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TMI Blog2020 (7) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... se before us and the ld. AO is directed to grant depreciation on the software expenditure incurred during the year in addition to granting depreciation on opening WDV of computer and computer software. Accordingly, the ground raised by the assessee is allowed for statistical purposes. TDS u/s 194C - Disallowance made by the ld. AO u/s.40(a)(ia) of the Act in respect of channel placement fees -HELD THAT:- As decided in UTV ENTERTAINMENT TELEVISION LTD. [ 2017 (11) TMI 915 - BOMBAY HIGH COURT] activities covered by Section 194C are more specific and the activities covered by Section 194J are more general in terms. - by no stretch of imagination, considering the nature of transaction, the argument that carriage fees or placement fees are in the nature of commission or royalty can be accepted. - we direct the ld. AO to delete the disallowance made u/s.40(a)(ia) of the Act in the hands of the assessee. Short grant of credit for tax deducted at source AND Short grant of foreign tax credit - HELD THAT:- We direct the ld. AO to verify the same with the relevant records and decide the issue as per law - ITA No.30/Mum/2018 - - - Dated:- 17-7-2020 - Shri M. Balaganesh, AM And Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The said order of the TPO forms part of the legal paper book (refer case law at Sr. no. 30 of legal paper book of assessee for Y 2012-13). After considering the FAR analysis, the TPO concluded and accepted profit split of (50:50 i.e. profit split of 50% to channel companies and 50% to Star Ltd) at page 13 of the order (refer case law at sr. no. : 30 of legal paper book for Y 2012-13). 58. In light of the said observations of the TPO, the remuneration (50%) of the profits taxed in the hands of STAR Ltd included remuneration for the brands, etc. The TPO in it is order for STAR Ltd for AY 2008-09 has observed that over a period of time STAR Ltd. has nurtured and invested significantly in the creation anti promotion of the STAR brand including the logo, along with Channel name in form of Star Cropped box / Star logo. Therefore, it said that STAR Ltd has developed the brand and is the economic owner of the STAR Ltd. Even, the Tribunal in the case of assessee s sister concern for AY 2008-09 in ITA No. 7680/Mum/2012 has approved this FAR analysis of the Transfer Pricing Officer. 59. We noted that the channel companies, i.e. STEL, SAML, SAR, which were owners of various chann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annels and broadcasted with a new look and re- branding approach, the same would not have come without a substantial additional cost and effort. Not only would the assessee be needed to expend money but would also need to develop new strategies for promoting its channel, creating awareness amongst viewers and work towards achieving brand loyalty and credibility. Thus, since SIPL could not run its operations without the Star brand, it entered into a licensing arrangement for 10 years. 61. We also noted that the approval of the RBI to brand license fee was taken and for the purpose of making lump sum payment to STAR Ltd, had determined the total value of brand license to be of USD : 36.02 million for the use of STAR mark for a tenure of two years on the basis of a valuation by third party valuer. SIPL, intended to pay the above payment in six installments. Considering the deferral in the payments, an interest component was considered to the overall value based on which the total value was determined to of USD 36.95 million. After consideration, the reserve bank refused to permit the assessee to pay the amount of US$ 36.95 Million and only approved all of USD 36.02 Million thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property tax had to be borne by the landlord. The ld. AO also in support of his action placed reliance on the decision taken by his predecessor for the A.Y.2006-07 in this regard. We find that this Tribunal for A.Y.2006-07 in ITA No.4818 and 4675/Mum/2010 dated 01/04/2016 had held with regard to the subject mentioned issue before us as under:- 7. According, to this issue the matter of controversy is that whether, the learned CIT(A) has erred in upholding the disallowance of ₹ 30,63,248/- represented the expenditure incurred by the Appellant in respect of reimbursement of property taxes to Precision Component(P) Ltd.(PCPL). It is argued by the assessee that in accordance with the letter dated 01.04.2001 to the PCPL, the assessee company was under obligation to pay that property tax and the said tax was paid. Therefore, the expenditure to the tune of ₹ 30,63,248/- is required to be allowed. The learned A.O. recorded the findings that in view of the clause 4 of the agreement dated 01.04.2001 the liability was with the licensor i.e. PCPL and PCPL was under obligation to pay the tax. Therefore, this expenditure was not found to be justified and disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO by the assessee and the same was treated as capital expenditure by the ld. AO in earlier years. We find that the ld. AR before us pleaded for grant of depreciation on the fresh software expenditure incurred during the year and on the opening written down value (WDV) of software expenditure grouped under the head computers‟. He fairly stated that the assessee is not pressing the issue as to whether the said expenditure is capital or revenue in nature. We find that the expenditure incurred towards software need to be treated as capital in nature in the facts and circumstances of the case before us and the ld. AO is directed to grant depreciation on the software expenditure incurred during the year in addition to granting depreciation on opening WDV of computer and computer software. Accordingly, the ground No.6 raised by the assessee is allowed for statistical purposes. 7. The ground Nos. 7 14 raised by the assessee is with regard to action of the ld. CIT(A) in confirming the disallowance made by the ld. AO u/s.40(a)(ia) of the Act in respect of channel placement fees. 7.1. The brief facts with regard to this issue are that the signals of TV channels telecast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 9(i)(vi) of the Act which was introduced with retrospective effect from 01/06/1976. Accordingly, he held that the same would fall within the ambit of deduction of tax provisions as per Section 194J of the Act instead of Section 194C of the Act. The AO relied on the decisions of the Delhi Tribunal in the cases of Asia Satellite Telecommunication Co. Ltd. vs. DCIT (322 ITR 140), ACIT v. Sansker Info T.V. P. Ltd (24 SOT 87) and New Skies Satellites NV v. ADIT (121 ITD 1). Since, there was a short deduction of tax at source made by assessee, the ld. AO disallowed the differential sum of ₹ 16,20,89,346/- (₹ 2,63,94,30,108 2,47,73,40,762/-) u/s.40(a)(ia) of the Act in the assessment which was upheld by the ld. DRP by following the order passed by them in assessee‟s own case in A.Yrs. 2011-12 and 2012-13. 7.4. The assessee distinguished the decisions cited by the AO, submitting that they were in the context of payments made for use of a transponder. It was also submitted that the decision of Asia Satellite Telecommunication Co. Ltd. v. DCIT ( 322 ITR 140) and New Skies Satellites NV v. ADIT (121 ITD 1) has been reversed by the Delhi High Court and that the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing payments made. (i) Carriage Fees / Placement Charges. (ii) Subtitling charges (Editing Expenses) (iii) Dubbing Charges. 4. After considering the reply of the respondent assessee, it was held that an aggregate amount of ₹ 34,71,36,096/is in the nature of fees for rendering technical services and therefore tax should have been deducted under Section 194J of the said Act. Before we come to the submissions made across the bar, it will be necessary to make reference to the relevant provisions of the Income Tax Act. Section 194C and Section 194J of the Income Tax Act form part of the Chapter XVII which generally deals with the collection and recovery of tax. Section 194C deals with the payment to the contractors while Section 194J deals with fees for professional or technical services. 5. As observed earlier, the Assessing Officer passed an order dated 18th March 2011 under Section 201(1)/ 201(1A) of the Income Tax Act holding that the three items were not covered by Section 194C but by Section 194J. 6. Therefore, a demand of ₹ 1,11,13,964/was raised. Being aggrieved by the said order, an appeal was preferred by the respondent before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ₹ 12,95,400/on account of Dubbing Charges. The assessee was asked to give the details of the Carriage Fees, Editing Expenses and Dubbing Charges paid by the company and the services rendered to them along with copies of Agreements made in this regard. The assessee has deducted TDS as per the provisions of section 194C of the I.T.Act on such payment. On further perusal of the Agreements submitted by the assessee it is seen that these payments are given to MSO/Cable Operators to retransmit and/or carry the service of the channels on 'S' Band in their respective territories. The services provided by these MSOs / Cable Operators does not come within the purview of section 194C of the I. T. Act, as placing the service of the channel on 'S' Band is a Technical Service for which the TDS is required to be deducted as per the provisions of Section 194J of the I.T.Act instead deducted by the assessee company as per the provisions of section 194C of the I.T.Act, 1961. 10. Thus, we are concerned with three categories of charges i.e. carriage fees, editing expenses and dubbing charges. It is to be noted that the respondentassessee had deducted TDS as per the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d frequency band. As stated earlier, the respondent has deducted tax at the rate of 2% at source by invoking Section 194C of the Income Tax Act while making payment towards placement fees to the cable operators/ MSOs. If Section 194J is to be applied, the deduction would be of 10%. The Commissioner (Appeals) has also gone through the method followed by the cable operators/ MSOs. The Commissioner (Appeals) has also gone into the submission of the Revenue that, in fact, Section 194J would apply. In substance, the argument is that placement charges are basically for rendering technical service. The Commissioner (Appeals) has recorded a finding of fact on the basis of material on record that the placement charges are consideration for placing the channels on agreed frequency bands. It was found that, as a matter of fact, by agreeing to place the channel on any preferred band, the cable operator does not render any technical service to the distributor/ TV channel. Reference is made to the standard fee paid for basic broadcasting of a channel at any frequency. The Commissioner (Appeals) has considered clause (iv) of the explanation to Section 194C which incorporates inclusive defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We must note here that in this appeal, the Revenue has not made any grievance regarding applicability of Section 194C to dubbing charges. The finding of fact recorded by the Commissioner (Appeals), which is confirmed by the Appellate Tribunal, is that work of subtitling will be covered by the definition of work in clause (iv) of explanation to Section 194C. Reliance is placed by the Commissioner (Appeals) on the CBDT notification dated 12th January 1977. The said notification includes editing in the profession of film artists for the purpose of Section 44AA of the Income Tax Act. However, the service of subtitling is not included in the category of film artists. As noted earlier, subclause (b) of clause (iv) of the explanation to Section 194C covers the work of broadcasting and telecasting including production of programmes for such broadcasting or telecasting. The work of subtitling will be naturally a part of production of programmes. Apart from confirming the finding of fact recorded by the Commissioner (Appeals) on both the aspects on placement fee and subtitling charges, the Appellate Tribunal has noted that both Sections 194C and 194J having introduced into the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra has been dismissed by the Hon‟ble Supreme Court in SLP No.4394/2019 dated 25/02/2019. In view of the aforesaid decision of Hon‟ble Jurisdictional High Court, we direct the ld. AO to delete the disallowance made u/s.40(a)(ia) of the Act in the hands of the assessee. Accordingly ground Nos. 7-14 raised by the assessee are allowed. 8. The ground No. 15 raised by the assessee is with regard to short grant of credit for tax deducted at source by the ld. AO. We direct the ld. AO to verify the same with the relevant records and decide the issue as per law. Accordingly, the ground No.15 raised by the assessee is allowed for statistical purposes. 9. The ground No. 16 raised by the assessee is with regard to short grant of foreign tax credit by the ld. AO. We direct the ld. AO to verify the same with the relevant records and decide the issue as per law. Accordingly, the ground No.16 raised by the assessee is allowed for statistical purposes. 10. The ground No.17 raised by the assessee is with regard to initiation of penalty proceedings u/s.271(1)(c) of the Act which would be premature for adjudication at this stage. 11. In the result, appeal of the assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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