S/s. 40(a)(ia), 194J – In a case where non-deduction of tax at source was supported by the ratio of the decision of a HC, disallowance u/s. 40(a)(ia) of the Act cannot be made on account of non-deduction of tax due to a retrospective amendment.
FACTS:
The assessee company was engaged in the business of distributing cable signals. The assessee was liable to make payment to various channel companies like Star Den Media Ltd., Zee Turner Limited, M.S.M. Discovery P. Ltd., etc., for receiving from them, satellite signals in its capacity as a multi system operator. During the previous year relevant to the assessment year 2009-10, the assessee paid amounts aggregating to Rs. 163.30 lakh as “Pay Channel Charges” to satellite companies.
In view of the ratio of the decision of Madras High Court in the case of Skycell Communications Ltd. (251 ITR 53) (Mad) and the decision of Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. vs. DIT (332 ITR 340)(Del) the assessee did not deduct tax at source from payment of Pay channel charges to various satellite companies.
The Assessing Officer (AO) held that the payment of Pay channel charges is ‘royalty’ and consequently such payment is liable for deduction of tax at source. He also held that the decision rendered by the Madras High Court in the case of Skycell Communications Ltd. (supra) is not applicable to the facts of the assessee’s case. He disallowed a sum of Rs. 163.30 lakh u/s. 40(a)(ia) of the Act.
Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.
Aggrieved the assessee preferred an appeal to the Tribunal where it contended that the disallowance u/s. 40(a)(ia) should not be made on the basis of a subsequent amendment made with retrospective effect.
HELD:
Transmitting television channels or signals by receiving these signals through satellite is included in the definition of “Process” under Explanation 6 which has been inserted by the Finance Act, 2012 with retrospective effect. Therefore, payment made by the assessee as “Pay Channel Charges” falls in the category of “royalty” as defined in Clause (i) of Explanation 2 to section 9(1) of the Act.
The Tribunal noted that that the view entertained by the assessee that the pay channel charges cannot be considered as royalty gets support from the decision rendered by the Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. (supra). It also noted that the following decisions have held that the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect –
Sonata Information Technology Ltd. vs. DCIT (2012-TII-132-ITAT -MUM-INTL)
Infortech Enterprises Limited vs. Addl CIT (2014-TII- 26-ITAT -HYD-TP)
Channel Guide India Ltd. vs. ACIT (2012-TII-139- ITAT -MUM-INTL)
The Tribunal held that though the Explanation 6 to section 9(1)(vi) inserted by the Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the view entertained by the assessee gets support from the decision of the Delhi High Court, the assessee cannot be held to be liable to deduct tax at source from the Pay Channel Charges. The AO was not justified in disallowing the claim of Pay Channel Charges by invoking the provisions of section 40(a)(ia) of the Act. The Tribunal set aside the order passed by CIT(A) and directed the AO to delete the impugned disallowance.
The appeal filed by the assessee was allowed.
