9911796707
TMI Blog2008 (6) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial operation during the year. (3)On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI has erred in directing the Assessing Officer to allow depreciation under section 32 of the Income-tax Act on Software Development expenses amounting to Rs. 15,10,885 at 25 per cent applicable to Plant & Machinery though no evidence filed by the assessee during the assessment proceedings that the business of Sanskar T.V. started during the year. (4)On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI has erred in directing the Assessing Officer to allow depreciation of Rs. 5,19,956 under section 32 of the Income-tax Act, in respect of Cinemax Equipments and Computers though no evidence filed by the assessee during assessment proceedings that the business of Sanskar T.V. started during the year. (5)On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI has erred in admitting the new evidence as a certificate dated 10-5-2004 from M/s. Star in contravention of rule 46A of the Income-tax Rules, 1961." 3. The learned D.R. submitted that the amount of transponder charges/rent paid to M/s. Shim Satellite Public Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in clause (vi) of sub-section (1) of section 9, income by way of royalty payable is deemed to accrue or arise in India subject to certain conditions. The term "royalty" has been defined in Explanation 2 to this clause. The definition of the term "royalty" as used in the Double Taxation Avoidance Agreements entered into by India includes inter alia payments "for the use of, or the right to use, industrial, commercial or scientific equipment." Presently, these payments are not included in the definition of royalty in the aforesaid Explanation. The result is that income from the leasing of industrial, commercial or scientific equipment becomes taxable in the source company as business income only. Consequently there is no withholding tax on such payments as the taxpayer takes shelter under the definition of the term "royalty" as provided in the Income-tax Act since the same is more beneficial to him. It is therefore, proposed to amend section 9 so as to widen the scope of the term "royalty" as provided in Explanation 2 of clause (vi) of sub-section (1) of section 9 so as to include in its ambit consideration for the use of or the right to use, industrial, commercial or scien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (the "Late Payment Charge") at the rate of 2 per cent per month shall be imposed on the overdue amount from the Due Date, until the SSA receives the overdue amount in full. Customer agrees that such suspension is not a breach of this Agreement. During the suspension period, Customer shall be obligated to pay the Service Fee and Late Payment Charge. The Appendix A to the above agreement contains details of Service Fee payment. Appendix B is with reference to the terms of Digital Broadcast Service which include Service description and Source Signal provision by Customer. Appendix C is with reference to technical specifications of the orbital location, etc. There was modification to the Appendix C vide amendment to the agreement entered on 7-12-2000 regarding changes in technical specifications. This agreement was further amended by another amendment dated 24-1-2002 mainly for Appendix A for the payment schedule." 8. The foreign satellite company is governed by DTAA between Government of India and Government of the kingdom of Thailand which was notified in GSR 915(E), dated 27-6-1986, in 161 ITR (St.)/82. As per the DTAA the terms of PE, Royalty were defined Article 12 of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and paid. Now the issue to be considered is whether the transponder charges paid/payable to foreign satellite company 16 covered by either the definition of 'royalty' or by 'fees for technical services' or 'other sum' chargeable under this Act. It is the contention of the learned A.R. that the provisions section 9(1)(vi) are amended with effect from 1-4-2002 by amending the Explanation 2 by including clause (iv)( a). Consequently, till such time the hire of transponder does not come within the purview of 'royalty' and hence provisions of section 40(a)( i) were not applicable. 10. We are not in agreement with this claim of the assessee for the reason that the digital broadcast service agreement is for providing service for digital broadcast only. The service description in Appendix B is as under :- "1.Service Description 1.1SSA shall provide a digital channel including video and audio signal for broadcasting Customer's television programs. 1.2SSA shall provide the Digital Broadcast Service at the Thaicom Teleport and DTH centre (The "Teleport Facilities") located in Pranthum Thani Province, Thailand. 1.3SSA shall provide the Digital Broadcast Service as an MCPC platform. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process in transponder - Thus, the TV channels were clearly 'using' the transponder capacity for carrying on their business in India - Word 'secret' occurring before the word 'formula' in clause (iii) of Explanation 2 to section 9(1)(vi) cannot be prefixed to 'process' as well - What the TV channels were using was the process made available by the assessee through its transponder - Transponder, which is a part of satellite, cannot be termed as an equipment and hence leasing out of transponders cannot be equated with the leasing out of any equipment - Therefore, the contention that the rental income could be charged to tax only after clause (iva) of the Explanation came into effect is not acceptable - Merely because the lease rentals were fixed on annual basis it cannot be said that the payment is for any consideration other than, rendering of said services - Activity which is resulting into income in the hands of TV channels who are non-residents is the ultimate viewership of programmes transmitted by them in the footprint areas including India - Thus, these TV channels were not only carrying on their business in India but were also earning income from the source in India - Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee dated 21-12-2000. Hiring of Transponder and Uplinking Services Abroad We advise that you have our permission for hiring of transponder on Thaicom-3 Satellite and uplinking services from M/s. Shim Satellite Co. Ltd., Thailand at an Annual Service Fee of US$ 2,50,000 for the period between August 2000 to July 2001. The Service Fee is inclusive of Security Deposit of US$ 1,04,167 and is adjustable within a period of the sanction. The approval is also subject to the following conditions : (a)You will start uplinking facility from India as soon as you are permitted uplinking through VSNL's own earth station are not later than two years of issue of this NOC. (b)You will adhere to Programme & Advertising Code. We further advise that the remittance towards the service fee shall be allowed on production of following documents : 1. Original invoices from M/s. Shim Satellite Co. Ltd., Thailand. 2. Income-tax Paid Challan As can be seen from the above RBI permission also the fee is considered as Annual Service Fee which include hiring of Transponder and Uplinking Services. The only conclusion that can be drawn from the above facts is that the fee paid by the assessee-company is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; and that amounts paid by it to channel companies against cost of air time were not amounts chargeable to tax in India in hands of channel companies and, therefore, it was under no statutory obligation to deduct tax at source in course of making those payments to channel companies - Assessing Officer, however, held that assessee was bound to make deduction of tax at source while making payment to channel companies and as assessee had failed to do so, Assessing Officer, invoking provisions of section 40(a)( i), disallowed said payment - Whether since on examination of nature of operations carried out by channel companies in their business of telecasting it was clear that ultimate delivery of programmes was made by channel companies in India and outcome of all agreements entered into between assessee and channel companies and those of cable operators were all finally culminating in India, it could be said that channel companies were having business connection with India and assessee was acting as an agent of channel companies - Held yes - Whether therefore, assessee was liable to deduct tax at source on payments made to channel companies - Held yes - Whether since assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the definition of 'royalty' as well as provisions of section 195. For these reasons we are not in agreement with the order of the CIT(A) and so the same was set aside. Grounds of the Revenue are upheld. 14. With reference to ground Nos. 2 and 4 of disallowance of expenditure prior to incorporation and consequent allowance of depreciation on software expenses, the matter is restored back to the Assessing Officer as apparently the CIT(A) has accepted the certificate dated 10-5-2004 which is subsequent to the order dated 16-3-2004 and was not furnished before the Assessing Officer. In view of this while allowing ground No. 5 the matter is restored back to the Assessing Officer to examine the issue afresh. The Assessing Officer is directed to consider the date of set up of business and allow the expenses accordingly. The Assessing Officer also to consider the allowance of depreciation in the light of the decision of the Special Bench in Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112 (Delhi) and reconsider the issue afresh keeping in view the principles established therein. Consequently the matter is restored back to the Assessing Officer for reconsideration and passing nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
