M/s.Kerala Vision Ltd, Trichur V. The ACIT, Trichur

ITA 794/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77446 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 29-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2013
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: C V RAJAN
• Keywords: Retrospective amendment; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 794/COCH/2013 ASSESSMENT YEAR: 2009-10 M/S. KERALA VISION LTD., ALPHA COMPLEX, 2 ND FLOOR, THOPPIN MOOLA, THRISSUR-680 004. [PAN:AACCK 6383M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRICHUR. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI C.V. RAJAN, CA REVENUE BY SHRI K.K. JOHN, SR. DR DATE OF HEARING 29/04/2014 DATE OF PRONOUNCEMENT 06/06/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26- 09-2013 PASSED BY THE LD. CIT(A)-V, KOCHI AND IT RE LATES TO THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS CHALLENGING THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.163.30 LAKHS, BEING THE AMOU NT PAID TO PAY CHANNELS BY THE ASSESSEE AS PAY CHANNEL CHARGES, BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT FOR THE FAILURE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT I.T.A. NO. 794/COCH/2013 2 IN TERMS OF SEC. 194J OF THE ACT, AS ACCORDING TO T HE ASSESSING OFFICER THE SAID PAYMENTS FALL IN THE CATEGORY OF ROYALTY. 3. THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTING CABLE SIGNALS. IT RECEIVES SATELLITE SIGNALS FROM VARIOUS CHANNEL COMPANIES LI KE STAR DEN MEDIA LTD., ZEE TURNER LIMITED, M.S.M. DISCOVERY P. LTD., U.T.V. GL OBAL BROADCASTING P. LTD. ETC. IN THE CAPACITY OF MULTI SYSTEM OPERATOR. THE ASSE SSEE IS LIABLE TO MAKE PAYMENT TO THE ABOVE SAID COMPANIES FOR RECEIVING T HE SIGNALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE HAS PAID/CREDITED TO VARIOUS CHANNEL COMPA NIES A SUM OF RS. 163.30 LAKHS AS PAY CHANNEL CHARGES. THE ASSESSING OFFI CER TOOK THE VIEW THAT THE PAY CHANNEL CHARGES REFERRED ABOVE FALLS IN THE C ATEGORY OF ROYALTY AND IS LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT. THE ASSESSEE, HOWEVER, PLACED RELIANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF SKYCELL COMMUNICATION S LTD. VS. DCIT REPORTED IN 251 ITR 53 AND CONTENDED THAT IT IS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM PAYMENTS MADE TO THE PAY CHANNEL COMPANIES. HOWEVE R, THE ASSESSING OFFICER HELD THAT THE DECISION RENDERED IN THE CASE OF SKYC ELL COMMUNICATIONS LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE INSTA NT CASE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT S OURCE U/S. 194J OF THE ACT ON I.T.A. NO. 794/COCH/2013 3 THE PAY CHANNEL CHARGES PAID BY IT. THE RELEVANT O BSERVATIONS MADE BY THE ASSESSING OFFICER ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE: 3. WHAT IS EMPHASIZED ABOVE IS THAT THE TECHNICAL SERVICE GIVEN TO A SUBSCRIBER TO MAKE USE OF THE RESULT OF SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENT FOR A FEE TO INDIVIDUAL HOUSE HOLDER AN D CONSUMERS. HERE IN THE PRESENT CASE UNDER CONSIDERATION, THE ASSESSEE COMP ANY IS A MULTI SYSTEM OPERATOR COMPANY, WHO AS PER DEFINITION GIVEN BY TE LECOM REGULATORY AUTHORITY AN MSO MEANS ANY PERSON WHO RECEIVES A BR OADCASTING SERVICE FROM A BROADCASTER/OR THEIR AUTHORIZED AGENCIES AND RETRANSMITS THE SAME TO CONSUMERS/OR RETRANSMITS THE SAME TO ONE OR MORE CA BLE OPERATORS. THUS, A MSO ASSUMES THE CHARACTER AND STATUS WHICH IS TOTAL LY DIFFERENT FROM THE INDIVIDUAL CONSUMER. 4. THE MSO PAYS A TARIFF TO THE PAY CHANNELS. THIS IS COVERED UNDER THE DEFINITION OF ROYALTY AS USED IN CLAUSE (C) OF SUB- SECTION (1) OF SECTION 194J OF THE I.T. ACT, 1961. AS PER EXPLANATION 2(V) BELOW C LAUSE (VI) OF SUB-SECTION 1 OF SECTION 9, ROYALTY MEANS THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING , BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBIT ION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSE (I) TO (IV), (IVA) AND (V). 5. FROM THE ABOVE, WHAT TRANSPIRES IS THAT THE AS SESSEES CASE FALLS UNDER ROYALTY PAYMENT LIABLE FOR TAX DEDUCTION AT SOURCE AS PER THE PROVISIONS OF SECTION 194J AS THAT THE ASSESSEE PAID/CREDITED IS TOWARDS THE CHARGES FOR RECEIVING A BROADCASTING SERVICE FROM A BROADCASTER /OR THEIR AUTHORIZED AGENCIES FOR RETRANSMISSION OF THE SAME TO CONSUMER S OR ONE OR MORE CABLE OPERATORS. THUS, THE CASE IS DISTINGUISHABLE FROM T HE DECISION RELIED ON BY THE ASSESSEE. IN VIEW OF THE ABOVE, AN AMOUNT OF RS. 1 ,63,30,205/- PAID/CREDITED AS PAY CHANNEL CHARGES TO VARIOUS PAY CHANNEL COMPANIES IS DISALLOWED U/S. 40A(IA) FOR VIOLATION OF MAKING TDS AS PER THE PROVISIONS OF SECTION 194J OF THE I.T. ACT, 1961. 4. THE ASSESSEE CHALLENGED THE ADDITION MADE BY THE ASSESSING OFFICER BY FILING THE APPEAL BEFORE THE LD. CIT(A) BUT COULD NOT SUCC EED, HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. I.T.A. NO. 794/COCH/2013 4 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. FOR THE PURPOSE OF SEC. 194J, THE TERM ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF S EC. 9. THE SAID EXPLANATION READS AS UNDER:- EXPLANATION 2 FOR THE PURPOSES OF THIS CLAUSE, R OYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECI PIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS) FOR I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORM ULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; III)THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN , SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; IV)THE IMPARTING OF ANY INFORMATION CONCERNING TECH NICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL; (IVA)THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMER CIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION O R TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING BUT NOT INCLUDIN G CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERED TO IN SU-CLAUSES (I) TO (IV), (IVA) AND (V). I.T.A. NO. 794/COCH/2013 5 WE NOTICE THAT CLAUSE (I) OF EXPLANATION 2 INCLUDES THE EXPRESSION PROCESS. WE FURTHER NOTICE THAT THE FINANCE ACT, 2012 HAS INSER TED EXPLANATION 6 BELOW CLAUSE (VI) OF SUB-SECTION (1) OF SEC. 9 DEFINING THE WORD PROCESS. THE SAID EXPLANATION 6 READS AS UNDER:- EXPLANATION 6 FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE EXPRESSION PROCESS INCLUDES AND SHALL BE DEEMED T O HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE (INCLUDING UP-LINING, AMP LIFICATION, CONVERSION FOR DOWN-LINKING OF ANY SIGNAL), CABLE, OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY WHETHER OR NOT SUCH PROCESS IS SECRET; WE NOTICE THAT THE EXPRESSION PROCESS INCLUDES A ND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE, CABLE, O PTIC FIBRE OF ANY OTHER TECHNOLOGY. IN THE INSTANT CASE, THE ASSESSEE IS E NGAGED IN THE BUSINESS OF TRANSMITTING THE TELEVISION CHANNELS OR SIGNALS BY CABLE BY RECEIVING SIGNALS THROUGH SATELLITE. SUCH KIND OF TRANSMISSION (BOTH RECEIPT OF SIGNAL AND TRANSMISSION OF THE SAME) IS INCLUDED IN THE DEFINI TION OF PROCESS UNDER EXPLANATION 6, WHICH HAS BEEN INSERTED BY THE FINANC E ACT, 2012 TO REMOVE THE DOUBTS. SINCE THIS EXPLANATION STARTS WITH THE WORD S FOR REMOVAL OF DOUBTS, IN OUR VIEW, IT IS CLARIFICATORY IN NATURE AND IT WOUL D APPLY FOR THE YEAR UNDER CONSIDERATION ALSO. AS STATED EARLIER, THE TRANSF ER OF ALL OR ANY RIGHTS IN RESPECT OF A PROCESS SHALL FALL IN THE CATEGORY OF ROYAL TY AS PER CLAUSE (I) OF EXPLANATION 2. HENCE, IN OUR VIEW, THE PAYMENT MADE BY THE ASSESSEE AS PAY CHANNEL CHARGES SHALL FALL IN THE CATEGORY OF ROY ALTY AS DEFINED IN CLAUSE (I) OF EXPLANATION 2 TO SEC. 9(1) OF THE ACT. I.T.A. NO. 794/COCH/2013 6 6. THE LD COUNSEL PRESENTED AN ALTERNATIVE ARGU MENT, VIZ., THE AMENDMENT BROUGHT IN BY THE FINANCE ACT WITH RETROSPECTIVE EF FECT, WHICH WAS PASSED IN THE YEAR SUBSEQUENT TO THE YEAR UNDER CONSIDERATION, SH OULD NOT BE CONSIDERED FOR PENALIZING THE ASSESSEE BY WAY OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT. THE LD COUNSEL SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD VS. DIT (332 ITR 340) HA D TAKEN THE VIEW THAT THE TRANSMISSION OF TELEVISION SIGNALS THROUGH SATELLIT E / TRANSPONDERS WOULD NOT FALL IN THE CATEGORY OF ROYALTY AS DEFINED UNDER EXPLAN ATION 2 TO SEC. 9(1) OF THE ACT. HE SUBMITTED THAT THE EXPLANATION 6, WHICH EXP ANDED THE SCOPE OF THE EXPRESSION PROCESS HAS BEEN INSERTED BY THE FINAN CE ACT, 2012 WITH RETROSPECTIVE EFFECT, WAS BROUGHT INTO THE ACT ONLY TO NULLIFY THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT. ACCORDIN GLY, THE LD A.R SUBMITTED THAT THE VIEW ENTERTAINED BY THE ASSESSEE THAT THE PAYMENT OF PAY CHANNEL CHARGES WILL NOT FALL IN THE CATEGORY OF ROYALTY W AS SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COURT REFERRED ABOVE. ACCORDIN GLY HE SUBMITTED THAT THE DISALLOWANCE U/S 40(A)(IA) SHOULD NOT BE MADE ON TH E BASIS OF SUBSEQUENT AMENDMENT MADE WITH RETROSPECTIVE EFFECT. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) SONATA INFORMATION TECHNOLOGY LTD VS. DCIT (20 12)(TAXCORP (INTL)4659 (MUMBAI-TRIB) (B) INFOTECH ENTERPRISES LIMITED VS. ADDL. CIT (20 14) TAXCORP (INTL) 6945 (ITAT HYDERABAD) I.T.A. NO. 794/COCH/2013 7 (C) CHANNEL GUIDE INDIA LIMITED VS. ACIT (2013) TAXCORP (INTL) 6702 (ITAT-MUM) WE HAVE GONE THROUGH THE ABOVE SAID DECISIONS RENDE RED BY DIFFERENT BENCHES OF THE TRIBUNAL. WE NOTICE THAT THEY HAVE HELD THAT T HE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE RELYING ON THE SU BSEQUENT AMENDMENTS MADE IN THE ACT WITH RETROSPECTIVE EFFECT. 7. IN THE INSTANT CASE, THE VIEW ENTERTAINED BY THE ASSESSEE THAT THE PAY CHANNEL CHARGES CANNOT BE CONSIDERED AS ROYALTY IS IN FACT GETS SUPPORT FROM THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN TH E CASE OF ASIA SATELLITE TELECOMMUNICATION CO. LTD (SUPRA). THOUGH THE EXPL ANATION 6 TO SEC. 9(1)(VI) INSERTED BY FINANCE ACT, 2012 IS CLARIFICATORY IN N ATURE, YET IN VIEW OF THE FACT THAT THE VIEW ENTERTAINED BY THE ASSESSEE GETS SUPP ORT FROM THE DECISION OF DELHI HIGH COURT, REFERRED ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAY C HANNEL CHARGES. HENCE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF PAY CHANNEL CHARGES BY INVOKING THE PROVIS IONS OF SEC. 40(A)(IA) OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE. I.T.A. NO. 794/COCH/2013 8 8. THOUGH THE ASSESSEE HAS URGED MANY GROUNDS IN THE FORM OF ALTERNATIVE CONTENTIONS, WE DO NOT FIND IT NECESSARY TO ADJUDIC ATE THEM IN VIEW OF THE DECISION TAKEN BY US IN THE PRECEDING PARAGRAPHS. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESS EE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 06-06- 2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 6 TH JUNE, 2014 GJ COPY TO: 1. M/S. KERALA VISION LTD., ALPHA COMPLEX, 2 ND FLOOR, THOPPIN MOOLA, THRISSUR-680 004. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCL E-1(1), TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI . 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN