By TIOL News Service

MUMBAI, APR 08, 2019: THE ISSUE IS - Whether assessee becomes liable to TDS u/s 194J on channel placement fees on basis of subsequent amendment in defintion of royalty. NO IS THE ANSWER.

Facts of the case

The assessee company is engaged in the business of broadcasting of current affairs and news channels, being Asianet News Channel in Malayalam and Suvarna News Channel in Kannada. During the course of assessment, the AO passed an order u/s 143(3) by making adjustment on account of disallowance u/s 40(a)(ia) in respect of ‘channel placement fees’ amounting to Rs.2,62,03,173/-. The AO had disallowed channel placement fees u/s 40(a)(ia) treating it as process royalty under Explanation 6 to section 9(1)(vi), which was introduced in the I-T Act from April 01, 2012.

On appeal, the CIT(A) followed the decision in the case of Jagran Prakashan - 2012-TIOL-426-HC-ALL-IT and the CBDT Circular No. 05/2016 for the proposition that the discount granted by the assessee to the advertisement agency was on account of the bulk business that the advertisement agency gives to the television channel and not for any services that was rendered to the assessee by the advertisement agency and thus the provisions of section 194H were nota attracted. The CIT(A) further held that where tax had been deducted at source under a particular section and in the opinion of the AO, tax ought to have been deducted under a different section, no disallowance arises u/s 40(a)(ia). Also the CIT(A) observed that payments made towards programmes produced for broadcasting fall within the expression “work” as defined in Explanation to section 194C. With these observations, the CIT(A) deleted the disallowance of Rs.2,62,03,173/- made by AO.

On appeal, the ITAT held that,

++ the assessee could not have deducted tax u/s 194J on account of subsequent amendment in definition of royalty by Explanation 6. Consequently, the disallowance by the AO by treating channel placement fees as process royalty under Explanation 6 to 9(1)(vi) is not warranted. It is seen that in the case of UTV Entertainment Ltd, it is held by 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. Further, it is held in the case of S.K. Tekriwal case, by the Calcutta High Court that if there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s 201, but no disallowance can be made by invoking provisions of section 40(a)(ia). However, the Kerala High Court 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 Court, in view of contrary decisions, one has to follow the view which is in favour of the assessee as laid down in Vegetable Products Ltd. In view of the same, the order of the CIT(A) is upheld.

(See 2019-TIOL-745-ITAT-MUM)