ACIT CIRCLE-16(1), MUMBAI vs. M/S TATA SKY LTD., MUMBAI

O R D E R

PER PAVAN KUMAR GADALE, JM:

“i. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to delete M/s. TATA Sky Ltd., Mumbai the disallowance u/s 40(a)(ia) of Rs. 9,59,14,600/- on account of expenses claimed as commission / trade incentives / discount, without appreciating the facts that:- a. the relationship between the assessee and its distributors is held to be of principal-Agency; and b. the discount /incentive given to distributors on sale of STBs is in nature of commission and tax should be deducted u/s 194H of the Act. ii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to delete the disallowance of Rs. 4,74,26,027/- made out of expenses incurred for computer software, without appreciating the facts that;- a. the said expenses are in the nature of capital expenditure and not a revenue expenditure; b. the said expenses carry enduring and long term benefit to the assessee? iii. 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. iv. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

, findings of the A.O and the written submissions filed has dealt on the disputed issue in respect of disallowance of Rs. 9,59,14,600/- pertaining to commission / trade incentive / discount on sale of set- top-boxes to distributors, were the assessee has not M/s. TATA Sky Ltd., Mumbai deducted TDS on payments made to the distributors and the A.O. has made disallowance applying the provisions of Sec. 40(a)(ia) of the Act. Whereas, in the appellate proceedings, it was submitted that the assessee company against the CIT(A) dismissal order u/s 201&201(1A) of the Act has filed the appeal with the Honble Tribunal. Whereas, The Hon’ble ITAT has dealt on the provisions of Sec. 201 & 201(1A) of the Act and observed that the TDS provisions are not applicable to the assessee company and therefore disallowance u/s 40(a)(ia) of the Act is not warranted. In respect of software and operational support expenses, the A.O has treated the same as capital expenditure and allowed depreciation @ 60% and excess claim has been disallowed. The CIT(A) considering the submissions and the facts dealt at page 19 para6.2.1 of the order and observed that they are not in the nature of capital expenditure and has allowed the ground of appeal. Since the CIT(A) has allowed the ground of appeal No. 2 & 3 in respect of non applicability of provisions of Sec. 40(a)(ia) of the Act and allowing the claim of annual software maintenance expenses. The ground of appealNo.1 in respect of validity of reassessment was not adjudicated and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the revenue has filed an appeal before the Hon’ble Tribunal. M/s. TATA Sky Ltd., Mumbai

4. At the time of hearing the Ld.DR submitted that CIT(A) has erred in granting relief to the assessee on the two disputed issues and relied on the A.O. order. Contra, the Ld.AR of the assessee supported the order of the CIT(A) and relied on the order of the Hon’ble Tribunal.

. The Ld.AR submitted that the disputed issue of disallowance u/sec40(a)(ia) of the Act is covered in favour of the assessee company in its own case for A.Y.2009-10 & 2010-11 in ITA.No.3214/3215&3971/3972/Mum/2014 dt10.9.2020. The Honble Tribunal has observed at para 8 & 9 of the order, which is read as under;

8. We have heard both parties and perused materials on record. After considering the facts in entirety and hearing both the sides, we are of the view that this issue is squarely covered by Tribunal’s decision in assessee’s own case, wherein Tribunal has categorically observed that the assessee was not required to deduct TDS on the amounts of discount on sale of Set-top box and hardware, discount on sale of recharge coupon and vouchers, bonus or credit provided by assessee to subscribers, sales promotion expenses and distribution channel support expenses. Further, the transaction between the company and distributor is on principal to principal basis and all the risk, loss, damages are transferred to distributor on delivery. Further, distributors are free to sale at any price below maximum retail price. In this regard, the assesse has filed the sample copy of invoices for sale of Set Top Box (STB) M/s. TATA Sky Ltd., Mumbai and other recharge coupons to prove that it is a sale but not services to come within the ambit of the definition of commission as defined under section 194H of the Act. Therefore, we are of the considered view that the assessee is not required to deduct TDS on discount allowed on sale of Set Top Box and hardware, recharge coupons vouchers and disallowance of bonus or credit provided to subscribers including sales promotion expenses. Hence, by following the decision of ITAT in assessee’s own case in the proceeding under section 201(1) and 201(1A) in to 6926/Mum/2012 direct the Assessing Officer to delete the addition towards disallowances under section 40(a)(ia) of the Act on discount of sale of STB & hardware, recharge coupon vouchers & disallowance of bonus or credit provided to subscribers, sales promotion expenses and distribution channel support expenses for failure to deduct TDS u/s 194H of the IT Act, 1961. This issue of assessee’s appeal is allowed.

9. Similar is the facts in respect of this ground for AY 2010-11 in hence, in that year also the disallowance is deleted on this account.