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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R Per Joginder Singh (Judicial Member) Both these appeals are by the Revenue, aggrieved by the impugned orders dated 29/06/2012 of the Ld. First Appellate Authority, Mumbai.
2 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012
The common ground raised in the present appeals pertains to rendering of services by the cable operators/MSO’s, and payment and placement charges within the purview section 194C and also Commission or brokerage as defined in Explanation to Section 194H of the Act and consequent invocation of section 201(1)/201(1A) of the Act. During hearing of these appeals, Shri O.P. Meena ld. DR defended the addition made in the assessment order. On other hand Shri Bhupendra Karkhanis, ld. counsel for the assessee defended the conclusion arrived at in the impugned order.
2.1. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion we are reproducing hereunder the relevant finding recorded by the ld. First Appellate Authority for ready reference and analysis:-
“3.15 I have considered the submissions and the arguments of the Id. ARs. The above grounds pertain to the short deduction of TDS on payment by the Appellant, of channel placement fees to cable operators/MSOs. The Appellant has made payment of placement charges to cable operators. From the placement agreement, it is seen that the cable operators agree with the Appellant to place the channels on certain preferred frequencies. It is only in consideration for providing choice of the desired placement of the channels that the Appellant agrees to make payment of placement fee to the cable operators In order to transmit the TV signals to the ultimate viewers, the cable operators are as such required to place the signals on some frequency. By agreeing to place the channel on any preferred band, the cable operator does not render any technical service to the distributor/TV channel. In terms of the provisions of section 1940 of the Act, it is provided
3 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 that expression work' shall include, inter alia, broadcasting and telecasting including production of programmes for such broadcasting and telecasting. Therefore, it is evident that where the payment is for a work involving broadcasting and telecasting, the same shall be subject to deduction of tax at source in terms of section 1 94C of the Act 3.16 It is not in dispute that cable operators disseminate signals received from the broadcaster through cables to various subscribers. Thus, carriage of channels through cables, which also involves placing them at certain, bands/frequencies, is an integral part of the broadcasting process, which work is contracted to cable operators. Thus, payment made to cable operators for placement charges should be regarded to be in the nature of carrying out work of broadcasting and telecasting and hence, subjected to TDS u/s. 194C of the Act. Similar view has been taken by the Hon'ble Punjab & Haryana High Court in the case of Kurtikshetra Darpans (P) Ltd. Vs. CIT (169 Taxman 344). In the case of Prasar Bharti (Broadcasting Corpn. of India) (158 Taxman 470) cited by the appellant, even the production of television programs has been held to be in the nature of a 'work contract'. In this case, the Hon'ble Court held that there is no applicability of section 194J and the assessee had rightly deducted tax u/s. 1940. Therefore, I am of the view that payment of placement fee by the Appellant to the cable operators should be subjected to TDS @ 2% as per the provisions of section 194C of the Act. 3.17 I do not agree with the stand adopted by the AG in the impugned order that the placement fee should be treated as fees for technical services' for the purpose of TDS u/s. 1 94J of the Act. It is a settled position in law that merely because, as part of providing any service or facility, if the service provider requires technical equipment that does not mean that any technology or technical service is provided by the service provider. Under the current arrangement, what the cable operator does is to only give preference to a particular channel over the other to place it on a particular band for which they charge a consideration. Merely because as part of providing this privilege/ facility, it requires the cable operators to put the channel on a particular band using technical equipment, does not mean that any technology
4 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 or technical service is provided by the cable operators to the Appellant. Having regard to the decision of Madras High Court in the case of Skycell Communications Ltd and various other judicial precedents relied upon by the Appellant, placement of channels being a standard facility, the consideration in respect thereof would not qualify as fees for technical services for the purpose of section 194J of the Act. 3.18 So far as the alternative argument of the AO. that the payment of placement fees is in the nature of brokerage or commission as defined in explanation to section 194H of the Act, is concerned, the same is even farther from the reality. Commission or brokerage in common parlance is understood to be a payment received by a person from the other person for services rendered by him to such other person. However, this definition pre-supposes that the person receiving brokerage or commission, himself does not carry out any independent business in this regard: rather he is only a tool for the said business of the other person. The recipient of brokerage or commission provides only a service to the other person, without engaging any resources or assets of his own and, if at all, any such assets or resources are required, the same are provided/ supplied by the other person. The other instances of commission or brokerage are payments for services in the course of buying or selling of goods or transactions relating to any asset, valuable article or thing as defined in Explanation to section 194H. Although the meaning of these terms as per explanation to section 194H is inclusive, largely the 'commission on brokerage' is understood as elaborated above. The cable operators/MSOs carry out independent business with the help of their own resources, assets and independent establishment. Their activity, as explained above, amounts to the activity of broadcasting and telecasting. They are also not engaged in providing services in the course of buying and selling of goods etc. Hence the channel placement fee received by them cannot in any manner, be categorized as 'commission or brokerage'. The case laws cited by the appellant which are directly on this issue also support this view. Therefore, in my opinion, this argument of the AO is also devoid of merits, and deserves to be rejected. 3.19 Since the Appellant has already deducted TDS u/s. 5 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012
194C of the Act on the placement fee, the TDS officer is directed o consider the Appellant as assessee in default u/s. 201(1) of the Act as there is no short deduction of tax by the Appellant. The demand of tax u/s 201(1) of Rs. 96.46560/- and interest u/s 201(1A) of Rs.32,79,830/- is hereby deleted. 4.1 1 have held above that there is no short deduction of tax by the Appellant on account of payment of channel placement charges made to cable operators! MSOs. Hence, there is no question of recovery of such taxes from the Appellant. Thus, above grounds of appeal Nos. 2, 4 and 5 do not survive and are in-fructuous.”
2.2 If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before coming to any conclusion it is expected to understand the facts first. Carriage Fees is paid by the Broadcasters to various MSO's / Cable Operators and it is seen that the said fees is paid in respect of technical service rendered by such vendors for placing Broadcaster's channel in the Prime Band. On perusal of the submission made by the IBF before the Board it is seen that basic thrust and the sole purpose of the same is to somehow to simplify and over simplify a process which is otherwise complex and technical in nature. It needs to be appreciated that just by linguistic simplification, an elaborate and technical process cannot be brought at part with an exercise/process which is non technical in nature. Therefore, it is necessary to understand in clear terms what precisely is the nature of services rendered
6 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 by the cable operators in order to be eligible to receive I earn Carriage Fees. 2.3 Nature of service rendered by cable operators / MOS's : Carriage fees is generally paid by the Broadcasters to MSO/ Cable Operators to place their channel on the network at a hand of their choice. Right frequency is important to ensure a good viewership of a channel and get high TRPs resulting into better advertisements. The carriage fees has become a contentious issue between broadcasters and cable distributors company, as there are about 400 television channels registered by the government looking around to be viewed, while the analog cable distributor platform can carry only 70- 80 channels. The visibility of a channel is further affected by black & while TV sets or old colour sets which do not have facilities to tune into some of the TV frequency bands like Super Bank (S Band) or UHF Band. These two bands are the Prime Bands comprising of CH-5 to CH-12 and they carry the highest visibility which is available in 100% TV sets Since the number of channels available on these bands is limited as compared to the number of channels available for distribution, this has resulted into huge amounts of carriage fees / placements fees being paid by the Broadcasters to Cable Operators to get their channels placed on Prime Bands, so that the channel draws attention of its customer and it gets good TRP, which in turn will result into maximized revenue through advertisements, wherein there is no limit to advertisement charges. In 'the light of factual position as discussed in 7 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 immediately preceding paragraph it is clear that carriage fee is paid by broadcasters in view of lieu of technical service provided to it by the MSO / Cable Operators for placing their channel on the Prime Bands for better viewership resulting into better TRP and maximized revenue. The fee paid by the Broadcasters is clearly covered under explanation 2 to clause VII of sub-section (1) of section 9. In the instant case, the second part of the Explanation is not relevant and the entire focus is attracted to the first part and that too to the expression 'consideration for the rendering of any managerial, technical or consultancy services'. Thus, the Carriage fees paid by the Broadcasters to Cable Operators for placing their channels on Prime Band clearly falls within the ambit of that expression, that the said payments could be regarded as 'fees for technical services' as contemplated under section 194J. The details of services rendered and steps followed in respect of channel placement services which is reproduced for the sake of convenience as under: - • Broadcaster gives an integrated Receiver Decoder (‘1RD’) (in case of many broadcasters, a Viewing Card (VC) too is provided along with IRD) to the cable operator/MSO as a part of the subscription agreement. The broadcaster separately does a channel placement deal with the Cable operator! MS0 for a particular frequency or a band e.g. 3-10. The cable operator has a separate modulator for each frequency. The cable operator / MSO connects the IRD to the modulator of the specified frequency for which the carriage / placement agreement has been made for the Channel for further distribution to subscribers.
8 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 2.4 It is true that the process is automated after modulators is connected, but the question that arises here is who connects the modulator? It is here that the human intervention comes into play and the modulator of the desired channel on a particular frequency on the Prime band is connected by way of application of human mind by a technical person, for which the Federation itself has admitted that a separate Channel Placement Deal is made with the Cable operators. This process is not automated is for placing the Channel on a particular frequency of Prime Band human intervention is essential. The process that follows subsequent to connection of modulator is automated. It is seen that the Broadcaster of a channel first beams its signals to the Satellite. From Satellite the signal is received on earth by the LNB of the Parabolic Antenna and from there the signal is sent to Decoder / IRD. which is supplied by the Broadcaster, through Black Cable where it is logged permanently on the parameters fed by the Broadcaster. Thereafter, the signal is sent to the modulator which ultimately transmits the signals to the end users i.e. viewers to view the channel. Thus, the process which precedes the receipt of signal by modulator is the crucial process, which requires human application of technical mind so that the channel is placed on a desired frequency of the Broadcaster in the Prime band. Therefore, the contention of the Federation that no technical services are provided or no know/edge is imparted by the broadcaster is not found to be factually correct Further, it is also a fact that 9 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 without application of human mind by technical person the Channel cannot be logged onto desired frequency in Prime Band.
2.5 As discussed above Carriage fees is paid to cable operators not just for using their service but for the placing the channels of the Broadcasters in the Prime Band, which is limited in numbers, so that the channel gets the better viewership If carriage fees is considered to be paid only for using the network of the cable operators than it should have been paid by nearly all the 400 cable operators who are in operation presently in India. But this is not the case and it is seen that the Carriage fees is being paid top 40-50 Broadcasters only, who have means and resources to pay higher amounts for getting their channels placed in Prime Bands by such cable operators. The rest of the broadcasters pay standard fees to cable operators for getting their channels transmitted through them. Here it would be pertinent to mention that some of the Broadcasters don't even pay the Standard fees to cable operators for getting their channels transmitted through them. On the contrary they are get paid by these cable operators as the quality content of these Broadcasters gets them the viewership and TRP automatically. Some of the Sports Channels like ESPN, Star Sports and Ten Sports etc. fall into this category. Thus, there are two types of fees which can be said to paid to the cable operators, which is as under:-
10 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012
Standard fee, which is paid by Broadcasters to cable operators for getting their channels transmitted through their networks. Carriage fees, which is paid by a few elite Broadcasters to the cable operators for getting their channels placed in the Prime Band for getting better viewership, higher TRP and maximized revenue. 2.6 The Standard fees paid by Broadcasters comes within the purview of contract payments u/s. 194C as the same can he said be paid pursuant to carrying out the "work" of transmitting the channels of the Broadcasters. This service clearly falls within the ambit of Explanation given below section 194C wherein the term Work" is stated. to include Broadcasting & Telecasting" also and the term Broadcasting Service has been defined in The Register of Interconnect Agreements (Second Amendment) Regulation 2004, issued by the TRAI, which says that Broadcasting Service means dissemination of any form of Communication like sings. Signals, writing pictures, images and sounds of all kinds by transmission of electromagnetic waves, through space or through cables intended to the received by the general public either directly or indirectly and all its grammatical variations and cognate shall be construed accordingly (Emphasis supplied). However, the same cannot be said to be the case in respect of carriage / placement fees as it involves application of human mind by the technical person who place the Broadcasters channels on Prime Band with the sole objective of increased viewership, higher TRP attracting better
11 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 advertisements and maximized revenue for the Broadcaster. The consideration paid for utilization of such technical service, is therefore, clearly covered under the provisions of section 194J and not u/s.194C 2.7 In a nutshell, the transmission of a channel by a Cable Operators through its system can be said to be a mechanical service provided through its equipments however, the placing of a channel on a Prime Band at a higher cost for sole purpose of getting better viewer ship, better TRP and maximized revenue, does not come within the ambit of that service as application of human mind by a technical person is essential for doing so and this service is squarely coming within the ambit of section 194J for the purpose of TD.S. In this connection the reliance can also placed on the decision given by the ITAT Delhi in the case of Parasrampuria Synthetics Ltd which is quoted by the OF itself. The analogy of this case is reversely applicable in the present case. In this case the tribunal has held that "rendering of services by using technical knowledge or skill is different than charging fees for technical service. In the later case the technical services are made available due to which assessee acquired certain right which can be further used". According to the tribunal the service provided in he later case falls within the meaning of Section 194J Similarly in the case of Broadcasters also it is seen that the cable Operators / MSOs are not providing the standard service of merely transmitting the signals of the Broadcasters channels but through application of human
12 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 mind a specified technical service has been provided for placing Broadcasters channels on desired Prime Brands which resulted into the increased viewership, higher TRP, better advertisements and maximized revenue for such Broadcasters. 2.8 During the course of proceedings u/s 201(1) in respect of some of the broadcasters the copies of agreements made by them with various Cable Operators/MSOs were examined. On verification of various clauses of such agreements which were found to be similarly worded it is seen that the Broadcasters are paying carriage fees not just for the purpose of utilizing the services of cable operators for transmitting its Channels but for placing its channels on price bands. The placement of channels on prime bands is the crux of the entire contract agreements and the payments made are directly in relation to fulfillment of condition of placement of channel in such prime band. 2.9 The verification of various clauses by the agreements between various Cable Operators / Multi System Operators during the course of 201(1) proceedings at Mumbai clearly shows that broadcasters are paying carriage fee not services of cable operators for transmitting its channels but for playing its channel on prime bank. 2.10 In addition to what is stated above, it is worth mentioning that as is clear from nature of services rendered by cable operators as mentioned in preceding paragraphs, the payment on account of placement charges may be said to be in nature of commission as defined in Explanation to section 13 M/s. B4U Broadband India Pvt. Ltd. & 5665/Mum/2012 194H of the Income-tax Act, 1961. In view of the nature of services provided it is clear that the Cable Operators / Multi System Operators facilitates delivery of products of the broadcaster to the viewer and thus viewed this is the payment is in the nature of commission or brokerage as defined in Explanation to section 194H of the Income-tax Act,1961.
There is uncontroverted finding in the impugned order that the assessee has already deducted TDS under section 194C of the Act on placement fee, therefore, we are in agreement with the stand of the Ld. Commissioner of Income Tax (Appeals) that the assessee may not be treated as assessee in default under section 201(1)/201(1A) of the Act as there is no short deduction of tax by the assessee, consequently, we affirm the stand of the Ld. Commissioner of Income Tax (Appeals). Resultantly, the appeals of the Revenue are dismissed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 07/11/2016.