M/S Kurukshetra Darpans Pvt. Ltd v. The Commissioner Of Income Tax, Karnal And Another

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. Versus The Commissioner of Income Tax, Karnal and another Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Suvir Sehgal, Advocatefor the appellant.Mr.Yogesh Putney, Advocatefor the respondents/Revenue. Appellant ...Respondent Rakesh Kumar Garg,J This judgment will dispose of ITA No.260, 261 and 262 of 2007 asthe proposed substantial questions of law involved in all the appeals aresimilar. For the sake of arguments, the facts are being taken from ITA No.260of 2007. The present appeal has been filed by the Revenue under Section260-A of the Income Tax Act, 1961 (for short 'the Act')against the order dated28.12.2006 passed in Appeal No.801/Chandi/2006 by the Income TaxAppellate Tribunal, Chandigarh for the assessment year 2006-07, raising thefollowing substantial questions of law:- (i)Whether Section 194 C of the Income Tax Act, 1961 isapplicable in the facts and circumstances of this case? (ii)Whether the Revenue is justified in treating theappellant/assessee an assesse in default without making anyinquiry from the payee as to the fact whether the payee hasdischarged his liability to pay tax on the income received from thepayer? (iii) Whether the appellant can be treated as assessee in defaultfor non deduction of tax at source on account of his bona fidebelief that he is not liable to deduct tax at source and the payeehas discharged his liability on the income so received from thepayer ? (iv) Whether interest can be charged under Section 201(1A) onaccount of an assessee's failure to deduct tax under a bona fidebelief that it is not liable to deduct tax at source ? The assessee is a cable net work operator who is in the businessof distributing cable connections to the customers and charges subscription feefrom them. The appellant-assessee enters into a contract with the licenser ofvarious TV channels for local cable distribution system. It is relevant to mentionhere that these licensers are not the owners of the TV channels and they onlyhave the exclusive right to market and distribute satellite based televisionservice to various customers and users of the service. In the above mentionedcontract, the assessee is referred to as subscriber or affiliate as he is to pay thesubscription to another party referred to as the licensor. These channels aretelecasted from abroad and the assessee becomes an affiliate or subscriber ofthe licenser by entering into an agreement for payment of subscription. Thispayment is based on the number of customers of the appellant or the amountof subscription collected. During the course of inspection regarding proper implementationof 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 Section194C of the Act from the payments made to the different channels for airingcharges for broadcasting of programme and for use of electric pole to make theprogramme to reach the viewer's door. The assessee was served with a show cause notice vide letterdated 16.3.2006 as to why he should not be treated as an assessee in defaultin terms of Section 201 & 201(1A) read with Section 194C of the Act for making ITA No. 260 of 2007 payment of “airing charges to different T.V. Channels for broadcasting” ofprogrammes and the electricity department for using their electric pole toenable connectivity to the viewers/customers, without deduction of tax atsource in violation of the provisions of Section 194C of the Act. The assesseewas further directed to bring copy of contracts, if any, reached with differentchannels or with Electricity Department. The assessee was served with a show cause notice vide letterdated 16.3.2006 as to why he should not be treated as an assessee in defaultin terms of Section 201 & 201(1A) read with Section 194C of the Act for making ITA No. 260 of 2007 payment of “airing charges to different T.V. Channels for broadcasting” ofprogrammes and the electricity department for using their electric pole toenable connectivity to the viewers/customers, without deduction of tax atsource in violation of the provisions of Section 194C of the Act. The assesseewas further directed to bring copy of contracts, if any, reached with differentchannels or with Electricity Department. In response to the said notice, the assessee filed reply andaverred that the provisions of the Act are not applicable since the assesseewas not carrying on any work for broadcasting and telecasting includingproduction of programme for such broadcasting and telecasting of programmeare being done by channels owners and they are paying airing charges to thesatellite owners. It was further stated that the assessee is engaged indistribution of signals of different satellite T.V. Channels and providing theirprogramme to the customer for which assessee pays subscription charges tothe distributors of channel owners who are authorized to distribute the channel.As regards payment of rent to Electricity Department for use of their Pole, itwas stated that it is not covered under the provisions of Section 194-I of theAct. The Income Tax Officer (TDS), Kurukshetra after considering thereply of the assessee found that the assessee is serving as cable operator/distributor and is airing programmes after executing the contract with variousT.V. Channels for which, he has paid subscription charges to the tune ofRs.70,97,945/- and Rs.1,12,500/- as pole rent to Electricity Department duringthe Financial Year 2005-06 and the assessee is covered under sub clause(b) ofExplanation III to section 194C of the Act. Accordingly, the assessee was heldin default under Section 201 read with Section 194C of the Act and created ademand 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 duringthe 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 the Income Tax Officer(TDS), Kurukshetra, the assessee filed appeals beforethe Commissioner of Income Tax, Karnal. The said appeals were allowed videorder 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 considerationfor payment of subscription to the Licenser is not covered under any provisionsof Section 194-C of the Act. The contract for use of the electricity poles wasalso 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 theIncome Tax Act passed by the Income Tax Officer(TDS). Kurukshetra was setaside and the demand created was deleted. ITA No. 260 of 2007 the Income Tax Officer(TDS), Kurukshetra, the assessee filed appeals beforethe Commissioner of Income Tax, Karnal. The said appeals were allowed videorder 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 considerationfor payment of subscription to the Licenser is not covered under any provisionsof Section 194-C of the Act. The contract for use of the electricity poles wasalso 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 theIncome Tax Act passed by the Income Tax Officer(TDS). Kurukshetra was setaside 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 threerespective years before the Income Tax Appellate Tribunal, Chandigarh Bench,Chandigarh. The Tribunal vide its judgment dated 28.12.2006 concluded thatthe Assessing Officer was correct in holding that the assessee was required todeduct tax at source in terms of Section 194 C of the Act on payments madeto the licenser for obtaining TV Signal for distribution through the cable networkowned by the assessee and resultantly set aside the order of theCommissioner of Income Tax(Appeals) to that extent. In so far as the issueregarding tax deduction on payment of rent of electric poles is concerned, theTribunal upheld the decision of the Commissioner of Income Tax(Appeals) andfound no justifiable reason for invoking Section 194-C of the Act on suchpayments. 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 vehementlyargued that the provisions of Section 194-C of the Act are not applicable in thepresent case as the appellant has entered into a contract with the licenser ordistributors of the T.V. Channels and not with the TV channels. Moreover, the ITA No. 260 of 2007 payment of subscription charges are being done to the licenser and not to theTV channels who are actually broadcasting or telecasting the programmes andtherefore, the Assessing Officer has proceeded with the issue on a wrongpremises that the appellant is making payments to the different TV Channelsfor airing charges for broadcasting of programmes. It has been furthersubmitted by the learned counsel that the assessee is working as a affiliate ofthe licenser who are authorized distributors of various TV Channels through thedistribution system in India. The work of broadcasting and telecasting includingthe production of programme for such broadcasting is done by the TV channelfrom outside India. The assessee is only a subscriber to the programme whichis already being broadcasted and telecasted by different TV channels. Thus theassessee is not liable to make the payment. It has also been argued by thecounsel for the appellant that the term “Broadcasting and Telecasting” has notbeen defined anywhere in the Act and the licensors cannot be held to be in thebusiness of broadcasting and telecasting as per the meaning of the termbroadcasting and telecasting as it is generally understood in commonparlance. On the other hand Shri Yogesh Putney, Advocate, learnedcounsel for the Revenue has supported the judgment of the Tribunal by relyingupon the definition of work as given in Explanation III of the proviso to Section194 C(2) of the Act. Explanation III of the proviso to Section 194C(2) isreproduced below:- (Explanation III- For the purpose of this section, theexpression”work” shall also include- (a) advertising; (b) Broadcasting and telecasting including production ofprogrammes for such broadcasting or telecasting;programmes for such broadcasting or telecasting; On the other hand Shri Yogesh Putney, Advocate, learnedcounsel for the Revenue has supported the judgment of the Tribunal by relyingupon the definition of work as given in Explanation III of the proviso to Section194 C(2) of the Act. Explanation III of the proviso to Section 194C(2) isreproduced below:- (Explanation III- For the purpose of this section, theexpression”work” shall also include- (a) advertising; (b) Broadcasting and telecasting including production ofprogrammes for such broadcasting or telecasting;programmes for such broadcasting or telecasting; © Carriage of goods and passengers by any mode of transportother than by railways; (d) Catering.” After hearing learned counsel for the parties, we are of the viewthat 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 forpaying any sum specified therein to a person for carrying out any work, todeduct the tax at source. Presently we are concerned with the 'work' as referredto in Clause-b of Explanation III below Section 194C(2) of the Act. In terms ofthe said Explanation, it is provided that expression 'work' shall include inter aliabroadcasting and telecasting including production of programmes for suchbroadcasting and telecasting. By way of such Explanation, it is evident thatwhere the payment is for a work involving broadcasting and telecasting, thesame shall be subject to deduction of tax at source in terms of Section 194 ofthe Act. The assessee is a cable network operator through which it providestelecasting of programmes to the ultimate consumers/subscribers. Theassessee in turn enters into a contract with the licensor of various TVChannels. On the payment so made,Section 194C of the Act is attracted. Thisis for the reason that the licenser, is a person who is performing the workwhich is covered within the meaning of Clause-'b' of Explanation III to Section194C(2) of the Act. It is also relevant to mention here that in the agreementbetween the assessee and the licensor, the licensor is referred to as “companyengaged in the business of distribution of satellite based television channel(s)services including the service and has exclusive rights to market and distributethe Services in India to various customers and users of the Service”. Furtherthe agreement refers to the assessee subscriber as a party, which is “desirousto subscribe for and receive the telecast signals of the service from theCompany in order to further distribute the same to the Customer(s). From the recital of the agreement itself, it is clear that theservice that the assessee subscriber is availing is the receipt of 'telecastingsignals' from the licensor or the company. The expression 'service' has alsobeen referred to mean the TV channel which is dealt with by the licensor or the ITA No. 260 of 2007 company. Therefore, what the assessee has transacted for with the licensor orcompany certainly includes within its ambit broadcasting and telecasting facility.The essence of the contract is to obtain broadcasting and telecasting of TVchannels and thereafter its distribution amongst ultimate customers through thecable network of the assessee. From the recital of the agreement itself, it is clear that theservice that the assessee subscriber is availing is the receipt of 'telecastingsignals' from the licensor or the company. The expression 'service' has alsobeen referred to mean the TV channel which is dealt with by the licensor or the ITA No. 260 of 2007 company. Therefore, what the assessee has transacted for with the licensor orcompany certainly includes within its ambit broadcasting and telecasting facility.The essence of the contract is to obtain broadcasting and telecasting of TVchannels and thereafter its distribution amongst ultimate customers through thecable network of the assessee. Another plea of the assessee/subscriber was that the licensoror the person to whom the assessee is making payment by itself does not dothe work of broadcasting and telecasting and is therefore outside the purview ofSection 194C of the Act. This argument deserves to be negated at thethreshold. As we have pointed out earlier what the assessee subscriber islooking for is to obtain the telecast signals from the licensor, which is enough todeduce that the impugned contract involves broadcasting and telecasting of TVsignals. Moreover, the licenser or the company, as is evident from thespecimen agreement on record, in the business of distribution of satellitebased TV channels and has exclusive rights to market and distribute saidservices in India, the service that is referred to in the agreement is thebroadcasting and telecasting of TV signals. For the reasons recorded above, we have no hesitation inconcluding that the Tribunal was correct in holding that the assessee wasrequired to deduct tax at source in terms of Section 194C of the Act onpayments made to the licensor for obtaining TV signals, Cable TV Net workowned by the assessee. In view of the above, the substantial questions of law raised bythe appellant are answered in the negative, i.e., against the assessee and infavour of the Revenue. Consequently, the appeals are dismissed. (RAKESH KUMAR GARG) JUDGE (SATISH KUMAR MITTAL) JUDGE