DISH TV INDIA LTD vs. ASST CIT RG 11(1), MUMBAI

In ground no.1, the assessee has challenged disallowance of ` 1,76,29,278, under section 14A of the Income Tax Act, 1961 (for short “the Act”) r/w rule 8D of the I.T. Rules, 1962

Brief facts are, during the assessment proceedings the Assessing Officer called upon the assessee to explain why expenditure relating to earning of exempt income should not be disallowed under section 14A r/w rule 8D. In response, it was submitted by the assessee that since the assessee has not incurred any expenditure for making investment in exempt income yielding asset, no disallowance under section 14A of the Act can be made. The Assessing Officer, however, did not find merit in the submissions of the assessee and held that expenditure has to be disallowed under section 14A of the Act. Thereafter, applying the provisions of rule 8D, the Assessing Officer worked out the total disallowance at ` 1,76,29,278, comprising of interest expenditure of `

The learned Authorised Representative submitted before us that during the relevant previous year the assessee has not earned any exempt income. Therefore, no disallowance under section 14A of the Act can be made. In support of such contention, the learned Authorised Representative relied upon the decision of the Tribunal, Mumbai Bench, in assessee’s own case for the assessment year 2008– 09 and 2009–10 in ITA no.2066 and 2067/Mum./2015, dated 20th December 2016. To impress upon the fact that during the relevant previous year the assessee had not earned any exempt income, the learned Authorised Representative drew our attention to the notice dated 22nd November 2012, issue under section 142(1) of the Act by the Assessing Officer and assessee’s reply dated 8th December 2012.

The learned Departmental Representative relying upon the observations of the learned Commissioner (Appeals) submitted that provisions of section 14A of the Act are applicable even to strategic investment. In support of such contentions, he relied upon the

We have considered rival submissions and perused materials on record in the light of the decisions relied upon. As could be seen from the facts on record, the contention of the assessee that it has not earned any exempt income during the relevant previous year, hence, section 14A of the Act would not be applicable was raised for the first time before us. However, on a perusal of notice dated 22nd November 2012, issued by the Assessing Officer under section 142(1) of the Act, it is seen that against Item–9 of the said notice, the Assessing Officer has called upon the assessee to explain whether any tax free income was earned during the year. In reply to the aforesaid query, the assessee vide letter dated 8th December 2012 has submitted that it has not received any tax free income during the relevant previous year. The aforesaid reply of the assessee appears to have been ignored by the Assessing Officer while making the disallowance under section 14A r/w rule 8D. In fact, nowhere in the assessment order the Assessing Officer has recorded a positive finding that in the relevant previous year the assessee has earned any exempt income. The order of the learned Commissioner (Appeals) is also silent on this aspect. The Hon'ble Delhi High Court in Cheminvest Ltd. v/s CIT, 378 ITR 33 (Del.) has held that in the absence of exempt income earned in a

In ground no.2, assessee has challenged disallowance of ` 7,18,15,595, under section 40(a)(ia) of the Act.

Brief facts are, the assessee is engaged in the business of Direct To Home (DTH) operator, satellite television services, teleport services, etc. As observed by the Assessing Officer, the assessee distributes various channels through DTH platform. In course of assessment proceedings, the Assessing Officer noticing that the assessee has paid commission charges of ` 7,18,15,595 called upon the assessee to furnish the details of such expenses and also to justify the reason for not deducting tax at source while making such payment, as, according to the Assessing Office such payment is covered under section 194H of the Act. In reply, it was submitted by

Though, the assessee challenged the aforesaid disallowance before the learned Commissioner (Appeals), he also sustained the disallowance made by the Assessing Officer.

The learned Authorised Representative submitted before us that identical issue came up for consideration before the Tribunal in assessee’s own case in assessment years 2011–12 and 2012–13. He submitted, before the Tribunal the assessee produced certain additional evidences to prove the nature of payment to be not commission but cash discount. He submitted, after considering the submissions of the assessee the Tribunal restored the issue to the Assessing Officer for fresh consideration after examining the additional evidences produced by the assessee. The learned Authorised Representative submitted, similar evidences have to be produced for the impugned assessment year also, hence, the issue has to be restored back to the Assessing Officer for fresh adjudication.

The learned Departmental Representative has not opposed the aforesaid submissions of the assessee.

We have considered rival submissions and perused materials on record. As could be seen, identical issue arose in assessee’s own case for assessment years 2011–12 and 2012–13. The Tribunal after considering the submissions made by the assessee and the evidences produced passed an order in ITA no.3061 3062/MUM./2017, dated 10.10.2017 restoring the issue to the Assessing Officer with the following observations:–

Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench, we restore the issue to the file of the Assessing Officer for fresh adjudication keeping in view the directions of the Tribunal in assessment year 2011–12 and 2012–13. This ground is allowed for statistical purposes.

In the result, assessee’s appeal is allowed for statistical purposes.

The grounds raised by the Department are against the decision of the learned Commissioner (Appeals) in deleting the disallowances made under section 40(a)(i) and (ia) of the Act in respect of various payments made by the assessee without deducting tax at source. Since, the grounds raised by the Revenue are overlapping, we consider it appropriate to decide the issues relating to payment made under each head.

Brief facts are, during the assessment proceedings the Assessing Officer noticed that the assessee has claimed expenditure of ` 361,13,12,718, towards channel subscription charges. The Assessing Officer noticed that the assessee treating the services rendered by the payee in respect of such payment to be in the nature of contract has deducted tax @ 2% by applying the provisions of section 194C of the Act. The Assessing Officer was of the view that channel subscription charges are in the nature of royalty, hence, the assessee should have deducted tax at source @ 10% by applying the provisions of section 194J of the Act. Therefore, he called upon the assessee to show cause as to why the payment made should not be disallowed under section 40(a)(ia) of the Act for not deducting tax at the appropriate rate. Though, the assessee objected to the proposed disallowance, however,

The learned Commissioner (Appeals) taking note of the fact that the assessee has deducted tax at source @ 2% by applying provisions of section 194C of the Act held that it is a case of short deduction of tax and not a case of no TDS. Therefore, following the decision of the Hon'ble Calcutta High Court in CIT v/s S.K. Tekriwal, 206 CTR 73 (Cal.), he held that no disallowance under section 40(a)(ia) of the Act can be made. Of course, the learned Commissioner (Appeals) also referred to the order passed by the first appellate authority in assessee’s own case for assessment year 2008–09 and 2010–11 against the order passed under section 201(1) and 201(1A) of the Act, wherein, the assessee’s claim that the payment made is not in the nature of royalty was accepted.

The learned Departmental Representative submitted that the learned Commissioner (Appeals) was not justified in deleting the disallowance made under section 40(a)(ia) of the Act by applying the ratio laid down by the Hon'ble Calcutta High Court in S.K. Tekriwal (supra). He submitted, the Hon'ble Kerala High Court in CIT v/s PVS Memorial Hospital Ltd., [2015] 60 taxmann.com 69 (Ker.) after taking

The learned Authorised Representative supporting the decision of the learned Commissioner (Appeals) submitted that the ratio laid down by the Hon'ble Calcutta High Court in S.K. Tekriwal (supra) squarely applies to the facts of assessee’s case. He submitted, the assessee having deducted tax @ 2% which, though, according to the Assessing Officer is not the appropriate rate, but, the assessee having deducted tax at source, the provisions of section 40(a)(ia) of the Act are not applicable. He submitted, in assessee’s own case for the assessment year 2011–12 and 2012–13, the Tribunal while deciding identical issue raised by the Revenue has held that no disallowance under section 40(a)(ia) of the Act can be made in respect of short deduction of tax at source. Thus, he submitted, learned Commissioner (Appeals)’s order on the issue deserves to be upheld.

The next issue is with regard to deletion of disallowance made under section 40(a)(ia) of the Act in respect of up–linking fees of ` 4,43,42,474, to Antrix Corporation Ltd.

Brief facts are, the Assessing Officer noticed that the assessee has paid up–linking fees of ` 4,43,42,474, on which it has deducted tax @ 2% under section 194C of the Act. The Assessing Officer being of the view that the payment made is in the nature of royalty, the assessee should have deducted tax @ 10% as per section 194J of the Act. Alleging short deduction of tax at source, the Assessing Officer disallowed the payment by applying the provisions of section 40(a)(ia) of the Act.

We have considered rival submissions and perused materials on record. As could be seen from the facts on record, while paying the up–linking fees the assessee has deducted tax at source @ 2% by applying the provisions of section 194C of the Act. It is the case of the Revenue that the assessee should have deducted tax @ 10% as per section 194J of the Act. Thus, there is no dispute that the assessee has deducted tax at source, but, may be at a lower rate. It is not a case of failure to deduct tax at source. That being the case, following our reasoning in Para–20 of this order, we uphold the deletion of disallowance made under section 40(a)(ia) of the Act.

The next dispute is with regard to payment of up–linking fees of ` 6,62,06,997, to a non–residence entity viz. B.T. Worldwide.

During the assessment proceedings, the Assessing Officer noticing that the assessee has paid up–linking fees of ` 6,62,06,997, to a Singapore based company viz. B.T. Worldwide without withholding tax under section 195 of the Act called upon the assessee to explain why the payment should not be disallowed under section 40(a)(i) of the Act as it is in the nature of royalty as per section 9(1)(vi) r/w

The learned Commissioner (Appeals) after considering the submissions of the assessee deleted the disallowance made by the Assessing Officer.

The learned Departmental Representative submitted that the learned Commissioner (Appeals) has deleted the disallowance on a wrong impression that the assessee has deducted tax at source at a lower rate. Whereas, in respect of this payment, the assessee has not at all deducted tax at source. He submitted, the up–linking fees paid is in the nature of royalty as it is a process as defined under

The learned Authorised Representative supporting the decision of the learned Commissioner (Appeals) submitted that at the time of payment of up–linking fees to B.T. Worldwide, as per the existing provisions of section 9(1)(vi) of the Act process was not in the nature of royalty. He submitted that subsequently by way of retrospective amendment the scope of “Royalty” was widened by introducing Explanation–6 to section 9(1)(vi) of the Act. He submitted, since, the aforesaid provision was not in existence at the time of payment made by the assessee, the assessee could not have deducted tax at source anticipating a change in law. In this context, the learned Authorised Representative relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s M/s. N.G.C. Network (India) Pvt. Ltd., ITA no.397 of 2015, judgment dated 29th January 2018. Further, the learned Authorised Representative submitted, in assessee’s own case for the impugned assessment year the Income Tax Officer (TDS) has passed an order under section 201(1) / 201(1A) of the Act on 7th

We have considered rival submissions and perused materials on record. At the outset, we must observe that the learned Commissioner (Appeals) deleted the disallowance on a factual misconception that the assessee has deducted tax on the payment at a lower rate. However, the facts on record reveal that the assessee has not deducted any tax at source on the payment of ` 6,62,06,997, to B.T. Worldwide towards up–linking fees. To that extent, the observations of the learned Commissioner (Appeals) are not correct. However, the issue to be decided is, whether the assessee was liable to deduct tax at source on such payment. It is the case of the Department that the payment made attracts the provisions of section 9(1)(vi) of the Act as it is in the nature of ‘process’ as defined under Explanation–6 to section 9(1)(vi) of the Act. It is the contention of the Department that Explanation–6 which defines ‘process’ to include transmission by satellite through up–linking, since, is clarificatory in nature, it cannot be construed to be amending the term “Royalty” under section 9(1)(vi) of the Act. However, it is the contention of the assessee that, since, at

The next dispute is with regard to payment of transponder fees amounting to ` 50,25,99,456.

The Assessing Officer noticing that the assessee while making the aforesaid payment has deducted tax at source @ 2% under section 194C of the Act as against @ 10% under section 194J of the Act called upon the assessee to explain why the payment made should not be disallowed under section 40(a)(ia) of the Act. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer proceeded to disallow the payment made, since, the assessee has not deducted tax at the appropriate rate as provided under section 194J of the Act.

Assessee challenged the disallowance before the learned Commissioner (Appeals) who deleted the disallowance.

The learned Authorised Representative submitted that the assessee having deducted tax at source, though at a lower rate, no disallowance under section 40(a)(ia) of the Act can be made.

We have considered rival submissions and perused materials on record. Though, it is a fact that the learned Commissioner (Appeals) before deleting the disallowance made under section 40(a)(ia) of the Act has not made any discussion, however, it is very much clear from the assessment order that the assessee has deducted tax at source on such payment by applying the rate of 2% as per section 194C of the Act. The Assessing Officer has disallowed the payment only on the reasoning that the assessee should have deducted tax @ 10% under section 194J of the Act. Thus, as could be seen from the facts on record, it is a case of short deduction of tax at source and not a case of failure to deduct tax at source. That being the case, following our reasoning in Para–20 of the order, we uphold the deletion of disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. Accordingly, grounds raised are dismissed.

In the result, Revenue’s appeal is dismissed.

To sum up, assessee’s appeal is allowed for statistical purposes and Revenue’s appeal is dismissed.