2013 (10) TMI 593 - AT - Income Tax

Tribunal rules transactions as distributor-sub-distributor, no TDS disallowance under Income Tax Act

Income Tax Officer (AO.) Versus Shri Bal Kishan Gupta Prop. M/s. Varun Cable Network

The Tribunal upheld the CIT(A)'s orders, determining that the transactions between the assessee and channel providers constituted a ... TDS deduction u/s 194C - distribution of signals - distribution of television channels through the distribution system. - sequence of transaction i.e. channels - assessee - cable operator - customers. - Relationship of manufacturer and distributors or contractor and subcontractor - Held that:- For the purpose of distributing subscribed channels, the assessee approached Star India Pvt. Ltd. - assessee is to distribute the subscribed channels in its entirety as it is delivered by Star India Pvt. Ltd. without any cutting, editing, dubbing, scrolling or ticker tape, voice-over, sub title, substituting or any other modification, alternation, addition, deletion or variation. The Star India Pvt. Ltd. is the owner/broadcaster of the subscribed channels as it is provided clearly in clause 9(c) of the agreement. In other words, broadcasting and telecasting work was to be done only by Star channels and others and not by the assessee. The assessee is to distribute the signals without any alteration and modification. The assessee is not authorized to produce any programme and not to broadcast and telecast any programme at the level of the assessee. The assessee is not authorized to change either in programme or create or produce any programme of his own. As regards the judgement of Hon'ble Punjab & Haryana High Court in the case of Kurukshetra Darpans (P) Ltd. vs. Commissioner of Income Tax, [2008 (3) TMI 48 - High Court Punjab and Haryana] relied upon the Revenue, the same distinguishable on facts as in that case the cable operator was engaged in broadcasting and giving signals to the customers whereas in the case under consideration the assessee received packed signal from channels i.e. Star TV and others and giving to cable operator without modification. It is a case of simple using of plant & machinery i.e. DSR Digital Satellite Receiver for the purpose of distribution and transmission of signals against payment and while making such payment, we are of the considered view that section 194C of the Act including Explanation (iv)(b) of Section 194C is not applicable. Since section 194C is not applicable, the assessee is not liable to deduct tax at source - Decided against Revenue. Issues Involved:1. Applicability of Section 194C of the Income Tax Act, 1961.2. Nature of the transaction between the assessee and channel providers.3. Disallowance under Section 40(a)(ia) due to non-deduction of TDS.Issue-wise Detailed Analysis:1. Applicability of Section 194C of the Income Tax Act, 1961:The primary issue was whether the assessee was liable to deduct tax at source under Section 194C of the Income Tax Act, 1961. The Assessing Officer (A.O.) argued that the payments made by the assessee to various channels amounted to broadcasting and telecasting services, which fall under the purview of Section 194C, necessitating TDS deduction. However, the CIT(A) and the Tribunal found that the nature of the transaction was more akin to a manufacturer-distributor relationship rather than a contractor-subcontractor relationship. The assessee was merely distributing the signals received from the channels without any alteration, which did not amount to broadcasting or telecasting. Therefore, Section 194C was deemed not applicable.2. Nature of the Transaction Between the Assessee and Channel Providers:The CIT(A) analyzed the nature of the transactions and concluded that the relationship between the assessee and the channel providers was that of a distributor and sub-distributor, respectively. The assessee distributed the channels' signals to sub-cable operators, who then provided these signals to the end consumers. The CIT(A) emphasized that the assessee did not engage in broadcasting or telecasting but merely transmitted the signals as received from the channels. This was further supported by the subscription agreements, which indicated that the assessee was not authorized to alter or modify the content of the channels.3. Disallowance Under Section 40(a)(ia) Due to Non-Deduction of TDS:The A.O. disallowed the payments made by the assessee to the channels under Section 40(a)(ia) due to non-deduction of TDS, amounting to Rs.72,72,807/- for A.Y. 2007-08 and Rs.67,90,170/- for A.Y. 2008-09. The CIT(A) and the Tribunal, however, held that since Section 194C was not applicable to these transactions, the disallowance under Section 40(a)(ia) was unwarranted. The Tribunal noted that the assessee was not liable to deduct TDS as the transactions did not fall under the definition of 'work' as per Section 194C, which includes broadcasting and telecasting.Conclusion:The Tribunal upheld the CIT(A)'s orders, confirming that the nature of the transactions between the assessee and the channel providers was that of a distributor-sub-distributor relationship, not a contractor-subcontractor relationship. Consequently, Section 194C was not applicable, and the disallowance under Section 40(a)(ia) was not justified. Both appeals filed by the Revenue were dismissed.Order Pronounced in Open Court:The Tribunal pronounced the order in the open court, dismissing the Revenue's appeals for both assessment years 2007-08 and 2008-09.