Tribunal rules pay channel charges not subject to TDS as royalty

The Tribunal ruled in favor of the assessee, directing deletion of the disallowance of pay channel charges under sec. 40(a)(ia) for failure to deduct tax at source, as the charges were not considered as royalty subject to TDS. The decision was based on the interpretation of "royalty" under Explanation 2 to sec. 9(1) and the clarification added by Explanation 6 through the Finance Act, 2012. The Tribunal held that the amendments did not impose TDS liability on the pay channel charges, in line with the Asia Satellite Telecommunications Co. Ltd. case.

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Issues:
Challenge against disallowance of pay channel charges under sec. 40(a)(ia) for failure to deduct tax at source.

Analysis:
The assessee contested the disallowance of Rs.163.30 lakhs for pay channel charges under sec. 40(a)(ia) due to failure in TDS deduction. The Assessing officer considered the payments as "royalty" under sec. 194J, requiring TDS. The assessee relied on Skycell Communications Ltd. case, but Assessing officer disagreed. The Assessing officer argued that the payments were for broadcasting services, falling under royalty. The Ld. CIT(A) upheld the disallowance, leading to the current appeal.

The Tribunal examined the definition of "royalty" under Explanation 2 to sec. 9(1). The Finance Act, 2012 added Explanation 6, clarifying "process" to include satellite transmission. As the assessee transmitted TV signals via satellite, it fell under the definition of "royalty". The Ld. Counsel argued against retrospective application of the amendment, citing the Asia Satellite Telecommunications Co. Ltd. case. The Tribunal reviewed related case laws and held that the subsequent amendments did not impose TDS liability.

The Tribunal found support for the assessee's position in the Asia Satellite Telecommunications Co. Ltd. case, concluding that pay channel charges were not subject to TDS as royalty. Despite alternative contentions by the assessee, the Tribunal ruled in favor of the assessee, directing deletion of the disallowance. The decision was pronounced on 06-06-2014.

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