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2016 (4) TMI 567 - ITAT HYDERABAD

2016 (4) TMI 567 - ITAT HYDERABAD - [2016] 47 ITR (Trib) 356 - TDS u/s 194J - Payments made to pay channels (Royalties & Commission) - Held that:- The view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact gets support from the decision rendered by Hon'ble Delhi High Court in the' case of Asia Satellite Telecommunication Co. Ltd (2011 (1) TMI 47 - DELHI HIGH COURT ). Though the Explanation 6 to sec. 9(1)(vi) inserted by Finance Act, 2012 is clari .....

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ses, Legal & Professional charges, Rent,Consumables & Cable Laying Charges and Advertisement - TDS liability - Held that:- The disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any.

Disallowance of provision of expenses - Held that:- AOs remand report as extracted by Ld. CIT(A) in para (iv) in p .....

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s and restore the same to AO for fresh examination. Needless to say that assessee should be given due opportunity. - I.T.A. No. 602/HYD/2013, I.T.A. No. 712/HYD/2013 - Dated:- 4-3-2016 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri Mohd. Afzal, AR For The Revenue : Smt. K. Mythili Rani, CIT-DR ORDER PER B. RAMAKOTAIAH, A.M : These are cross-appeals by Assessee and Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) .....

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- and later filed revised return of income admitting loss of ₹ 9,10,404/-. Survey operations were conducted on 19-11-2009 and statements of MD and Mr. Phani Krishna were recorded u/s. 131 of the Income Tax Act [Act]. During the course of assessment proceedings, assessee submitted that they have purchased direct point connections for a consideration of ₹ 3 Crores from P. Mallikarjuna Kumar and in support of this contention copy of the agreement of purchase of direct point connections .....

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an addition of ₹ 3 Crores which was invested for acquiring direct point connections, the share application money amounting to ₹ 2,02,50,000/- advanced by Sri D. Srinivas treated as unexplained investment in the hands of company, increase in provision for expenses amounting to ₹ 92,06,352/- was added to the income, loss claimed on direct point connections at ₹ 25 Lakhs was disallowed, donations made to political parties and others amounting to ₹ 11,21,000/- were also .....

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rcumstances of the case, the Ld. CIT(A) sought a remand report from the AO. The information sought by the AO was submitted during the course of remand proceedings. The Ld. CIT(A) after considering the observations of the AO in remand report and also written submissions of assessee, allowed relief partly. 4. Assessee is aggrieved on the findings of Ld. CIT(A) that Direct Point Connections were not purchased and consequent disallowance of depreciation on that and other assets which are not evidenc .....

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al providers, programme expenses, rents etc., which were deleted by Ld. CIT(A). The grounds are raised accordingly. 6. Issue of share capital addition and purchase of Direct Point Connections: 6.1. Direct Point Connections: During the period relevant to the impugned assessment year, the assessee claimed to have purchased direct point connections from P. Mallikarjuna Kumar for a consideration of ₹ 3 Crores. Sri.P.M.Kumar was paid ₹ 3 Crores by way of cheque from the assessee's Ban .....

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s from unexplained sources, therefore, she made an addition of ₹ 3 Crores u/s 68 of the IT Act. In her remand report, Assessing Officer after verifying the documents produced observed that the amount of ₹ 3 Crores received by Sri.P.M.Kumar on account of sale of direct point connections to the company was not utilized by him for making payment to 16 cable operators, from whom he has purchased direct points connections, but according to the Assessing Officer he has advanced the same am .....

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ability to the extent of ₹ 3 Crores over the assets, therefore, in her remand report she held that it should be treated as unexplained investment within the meaning of section 69 of the IT Act. Ld. CIT(A) after considering the facts and circumstances and also the observations of the Assessing Officer in Page 6 of the assessment order and in remand report held that the transaction of purchase of direct point connections as not genuine and further held that this is a loan to share holder in .....

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2 submitted to the ROC and also other particulars held the transaction as genuine. However, the learned Addl. Commissioner while forwarding the remand report has not agreed with the contention of Assessing Officer and observed that the confirmation produced was only on a piece of paper and not on a letter head, with no telephone number etc. 6.3. Ld. CIT(A) dealt with the issues as under: 5.1. Addition u/s. 68 - Purchase of Direct Point Connections - As per the assessee the assessee purchased Dir .....

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ee company. The transaction was also examined in the hands of Sri P. Mallikarjuna Kumar (PAN No.AJGPP4429F) by the ACIT, Circle-2(2), Hyderabad by issuing notice u/s.148 for the Asst. year 2007-08. After considering all the facts, the ACIT, Circle-2(2), Hyderabad, accepted-the income admitted in the hands of Sri P. Mallikarjuna Kumar. No adverse comments have been made in respect of 1 transaction of sale of Direct Point Connections in the hands of Sri P. Mallikarjuna Kumar. However, the Assessin .....

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ttract section 68 because there is no actual passing or receipt of cash and transactions are mere book entries resulting in acquisition of an asset in kind while simultaneously creating a liability. During the course of proceedings before the undersigned, the assessee produced the bank statement and ledger copies of relevant parties. In fact, as seen from the bank statement and books of accounts, the cash has been passed to Sri P. Mallikarjuna Kumar and who in turn advanced the same to Sri R.V. .....

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transaction is to be considered only as a loan. Therefore, in my opinion, there is no purchase of direct point connections from Sri Mallikarjuna Kumar and depreciation @ 10% claimed on direct point connections should not be allowed and the addition made u/s.68 of the Act and suggested in the remand report as addition u/s.69 of the Act is deleted. 5.2. Investment in Share Capital of ₹ 2,02,50,000/- by Shri D. Srinivas - Shri D. Srinivas, 16 Brooke Lane, South Barrington IL 60010, U.S.A. ha .....

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nd No.2 & 3 of the grounds of appeal. Revenue is in appeal on the relief allowed by the Commissioner on deletion of share application money. (vide Ground No.4). 6.4. After considering the above, we do not see any reason to interfere with the observations of the Ld. CIT(A) with reference to the issue of Direct Point Connections. Since assessee also withdrew the grounds on that issue, the finding of the Ld. CIT(A) that assessee has not purchased them is being upheld. Consequently, the claim of .....

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ot placed on record for verification. However, as seen from the forwarding report of Ld. Addl. CIT(A), the objection raised with reference to identity and creditworthiness of Sri D. Srinivas was only confirmation on white sheet was filed without establishing the genuineness. So, in the interest of justice, we remit this issue to the file of AO to re-examine and decide after giving due opportunity to assessee to submit necessary evidence. Ground No.4 of Revenue on this issue is allowed for statis .....

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at the donation paid of ₹ 9 lakhs may be considered and the balance of ₹ 2.21 lakhs may be sustained in the absence of documentary proof; However, Ld. CIT(A) did not adjudicate the issue finally. Hence, the ground by assessee. 7.1. After considering the submissions, we are of the opinion that the claim is to be examined by AO. Even though, the payment of ₹ 8,50,000/- to a political party is evidenced by a receipt, eligibility of the amount u/s 80GGB, particularly eligibility of .....

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der chapter XVIIB. Assessee has not furnished any details of taxes deducted and remitted and also no ledger extracts were furnished to examine the applicability of TDS provisions. Since details of payments to which TDS relate to are not available, the TDS has been considered as having been not deducted/paid in respect of that item of expenditure to which the said section (194I or 194J) would prima facie apply. Accordingly, the AO has disallowed expenditure amounting to ₹ 6,29,00,731/- u/s. .....

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ts of details of amount whether they are covered under the relevant provision, both parties have also relied on various case law. For the sake of clarity the submission of assessee are extracted as under: 1. Payments made to pay channels (Royalties & Commission):- During the course of assessment proceedings the learned Assessing officer observed that the assessee paid an amount of ₹ 5,78,85,998/- to pay channels. The learned Assessing Officer also observed that such payments is in the .....

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ections, out of this amount only an aggregate amount of ₹ 1,42,351/- is on account of payment to each individual, which is more than ₹ 2,500/- the balance amount paid to various persons is less than ₹ 2,500/- to each person. In addition to these amounts the assessee also paid an amount of ₹ 8,00,000/-towards 0 & M & Network charges, therefore, it was submitted that the amount to be considered for the purpose of 194J is at ₹ 5,77,97,685/-. It was submitted th .....

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Therefore, it was submitted that there was no guidance during the period 2006-07 to deduct the tax, considering the amounts paid to pay channels as royalty, therefore, the assessee was having no knowledge or information as seen from the IT Act, that the payments considered as royalty are introduced under the provisions of section 194J of the IT Act. In view of this as there is no term royalty in the IT Act 2006, pleadings of the assessee for non deduction was accepted by the CIT and amount of &# .....

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signals was considered in the case of Asia Satellite Telecommunication Company Ltd Vs DIT (and vice versa) (2011) 332 ITR 340, by the Hon'ble Delhi High Court and it was held that the payments are not in the nature of royalty. Considering this decision of Hon'ble Delhi High Court Explanation-6 was brought under clause-(vi) of subsection (1) of section (9) of the IT Act, clarifying the term "process" as process includes transmission by satellite, cable, optic fiber or any other .....

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t in the case of Asia Satellite Telecommunication C. Ltd (supra). Though the Explanation 6 to section 9(1)(vi) inserted by the Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the view entertained by the assessee gets support from the decision of Delhi High Court, referred above, we are of the view that the assessee cannot be held to be liable to deduct tax at source from the pay channel charges. Hence, we are of the view that the Assessing Officer was not justified in .....

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ection 9(1)(vi) by introducing an Explanation 6 in which term process was explained an also considering the rationale of the Hon'ble Cochin Bench in identical facts and circumstances, it is pleaded before the Hon'ble Bench to delete the addition made u/s. 40(a)(ia) of the IT Act, amounting to ₹ 5,78,85,998/- which is the amount paid to pay channels. Without prejudice to the above submissions alternately, it is submitted that the amount disallowed u/s 194J is at ₹ 5,78,85,998/ .....

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rvices (P) Ltd 38 Taxmann.com 77 (All) on which the SLP, filed by the revenue has been rejected. The rationale of the Merilyn Shipping & Transports is also followed by the Hon'ble ITAT, 'A' Bench Mumbai in the case of M/s Arcadia Share & Stock Brokers Pvt Ltd Vs DCIT, Range-4(l) in ITA No.1871/Mum/2013 dt. 22-12- 2014. It is further submitted that the Hon'ble AP High Court in ITTA No. 352 of 2014 between CIT-II, Hyderabad and M/s. Janapriya Engineers Syndicate in para 4 o .....

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,151), from out of which the assessee already paid a major part of the amount during the Accounting year, therefore, the assessee relied on the Hon'ble Special Bench of ITAT, Vishakhapatnam, in the case of Merilyn Shipping and Transport, Vishakhapatnam V s CIT, (146 TT J 1). Ld. CIT(A) appeals has not agreed to the the contention and retained an amount of ₹ 92,30,534/- as amount disallowable u/s. 40(a)(ia) of the IT Act, aggrieved by this order the Department is in appeal vide ground n .....

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exigency, however, payments made to M/s. SK Antenna System - ₹ 2,50,000/- and M/s India Sign Pvt Ltd ₹ 4,90,000/- are in the nature of hire charges for machinery and up linking charges for live telecast of the programs is in the nature of royalty payment respectively. Like the term royalty the machinery hire charges were also inserted in section 194I by the Taxation Laws (Amendment) Act 2006 w.e.f 13-07-2006. As submitted in detail the amended provisions were not available in the IT .....

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fficer may kindly be deleted. 3. Legal Professional Charges u/s 194J (Rs.7,79,857/-):- It was submitted that the total amount paid by the assessee under the head legal and professional charges is ₹ 12,10,695/- out of this the learned Assessing Officer allowed an amount of ₹ 4,30,838/- as TDS was deducted on this part of amount. In respect of the balance amount it was submitted that the payments are mostly below ₹ 20,000/-therefore, the provisions of section 194J are not applica .....

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the rationale of the Hon'ble AP High Court decision in ITTA No.352 of 2014, in the case of M/s. Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 4. Rent u/s 194I (Rs.14,99,037/-):- During the course of remand proceedings it was submitted that the rent paid to Amish shah, Gaurang N.Shah and Jayawanthi Shah and MenjiK.Shah of ₹ 2,17,060/- for each attracts the provisions of section 194I, the rest of the amounts paid towards rent is belo .....

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allowance at ₹ 8,68,240/-. The assessee is in appeal with ground No.7. It is respectfully submitted that considering the rationale of the AP High Court decision in ITTA No.352 of 2014, in the case of M/s. Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 5. Advertisement 194C (Rs.3,06,064/-):- It was submitted that the provisions of section 194C applies to M/s Manjula Advertisers, where an amount of ₹ 2,17,864/- was paid, Mis Kinnara .....

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ver, Ld. CIT(A) deleted an amount of ₹ 18,800/- and restored the addition to an extent of ₹ 2,87,264/-. The assessee is in appeal with ground No.9. It is respectfully submitted that considering the rationale of the AP High Court decision in ITTA No.352 of 2014, in the case of Mis Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 6. Consumable and cable laying charges 194C ₹ 9,18,933/-:- In respect of this expenditure it was sub .....

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s of Section 194C. It was submitted that the entire amount was paid before 31-03-2007 and no amount is payable therefore, the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport is applicable. However, Ld. CIT(A) deleted an amount of ₹ 6,30,933/- and restored the addition to an extent of ₹ 2,88,000/-. The Department is in appeal with ground no.11 and assessee is in appeal with ground No.8. It is respectfully submitted that considering .....

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order of Ld. CIT(A), he has accepted assessee s contentions that the provisions of Section 194J as amended were not applicable as they came into operation in next year. But with reference to the amount paid to cable operators the contention was not upheld. As seen from the submissions, assessee relies on the provisions of Section 194J and also the decision of Hon'ble Delhi High Court which has upheld the contention that the said payments are not in the nature of Royalty in the case of Asia S .....

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me meaning as in Explanation 2 to clause (vi) of sub-section (1) of sec. 9. The said Explanation reads as under:- "Explanation 2 - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, de .....

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or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematographic films; (vi) the .....

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quot;process" includes and shall be deemed to have always included transmission by satellite (including up-lining, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology whether or not such process is secret;" We notice that the expression "process" includes and shall be deemed to have always included transmission by satellite, cable, optic fibre of any other technology. In the instant case, the assessee is engaged in .....

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onsideration also. As stated earlier, the transfer of all or any rights in respect of a "process" shall fall in the category of "royalty" as per' clause (I) of Explanation 2. Hence, in our view, the payment made by the assessee as "Pay Channel Charges" shall fall in the category of "royalty" as defined in clause (i) of Explanation 2 to sec. 9(1) of the Act. 6. The Ld Counsel presented an alternative argument, viz., the amendment brought in by the Finan .....

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as defined under Explanation 2 to sec. 9(1) of the Act. He submitted that the Explanation 6, which expanded the scope of the expression "process" has been inserted by the Finance Act, 2012 with retrospective effect, was brought into the Act only to nullify the decision rendered by the Hon'ble Delhi High Court. Accordingly, the Ld AR submitted that the view entertained by the assessee that the payment of "Pay channel charges" will not fall in the category of royalty was s .....

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s. ACIT (2013) TAxCorp (INTL) 6702 (ITAT-Mum) We have gone through the above said decisions rendered by different benches of the Tribunal. We notice that they have held that the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. 7. In the instant case, the view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact gets support from the decision rendered by Hon&# .....

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was not justified in disallowing the claim of pay channel charges by invoking the provisions of sec. 40(a)(ia) of the Act. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the Impugned disallowance . In view of the above principles laid down, we uphold the order of Ld. CIT(A) on amounts of ₹ 4,85,67,151 and ₹ 8,00,000 under the head Royalties and reject the Revenue s grounds. B. Coming to the issue of payments to cable operator .....

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which the SLP, filed by the revenue has been rejected. The rationale of the Merilyn Shipping & Transports is also followed by the Hon'ble ITAT, 'A' Bench Mumbai in the case of M/s Arcadia Share & Stock Brokers Pvt Ltd Vs DCIT, Range-4(l) in ITA No.1871/Mum/2013 dt. 22-12-2014. Further considering the rationale of the AP High Court decision in ITTA No.352 of 2014, in the case of M/s Janapriya Engineers Syndicate, the disallowance can only be restricted to the out standing amo .....

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unt confirmed by Ld. CIT(A) of ₹ 6.92 lakhs, it was the contention that decision of Special Bench will apply and only outstanding amount can be disallowed. We are of the view that the same cannot be disallowed u/s. 40(a)(ia) as that amount was not outstanding at the end of the year. Entire amount that was paid before 31-03- 2007 was not disallowable u/s 40a(ia) on the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport. Similar view was take .....

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4, in the case of M/s Janapriya Engineers Syndicate, the disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. E. Rent (u/s. 194-I): Here in also the relief granted by Ld.CIT(A) is upheld for the reasons adduced by him. But the amount confirmed was stated to be not outstanding, following the reasoning given .....

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ng 40a(ia) which indicate that the claim is genuine. Otherwise AO should have invoked Sec. 37(1). So to that extent there is no merit in revenue grounds. Assessee claim that no amount was outstanding require examination. Following the reasoning given in above para, the disallowance can be restricted to outstanding amount at the end of the year. To verify the outstanding amount at the end of year, the issue is restored to the file of AO for necessary examination and to quantify the disallowance i .....

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isallowance can be restricted to outstanding amount at the end of the year. To verify the outstanding amount at the end of year, the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. 8.4. Even otherwise, there is no merit in revenue grounds. Ld CIT(A) has considered the remand report of AO on various issues, so contesting the same after due examination by AO is not correct. We reject the Revenue grounds and the grounds raised by assessee are a .....

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