ITO 8(2)4, MUMBAI V. M/S. KLASSIC STUDIO & FILMS PVT. LTD., MUMBAI

ITA 501/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3547 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUM BAI .., !' , #$ # % BEFORE SHRI B. R. MITTAL, J. M. AND SHRI SANJAY AR ORA, A. M. ./ I.T.A. NO. 501/MUM/2011 ( ' ( )( ' ( )( ' ( )( ' ( )( / / / / ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER 8(2)-4, ROOM NO.213/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ' ' ' ' / VS. KLASSIC STUDIO & FILMS PVT. LTD. 109, 3 RD FLOOR, LINK PLAZA, NEAR OSHIWARA POLICE STATION, LINK ROAD EXTENTION, ANDHERI(W), MUMBAI-400 102 * #$ ./ + ./ PAN/GIR NO. AACCK 8746 K ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / # / APPELLANT BY : SHRI MANOJ KUMAR -.*, 0 / # / RESPONDENT BY : NONE ' 0 12$ / // / DATE OF HEARING : 28.05.2013 3!) 0 12$ / DATE OF PRONOUNCEMENT : 28.05.2013 #4 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-17, MUMBAI (CIT(A) FOR SH ORT) DATED 23.09.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 02.12.2009. 2 ITA NO.501/MUM/2011 (A.Y. 2007-08) ITO VS. KLASSIC STUDIO & FILMS PVT. LTD. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE- RESPONDENT WHEN THE APPEAL WAS CALLED OUT FOR HEARING, AND NEITHER ANY ADJOURNMENT APPLICATION STANDS RECEIVED, WITH, IN FACT, THE SERVICE THROUGH RPAD ON AN EARLIER OCCASI ON HAVING BEEN RETURNED UNSERVED WITH THE POSTAL REMARK LEFT. THE ASSESSEE HAS ALS O NOT INFORMED THE TRIBUNAL OF THE CHANGE IN ITS ADDRESS. HOWEVER, ON A PERUSAL OF THE RECORD, IT WAS OBSERVED BY THE BENCH THAT THE IMPUGNED ORDER MERITS CONFIRMATION, SO THA T THE HEARING COULD BE PROCEEDED WITH ON THAT BASIS, SO THAT THE MATTER MAY BE DECIDED IF IT COULD BE DISPOSED OF IN ASSESSEES FAVOUR, ELSE THE PROCEDURAL FORMALITIES FOR SERVICE OF NOTICE OF HEARING WOULD NEED TO BE NECESSARILY COMPLIED WITH. THE ONLY ISSUE BEING AGITATED BY THE REVENUE PER IT S INSTANT APPEAL IS THE DELETION OF THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT IN TH E SUM OF RS.10,60,000/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE PRODUCTION OF TV SERIALS. IT WAS, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, FOUND TO HAVE CLAIMED VARIOUS EXPENSES, INCLUDING ON UPLI NKING CHARGES AT RS.10,60,000/-, PER ITS RETURN OF INCOME. THE SAME, IN VIEW OF THE ASSE SSING OFFICER (A.O.), ATTRACTED THE PROVISION OF SECTION 194C OF THE ACT. NO DEDUCTION OF TAX AT SOURCE HAVING BEEN ADMITTEDLY MADE, HE EFFECTED A DISALLOWANCE QUA THE SAME, INVOKING SECTION 40(A)(IA). IN APPEAL, PREFERRED BY THE ASSESSEE, INTER ALIA , IN RESPECT OF THIS DISALLOWANCE, THE BACKGROUND FACTS WERE NOTED BY THE LD. CIT(A). THE ASSESSEE HAD CONTRACTED WITH ZEE TELEFILMS LTD. (ZTL) (VIDE AN AGREEMENT DATED 15.11 .2006) FOR PRODUCTION OF A TV SERIAL, WHICH WAS TO BE HANDED OVER TO ZTL, WHO HAD THE TELECASTING RIGHTS IN ITS RESPECT. THE ASSESSEE RAISED CHARGES FOR THE SAME ON ZTL, WH O MADE PAYMENTS THERETO; IN FACT, DEDUCTING TDS (AT RS.5,27,528/-) ON THE GROSS SUM. CERTAIN TECHNICAL PROBLEMS IN THE PRODUCTION LED TO A DELAY THEREIN, REQUIRING A RESH OOT OF AN EPISODE/S, AND WHICH IN TURN REQUIRED THE BROADCASTER TO UPLINK SOME OF THE EPIS ODES (OF THE SERIAL) SO AS TO AVOID A REPEAT OF THE PROGRAM. ZTL DEDUCTED RS.10.60 LAKHS TOWARDS THE SAID UPLINKING CHARGES FROM THE AMOUNT DUE TO THE ASSESSEE. FURTHER, THE A SSESSEES CONTRACT WAS ABRUPTLY TERMINATED, ASSIGNING THE SAME TO ONE, M/S. CREATIV E EYE, FROM 26.06.2007 ONWARDS. THE 3 ITA NO.501/MUM/2011 (A.Y. 2007-08) ITO VS. KLASSIC STUDIO & FILMS PVT. LTD. SAID ACTION, AND THE CONSEQUENT RIGHTS OF THE RESPE CTIVE PARTIES, WAS, IN FACT, SUBJECT TO ARBITRATION. BROADCASTING WAS CLEARLY NOT THE RESPO NSIBILITY OF THE APPELLANT AND, THEREFORE, WHAT WAS PAID TO (OR DEDUCTED BY) ZTL, THOUGH TOWAR D UPLINKING CHARGES, WOULD BE ESSENTIALLY ONLY A BUSINESS LOSS. AS SUCH, THERE WA S NEITHER ANY OCCASION NOR ANY REQUIREMENT TO DEDUCT TDS THEREFROM. IN FACT, THE U PLINKING CHARGES THEMSELVES DO NOT FALL TO BE COVERED U/S.194J, EVEN AS HELD BY THE TR IBUNAL IN A NUMBER OF CASES IN THE CONTEXT OF THE PAYMENT FOR THE SAID CHARGES BY THE BROKERS TO THE STOCK EXCHANGE, INASMUCH AS THE STOCK EXCHANGE IS NOT THE OWNER OF THE TECHNOLOGY. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISIONS IN THE CASE OF DY. CIT VS. ANGEL BROKING LTD. [2010] 35 SOT 457 AND SKYCELL COMMUNICATION LTD. VS. DY. CIT [2001] 119 TAXMAN 496 (MAD). AS SUCH, NO TDS WAS REQUIRED TO BE DEDUCTED AND, AC CORDINGLY, THE DISALLOWANCE U/S. 40(A)(IA) STOOD DELETED. AGGRIEVED, THE REVENUE IS IN SECOND APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE FACTS OF THE CASE ARE NOT IN DISPUTE OR DEN IED. CLEARLY, WHAT THE ASSESSEE PAID, BY WAY OF DEDUCTION FROM THE AMOUNT/S DUE TO IT BY ZTL, THERETO, IS A COMPENSATION FOR THE UPLINKING CHARGES INCURRED BY THE LATTER FOR TH E DELAY IN THE PRODUCTION OF SOME OF THE EPISODES. AT WHOSE DOOR THE FAULT FOR THE SAME LIES AND, CONSEQUENTLY, WHETHER THE SAID DEDUCTION BY THE PAYER, OR PAYMENT BY THE ASSESSE E, WAS JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE, BEING DISPUTED, IS ANOTH ER MATTER ALTOGETHER. THE ASSESSEE CLAIMS THAT IT WAS NOT RESPONSIBLE FOR THE DELAY, S O THAT THE DEDUCTION AS MADE IS IN BREACH OF THE CONTRACT, SO THAT IT COULD NOT BE CONSIDERED AS MADE IN PURSUANCE THEREOF; THE CONTRACT ONLY OBLIGING ZTL FOR THE BROADCASTING OF THE TV SERIALS. EVEN SO, THE SAME CANNOT BE SAID TO BE TOWARD UPLINKING CHARGES PAID BY THE ASSESSEE, WHO HAS IN FACT PAID ZTL, WHICH ONLY WOULD HAVE, IF AT ALL, PAID THE SAI D CHARGES TO THE PERSON PROVIDING THE UPLINKING FACILITY. AS FAR AS THE ASSESSEE IS CONCE RNED, THE SAME ONLY QUALIFIES TO BE CONSIDERED AS A BUSINESS LOSS. IN FACT, GOING BY THE RATIO OF THE DECISIONS BY THE TRIBUNAL, EVEN IF THE SAID PAYMENT WAS NOT DISPUTED AND/OR AC TUALLY PAID BY THE ASSESSEE TO ZTL, WHICH IS NOT THE CASE; THE AMOUNT HAVING BEEN SUO MOTU DEDUCTED BY THE LATTER FROM ITS 4 ITA NO.501/MUM/2011 (A.Y. 2007-08) ITO VS. KLASSIC STUDIO & FILMS PVT. LTD. DUES TO THE ASSESSEE, THE SAME WOULD NOT BE EXIGIBL E TO TDS INASMUCH AS IT, LIKE THE STOCK EXCHANGES, IS NOT THE OWNER OF THE TECHNOLOGY , WHICH IS BEING DIRECTLY AVAILED OF OR CONTRACTED FOR. AS SUCH, THE PROVISION OF SECTION 1 94J IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEES CASE QUA NON APPLICABILITY OF S. 194J IS, TO OUR MIND, MISC ONCEIVED INASMUCH AS THE AO HAS ONLY APPLIED S. 194C. AS SUC H, REFERENCE TO S. 194J, OR TO THE FACT OF THE PAYMENT NOT FALLING THEREUNDER, IS OF NO CON SEQUENCE. THE LD. CIT(A), WHO HAS NOT ISSUED ANY FINDING QUA S. 194C, HAS CLEARLY MISLED HIMSELF IN CONSIDERING THE DEDUCTIBILITY OF TAX ON THE SAID PAYMENT WITH REFER ENCE TO S. 194J, WHICH IS NOT THE REVENUES CASE. THE PAYMENT, AS CLAIMED BY THE ASSE SSEE, WOULD DEFINITELY FALL TO BE CONSIDERED AS A BUSINESS LOSS/EXPENSE, BUT THEN THE SAME BY ITSELF WOULD NOT IMPLY THAT THE PAYMENT IS NOT CONTRACTUAL, WHICH IS THE RELEVA NT CONSIDERATION FOR THE APPLICATION OR OTHERWISE OF S. 194C. TOWARD THIS, THE ASSESSEE NOW HERE STATES OF IT BEING NOT SO. WHAT IT IN FACT CLAIMS IS OF HAVING NOT VIOLATED THE TERMS OF THE AGREEMENT, SO AS TO BE LIABLE FOR THE EXPENSES INCURRED BY THE PAYEE-BROADCASTER BY W AY OF UPLINKING CHARGES, AND WHICH STAND RECOUPED BY IT FROM THE ASSESSEE. THE SAME IT SELF CONFIRMS OF THE COMPENSATION AS ARISING OUT OF THE TERMS OF THE CONTRACT. IT, IN FA CT, REPRESENTS A GENERAL CLAUSE IN ANY AGREEMENT WHEREBY THE LOSS SUFFERED BY ONE (OF THE PARTIES) FOR THE DEFAULT BY THE OTHER IS TO THE ACCOUNT OF THE LATTER. IN ANY CASE OF THE MA TTER, IT STANDS TO BE GOVERNED BY THE CONTRACT LAW INASMUCH AS THE TWO, THE PAYER AND THE PAYEE, SHARE ONLY A CONTRACTUAL RELATIONSHIP. WHETHER THE CHARGES STOOD RIGHTLY REC OVERED FROM THE ASSESSEE OR NOT, IS, AS AFORE-SAID, NOT GERMANE TO THE ISSUE OF THE SAME RE PRESENTING A CONTRACTUAL PAYMENT/OBLIGATION, SO THAT THE FACT THAT IT REPRES ENTS A BUSINESS LOSS/EXPENSE IN THE HANDS OF THE ASSESSEE IS IRRELEVANT. FURTHER, THE FACT TH AT THE PAYMENT IS DISPUTED BY IT WOULD ALSO BE OF LITTLE ASSISTANCE TO THE ASSESSEES CASE INAS MUCH AS IT NEVERTHELESS CLAIMS THE SAME AS A DEDUCTION IN THE COMPUTATION OF ITS BUSINESS I NCOME FOR THE CURRENT YEAR. THE PROVISION OF S. 194C IS, THUS, APPARENTLY APPLICABL E. WE SAY SO, I.E., `APPARENTLY, AS THIS WOULD REQUIRE ANOTHER QUESTION BEING ADDRESSED BEFO RE WE COULD HOLD SO, AND THAT IS: 5 ITA NO.501/MUM/2011 (A.Y. 2007-08) ITO VS. KLASSIC STUDIO & FILMS PVT. LTD. COULD THE PAYMENT BE SAID TO BE IN RESPECT OF WORK CARRIED OUT ? THIS IS AS S. 194C IS ONLY QUA CONTRACTUAL PAYMENTS FOR WORK. 4.2 SO HOWEVER, THE ASSESSEES CONTENTION, EVEN AS OBSERVED BY THE BENCH DURING HEARING, THAT NO TAX COULD POSSIBLY BE DEDUCTED AT SOURCE BY IT AS THE PAYMENT STOOD EFFECTED ONLY BY WAY OF DEDUCTION BY ZTL, AND WHICH IS OTHER ASPECT (OF THE MATTER) ON WHICH RELIEF STANDS GRANTED THERETO BY THE LD. CIT( A), CANNOT BE EITHER DISCOUNTED OR CONSIDERED AS WITHOUT MERIT. THE IMPLICATION OF THE ARGUMENT IS THAT, EVEN ASSUMING LIABILITY TO TDS, THE OBLIGATION FOR THE SAME WOULD LIE WITH THE PAYER-ZTL, AS IT IS ONLY IT WHO HAS UNDER THE CIRCUMSTANCES MADE THE PAYMENT (T O ITSELF) BY EXPROPRIATING A LIABILITY OUTSTANDING FOR PAYMENT. THAT IS, EVEN IF THE SAID PAYMENT IS LIABLE TO TDS, IT IS ONLY ZTL WHO WAS REQUIRED TO DEDUCT TAX AT SOURCE THEREON, A ND DEPOSIT THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT, AND NOT THE ASSESSEE, WHO C OULD NOT BE CHARGED WITH THE NON- DEDUCTION OF TAX AT SOURCE AND, CONSEQUENTLY, WITH THE SAID LIABILITY, MUCH LESS THE CONSEQUENCE/S THEREOF. ON THIS ASPECT WE ARE IN FUL L AGREEMENT WITH THE LD. CIT(A). THIS IS AS THE DEDUCTION OF TAX AT SOURCE BY THE ASSESSE E WAS UNFEASIBLE, REPRESENTING AN IMPOSSIBILITY. WE, THEREFORE, HAVE NO HESITATION IN UPHOLDING THE IMPUGNED ORDER DELETING THE DISALLOWANCE U/S. 40(A)(IA) FOR NON-DEDUCTION O F TAX AT SOURCE ON THE SAID SUM. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 5 16 0 $5 0 1 78 ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MAY, 2013 #4 0 3!) $# 9'6 28 8 , 2013 ! 0 ? SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER MUMBAI; 9' DATED : 28.05.2013 6 ITA NO.501/MUM/2011 (A.Y. 2007-08) ITO VS. KLASSIC STUDIO & FILMS PVT. LTD. .'../ ROSHANI , SR. PS #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT 3. B ( ) / THE CIT(A) 4. B / CIT CONCERNED 5. @E? -1' , , / DR, ITAT, MUMBAI 6. ?F( G / GUARD FILE #4' #4' #4' #4' / BY ORDER, H HH H/ // /7 7 7 7 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI