2020 (1) TMI 357 - HC - Income Tax

Court Rules on TDS: Contractual vs. Technical Services

The court determined that payments made by the assessee to Multi System Operators for broadcasting services fell under Section 194C, not Section 194J of ... TDS u/s 194C OR 194J - Short deduction of tds - services of Uplinking, Bandwidth Services, Air Time and Channel Carriages to Multi System Operators - whether the payments made by the assessee to the companies with which it had entered into contracts can be said to be remuneration for the rendering of any managerial, technical or consultancy services? - HELD THAT:- The deductees in the instant case simply carried out a contractual work of up-linking and broadcasting programmes made or produced by the assessee in the electronic media by permitting the assessee to avail the benefit of requisite electronic set up against payment of a fee. It is purely contractual in nature and the assessee has the right to use the set up only so long as the contract subsists and the facilities offered by the deductees do not amount to providing ‘technical services’ and hence, the payments they received from the assessee cannot be termed as ‘fees for technical services’. Therefore, Section 194J is not attracted. It is Section 194C which would apply to the facts of case. The definition of ‘work’ under that Section is inclusive and specifically includes broadcasting and telecasting. The deductees do broadcasting and telecasting work for the assessee and therefore, Section 194C would apply to the facts of this case. The assessee rightly deducted tax at source at the rate prescribed in Section 194C of the Act and there is no short deduction. We find no infirmity in the order under appeal. Imposition of penalty on the assessee by the Assessing Officer is not defensible. The relevant tax records of the deductee companies were produced and the CIT found that the said companies have paid entirety of the tax payable after giving credit for the tax deducted at source. It is not that because of the assessee making deductions under Section 194C, the Revenue has suffered any loss. In the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax, [2007 (8) TMI 12 - SUPREME COURT] , the Hon’ble Supreme Court noted Circular no.275/201/95-IT (B) dated January 29, 1997, issued by the Central Board of Direct Taxes. The said circular declares that no payment visualized under Section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the Officer-in-Charge of TDS that taxes due have been paid by the deducte-eassessee. Issues Involved:1. Applicability of Section 194C vs. Section 194J of the Income Tax Act.2. Determination of whether payments made by the assessee were for technical services.3. Legitimacy of the penalty imposed on the assessee.Detailed Analysis:1. Applicability of Section 194C vs. Section 194J of the Income Tax Act:The primary issue in this case was whether the payments made by the assessee to Multi System Operators (MSOs) for Up-linking and Bandwidth Services, as well as Air Time service charges, should be covered under Section 194C or Section 194J of the Income Tax Act. The Assessing Officer held that these payments were for technical services, thus falling under Section 194J, which requires a higher rate of tax deduction at source (TDS). However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) concluded that these payments were for broadcasting and telecasting services, which are specifically included under the definition of 'work' in Section 194C.2. Determination of whether payments made by the assessee were for technical services:The court examined the nature of the services provided by the MSOs. It was argued that the services required the use of sophisticated equipment for transmission, which did not amount to the provision of technical services as defined under Section 9(1)(vii) of the Act. The court referred to several precedents, including:- Commissioner of Income Tax v. Bharti Cellular Ltd.: The Delhi High Court held that the term 'technical services' involves a personal element, which was not present in this case.- Skycell Communications Ltd. & Ors. v. Deputy Commissioner of Income Tax & Ors.: The Madras High Court ruled that the use of sophisticated equipment does not equate to technical services.- Commissioner of Income Tax v. DE Beers India Minerals (P) Ltd.: The Karnataka High Court stated that technical services must make available technical knowledge or know-how, which was not the case here.- Commissioner of Income Tax (TDS) v. UTV Entertainment Television Ltd.: The Bombay High Court held that placement fees for broadcasting channels fell under Section 194C.The court concluded that the services provided by the MSOs were contractual in nature and did not constitute technical services. Therefore, Section 194C was applicable, and the assessee had correctly deducted TDS under this section.3. Legitimacy of the penalty imposed on the assessee:The court also addressed the issue of the penalty imposed on the assessee under Sections 271C and 221(1) of the Act for short deduction of TDS. It was noted that the CIT(A) found that the deductee companies had paid the entire tax due after accounting for the TDS deducted under Section 194C. The court referred to the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax, which stated that no further payment should be enforced if the deductor can prove that the taxes have been paid by the deductee. Consequently, the imposition of the penalty was deemed indefensible.Conclusion:The court upheld the decision of the ITAT, confirming that Section 194C was applicable to the payments made by the assessee, and there was no short deduction of TDS. The appeal was dismissed, and the penalty imposed on the assessee was found to be unjustified. The judgment emphasized that the services provided by the MSOs were not technical services and thus did not attract Section 194J.