TaxTMI 
TaxTMI 
2018 (10) TMI 1858
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....s erred in holding that the provisions of Section 40(a)(i) of the Act apply to the Appellant despite the entire sums received by the Appellant having been processed under Section 195 of the Act in accordance with the order of the Income-tax Department itself issued under Section 197 of the Act. The Appellant therefore prays the disallowance be deleted. Ground No 3 The learned CIT(A) has erred in concluding that the Appellant is not a telecasting company and failing to apply the provisions of Circular 742 issued by the Central Board of Direct Taxes. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 4 The learned CIT(A) has erred in holding that the channel companies have a business connection in India as per the provisions of Section 9(l)(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 5 The learned CIT(A) has erred in holding that the channel companies carried out operations in India as per Explanation (a) to Section 9(1)(i) of the Act. The Appellant respectfully sub....
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....ctfully submits that the above finding is erroneous and should be set aside. Ground No 11 The learned CIT(A) has erred in holding that the channel companies are taxable in India. The Appellant respectfully submits that the above finding is erroneous and should be set aside, Ground No 12 The learned CIT(A) has erred in holding that the provisions of Section 40(a)(i) of the Act apply to the payment made by the Appellant to the channel companies despite treating the Appellant as an agent of the channel companies. The Appellant respectfully submits that the above basis of assessment is erroneous and should be set aside. Ground No 13 The learned CIT(A) has erred in not applying the provisions of Section 40(a)(i) of the Act to only that portion of the payment made to the channel companies that represents income that has been considered to be chargeable to tax in India. The Appellant prays that the disallowance be restricted accordingly. Ground No 14 Without prejudice to Grounds 1 to 13 above, the margin retained by the Appellant, as an agent, from the activity of selling airtime is not taxa....
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....n upholding the disallowance under Section 40(a)(i) of the Act in the absence of establishment of the chargeability to tax of the channel companies in India by the Income-tax Department. The Appellant respectfully submits that the disallowance be deleted. Ground No 5 The learned CIT(A) has erred in holding that the channel companies have a business connection in India as per the provisions of Section 9(1 )(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 6 The learned CIT(A) has erred in holding that the channel companies carried out operations in India as per Explanation (a) to Section 9(1 )(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 7 The learned CIT(A) has erred in relying on his order for Assessment Year 2000-01 and holding that the Appellant has not refuted, inter-alia, the following findings of the learned Assessing Officer, which are erroneous and contrary to facts: * predominant footprint of the satellite is only in India; * the decoders ....
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....nt made to the channel companies that represents income that is chargeable to tax in India. The Appellant prays that the disallowance be restricted accordingly. Ground No 14 The margin retained by the Appellant, as an agent, from the activity of selling advertisement airtime is not taxable in India. Ground No 15 The learned CIT(A) has erred in holding that the payments received by the Appellant from the channel companies for provision of content are taxable as royalty under Section 9(l)(vi) of the Act. The Appellant respectfully submits that the addition made to the income of the Appellant be deleted. Ground No 16 The learned CIT(A) has erred in holding that the provisions of Section 92B read with Section 92 of the Act apply to the payments received by the Appellant from the channel companies for provision of content. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 17 The learned CIT(A) has erred in holding that the payments received by the Appellant from the channel companies towards the provision of transponder capacity are t....
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....provisions of Section 40(a)(i) of the I.T. Act do not apply to t made by the assessee to Asia Sat." 2. On the fact and in the circumstances of the case and in law, the Hon'bie CIT(A) erred in directing to delete the addition made, on account of advertisement revenues : by 'SAS BV for AY. 2002-03, in the hands of the assessee, without appreciating the fact that it is necessary to keep the issue alive since the assessee has not accepted the stand of the department that the advertisement revenue is to he taxed on accrual basis." 3. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the interest charge u/s. 234B and 234C of the Income-tax Act, 1961 on the ground that since the taxes were deductible at source from payments made by Indian and other advertisers, the assessee can not be saddled with the burden of the above interest ignoring the fact : a. that the interest is in the nature of compensatory payment and is of penal in character b. that since the tax was not deducted at source it was obligatory on the part of the assessee to make the deficit good by way of making payment towards advance tax; ....
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....been offered to tax in the return of income of SIPL and payments received for the rights granted have been offered to tax in the hands of ISkyB. The agreement between ISkyB and SIPL is stated to have been executed on a principal-to-principal basis. SIPL did not undertake any activities in India with respect to the subscription business on behalf of ISkyB. Prior to April 1, 1999, the Assessee granted the rights for sale of advertising airtime (in India) on the channels of the Star TV network to Satellite Television Asian Region Advertising Sales BV ('SAS BV) [now known as International Global Networks BV], a company incorporated in the Netherlands. SAS BV appointed SIPL as its collecting agent in India with respect to sale of advertisements in India. The agreement between the Assessee and SAS BV expired with effect from April 1, 1999. Since SAS BV has been offering its income to tax on a receipt basis as per the provisions of Circular 742 issued by the Central Board of Direct Taxes ('CBDT'), the advertisement revenues collected during the Assessment Year 2001-02, pertaining to invoices raised by SAS BV prior to April 1, 1999, had been offered to tax in the return of incom....
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....at the channel companies are taxable in India, and given that taxes have not been withheld from the payments to the channel companies. The channel companies have been held to be taxable in India on the premise that they have a business connection in India, on the ground that the Appellant is really an agent of the channel companies with respect to the sale of advertising airtime; and by SIPL .being an agent of the Appellant the channel companies undertake operations in India (through SIPL). (ii) The subscription revenues earned by SIPL have been taxed in the hands of the Appellant as royalty on the ground that ISkyB is a sham entity and that SIPL is a dependent agent of the Appellant. (iii) The advertisement revenues in respect of the channels earned from India on a receipt basis by SAS BV have been taxed in the hands of the Appellant on a substantive basis by treating SAS BV as a "conduit' for the Appellant (though on a protective basis). (iv) Taxing income earned from sub-lease of transponders to channel companies, on a net income basis. In doing so, the amount of income has been adjusted for the arms-length value under Section 92C, and the....
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.... 40(a)(i) is sustained." 10. As regards assessee's contention that AO has erred in applying the provisions of Section 40(a)(i) to the entire amount of payment made to channel companies and not to the portion of payment which represents income as chargeable to tax in India. Learned CIT(A) confirmed the AO's action following his order of A.Y.2000-01. 11. As regards assessee's contention to the application of provision of Section 40(a)(i) to the assessee despite the entire sums received by the assessee having been processed u/s.195 of the Act in accordance with the order of the Income-Tax Department itself issued u/s.197 of the Act. Learned CIT(A) confirmed the order of the AO for the A.Y.2000-01. 12. Similarly following the assessment order for 2000-01, learned CIT(A) dismissed assessee's contention that CBDT Circular No.742 was applicable to the assessee's case and the AO has wrongly held the same as not applicable. 13. As regards assessee's contention that subscription revenue of Rs. 104,60,03,594/- as assessed in SIPL and not taxable in the hands of assessee and even if taxable are not in the nature of 'royalty' and CIT(A) again refer to his order for A.Y.1999-2000. He....
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.....CIT.Sp.Rg.12/IT208/01-02/03-04 dated 27th February, 2004) and for Assessment Year 2000-01 (Order No. CIT(A)XXXI/DDIT(IT)2(1)/IT-134/ 03-04 dated 30th March, 2004). In respect of the issue whether the revenues should be considered on actual collection basis or invoices raised, I have directed in the appeal order that the advertisement revenues be taxed on the basis of the invoices raised during the year. During the subject assessment year, SAS BV has not earned any advertisement revenues on the basis of invoices raised. Given that the advertisement revenues have already been taxed on the basis of invoices raised in prior assessment years, there is no question of taxing the same now on receipt basis. I, therefore, direct that the addition of Rs. 2,12,66,657/- made on this account be deleted." 16. Against the above order, assessee and Revenue are in cross appeal before us. 17. Learned Counsel has elaborately made his submissions. He summarized the same as under: For assessee's appeal : Sr.No. Particulars; Issues Gr. No AY 2001 02 Gr. No AY 200203 Remarks 1 (a) Disallowance of payments made to Channel Companies under Section 40(a) (i) of the Act based on ....
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....onduit' of Star Ltd and taxing ad revenues in hands of Star Ltd on accrual basis 15 & 16 21 &22 - Mumbai ITAT in case of IGN BV (84 taxmann.com 188 and ITA No 1840/Mum/ 04} [and also by Bombay HC in case of IGN BV (ITA No 2461 and 2462 of 201 1) (Sr no 19 to 21 of legal paperbook) - Bombay HC in case of Star Ltd (ITA No 1676 of 2013)] (Sr no 22 of legal paperbook) 5 Deduction of commission paid to SIPL on basis of invoices raised by Star Ltd rather than on basis of collections made by SIPL 17 23 Not to be pressed 6 Taxation of payment received from Channel Companies for provision of content as - 15&16 Not to be pressed 7 Taxation of payment received from Channel Companies for provision of transponder capacity as 'Royalty' - 17-19 Not to be pressed 8 Deduction of Head office expenses under Section 44C of the Act - 20 1) Section 44C was introduced to eliminate/ minimize the burden of maintenance of documentation in respect of head office expenses. Reliance is placed on CBDT Circular No 202 dated 5 July 1976 pertaining to ceiling limit in respect of head office expenses and the decision and th....
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....the Act is based upon retrospective amendment in section 195 of the Act and cannot be made as no one can be expected to do the impossible. In this regard, ld counsel of the assessee has referred to various case laws this includes ITAT decision in assessee's own case for subsequent years (A.Y. 2007-08 and A.Y. 2008-09). In this regard, we note that ITAT vide order dated 02.02.2016 in assessee's own case for A.Y. 2007-08 has held as under: Likewise, in the case of the disallowance of cost on advertisement revenue, no separate addition is called for; firstly, the provision of withholding tax cannot be applied on the basis of any amendment which has come subsequently by giving retrospective effect, as held by various Courts, on the reasoning that assessee cannot be expected to withhold tax when there was no such provision under the statute and secondly, prior to such amendment, there was a judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings BY (supra) that payment made by one non-resident to another non-resident, provisions of TDS are not applicable; thirdly, when income has been determined under PSM, intercompany transactions are eliminate....
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....the Act; (b) On receipt of the draft assessment order dated 25th March, 2013, the Respondent preferred its objections to it before the DisputeResolution Panel (DRP). By an order dated 31st December, 2013,the DRP upheld the objections by holding that deduction of tax atsource under Section 194C of the Act, was appropriately made bythe Respondent as the payment made for channel placement fee,would not fall within the ambit of royalty as defined in Section 9(1) (vi) of the Act. (c) Consequent to the directions dated 31st December, 2013 of the DRP, the Assessing Officer passed as Assessment Order dated 20th January, 2014 under Section 143(3) r/w. 144C(13) of the Act. Being aggrieved with the Assessment Order dated 20th January, 2014, the Revenue filed an appeal to the Tribunal. By the impugned order dated 9th July, 2014, the Tribunal by following a decision of Co-ordinate Bench in the case of M/s. Channel Guide India Ltd., v/s. ACIT (ITXA No. 1221/M/2006 rendered on 29th August, 2012)held that Asessee is not liable to deduct the tax at source, athigher rates only on account of subsequent amendment made in Act, with retrospective effect from 1976.Thus, dismissed the Re....
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.... rise to any substantial question of law. Thus, not entertained. 21. Respectfully following the precedent's we are of the considered opinion that since it is not disputed that the retrospective amendment in section 195 was made subsequently, the assessee cannot be expected to have deducted TDS u/s.40(a)(i) anticipating the amendment. Furthermore we note that honourable apex court in the case of Vodafone International Holdings B.V. vs. Union of India [2012] 341 ITR 1 (SC) had held that withholding tax provisions under section 195 of the act would be applicable when payments are made by a resident to another non-resident and not between two non residents outside of India. Since the payments as one in the present case are between two non-residents, as per the ratio emanating from above said honourable apex court decision the provisions of withholding tax are not applicable. On the basis of the above said discussion and precedent's we are of the considered opinion that disallowance under section 40(a)(i) cannot be made in this case. 22. Since we have decided this issue in favor of assessee, other related grounds raised by the assessee are only of academic interest. Hen....
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....een subjected to tax in the hands of SAS BV (IGN BV). This, even after the Tribunal by order dated 21 May 2010 has already held that SAS BV (IGN BV) is not a conduit or a sham entity and they are chargeable to tax on the income earned on account of their advertisement activity. In the4 above view, the impugned order holds that there can occasion to tax the same income in the hands of the respondent- assessee when the same has been subjected to tax in the hands of M/s.SAS BV (IGN BV). This is particularly so, bearing in mind that the revenue has accepted the order of the Tribunal dated 21 May 2010 in case of SAS BV (IGN BV). It is relevant to note that, for the Assessment Year 2000-01 and 2002-03 on the same issue in respect of SAS BV (IGN BV) the revenue had challenged in this Court the order of the Tribunal holding that SAS BV (IGN BV) is not a conduit of Star Limited, the respondent-assessee herein by Income Tax Appeal Nos.2462/of 2011 and 2461 of 2011. This Court on 13 March 2013 dismissed the revenue's appeal for the Assessment Years 2000-01 and 2003-03. 25. Respectfully following the above precedent we decide this issue in favour of the assessing. 26. Another issue r....
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....by the Assessee on General and administration expenses on a total turnover of Rs. 6,53.43,84,000. The Assessee claimed an amount of Rs. 2,83,06,650 as deduction under Section 44C of the Act being 5% of the adjusted total income being lower than the actual expenditure of Rs. 8,35,02,000. 30. Further, the ld. Counsel of the assessee in this regard submitted that the Transfer Pricing Officer in his short order has mentioned that the assessee has not submitted anything. The ld. Counsel of the assessee submitted that the assessee had provided all the necessary details which have not been referred by the TPO. 31. Upon careful consideration, we are of the view that the issue needs to be remitted to the file of the A.O. to compute reasonable attribution on the basis of documents being submitted by the assessee. Accordingly, this issue is so remitted. 32. Ground number 17 for assessment year 2001-02 and ground nos. 15 to 19 and ground 23 for assessment year 2002-03 have not been pressed by the learned counsel of the assessee. Hence, these grounds are dismissed as not pressed. Revenue's appeal: 33. The first issue raised relates to the disallowance of payments made to AsiaSat ....
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....(i )Programmes were uplinked by the TV channels (admittedly, not from India). (ii )After receipt of the programmes at the satellite (at the locations not situated in the Indian airspace), those were amplified through a complicated process. (iii )The programmes so amplified were relayed in the footprint area including India where the cable operators received the waves and passed them over to the Indian population. Accepted position was that the first two steps were not carried out in India and the entire thrust of the revenue was limited to the third step and the argument was that the relaying of the programmes in India amounted to the operations carried out in India. That argument was not sustainable. Merely because the footprint area included India and the ultimate consumers/viewers were watching the programmes in India, even when they were uplinked and relayed outside India, would not mean that the assessee was carrying out its business operations in India. The Tribunal had rightly emphasized on the expressions 'operations' and 'carried out in India' occurring in the Explanation (a ) to hold that these expressions signify that it was nec....
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....ischief sought to be suppressed and the remedy sought to be advanced by the Act. Therefore, need for these aids would arise only if some ambiguity is found in the definition of term 'royalty' appearing in the aforesaid provision. (4)As per section 9(1)(vi), the income by way of royalty payable by the Government or a resident or a non-resident shall be deemed to accrue or arise in India. The term 'royalty' has been defined in theExplanation 2 to section 9(1)(vi). In the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1/ 49 Taxman 87, the Supreme Court held that an Explanation, generally speaking, is intended to explain the meaning of certain phrases and expressions contained in the statutory provisions. There is no general theory as to the effect and intendment of an Explanation, except that the purpose and intendment are determined by its own words. An Explanation, depending upon its own language, might supply or take away something from the contents of a provision. It is also true that an Explanation may be introduced by way of an abundant caution in order to clear any mental cobwebs surrounding the meaning of the statutory provision spun by interpretat....
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.... and the provisions of an agreement under section 90, the provisions of the agreement shall prevail over the provisions of the Act and can be enforced by an appellate authority or the Court. However, as provided by sub-section (2), the provisions of the Act will apply to the assessee in the event they are more beneficial to him. Where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act which will govern the taxation of income. [Para 54] Keeping in view the aforesaid principles, one should embark upon the interpretative process while defining the ambit and scope of the term 'royalty' appearing in the Explanation 2 to clause (vi) of section 9(1). Clause (i) deals with the transfer of all or any rights (including the granting of a licence) in respect of a patent, etc. Thus, what this clause envisages is the transfer of "rights in respect of property" and not transfer of "right in the property". The two transfers are distinct and have different legal effects. In the first category, the rights are purchased which enable use of those rights, while in the second category, no purchase is involved; only the right to use has been gr....
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.... light of meaning of the term 'process', it was evident that the particular end, viz., viewership by the public at large was achieved only through the series of steps taken by receiving the uplinked signals, amplifying them and relaying them after changing the frequency in the footprint area including India. [Para 56] It was clear from various clauses of the agreement that the assessee was the operator of the satellites. It also remained in the control of the satellites. It had not leased out the equipments to the customers. A close scrutiny of the ruling of the AAR in ISRO Satellite Centre (ISACT),In re [2008] 307 ITR 59 / 175 Taxman 97 (New Delhi)would clearly reveal that where the operator has entered into an agreement for lease of the transponder capacity and has not given any control over parts of the satellite/transponder, the provisions of clause (vi) would not apply. In the instant case also, the assessee had merely given access to a broadband available in a transponder which could be utilized for the purpose of transmitting the signals of the customers. [Para 60] It needs to be emphasized that a satellite is not a mere carrier, nor is the....
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....it was clear that the control always remained with the assessee who had merely given access to a broadband available with the transponder to particular customers. The fact remained that there was no use of 'process' by the TV channels. Moreover, no such purported use had taken place in India. The telecast companies/customers were situated outside India and so was the assessee. Even the agreements were executed abroad under which the services were provided by the assessee to its customers. The transponder was in the orbit. Merely because it had its footprint areas on various continents, it would not mean that the process had taken place in India. The Tribunal had made an attempt to trace the fund flow and observed that since the end consumers, i.e., persons watching TV in India were paying the amounts to the cable operators who, in turn, were paying the same to the TV channels, the flow of the fund was traced to India. That was a far-fetched ground to rope in the assessee in the taxation net. The Tribunal had glossed over an important fact that the money which was received from the cable operators by the telecast operators was treated as income by ....
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....AS BV in the hands of the assessee on receipt on protective basis in this regard. The ld. Counsel of the assessee submitted that this issue will become academic once the grounds raised in Gd. Nos. 22 and 23 are decided in favour of the assessee. Furthermore, he referred to Mumbai ITAT decision in the assessee's own case in Department's appeal for A.Y. 2011-02. 37. Upon careful consideration, we note that this issue was dealt by ITAT in ITA No. 7934/Mum/2004 for A.Y. 2001-02 in assessee's own case vide order dated 21.05.2010 as under: Issue On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to delete the addition made, on account of advertising revenues received by SAS BV tor assessment year 2001-02, in the hands of the assessee, without appreciating the fact that it is necessary to keep the issue alive since the assessee has not accepted the stand of the department that the advertisement revenue is to be taxed on accrual basis. 3. Learned representatives fairly agree that this issue is now covered, in principle, in favour of the assessee by Tribunal's order dated 24th March 2004 in the case of JCIT Vs Satellite Telev....