2018 (11) TMI 695 - AT - Income Tax

Short deduction of TDS - TDS u/s 194C OR 194J - Carriage Fees/ Channel Placement Fees - whether these payments are made for use/ right to use of process and are royalty as per explanation 6 under section 9(1)(vi) of the Act and therefore covered under section 194J? - Held that - There is no dispute that the payment in question was made by the assessee to the cable operators/ MSOs for placing the TV channels in the prime band in order to enhance the viewership and better advertisement revenue. what the assessee has transacted for with the licensor or company certainly includes within its ambit broadcasting and telecasting facility. The essence of the contract is to obtain broadcasting and telecasting of TV channels and thereafter its distribution amongst ultimate customers through the cable network of the assessee. What the assessee subscriber is looking for is to obtain the telecast signals from the licensor, which is enough, to deduce that the impugned contract involves broadcasting and telecasting of TV signals. Moreover, the licensor or the company, as is evident from the specimen agreement on record, in the business of distribution of satellite based TV channels and has exclusive rights to market and distribute said services in India, the service that is referred to in the agreement is the broadcasting and telecasting of TV signals. Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of s. 194C As decided in assessee s own case 2016 (1) TMI 213 - ITAT MUMBAI provisions of section 194J of the Act are not applied on payment of carriage fees to cable operations hence, the disallowance carriage/ channel placement fees u/s 40(a)(ia) is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of expenses due to short deduction of TDS under section 194C instead of section 194J.
2. Classification of payments as 'royalty' under section 9(1)(vi) and its implications under section 194J.

Detailed Analysis:

1. Disallowance of Expenses Due to Short Deduction of TDS:

The primary issue in these appeals is whether the CIT(A) was justified in deleting the disallowance made by the AO on account of short deduction of TDS under section 194C instead of section 194J in respect of Carriage Fees/Channel Placement Fees. The AO had disallowed these fees by invoking section 40(a)(ia) of the Income Tax Act, 1961, arguing that the payments were in the nature of royalty as per explanation 6 to section 9(1)(vi) and should have been subjected to TDS at 10% under section 194J, rather than 2% under section 194C.

The CIT(A) deleted the disallowance by relying on the Tribunal’s decision in the assessee’s own case, which held that the provisions of section 194J do not apply to payments of carriage fees to cable operators. This decision was based on the Tribunal’s previous order where it was concluded that such payments fall under the purview of section 194C, which specifically deals with broadcasting and telecasting activities.

2. Classification of Payments as 'Royalty':

The Revenue contended that the payments made for the use/right to use of 'process' are classified as 'royalty' under explanation 6 to section 9(1)(vi) and therefore should be covered under section 194J. The Tribunal, however, upheld the CIT(A)’s decision by referencing several judicial precedents, including the Hon'ble Punjab & Haryana High Court in the case of Kurukshetra Darpans (P) Ltd. Vs. CIT and the Hon'ble Delhi High Court in the case of CIT Vs. Prasar Bharati (Broadcasting Corporation of India).

These precedents clarified that payments for broadcasting and telecasting, including the production of programs for such activities, fall under the specific provisions of section 194C. The Tribunal emphasized that when two provisions are simultaneously introduced, one specific and the other general, the specific provision should be applied, which in this case is section 194C.

Conclusion:

The Tribunal concluded that the CIT(A) was correct in deleting the disallowance under section 40(a)(ia) as the payments made by the assessee for carriage fees/channel placement fees fall under section 194C and not section 194J. This decision was consistent with previous judicial rulings and the specific provisions of the Income Tax Act, which categorize broadcasting and telecasting payments under section 194C.

Final Order:

The appeals by the Revenue were dismissed, and the order of the CIT(A) was upheld. The Tribunal confirmed that the disallowance made by the AO was not justified, and the payments were correctly subjected to TDS under section 194C.

Pronouncement:

The order was pronounced in the open court on 15-10-2018.