TMI Blog2018 (10) TMI 1858X X X X Extracts X X X X X X X X Extracts X X X X ..... ting from above said honourable apex court decision the provisions of withholding tax are not applicable. On the basis of the above said discussion and precedent's we are of the considered opinion that disallowance under section 40(a)(i) cannot be made in this case. - Decided in favor of assessee Accrual of income - Holding SASBV (now known as IGNBV) as an alleged conduit of Star Ltd. and taxing the revenue in the hands of Star India Private Limited ('SIPL') on accrual basis - This issue has been decided in favour of the assessee by the Hon'ble jurisdictional High Court in the case of Director of Income Tax (IT) vs. Satellite Television Asian Region Ltd. [ 2015 (6) TMI 1211 - BOMBAY HIGH COURT] Deduction of head office expenses u/s. 44C - AO has held that the deduction claimed in respect of allocated head office expenses have been disallowed pursuant to an adjustment made to the arms length price u/s. 92 - HELD THAT:- As assessee in this regard submitted that the Transfer Pricing Officer in his short order has mentioned that the assessee has not submitted anything and the assessee had provided all the necessary details which have not been referred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A) has erred in concluding that the Appellant is not a telecasting company and failing to apply the provisions of Circular 742 issued by the Central Board of Direct Taxes. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 4 The learned CIT(A) has erred in holding that the channel companies have a business connection in India as per the provisions of Section 9(l)(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 5 The learned CIT(A) has erred in holding that the channel companies carried out operations in India as per Explanation (a) to Section 9(1)(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 6 The learned CIT(A) has erred in holding that the Appellant has not refuted, inter-alia, the following findings of the learned Assessing Officer, which are erroneous and contrary to facts: predominant footprint of the satellite is only in India; the decoders are provided to the cable operators either by the Appellant or by the channel companies or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmits that the above basis of assessment is erroneous and should be set aside. Ground No 13 The learned CIT(A) has erred in not applying the provisions of Section 40(a)(i) of the Act to only that portion of the payment made to the channel companies that represents income that has been considered to be chargeable to tax in India. The Appellant prays that the disallowance be restricted accordingly. Ground No 14 Without prejudice to Grounds 1 to 13 above, the margin retained by the Appellant, as an agent, from the activity of selling airtime is not taxable in India. Ground No 15 The learned CIT(A) has erred in contending that International Global Networks BV (formerly known as Satellite Television Asian Region Advertising Sales BV) ['SAS BV] is a 'conduit1 for the Appellant and that the advertisement revenues earned by SAS BV are taxable in the hands of the Appellant. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 16 Without prejudice to Ground 13 above, the learned CIT(A) has erred in taxing the advertisement income earned by SAS BV in the hands of the Appellant on an accrual basis. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above finding is erroneous and should be set aside. Ground No 7 The learned CIT(A) has erred in relying on his order for Assessment Year 2000-01 and holding that the Appellant has not refuted, inter-alia, the following findings of the learned Assessing Officer, which are erroneous and contrary to facts: predominant footprint of the satellite is only in India; the decoders are provided to the cable operators either by the Appellant or by the channel companies or their agents in India; Star India Private Limited ('SIPL') is a direct subsidiary of the Appellant; majority of the business operations of the channel companies are in India. The Appellant respectfully submits that the above findings are erroneous and contrary to facts and should be set aside. Without prejudice to the above, it is also submitted that the above findings are not relevant in determining whether the channel companies carried out operations in India as per the provisions of Section 9(1 )(i) of the Act and generally, in deciding the taxability of the channel companies. Ground No 8 The learned CIT(A) has erred in disallowing the entire payment made by the Appellant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be set aside. Ground No 17 The learned CIT(A) has erred in holding that the payments received by the Appellant from the channel companies towards the provision of transponder capacity are taxable as royalty under Section 9(l)(vi)of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 18 The learned CIT(A) has erred in holding that the provisions of Section 92B read with Section 92 of the Act apply to the payments received by the Appellant from the channel companies towards the provision of transponder capacity. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 19 The learned CIT(A) has erred in not determining the arm1 s length price of the payments received by the Appellant from the channel companies towards the provision of transponder capacity and directing the Assessing Officer to arrive at the appropriate price. Ground No 20 The learned CIT(A) has erred in not allowing a deduction of the head office expenses amounting to ₹ 83,502,000 claimed by the Appellant. The Appellant respectfully submits that the deduction be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficit good by way of making payment towards advance tax; c. that since the assessee failed to pay the advance tax, the provisions of section 234B and 234C of the Income-tax Act, 1961 have been correctly applied by the Assessing Officer The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 6. Since the facts are common and appeals are heard together, these are being consolidated by way of this common order. 7. Brief facts are as under:- The assessee, Satellite Television Asian Region Limited is a company incorporated in Hong Kong and is engaged in the media industry. With effect from April 1, 1999, the Assessee sold advertising airtime acquired from nonresident television content aggregators (hereinafter referred to as channel companies'), interalia, for the Star Plus, Star Movies, Star World, Channel V, Star Gold and Star News channels (hereinafter referred to as the Channels'). For the purposes of selling advertising airtime in India, the Assessee appointed Star India Private Limited ('SIPL') [formerly known as News Television (India) Limited], a company incorporated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999, had been offered to tax in the return of income of SAS BV filed for the Assessment Year 2001-02. The Assessee filed its return of income along with the audited financial statements prepared for the India operations for the Assessment Year 2001-02 on October 31, 2001, declaring a net taxable income of ₹ 40,09,85,520/-after claiming a deduction for the cost of advertising airtime purchased by it from the channel companies. Since the payments made to the channel companies were claimed to be not taxable in India, the Assessee did not withhold any taxes on payments made to the channel companies for the purchase of advertising airtime. Further, for the claimed reason that no income was received by the Assessee or accrued to the Assessee in respect of the subscription revenues, the Assessee did not report any income to tax in this respect in its return of income. The A.O. completed the assessment on the following basis: Disallowing the payments to the channel companies for cost of advertising airtime purchased, under the provisions of Section 40(a)(i) of the I.T. Act, on the premise that the channel companies are taxable in India, and given that taxes have not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made to Asiasat have been disallowed in computing the net income under provisions of section 40(a)(i), on the grounds that Asiasat is taxable in India and no taxes have been deducted by the Appellant in respect of payments to it. (v) Income received from various channel companies for provision of content has been taxed as royalty, on a net income basis. In this respect, the income of the Appellant has been adjusted in respect the arms-length value under section 92C. (vi) Deduction claimed in respect of allocated head office expenses have been disallowed pursuant to an adjustment made to the arms length price under section 92. (vii) Disallowing the claim made by the Appellant during the assessment proceedings that the deduction allowable in respect of commission payable to SIPL should be computed on the basis of invoices raised, rather than on the basis of actual collections as claimed at the time of filing the return. (viii) Consequential interest under Sections 234B and 234C of the I.T. Act has been levied. 9. Against the above order, assessee is in appeal before the learned CIT(A). The learned CIT(A) dealt with the issue relating to disallowance u/s.40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, it is clear that the distribution income belongs to SIPL and not to the Appellant. The income cannot be subject to tax in the hands of the Appellant. The A.O. is directed to delete the addition of ₹ 104,60,03,594/- on account of distribution income earned by SIPL while computing the taxable income of the Appellant. Also as concluded in the appeal order for Assessment Year 1999-2000, though the distribution right is a right, it is not covered by the definition of royalty under section 9(l)(vi) of the I.T. Act. 14. As regards assessee s contention that SAS BV is not a 'conduit' for the assessee and that the advertisement revenues are not taxable in the hands of the assessee, either on this count or on account of it being received from SAS BV. Even if the advertisement revenues are taxed in the hands of the assessee, these should be taxed as per the provisions of Circular 742 on a receipt basis. The ld. CIT(A) directed for the deletion of addition. 15. Learned CIT(A) in this regard reads as under:- Prior to April 1, 1999, the Appellant granted the rights for sale of advertising airtime (in India) on the channels of the Star TV network to SAS BV. The agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel Companies under Section 40(a) (i) of the Act based on retrospective amendment in Section 195 of the Act cannot be made as law cannot expect you to do the impossible 1-3 1-3 - Mumbai ITAT in Appellant own case for subsequent years, i.e. AY 2007-08 and AY 200809 (Sr no 1 and 2 of legal paperbook) - Bombay HC in NGC Networks (India) Limited (ITA No 397 of 2015} (Sr no 9 of legal paperbook) - SC in case of Vodafone (341 ITR 1) (Sr no 6 of legal paperbook) - Mumbai ITAT in Appellant's own case for Section 271C issue for the same year (56 SOT 22} [Affirmed by Bombay HC (ITA No 181 and 183 of 2013) and Supreme Court] (Sr no 3 to 5 of legal paperbook) Mumbai ITAT in Rhodia Speciality Chemicals India Limited (ITA No 830/M/2014) (Attached as Annexure 1) - Mumbai ITAT in Kotak Mahmdra Old Mutual Insurance Limited (ITA No 3819/M/2014) (Attached as Annexure 2) (b) No retrospective amendment having been made in Section 40(a)(i) of the Act, no disallowance can be made 1-3 1-3 - Bombay HC in NGC Networks (India) Limited (if A~No 397~of 2015) (Sr no 9 of legal pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of content as - 15 16 Not to be pressed 7 Taxation of payment received from Channel Companies for provision of transponder capacity as 'Royalty' - 17-19 Not to be pressed 8 Deduction of Head office expenses under Section 44C of the Act - 20 1) Section 44C was introduced to eliminate/ minimize the burden of maintenance of documentation in respect of head office expenses. Reliance is placed on CBDT Circular No 202 dated 5 July 1976 pertaining to ceiling limit in respect of head office expenses and the decision and the decision of the Calcutta HC in case of Rupenjuli Tea Co. Ltd (1 86 ITR 301) (Sr no 31 and 33 of legal paperbook) 2) Also, considering that the Global AuditedAccounts of Star Ltd were provided to the AO during the assessment proceedings, the AO could have himself computed the reasonably attributable head office expenses Reliance is placed on the decision of the Mumbai Tribunal in case of Mitsui Bank Ltd (35 TTJ 426) (Sr no 32 of legal paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to various case laws this includes ITAT decision in assessee's own case for subsequent years (A.Y. 2007-08 and A.Y. 2008-09). In this regard, we note that ITAT vide order dated 02.02.2016 in assessee s own case for A.Y. 2007-08 has held as under: Likewise, in the case of the disallowance of cost on advertisement revenue, no separate addition is called for; firstly, the provision of withholding tax cannot be applied on the basis of any amendment which has come subsequently by giving retrospective effect, as held by various Courts, on the reasoning that assessee cannot be expected to withhold tax when there was no such provision under the statute and secondly, prior to such amendment, there was a judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings BY (supra) that payment made by one non-resident to another non-resident, provisions of TDS are not applicable; thirdly, when income has been determined under PSM, intercompany transactions are eliminated and in such a methodology the combined net profit is first worked out and then divided as per the relevant functions and role of each entity. Last but not the least, the channel companies ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the objections by holding that deduction of tax atsource under Section 194C of the Act, was appropriately made bythe Respondent as the payment made for channel placement fee,would not fall within the ambit of royalty as defined in Section 9(1) (vi) of the Act. (c) Consequent to the directions dated 31st December, 2013 of the DRP, the Assessing Officer passed as Assessment Order dated 20th January, 2014 under Section 143(3) r/w. 144C(13) of the Act. Being aggrieved with the Assessment Order dated 20th January, 2014, the Revenue filed an appeal to the Tribunal. By the impugned order dated 9th July, 2014, the Tribunal by following a decision of Co-ordinate Bench in the case of M/s. Channel Guide India Ltd., v/s. ACIT (ITXA No. 1221/M/2006 rendered on 29th August, 2012)held that Asessee is not liable to deduct the tax at source, athigher rates only on account of subsequent amendment made in Act, with retrospective effect from 1976.Thus, dismissed the Revenue's Appeal. (d) We find that view taken by the impugned order dated 9th July, 2014 of the Tribunal that a party cannot be called upon to perform animpossible Act i.e. to comply with a provision not in force at the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted TDS u/s.40(a)(i) anticipating the amendment. Furthermore we note that honourable apex court in the case of Vodafone International Holdings B.V. vs. Union of India [2012] 341 ITR 1 (SC) had held that withholding tax provisions under section 195 of the act would be applicable when payments are made by a resident to another non-resident and not between two non residents outside of India. Since the payments as one in the present case are between two non-residents, as per the ratio emanating from above said honourable apex court decision the provisions of withholding tax are not applicable. On the basis of the above said discussion and precedent's we are of the considered opinion that disallowance under section 40(a)(i) cannot be made in this case. 22. Since we have decided this issue in favor of assessee, other related grounds raised by the assessee are only of academic interest. Hence, we are not adjudicating the same. This proposition has been duly accepted by the learned counsel of the assessee. 23. Another common issue raised in assessee's appeal relate to holding SASBV (now known as IGNBV) as an alleged conduit of Star Ltd. and taxing the revenue in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned order holds that there can occasion to tax the same income in the hands of the respondent- assessee when the same has been subjected to tax in the hands of M/s.SAS BV (IGN BV). This is particularly so, bearing in mind that the revenue has accepted the order of the Tribunal dated 21 May 2010 in case of SAS BV (IGN BV). It is relevant to note that, for the Assessment Year 2000-01 and 2002-03 on the same issue in respect of SAS BV (IGN BV) the revenue had challenged in this Court the order of the Tribunal holding that SAS BV (IGN BV) is not a conduit of Star Limited, the respondent-assessee herein by Income Tax Appeal Nos.2462/of 2011 and 2461 of 2011. This Court on 13 March 2013 dismissed the revenue's appeal for the Assessment Years 2000-01 and 2003-03. 25. Respectfully following the above precedent we decide this issue in favour of the assessing. 26. Another issue raised in assessment year 2002-03 relate to deduction of head office expenses u/s. 44C of the Act. On this issue, the A.O. has held that the deduction claimed in respect of allocated head office expenses have been disallowed pursuant to an adjustment made to the arms length price u/s. 92. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. Further, the ld. Counsel of the assessee in this regard submitted that the Transfer Pricing Officer in his short order has mentioned that the assessee has not submitted anything. The ld. Counsel of the assessee submitted that the assessee had provided all the necessary details which have not been referred by the TPO. 31. Upon careful consideration, we are of the view that the issue needs to be remitted to the file of the A.O. to compute reasonable attribution on the basis of documents being submitted by the assessee. Accordingly, this issue is so remitted. 32. Ground number 17 for assessment year 2001-02 and ground nos. 15 to 19 and ground 23 for assessment year 2002-03 have not been pressed by the learned counsel of the assessee. Hence, these grounds are dismissed as not pressed. Revenue s appeal: 33. The first issue raised relates to the disallowance of payments made to AsiaSat for transponder hire charges under Section 40(a) (i) of the Income Tax Act, 1961. In this regard, the ld. Counsel of the assessee submitted that this issue is covered in favour of the assessee by the decision of Hon ble Delhi High Court in case of Asia Satellite Telecommunication (332 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India where the cable operators received the waves and passed them over to the Indian population. Accepted position was that the first two steps were not carried out in India and the entire thrust of the revenue was limited to the third step and the argument was that the relaying of the programmes in India amounted to the operations carried out in India. That argument was not sustainable. Merely because the footprint area included India and the ultimate consumers/viewers were watching the programmes in India, even when they were uplinked and relayed outside India, would not mean that the assessee was carrying out its business operations in India. The Tribunal had rightly emphasized on the expressions 'operations' and 'carried out in India' occurring in the Explanation (a ) to hold that these expressions signify that it was necessary to establish that any part of the assessee's operations was being carried out in India. No machinery or computer, etc., was installed by the assessee in India through which the programmes were reaching India. The process of amplifying and relaying the programmes was performed within the satellite which was not situated in the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue or arise in India. The term 'royalty' has been defined in theExplanation 2 to section 9(1)(vi). In the case of Keshavji Ravji Co. v. CIT [1990] 183 ITR 1/ 49 Taxman 87, the Supreme Court held that an Explanation, generally speaking, is intended to explain the meaning of certain phrases and expressions contained in the statutory provisions. There is no general theory as to the effect and intendment of an Explanation, except that the purpose and intendment are determined by its own words. An Explanation, depending upon its own language, might supply or take away something from the contents of a provision. It is also true that an Explanation may be introduced by way of an abundant caution in order to clear any mental cobwebs surrounding the meaning of the statutory provision spun by interpretative errors and to place what the Legislature coinsiders to be true meaning, beyond any controversy or doubt. In view of the decision of the Supreme Court in Keshavji Ravji Co.'s case (supra), the Explanation 2 has to be read as part and parcel of section 9(1)(vi). From a plain reading of the Explanation to section 9 inserted with effect from 16-1976 by the Finance Act, 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basic law, i.e., the Income-tax Act which will govern the taxation of income. [Para 54] Keeping in view the aforesaid principles, one should embark upon the interpretative process while defining the ambit and scope of the term 'royalty' appearing in the Explanation 2 to clause (vi) of section 9(1). Clause (i) deals with the transfer of all or any rights (including the granting of a licence) in respect of a patent, etc. Thus, what this clause envisages is the transfer of rights in respect of property and not transfer of right in the property . The two transfers are distinct and have different legal effects. In the first category, the rights are purchased which enable use of those rights, while in the second category, no purchase is involved; only the right to use has been granted. Ownership denotes the relationship between a person and an object forming the subject-matter of his ownership. It consists of a bundle of rights, all of which are rights in rem, being good against the entire world and not merely against a specific person and such rights are indeterminate in duration and residuary in character. When the rights in respect of a property are transferred and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operator of the satellites. It also remained in the control of the satellites. It had not leased out the equipments to the customers. A close scrutiny of the ruling of the AAR in ISRO Satellite Centre (ISACT),In re [2008] 307 ITR 59 / 175 Taxman 97 (New Delhi)would clearly reveal that where the operator has entered into an agreement for lease of the transponder capacity and has not given any control over parts of the satellite/transponder, the provisions of clause (vi) would not apply. In the instant case also, the assessee had merely given access to a broadband available in a transponder which could be utilized for the purpose of transmitting the signals of the customers. [Para 60] It needs to be emphasized that a satellite is not a mere carrier, nor is the transponder something which is distinct and separable from the satellite as such. The transponder is, in fact, an inseverable part of the satellite and cannot function without the continuous support of various systems and components of the satellite, including in particular the following : (a )Electrical Power Generation by solar arrays and storage battery of the satellite, which is common to and supports multiple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the assessee to its customers. The transponder was in the orbit. Merely because it had its footprint areas on various continents, it would not mean that the process had taken place in India. The Tribunal had made an attempt to trace the fund flow and observed that since the end consumers, i.e., persons watching TV in India were paying the amounts to the cable operators who, in turn, were paying the same to the TV channels, the flow of the fund was traced to India. That was a far-fetched ground to rope in the assessee in the taxation net. The Tribunal had glossed over an important fact that the money which was received from the cable operators by the telecast operators was treated as income by those telecast operators which had accrued in India and they had offered and paid tax. Thus, the income generated in India had been duly subjected to tax in India. It was the payment made by the telecast operators situated abroad to the assessee, also a non-resident, that was sought to be brought within the tax net. For the aforesaid reasons, it was difficult to accept such a far-fetched reasoning with no causal connection. Even when one looked into the matter from the standpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 21.05.2010 as under: Issue On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to delete the addition made, on account of advertising revenues received by SAS BV tor assessment year 2001-02, in the hands of the assessee, without appreciating the fact that it is necessary to keep the issue alive since the assessee has not accepted the stand of the department that the advertisement revenue is to be taxed on accrual basis. 3. Learned representatives fairly agree that this issue is now covered, in principle, in favour of the assessee by Tribunal's order dated 24th March 2004 in the case of JCIT Vs Satellite Television Asian Region Advertising Skies BV (ITA No. 4988/Mum/2000; AY 1997-98). A copy of the said order was placed on record. The order of the CIT(A) being in consonance with the said decision, and no contrary decision having been brought to our notice, we see no reasons to interference in the conclusions arrived at by the CIT(A). We decline to interfere. 38. We respectfully follow the precedent and order accordingly. 39. The last issue relates to the levy of interest u/s. 234B and 234C of the Act. The ld. Counsel of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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