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TMI Blog2019 (4) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made for use/right to use of 'process' are 'royalty' as per Explanation 6 to section 9(l)(vi) hence such payments are covered u/s. 194J of the Income Tax Act, 1961. 2) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia) rws 194J of 'Carriage Fees/Channel Placement Fees. 3) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in relying on the order of Hon'ble Delhi High Court in the case of CIT v/s Prasar Bharti (292 ITR 580) without realizing that the said decision applies to an entity making, payments to outside producers for making certain programs for it whereas in the instant case the payment was made by the assessee who is broadcaster to various MSOs or Cable Operators for placing its channel on a particular frequency/ bandwidth. 4) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia) placing reliance on the decision of Calcutta High Court dated 10.12.2012 in CIT vs S.K. Tekriwal [2014] without appreciating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under:- 4.2. I have considered carefully the findings of the assessing officer and the rival submissions of the appellant. The advertisement agencies are appointed by the advertiser and not by the appellant company. Since the advertisers appoint the advertisement agencies, they release the advertisement to be broadcast on the television channel through the advertisement agency. The advertisement agency erefore is the agent of the advertiser and not an agent of the appellant. The relationship between the appellant and the advertisement agency is therefore only on a principal to principal basis. The discount granted by the appellant to the advertisement agency is on account of the bulk business that the advertisement agency gives to the television channel and not for any services that is rendered to the appellant by the advertisement agency. In the circumstances, the provisions of Section 194H are not attracted. This proposition has been laid down by the Hon'ble Allahabad High Court in the case of Jagran Prakashan (345 ITR 288). This has also been accepted by the CBDT in their recent circular No.05/2016 dated 29th February 2016. After referring to the judicial pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to substantiate its contention. 5.2 On careful perusal of the details filed by the appellant in relation to the payment of transponder hire charges, it is observed that the appellant has duly complied with the TDS requirements insofar as these payments are concerned. Accordingly, the Assessing Officer is directed not to subject the payment of transponder hire charges of Rs. 2,53,04,473 to disallowance u/s 40(a)(ia) of the Act. Further, in respect of the disallowance of channel placement fees, it is noted that according to the Assessing Officer channel placement fees is a carriage fee which comes under the definition of 'royalty1 as explained in explanation 2 to sec. 9(1}(vi). In the assessment order, the AO has discussed the concept of royalty and has finally held that such placement fees are carriage fees paid by the appellant is in fact royalty, hence, TDS has to be made u/s. 194J of the I.T.Act. Since the assessee has made TDS u/s.194C at lower rate, such expenditure is not to be allowed.. Thus, mainly on these reasoning, the AO has disallowed an amount of Rs, 5,90,07,689/-. In appeal, it is submitted that the Id. AO has wrongly disallowed the genuine expenditure me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is capable of exempt income hence, expenditure related to such investment is to be disallowed. The Assessee cannot so that it has incurred any expenditure for making such investment. It is clear that no exempt income can be earned without incurring expenses. The computer, electricity, office staff, vehicle, telephone and common expenses are also related to earning of exempt income hence, after discussing the provision of law u/s.14A Income-Tax Act, 1961, the Assessing Officer has applied rule 8D of the IT. Rule, 1962 and has worked out disallowable expenditure to the tune of Rs. 19,39,202/-. During the appellate proceedings, the Ld AR submitted that the appellant had not earned any income forming part of the total income which is claimed as exempt under the provisions of the Act for the year under consideration. The appellant has thereby challenged the disallowance made by the AO on the basis that no disallowance u/s 14A of the Act r.w. Rule 8D could be made in absence of exempt income being earned during the year. 6.1. The appellant placed reliance on the decision of the Hon'ble Bombay High Court in the case of Delite Industries Limited ITA No, 110 of 2009, wherein the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for earning exempt income. The .relevant extract of the decision has been reproduced:- "The contention of the revenue thai directly or indirectly some expenditure is always incurred which must be disallowed under Section 14A and the impact of expenditure so incurred cannot be allowed to be set off against business income which may nullify the mandate of Section 14A cannot be accepted. Disallowance under Section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand. " 6.6. In view of the above, it was submitted that since the appellant did not incur any expenditure for earning exempt income, no disallowance u/s 14A of the Act could be made. Further, the appellant also submitted that all its investments are made out of its own funds and in the shares of its subsidiary, Kannada Prabha Publications Ltd. The Ld AR submitted that the investments made by the appellant in its subsidiary are strategic in nature and are held for acquiring controlling interest. The said investments are not made with the intention of earning dividend income therefrom. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educt tax at source u/s.194J of the Income Tax Act, 1961. 6. The ld. DR on the other hand fairly accepted that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai for earlier years. 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The issue involved in the present appeal, i.e. whether channel placement fees / transponder fees is liable for TDS u/s.194J of the Act, consequently liable for disallowance u/s.40(a)(ia) for failure to deduct tax at source. We find that the Co-ordinate Bench of ITAT, Mumbai 'A' Bench in assessee's own case has considered the issue in the light of the provisions of Section 194J and by following the decision of Hon'ble Bombay High Court in the case of CIT vs. NGC Networks (India) Pvt. Ltd., in ITA No.397 of 2015 held that channel placement fees is not a royalty in terms of Explanation-2 to Section 9(i)(vi) of the Income Tax Act, 1961, therefore, no disallowance could be made u/s.40(a)(ia) for failure to deduct tax at source u/s.194J of the Income Tax Act, 1961. Relevant observations of the Tribunal are as under:- "7. We have heard the rival su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re u/s 40(a)(vi) of the Act, can be made in the present case." 7.1 Thus, in the instant case, the assessee could not have deducted tax u/s 194J on account of subsequent amendment in definition of royalty by Explanation 6. Consequently, the disallowance by the AO by treating channel placement fees as process royalty under Explanation 6 to 9(1)(vi) is not warranted. 7.2 In the case of UTV Entertainment Ltd. (supra), it is held by the Hon'ble Bombay High Court that in case of assessee carrying on business of broadcasting of television channels, payments of placement charges and subletting charges would fall within the meaning of 'work' covered in clause (iv) of Explanation to section 194C, and thus, assessee was justified in deducting tax at source u/s 194C, while making said payments. Thus channel placement fees, as in the instant case, is liable to withholding u/s 194C, to be more specific under clause (iv) of Explanation to section 194C. 7.3 Further, it is held in the case of S.K. Tekriwal (supra), by the Hon'ble Calcutta High Court that if there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also by relied upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. Godrej & Boyce Manufacturing Company Ltd., held that the provisions of rule 8D is mandatorily applicable from the AY 2008-09 onwards whether or not the assessee has earned exempt income, therefore, he has determined the expenses incurred in relation to exempt income by invoking rule 8D(2)(iii) @0.5% of average value of investment and made disallowance of Rs. 19,39,204/-. 13. The ld. AR for the assessee, at the time of hearing submitted that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd., in ITA No.51/2016 dated 13/10/2016 where the Hon'ble High Court held that when there is no exempt income earned for the year under consideration, expenses contemplated u/s.14A of the Income Tax Act, 1961 could not be disallowed. The AR further submitted that the Co-ordinate Bench of ITAT in the case of Essar Infrastructure Ltd., In ITA No.4769/Mum/2017 has considered an identical issue and by following the decision of Hon'ble Bombay High Court in the case of Pr. CIT vs. Ballarpur Industries Ltd., held that when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income." 16. In this view of the matter and consistent with view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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