'.
2. Whether short deduction of tax results in disallowance under section 40(a)(ia).
3. Interpretation of section 40(a)(ia) as a machinery section.
4. Applicability of section 194J for payments made for use/right to use of 'process'.

Analysis:

Issue 1:
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the disallowance under section 40(a)(ia) concerning 'Carriage Fees/Channel Placement fees'. The Revenue argued that the payments made for the use/right to use of 'process' constituted 'royalty' under Explanation 6 to section 9(1)(vi) and thus should be covered under section 194J of the Income Tax Act, 1961.

Issue 2:
The debate centered on whether the short deduction of tax would lead to disallowance under section 40(a)(ia). The Ld. CIT(A) directed to delete the disallowance, citing the Hon'ble Kerala High Court's judgment that disallowance under section 40(a)(ia) would apply even in cases of short deduction of tax.

Issue 3:
The Ld. CIT(A) was criticized for directing to delete the disallowance under section 40(a)(ia) without appreciating that it is a machinery section. The argument was that the expression "tax deductible at source under Chapter XVII-B" should be correctly applied to avoid invoking section 40(a)(ia) due to deductions under the wrong section.

Issue 4:
The Tribunal analyzed the applicability of section 194J for payments made for the use/right to use of 'process'. The Tribunal referred to previous decisions and held that 'carriage fees' paid by the assessee to cable operators did not fall within the definition of 'Royalty,' hence no obligation existed to deduct tax at source under section 194J. The Tribunal upheld the decision of the Ld. CIT(A) based on the evidence on record and legal principles laid down by High Courts, dismissing the appeal filed by the Revenue.

In conclusion, the Tribunal dismissed the appeal, upholding the decision of the Ld. CIT(A) regarding the disallowance under section 40(a)(ia) concerning 'Carriage Fees/Channel Placement fees' based on legal interpretations and precedents established in previous cases.