ITA No. 260 of 2007 1 In the High Court for the States of Punjab and Haryana at Chandigarh … ITA No. 260 of 2007 Date of decision: 3.3.2008 M/s Kurukshetra Darpans Pvt. Ltd. Appellant Versus The Commissioner of Income Tax, Karnal and another ...Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.Suvir Sehgal, Advocate for the appellant. Mr.Yogesh Putney, Advocate for the respondents/Revenue. Rakesh Kumar Garg,J This judgment will dispose of ITA No.260, 261 and 262 of 2007 as the proposed substantial questions of law involved in all the appeals are similar. For the sake of arguments, the facts are being taken from ITA No.260 of 2007. The present appeal has been filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (for short 'the Act')against the order dated 28.12.2006 passed in Appeal No.801/Chandi/2006 by the Income Tax Appellate Tribunal, Chandigarh for the assessment year 2006-07, raising the following substantial questions of law:- (i) Whether Section 194 C of the Income Tax Act, 1961 is applicable in the facts and circumstances of this case? (ii) Whether the Revenue is justified in treating the appellant/assessee an assesse in default without making any inquiry from the payee as to the fact whether the payee has discharged his liability to pay tax on the income received from the payer? ITA No. 260 of 2007 2 (iii) Whether the appellant can be treated as assessee in default for non deduction of tax at source on account of his bona fide belief that he is not liable to deduct tax at source and the payee has discharged his liability on the income so received from the payer ? (iv) Whether interest can be charged under Section 201(1A) on account of an assessee's failure to deduct tax under a bona fide belief that it is not liable to deduct tax at source ? The assessee is a cable net work operator who is in the business of distributing cable connections to the customers and charges subscription fee from them. The appellant-assessee enters into a contract with the licenser of various TV channels for local cable distribution system. It is relevant to mention here that these licensers are not the owners of the TV channels and they only have the exclusive right to market and distribute satellite based television service to various customers and users of the service. In the above mentioned contract, the assessee is referred to as subscriber or affiliate as he is to pay the subscription to another party referred to as the licensor. These channels are telecasted from abroad and the assessee becomes an affiliate or subscriber of the licenser by entering into an agreement for payment of subscription. This payment is based on the number of customers of the appellant or the amount of subscription collected. During the course of inspection regarding proper implementation of TDS Provisions on 2.3.2006, it was noticed by the Income Tax Officer (TDS), Kurukshetra that the assessee has not deducted tax at source under Section 194C of the Act from the payments made to the different channels for airing charges for broadcasting of programme and for use of electric pole to make the programme to reach the viewer's door. The assessee was served with a show cause notice vide letter dated 16.3.2006 as to why he should not be treated as an assessee in default in terms of Section 201 & 201(1A) read with Section 194C of the Act for making ITA No. 260 of 2007 3 payment of “airing charges to different T.V. Channels for broadcasting” of programmes and the electricity department for using their electric pole to enable connectivity to the viewers/customers, without deduction of tax at source in violation of the provisions of Section 194C of the Act. The assessee was further directed to bring copy of contracts, if any, reached with different channels or with Electricity Department. In response to the said notice, the assessee filed reply and averred that the provisions of the Act are not applicable since the assessee was not carrying on any work for broadcasting and telecasting including production of programme for such broadcasting and telecasting of programme are being done by channels owners and they are paying airing charges to the satellite owners. It was further stated that the assessee is engaged in distribution of signals of different satellite T.V. Channels and providing their programme to the customer for which assessee pays subscription charges to the distributors of channel owners who are authorized to distribute the channel. As regards payment of rent to Electricity Department for use of their Pole, it was stated that it is not covered under the provisions of Section 194-I of the Act. The Income Tax Officer (TDS), Kurukshetra after considering the reply of the assessee found that the assessee is serving as cable operator/ distributor and is airing programmes after executing the contract with various T.V. Channels for which, he has paid subscription charges to the tune of Rs.70,97,945/- and Rs.1,12,500/- as pole rent to Electricity Department during the Financial Year 2005-06 and the assessee is covered under sub clause(b) of Explanation III to section 194C of the Act. Accordingly, the assessee was held in default under Section 201 read with Section 194C of the Act and created a demand under Section 201 along with penal interest thereon under section 201 (1A) of the Act vide order dated 27.3.2006. Similar orders were passed during the Financial Year 2003-04 and Financial Year 2004-05. Feeling aggrieved against the order dated 27.3.2006 passed by ITA No. 260 of 2007 4 the Income Tax Officer(TDS), Kurukshetra, the assessee filed appeals before the Commissioner of Income Tax, Karnal. The said appeals were allowed vide order dated 4.9.2006 passed by the Commissioner of Income Tax (Appeals), Karnal. While allowing the appeals, the Commissioner of Income Tax (Appeals), Karnal. held that the agreement and the case under consideration for payment of subscription to the Licenser is not covered under any provisions of Section 194-C of the Act. The contract for use of the electricity poles was also held not covered under Section 194-C or under Section 194-I of the Act. Resultantly, the order under Section 201 read with Section 201(1A) of the Income Tax Act passed by the Income Tax Officer(TDS). Kurukshetra was set aside and the demand created was deleted. Aggrieved against the order of the Commissioner of Income Tax (Appeals) dated 4.9.2006, the Revenue filed further appeal for all the three respective years before the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh. The Tribunal vide its judgment dated 28.12.2006 concluded that the Assessing Officer was correct in holding that the assessee was required to deduct tax at source in terms of Section 194 C of the Act on payments made to the licenser for obtaining TV Signal for distribution through the cable network owned by the assessee and resultantly set aside the order of the Commissioner of Income Tax(Appeals) to that extent. In so far as the issue regarding tax deduction on payment of rent of electric poles is concerned, the Tribunal upheld the decision of the Commissioner of Income Tax(Appeals) and found no justifiable reason for invoking Section 194-C of the Act on such payments. Consequently, he partly allowed the appeals of the Revenue. We have heard learned counsel for the parties and perused the record. Shri Sehgal, learned counsel for the appellant has vehemently argued that the provisions of Section 194-C of the Act are not applicable in the present case as the appellant has entered into a contract with the licenser or distributors of the T.V. Channels and not with the TV channels. Moreover, the ITA No. 260 of 2007 5 payment of subscription charges are being done to the licenser and not to the TV channels who are actually broadcasting or telecasting the programmes and therefore, the Assessing Officer has proceeded with the issue on a wrong premises that the appellant is making payments to the different TV Channels for airing charges for broadcasting of programmes. It has been further submitted by the learned counsel that the assessee is working as a affiliate of the licenser who are authorized distributors of various TV Channels through the distribution system in India. The work of broadcasting and telecasting including the production of programme for such broadcasting is done by the TV channel from outside India. The assessee is only a subscriber to the programme which is already being broadcasted and telecasted by different TV channels. Thus the assessee is not liable to make the payment. It has also been argued by the counsel for the appellant that the term “Broadcasting and Telecasting” has not been defined anywhere in the Act and the licensors cannot be held to be in the business of broadcasting and telecasting as per the meaning of the term broadcasting and telecasting as it is generally understood in common parlance. On the other hand Shri Yogesh Putney, Advocate, learned counsel for the Revenue has supported the judgment of the Tribunal by relying upon the definition of work as given in Explanation III of the proviso to Section 194 C(2) of the Act. Explanation III of the proviso to Section 194C(2) is reproduced below:- (Explanation III- For the purpose of this section, the expression”work” shall also include- (a) advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; © Carriage of goods and passengers by any mode of transport other than by railways; (d) Catering.” ITA No. 260 of 2007 6 After hearing learned counsel for the parties, we are of the view that the contentions of the counsel for the appellant are liable to be rejected. Section 194C of the Act creates an obligation on a person responsible for paying any sum specified therein to a person for carrying out any work, to deduct the tax at source. Presently we are concerned with the 'work' as referred to in Clause-b of Explanation III below Section 194C(2) of the Act. In terms of the said Explanation, it is provided that expression 'work' shall include inter alia broadcasting and telecasting including production of programmes for such broadcasting and telecasting. By way of such Explanation, 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 194 of the Act. The assessee is a cable network operator through which it provides telecasting of programmes to the ultimate consumers/subscribers. The assessee in turn enters into a contract with the licensor of various TV Channels. On the payment so made,Section 194C of the Act is attracted. This is for the reason that the licenser, is a person who is performing the work which is covered within the meaning of Clause-'b' of Explanation III to Section 194C(2) of the Act. It is also relevant to mention here that in the agreement between the assessee and the licensor, the licensor is referred to as “company engaged in the business of distribution of satellite based television channel(s) services including the service and has exclusive rights to market and distribute the Services in India to various customers and users of the Service”. Further the agreement refers to the assessee subscriber as a party, which is “desirous to subscribe for and receive the telecast signals of the service from the Company in order to further distribute the same to the Customer(s). From the recital of the agreement itself, it is clear that the service that the assessee subscriber is availing is the receipt of 'telecasting signals' from the licensor or the company. The expression 'service' has also been referred to mean the TV channel which is dealt with by the licensor or the ITA No. 260 of 2007 7 company. Therefore, what the assessee has transacted for with the licensor or company certainly includes within its ambit broadcasting and telecasting facility. The essence of the contract is to obtain broadcasting and telecasting of TV channels and thereafter its distribution amongst ultimate customers through the cable network of the assessee. Another plea of the assessee/subscriber was that the licensor or the person to whom the assessee is making payment by itself does not do the work of broadcasting and telecasting and is therefore outside the purview of Section 194C of the Act. This argument deserves to be negated at the threshold. As we have pointed out earlier what the assessee subscriber is looking for is to obtain the telecast signals from the licensor, which is enough to deduce that the impugned contract involves broadcasting and telecasting of TV signals. Moreover, the licenser or the company, as is evident from the specimen agreement on record, in the business of distribution of satellite based TV channels and has exclusive rights to market and distribute said services in India, the service that is referred to in the agreement is the broadcasting and telecasting of TV signals. For the reasons recorded above, we have no hesitation in concluding that the Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of Section 194C of the Act on payments made to the licensor for obtaining TV signals, Cable TV Net work owned by the assessee. In view of the above, the substantial questions of law raised by the appellant are answered in the negative, i.e., against the assessee and in favour of the Revenue. Consequently, the appeals are dismissed. (RAKESH KUMAR GARG) JUDGE March 3,2008 (SATISH KUMAR MITTAL) nk JUDGE ITA No. 260 of 2007 8 ITA No. 260 of 2007 9