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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 20.06.2019 passed by the Commissioner of Income Tax (Appeals) -04 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14.
The revenue has raised the following grounds: - "
1) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s.40(a)(ia) rws 194J in respect of Transponder Hire Charges (Uplinking Charges)
86. Carriage Fees' and failing to appreciate that the payments made for use/right to use of `process' are 'royalty as per Explanation 6 to section 9(1)(vi) hence such payments are covered u/ s. 194J of the Income-tax Act, 1961. ii) Whether on the facts, in the circumstances of the case and as per law, the Ld.CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia) rws 194J of Transponder Hire Charges (Uplinking Charges) 86 Carriage Fees', whereas the jurisdictional ITAT, Mumbai 'L' Bench, in its order dated 28.03.2014 in the case of ADITIIT)-2(2), Mumbai Vs Viacom 18 Media Pvt. Ltd. has confirmed that the payments made for use/right to use of 'process' are 'royalty' in terms of the Income- tax Act, 1961. iii) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia) and thereby holding that the short deduction of tax will not result into disallowance u/s. 40(a)(ia) of the Act, without appreciating that the Hon’ble Kerala High Court in its judgment dated 20.07.2015 in the case of CIT-1, Kochi Vs PVS Memorial Hospital Ltd. [2015] 60 taxmann.com 69 (Kerala) has clearly laid down that the disallowance u/s. 40(a)(ia) would be made even in the cases of short deduction of tax. iv) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia), without appreciating that Section 40(a)(ia) is not a charging Section but is a machinery Section and thus the expression "tax deductible at source under Chapter XVII-B" occurring in the said Section has to be understood as Chapter XVII-B and hence, tax deductible under wrong section of Chapter XVII-B would result into invoking of Section 40(a)(ia) of the Act. v) Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance u/s. 14A of the I.T. Act, 1961 without considering the CBDT Circular No. 5 of 2014 dated 11.02.2014 wherein it was clearly stated that the legislative intention is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether such income has been earned during the financial-year or not? vi) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s. 14A of the I.T. Act, 1961 by ignoring the fact that once a particular income itself is not to be included in the total income is exempted from tax, there is no reasonable basis for giving benefit of deduction of expenditure incurred towards earning such income? vii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s. 14A of the I.T. Act, 1961 and thereby not appreciating that Section 14A does not use the work "income of the year" but "income under the Act" which clearly indicates that for invoking provisions of Section 14A, it is not necessary that the assessee should have earned exempt income during the financial year under consideration? viii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s. 14A of the I.T. Act, 1961 without considering that in cases involving deduction u/s.57(iii) of the I.T. Act, it was held by the Courts that actual earning of the income is not sine qua non for deciding the deduction of expenditure laid out or expended wholly or exclusively for the purpose of earning the income. Thus, taking the same logic forward, where investment has been made in shares, which did not yield any dividend in the year under consideration, the expenditure incurred for earning the income is deductible notwithstanding the fact that no such income has been earned? ix) The appellant prays that the order of Ld. CIT(A) on the above grounds be set-aside and that of the assessing officer be restored. x) The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.?"
3. The brief facts of the case are that the assessee filed its return of income on 30.09.2013 declaring a total income to the tune of Rs. Nil/- for the A.Y.2013-14. The return was processed u/s 143(1) of the Act. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is in the business of television channel. During the year under consideration, the assessee showed the loss from business & profession and income from other sources for which details and supporting evidences were filed. On verification, it was found that the assessee claimed Carriage fees & DTH amounting to Rs.8,76,00,256/- and Telecast and Uplinking fees of Rs.3,04,73,750/- aggregating of Rs.11,80,74,006/- to its profit & loss accounts. The assessee was asked to justify the claim. Finding no justifiable claim, the same was disallowed and added to the income of the assessee. After some other disallowance on account of u/s 14A etc, the total income of the assessee was assessed to the tune of Rs.(-)1,47,72,437/-. The assessee also showed the carry forward loss of Rs.14,80,03,881/- which was also adjusted. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) allowed the claim of the assessee partly but the revenue was not satisfied, therefore, filed the present appeal before us.
ISSUE Nos. 1 to 4
Under these issues the revenue has challenged the allowance of claim of the assessee in view of the provisions u/s 40A(a)(ia) of the Act in respect of Transponder Hire Charges (Uplinking Charges) & Carriage Fees. Before going further, we deem it necessary to advert the finding of the CIT(A) on record:-
“5.2 Ground No. 2 Vide this ground, appellant has agitated against disallowance of Rs.8,76,00,256/- uis.40(a)(ia) of the Act In para 7 of the assessment order, Ld. AO had mentioned that during the year under consideration the assessee company had claimed carriage fees and DTH amounting to Rs.8,76,00,256/-. The AO had further mentioned that the assessee company was asked to justify the claim of carriage fees and uplinking charges along with details of the tax deducted at source The appellant was issued a show cause by the Ld. AO asking why not the disallowance should be made as done in AY. 2011-12, 2012-13. After lying upon the earlier years the Ld. AO held that the payment of carried fees was liable to tax deduction u/s.194J of the Act and since there was short deduction of tax, therefore, the Ld. AO disallowed the claim of the appellant u/s.40(a)(ia) of the Act. During the course of appellate proceeding, it was submitted that similar type of disallowance was made by the Ld. AO in appellant's own case during A.Y. 2010-11, 2011-12 and 2012-13. The appeal of the assessee for 2010-11. 2011-12 and 2012-13 has been decided by Hon'ble 1TAT. The appeal of the assessee for AY. 2011-12 has been decided by Hon'ble ITAT in ITA No. 6786/Mum/2018. Question raised before Hon'ble ITAT was as under:
I. Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the disallowance u/s. 40(a)(ia) r.w.s 194J in respect of 'Carnage Fees/Channel Placement fees' and failing to appreciate that the payments made for use/right to use of 'process' are 'royalty' as per Explanation 6 to section 9(1) (vi) hence such payments are covered u/s 194J of the Income-tax Act, 1951.
After considering the arguments of appellants and respondant the Hon’ble ITAT has held as under.
We have heard the rival submissions and perused the relevant materials on record. In the case of M/s NGC Networks (India) Pvt. Ltd. (supra), the following questions of law were urged before the High Court by the Revenue:
"(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that the disallowance of Channel Placement Fee cannot be made u/s 40(a)(ia) of the LT Act
194C instead of Sec 194J of the I.T Act2 (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that the disallowance of Channel Placement Fee is not in the nature to be deducted u/s 194J of the LT. Act despite Explanation 6 thereto inserted w.e.f 01/06/1976?
The Hon 'Me High Court held that (d) We find that view taken by the impugned order dated 9th July of the Tribunal that a party cannot be called upon to perform an impossible Act i.e to comply with a provision not in force at the relevant tune but introduced later by retrospective amendment This is in accord with the view taken by this Court in C1T v. Cello Plast (2012) 209 Taxman 617 - wherein this Court has applied the legal maxim lex non cogit ad impossible (law does not compel a man to do what he cannot possibly perform (e) in the present facts, the amendment by introduction of Explanation-6 to section 9(1)(w) of the Act took place in the year 2012 with retrospective effect from 1976. This could not have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source u/s 194C of the Act during the subject assessment year, would require deduction u/s 194) of the Act due to some future amendment with retrospective effect (f) Further, we also notice that under section 40(a)i) of the Act, under which the expenditure has been disallowed by the Revenue, meaning of royalty as defined therein, is that as provided in the Explanation 2 to section 9(1)(vi) of the Act and not Explanation 6 to section 9(1)(vi) of the Act Thus, the disallowance of expenditure u/s 40( a)a) of the Act can only be if the payment is 'Royalty' in terms of Explanation 2 to 9(1)(v1) of the Act Undisputedly, the payment made for channel placement as a fee, is not royalty in terms of Explanation 2 to section 9(1)(vi) of the Act Therefore, no disallowance of expenditure u/s 40(a) (vi) of the Act, can be made in the present case."
7 1 Thus, in the instant case, the assessee could not have deducted tax u/s 194J oil account of subsequent amendment in definition of royalty by Explanation 6. Consequently, the disallowance by the AD by treating channel placement fees as process royalty under Explanation 6 to 9(1)(vi) is not warranted.
7.2 In the case of UTV Entertainment Ltd. (supra), it is held by the Honble Bombay High Court that in case of assessee carrying on business of broadcasting of television channels, payments of placement charges and subletting charges would fall within the meaning of 'work' covered in clause (iv) of Explanation to section 194C, and thus, assessee was justified in deducting tax at source u/s 194C. while making said payments.
Thus channel placement fees, as in the instant case, is liable to withholding u/s 194C, to be more specific under clause (iv) of Explanation to section 194C.
7.3 Further, it is held in the case of SK. Tekriwal (supra), by the Hon’ble Calcutta High Court that if there is any shortfall to any difference of opinion as to taxability of any item or nature of payments falling under various TOS provisions, the assesses can be declared to be an assesses in default u/s 201, but no disallowance can be made by invoking provisions of section 40(a)(ia).
However, the Hon'ble Kerala High Cowl has held that disallowance u/s 40(a) (ia) is to be made where TDS has been made under wrong provisions.
In absence of decision of jurisdiction High Cowl, in view of contrary decisions, one has to follow the view which is in favour of the assesses as laid down in Vegetable Products Ltd. (supra). In view of the above reasons, we uphold the order of the 14. C/TA) and dismiss the appeal tiled by the revenue. Since there is neither any legal change nor any factual change, rather the Ld. AD, while making disallowance has relied upon the judgment of the AC for A.Y. 2010-11, 2011-12 and 2012-13. Therefore respectfully following the judgement of Hon’ble TAT in appellant's own case appeal of the assessee on this ground is allowed and disallowance made by AO is deleted.”
On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the decision of the Hon’ble ITAT in the assessee’s own case for the A.Ys. 2010-11, 2011-12 & 2012-13. The appeal of the assessee for the A.Y.2011-12 has been decided by Hon’ble ITAT by virtue of and the finding of the same has been reproduced by CIT(A) in his order. Since the issues have duly been covered by the decision of Hon’ble ITAT in the assessee’s own case (supra), therefore, we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, these issues are decided in favour of the assessee against the revenue.
ISSUE Nos. 5 to 8
Under these issues the revenue has challenged the deletion of the disallowance u/s 14A r.w. Rule 8D of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-
“5.3 Ground No.
Vide this ground, appellant has agitated against disallowance of 25.65,766/- made by the AD u/s.14A r.w. Rule 8D. In para 8 of the assessment order, the Ld. AC had mentioned that the assessee company had made investment in shares from which exempt income can be earned. In view of these facts the Ld. AO issued show cause and asked the appellant why not the provision of Section 14A r.w. Rule 8D should be invoked. After considering the reply of the appellant the Ld. AD worked out a disallowance of 25,65,766I- u/s,14A r.w. Rule SD. During the course of appellate proceeding, it was submitted that during the year under consideration no exempt income was earned by the appellant. The appellant stated that since no exempt income was earned, therefore no disallowance should be made u/s.14A r.w. Rule 3D. In support of its claim, appellant placed reliance on following judgement:
I. Chaminvest Ltd. Vs. CIT-IV (Delhi) of 2014 The Hon'ble High Court of Delhi has held that there should be a actual receipt of the income which was not includable in the total income during the relevant previous year for the purpose of disallowing any expenditure incurred in re/at/on to the said income (ii) M/s/ Nitishree International Pvt. Ltd. Vs. ITO (ITA. NO.4603/Del/2014 (ii) The Hon'ble ITAT Delhi Bench "SMC-2 held that if assessee had not earned any exempt income during the year no disallowance u/s.14A of Income tax Act, l961 r.w. Rule 80 was warranted. Since no exempt income was earned by the appellant company during the year under consideration, therefore, the case of the appellant company is squarely covered by judgments of Hon’ble Delhi High Court in the case of Cheminvest Ltd. In view of the forgoing discussion as well as following the above judicial pronouncements, the disallowance made by the Ld. AO is deleted and this ground of appeal is allowed.”
7. On appraisal of the above mentioned finding, we noticed that the investment which did not earn the exempt income is not liable to be included while assessing the expenditure to earn the exempt income and in this regard the CIT(A) has placed reliance upon the decision of Hon’ble Delhi ITAT in the case of Cheminvest Ltd. Vs. CIT-IV (Delhi) of 2014. These issues are covered in favour of the assessee, therefore, the finding of the CIT(A) is quite justifiable and is not liable to be interfere with this appellate stage.
ISSUE Nos. 9 & 10 8. Issue nos. 9 & 10 are not specific, hence, is not liable to be adjudicated.