ACIT 16(1), MUMBAI vs. STAR ENTERTAINMENT MEDIA P. LTD, GURGAON

O R D E R PER BENCH: 1. These two appeal by revenue and Cross Objections therein are directed against the order of Commissioner (Appeals)-4 Mumbai dated 30th of September 2016 for assessment year 2011- 12 & 2012-13. The revenue as well as assessee has raised common grounds of appeal. Therefore, both the appeal and Cross Objections therein were heard together and are decided by a common order. With the consent of parties, the appeal for Assessment Year 2011-12 is treated as lead case. The revenue has raised following grounds of appeal:

1) Whether on the facts and 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 'Carriage Fees/ Channel Placements 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 vi] s. 194J of the Income Tax Act, 1961.

& 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd

2) 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 'Carriage Fees/Channel Placement Fees. 3) Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in relying on the order of Hon'ble Delhi High Court in the case of CIT v / s Prasar Bharti (292 ITR 580) without realizing that the said decision applies to an entity making payments to outside producers for making certain programs for it whereas in the instant case the payment was made by the assessee who is broadcaster to various MSOs or Cable Operators for placing its channel on a particular frequency/bandwidth. 4) 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) placing reliance on the decision of Calcutta High Court dated 10.12.2012 in CIT vs S.K. Tekriwal [2014] without appreciating that the Hon'ble Kerala High Court in its judgement dated 20.07.2015 in the case of CIT-l, Kochi v/s PVS Memorial Hospital Ltd. [2015] 60 taxmann.com 69 [Kerala] has decided the issue in favour of the Department after discussing in detail the judgement in the case of CIT Vs S.K. Tekriwal (supra). 5) 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 of 25% of marketing and publicity expenses without denying the fact that these expenses ultimately benefitted the foreign sister concern of the assessee holding the "STAR" brand. 6) Whether on the facts in the circumstances of the case and as per law, the Ld. CIT( ) has erred in directing to delete the disallowance of 25% of marketing and publicity expenses despite the fact the brand building exercise carried out by the assessee ultimately benefitted its foreign sister concern and in the absence of it is not reimbursing a part of these expenses, the AO had no option than to disallow a part of the marketing and publicity expenses incurred by the assessee company as those expenses which were not incurred exclusively for its own business. 7) The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing officer be restored.

& 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd

On the facts and in the circumstances of the case, the learned Assistant Commissioner of Income Tax-16(1) ['Assessing Officer'] has- Disallowance of channel placement fees/ carriage fees 1. erred in challenging the findings of the Commissioner of Income Tax (Appeals) ['CIT(A)'] that the payment of channel placement fees is not subject to tax deduction at source under Section 194J of the Income-tax Act, 1961 ('Act') without appreciating the fact that the Respondent has correctly deducted tax at source under Section 194C of the Act; 2. erred in challenging the finding of the CIT(A)that the channel placement fees/ carriage fees is not in the nature of 'Royalty' as per Section 9(1)(vi) of the Act read with Explanation 6 to Section 9(1)(vi) of the Act and therefore, the provisions of Section 194J of the Act are not applicable and hence, there cannot be any disallowance under Section 40(a)(ia) of the Act;

The Respondent prays that the payment of channel placement fees/ carriage fees is not in the nature of 'process royalty' as per Explanation 6 to Section 9(1)(vi) of the Act.

The Respondent prays that the payment of channel placement fees/ carriage fees is not in the nature of 'process royalty' basis the retrospective amendment to the provisions of Section 9(1)(vi) of the Act. 4. without prejudice to the above, erred in not appreciating that the disallowance under Section 40(a)(ia) of the Act cannot be made in case of alleged short deduction of TDS; & 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd

5. without prejudice to above, erred in not appreciating the fact that the disallowance under Section 40(a)(ia) of the Act if any, should be proportionately reduced to the extent of compliance by the Respondent; 6. without prejudice to above, erred in not appreciating that the disallowance under Section 40(a)(ia) of the Act should be restricted to the amount outstanding (payable) at the end of the captioned Assessment Year (' A Y') and not the amount paid during the captioned A Y; 7. without prejudice to above, erred in not appreciating that the disallowance under Section 40(a)(ia) of the Act should be restricted to 30 percent of the amount of channel placement fees; 8. without prejudice to the above, erred in not appreciating that the Respondent was under the bonafide belief that the channel placement fees could at best be considered to be covered under Section 194C of the Act; 9. erred in placing reliance on various judicial precedents without appreciating the fact that the same can be distinguished from the facts of the Respondent; and Disallowance of expenditure pertaining to marketing and publicity 10. erred in not appreciating the directions of the CIT(A) that that 25 percent of the expenditure on marketing and publicity expenses amounting to Rs 5,24,83,316 has been incurred wholly and exclusively for the purpose of business of the Respondent and hence, the same is allowable under the provisions of Section 37(1) of the Act. 11. erred in raising a ground that the marketing and publicity expenses have ultimately benefitted the foreign sister concern (owner of the 'STAR' brand). 3. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that all the grounds of appeal

raised by revenue are covered in favour of assessee and against the revenue by the decision of Tribunal in assessee’s own case for Assessment Year 2010-11 wherein identical grounds of appeal was raised by revenue in decided on 09.03.2016. The ld. AR of the assessee also & 7441 Mum 2016 & C.O. 95 &

96. Mum 2018 M/s. Star Entertainment Media Pvt. Ltd filed copy of decision of Tribunal for Assessment Year 2010-11 as stated above. The ld. AR of the assessee submits that Ground No.1 to 4 relates to deleting the disallowances made by Assessing Officer on account of Channel Placement Fees/Carriage Fees under section 40(a)(ia). The ld. AR of the assessee further submits that these grounds of appeal are covered by the Ground No.2 in appeal for Assessment Year 2010-11 decided vide order dated 09.03.2016. The ld. AR of the assessee further submits that Ground No.5 & 6 relates to deleting the disallowances on account of marketing and publicity expenses. The ld. AR of the assessee submits that this ground of appeal is also covered by the order of Tribunal for Assessment Year 2010-11 wherein similar ground of appeal was dismissed by the Tribunal.

In the rejoinder submission, the ld. AR of the assessee submits that assessee has raised grounds of appeal in its Cross Objection to support the order of Assessing Officer and that in case, the appeal of the revenue is dismissed, the adjudication on grounds of Cross Objection raised by assessee would become academic.

“4. Ground No. 2: In this ground the revenue has challenged the action of the DRP in deleting the disallowance made by the assessing officer of the expenses debited in the name of Channel Placement Fee of Rs 28,25,63,036/- under section 40 (a) (ia) of the Income Tax Act. 4.1. The brief facts of the case are that the assessee paid aforesaid amount to the cable operators and debited the same in its profit and loss account. The reason for incurring the said expenditure was that the signals of the TV channels telecast by the broadcaster were distributed in the area covered by catena of the channels provided by distributors such as the assessee. However, ultimate connectivity was provided by the cable operator, who collects subscriptions and passes them after retaining a portion thereof. Here, it was always the cable operator's discretion to place a particular channel on a preferred band or a higher frequency. Therefore, to ensure such placement of the channel on a preferred band/higher frequency, which in turn would ensure higher viewership, higher subscriptions and higher advertising revenues, the assessee paid the cable operators an amount time to time which has been described as Channel Placement Fees. According to the AO, the assessee ought to have deducted tax under section 194J of the Act. On the payment of aforesaid Channel Placement Fees, and since it was not so done, he disallowed the entire payment made under the head channel Placement Fees under section 40(a)(ia) of the Act. The AO held that impugned payment to be royalty and as such chargeable to TDs @ 10% under section 194J of the Act. According to the AO, this was clarified by Finance Act, 2012 by way of insertion of an explanation to section 9 of the Act. The AO relied on the decisions of the delhi Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. CI-I- (322 ITR 140) and New Skies Satellites NV v. A D I T (121 ITS 1). 4.2. Being aggrieved, the assessee filed its objections before the DRP. It was contended by the assessee, inter-alia, these payments did not fall within the definition of royalty as was alleged by the assessing officer. It was further & 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd submitted that in any case the assessee has deducted tax at source under section 194C of the Act, and therefore in any case no disallowance could have been made under section 40 (a) (ia). 4.3. The DRP considered the submissions of the assessee In detail and held that tax was not required to be deducted under section 194J of the act, and accordingly held that since assessee has deducted the tax under section 194C, therefore no disallowance could have been made by the assessing officer under section 40 (a)(ia) . The relevant portion of the order of the DRP is reproduced hereunder for the sake of ready reference: “We have carefully considered the AD's order and the assessee's contentions. It is clear that the assessee has deducted tax © 2% under section 1940 of the Act, by way of abundant caution. Section J94C of the deals with TDS on payments to contractors entrusted with works. According to the AD, J 0% deduction of tax under section 194J of the Act was necessary, as the said payment was for royalty as defined in explanation 2 to section 9, specifically on account of use of process' Section 40(a)(ia) of the Act makes a clear mention of disallowance under section 40(a)(ia) of the Act would not be called for In the facts and circumstances of the case, explanation 6 to section 9(i)(vi) of the Act having been inserted later with retrospective effect. Further, the assessee has deduced tax at source, albeit under the provisions of section 1940 of the Act in the case DCIT v. Chandabhoy & Jassobhoy (ITA no. 201 Mum/2010, copy placed on record), the Hon'ble Mumbai Tribunal had held that deduction of tax at a lesser rate would not Lead to application of provision's of section 40(a)(ia) of the Act. Here, we also note that the DRP had held such payments to he not chargeable to tax, in its order for A Y 2009-10 in the case of a group company viz. M/ s Star Den Media Services Pvt. Ltd.

4.4. During the course of hearing before us, learned Department Representative submitted that in view of judgment of Mumbai bench of the Tribunal in the case of Viacom 18 Media Pvt Ltd 162 TIJ 336, the impugned payment should be treated as payment made for royalty under section 9 and that the assessee should & 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd not be given benefit of another judgment of Mumbai bench of the Tribunal in the case of NGC Networks Ltd 150 ITD 772. 4.5. Per contra, learned Counsel of the assessee has relied upon the order of the DRP and also submitted that this issue stood covered in favour of the assessee on account of various judgments of the Tribunal in the case of NGC Network, supra and as well as various other judgments including the judgment in the case of one of the group companies of the assessee namely Star Den Media Services Pvt Ltd In M /2014 and also another judgment hi- the case of NGC network dt. 12/1/2016 in ITA no 1525/m/2015. 4.6. We have gone through the facts of the case and judgments placed before us by both the sides. In our opinion, this issue stands already concluded in favour of the assessee. In the case of Star Den Media Services Private Limited, supra, it has been held by the Hon 'ble bench that "the impugned payment did not fall within the meaning of royalty as envisaged under section 9 of the act. Recently) another judgment passed by the coordinate bench in the case of NGC Networks India Pvt. Ltd in its order dated 12/1/2016 considered the judgment of Viacom 18 Media Pvt Ltd, supra, which has been relied upon by the learned Department representative before us and held that assessee was not liable to deduct tax at source on this payment, much less under section 194J. In our considered opinion, this issue is concluded in favour of the assessee by many judgments. Further, in view, deduction of tax at a lesser rate would not lead to application of provision of section 40(a)(ia) of the Act, as has been held by the DRP also in its order. We find that order of the DRP is in accordance with law and facts, and no interference is called for therein, and therefore same is upheld. Resultantly, ground raised by the revenue is dismissed.

6. Considering the decision of Tribunal on identical ground, wherein no variance of fact is brought to our notice, therefore, we do not find any merit in the grounds of appeal raised by revenue and respectfully following the decision of Tribunal for Assessment Year 2010-11 in the grounds of appeal raised by revenue is dismissed. 9 & 7441 Mum 2016 & C.O. 95 &

96. Mum 2018 M/s. Star Entertainment Media Pvt. Ltd

“5. Ground No. 3 : In this ground, the revenue has challenged the action of DRP in deleting the disallowance of Rs. 2,43,94,323/- on account of marketing and publicity expenses. 5.1 The brief facts in this regard as noted by the AO are that the assessee had incurred expenditure of Rs.9.75 crores by way of marketing and publicity expenses and claimed them as deduction under section 37(1) of the Act for promoting its channels viz. regional channels such as 'Star Pravah' and 'Star Mazha'. However, this promotion, as per the AO, inter alia resulted also into promotion of the 'Star brand, which is owned by M/s. Star Ltd. to whom the assessee had paid brand royalty for using the 'Star' brand, where as the royalty agreement did not required the assessee to incure such marketing and publicity expenditure which also benefited M/s. Star Ltd. Under these circumstances, the AO allowed only 75% of the said expenses holding that portion as relating to the assessee's business only was allowable, thereby disallowing the balance 25% of such expenses amounting to Rs.2.48 crores. In this connection, the AO placed reliance on the ruling of the Hori'ble Special Bench in the case of CIT vs. L.G. Eletrolics Pvt. Ltd. (ITA no.5140/Del/2011). The assessee, on the other hand, relied on the Third Member decisions of the Hon'ble Mumbai Tribunal in the cases of ACIT vs. Star India Pvt. Ltd. and ACIT vs. NGC India Ltd. In these cases, subsequently, Hon'bJe Bombay High Court had dismissed the Revenue's Appeals.

C.O. No. 96/Mum/2018 9. We have seen that the assessee has filed its C.O. to support the order of ld. CIT(A). No independent submission was made on behalf of assessee, therefore, considering the fact that we have already dismissed the appeal of the revenue. Therefore, the adjudication on the grounds of appeal raised by assessee in its Cross Objections has become academic.

10. In the result, C.O. raised by the assessee is dismissed.

Therefore, considering our decision for Assessment Year 2011-12 on identical grounds of appeal

, the appeal of the revenue for the year under consideration is also dismissed with similar observation.

12. In the result, this appeal filed by revenue is also dismissed.

C.O. No. 95/Mum/2018 13. We have seen that the assessee has filed its C.O. to support the order of ld. CIT(A). No independent submission was made on behalf of assessee, therefore, considering the fact that we have dismissed the appeal of the & 7441 Mum 2016 & C.O. 95 & 96 Mum 2018 M/s. Star Entertainment Media Pvt. Ltd revenue. Therefore, the adjudication on the grounds of appeal raised by assessee have become academic.