2019 (6) TMI 430 - AT - Income Tax

Tax Tribunal: Carriage/Channel Fees Taxable under Section 194C, Not 194J. No Royalty Exemption. Disallowance Rejected.

The tribunal upheld that Carriage Fees/Channel Placement Fees are subject to tax deduction under Section 194C, not Section 194J, as they constitute ... TDS u/s 194C OR 194J - short deduction of tds channel placement/carriage fees - non deduction of tds - disallowance u/s. 40(a)(ia) - HELD THAT:- In assessee's own case 2017 (11) TMI 915 - BOMBAY HIGH COURT] has held Carriage Fee/Channel Placement Fees to be covered within scope of “Work‟ defined under sub-clause (b) to clause (iv) of the Explanation to Section 194C. We have also observed that in the case of CIT v. Times Global Broadcasting Co. Ltd. [2018 (8) TMI 1810 - BOMBAY HIGH COURT] has held Carriage Fees/ Channel Placement Fees paid to cable operators /MSO/DTH operators being payment for work contract covered u/s 194C by relying on the decision of Hon‟ble Bombay High Court in the case CIT v. UTV Entertainment Television Ltd. (supra). Also confirmed by SC [2019 (5) TMI 1297 - SUPREME COURT OF INDIA] As concerned with Carriage Fees/ Channel Placement Fees paid by the assessee to cable operators for putting channel on certain frequency to enhance viewership of the said channel. These payments were held by Hon‟ble Bombay High Court to be standard fees paid for broadcasting channel on certain frequency. We have also observed that Hon‟ble Jurisdictional High Court has consistently held that payments of Carriage Fees/ Channel Placement Fees are covered under the definition of “work‟ under sub-clause (b) to clause(iv) to Explanation to Section 194C and income-tax is deductible at source u/s 194C. Reference is drawn to decision of Hon‟ble Bombay High Court in the case of CIT v. Zee Entertainment Enterprises Limited [2018 (3) TMI 317 - BOMBAY HIGH COURT] - Decided in favour of the assessee Issues Involved:1. Applicability of Section 194C vs. Section 194J for deduction of income-tax at source on Carriage Fees/Channel Placement Fees.2. Consideration of Carriage Fees/Channel Placement Fees as 'Royalty' under Explanation 6 to Section 9(1)(vi).3. Applicability of Section 40(a)(ia) for disallowance due to short deduction of tax.Issue-wise Detailed Analysis:1. Applicability of Section 194C vs. Section 194J for deduction of income-tax at source on Carriage Fees/Channel Placement Fees:The assessee, engaged in the business of advertisement and subscription, paid channel placement/carriage fees and deducted tax at source under Section 194C at 2%. The AO contended that the tax should have been deducted under Section 194J at 10%, treating the payments as fees for technical services. The CIT(A) and the ITAT upheld the assessee's position, relying on previous tribunal decisions and High Court rulings that such payments fall under Section 194C. The tribunal noted that the payments were for broadcasting and telecasting work, which falls under the definition of 'work' in Section 194C. The Bombay High Court in CIT v. UTV Entertainment Television Ltd. and CIT v. Zee Entertainment Enterprises Ltd. confirmed that such payments are subject to deduction under Section 194C and not Section 194J.2. Consideration of Carriage Fees/Channel Placement Fees as 'Royalty' under Explanation 6 to Section 9(1)(vi):The AO argued that the payments should be considered 'Royalty' under Explanation 6 to Section 9(1)(vi), which includes transmission by satellite, cable, optic fiber, or similar technology as a 'process'. The tribunal, however, followed the Bombay High Court's decisions, which held that carriage fees/channel placement fees are not in the nature of royalty. The High Court observed that these payments are standard fees for broadcasting channels on specific frequencies and do not involve any technical service or transfer of rights in any process. The tribunal emphasized that the jurisdictional High Court's rulings take precedence and must be followed to maintain judicial discipline.3. Applicability of Section 40(a)(ia) for disallowance due to short deduction of tax:The AO disallowed the expenses under Section 40(a)(ia) due to the alleged short deduction of tax. The CIT(A) and the ITAT rejected this view, citing the Kerala High Court's decision in CIT v. PVS Memorial Hospital Ltd., which clarified that Section 40(a)(ia) applies even in cases of short deduction. However, the tribunal held that since the payments were correctly subjected to tax deduction under Section 194C, there was no shortfall in compliance, and thus, Section 40(a)(ia) was not applicable. The tribunal reiterated that the assessee's method of deduction was consistent with judicial precedents and the correct interpretation of the law.Conclusion:The tribunal dismissed the Revenue's appeal, affirming that the Carriage Fees/Channel Placement Fees are subject to tax deduction under Section 194C and not Section 194J. The payments do not constitute 'Royalty' under Explanation 6 to Section 9(1)(vi). Consequently, the disallowance under Section 40(a)(ia) was not warranted. The tribunal's decision was guided by consistent rulings from the Bombay High Court, ensuring adherence to judicial discipline and precedent.