Bombay H.C : In case of assessee carrying on business of broadcasting of television channels, payments of placement charges and subtitling charges would fall within meaning of ‘work’ covered in clause (iv) of Explanation to section 194C, and, thus, assessee was justified in deducting tax at source under section 194C while making said payments

High Court Of Bombay

CIT, TDS-2, Mumbai vs. UTV Entertainment Television Ltd.

Section 194C, 194J

S. Oka And A.K. Menon, JJ.

IT Appeal Nos. 525, 732,741 And 1035 Of 2015

October  11, 2017

ORDER

1. The submissions of the learned counsel appearing for the parties were heard on earlier date. As there is a challenge to the same impugned judgment and order dated 29th October, 2014 in these appeals, for the sake of convenience, we are referring to the facts of the Appeal No.1035 of 2015.

2. With a view to appreciate the submissions made across the bar, it will be necessary to briefly highlight the controversy involved. The respondent is a Public Limited Company carrying on business of broadcasting of Television (TV) channels. It is stated that the respondent operates certain TV entertaining channels. Survey was carried out firstly of the books of accounts of the respondent. The Assessing Officer found that certain amounts were paid by respondent on account of carriage fees, editing expenses and dubbing charges. Tax was deducted on the said amounts as per Section 194C of the Income Tax Act, 1961.

3. The Assessing Officer was of the opinion that the carriage fees, editing charges and dubbing charges were in the nature of fees payable for technical services and, therefore, tax should have been deducted under Section 194J of the Income Tax Act, 1961 (for short “the Act”). Accordingly, a show cause notice was issued to the respondent asking for explanation with respect to following payments made.

(i) Carriage Fees /Placement Charges.

(ii) Subtitling charges (Editing Expenses)

(iii) Dubbing Charges.

4. After considering the reply of the respondent assessee, it was held that an aggregate amount of Rs.34,71,36,096/- is in the nature of fees for rendering technical services and therefore tax should have been deducted under Section 194J of the said Act. Before we come to the submissions made across the bar, it will be necessary to make reference to the relevant provisions of the Income Tax Act. Section 194C and Section 194J of the Income Tax Act form part of the Chapter XVII which generally deals with the collection and recovery of tax. Section 194C deals with the payment to the contractors while Section 194J deals with fees for professional or technical services.

5. As observed earlier, the Assessing Officer passed an order dated 18th March 2011 under Section 201(1)/201(1A) of the Income Tax Act holding that the three items were not covered by Section 194C but by Section 194J.

6. Therefore, a demand of Rs.1,11,13,964/- was raised. Being aggrieved by the said order, an appeal was preferred by the respondent before the Commissioner of Income Tax (Appeals). The appeal preferred by the respondent was partly allowed holding that there was no short deduction of tax by the appellant on account of payment of placement charges, subtitling charges and dubbing charges. An appeal was preferred by the Revenue to the Income Tax Appellate Tribunal, “F” Bench, Mumbai. By the impugned judgment and order, the appeal preferred by the Revenue was dismissed and the cross objection was held to be academic in nature and therefore, held to be infructuous.

7. The learned counsel appearing for the appellant- Revenue has taken us through the impugned orders. The learned counsel appearing for the appellant submitted that the payments made by the respondent will not be covered by Section 194C. It was submitted that, in fact, Section 194J will be applicable. He invited our attention to the findings of the fact recorded by the Assessing Officer. He submitted that various substantial questions of law arise in these appeals, which are set out as questions (a) to (e) in the appeal.

8. According to the learned counsel appearing for the appellant, the Appellate Tribunal as well as the Commissioner (Appeals) have committed a gross error by applying Section 194C. He submitted that the payments made by the respondent are not contractual payments and, therefore, Section 194C of the Income Tax Act will not be applicable. His contention is that the activity for which payments were made by the respondent are either for professional or for technical services and, therefore, Section 194J will apply to the present case. His submission is that reasons recorded by the Appellate Tribunal are completely erroneous and need to be interfered with by this Court. The learned counsel for the respondent supported the impugned judgment and order.

9. We have given careful consideration to the submissions. Firstly, it will be necessary to advert to the facts of the case. For that purpose, it will be necessary to make a reference to the order passed by the Income Tax Officer. Paragraph 3 of the order reads thus :

“3. During the Survey, on perusal of the books of accounts of the assessee company, it was found that for Financial Years 2010-11, the year under consideration the assessee company has debited an amount of Rs. 33,24,56,189/- on account of “carriage fees” Rs.8,20,650/- on account of Editing expenses and Rs.12,95,400/- on account of Dubbing Charges. The assessee was asked to give the details of the Carriage Fees, Editing Expenses and Dubbing Charges paid by the company and the services rendered to them along with copies of Agreements made in this regard. The assessee has deducted TDS as per the provisions of section 194C of the I.T.Act on such payment. On further perusal of the Agreements submitted by the assessee it is seen that these payments are given to MSO/Cable Operators to retransmit and/or carry the service of the channels on ‘S’ Band in their respective territories. The services provided by these MSOs /Cable Operators does not come within the purview of section 194C of the I. T. Act, as placing the service of the channel on ‘S’ Band is a Technical Service for which the TDS is required to be deducted as per the provisions of Section 194J of the I.T.Act instead deducted by the assessee company as per the provisions of section 194C of the I.T.Act, 1961.”

10. Thus, we are concerned with three categories of charges i.e. carriage fees, editing expenses and dubbing charges. It is to be noted that the respondent- assessee had deducted TDS as per the provision of Section 194C of the said Act. The show-cause-notices were issued to the assessee for the Financial Years 2007-08, 2008-09, 2009-10 and 2010-11.

11. The Assessing Officer held that the placement charges will be governed by Section 194J. Similarly in case of dubbing charges, the same finding was recorded. Even the same view was taken in respect to editing expenses. As stated earlier, the Commissioner (Appeals) (the first appellate authority) interfered in the appeal preferred by the assessee.

12. The first Appellate Authority has made in-depth consideration of the factual aspects. Reference to the factual aspects will be necessary to understand technicalities associated with carriage fees, editing expenses and dubbing charges. Firstly, it will be necessary to consider the nature of carriage fees or placement fees in the context of the nature of business carried on by the respondent.

13. The Commissioner (Appeals) has recorded a finding of fact after having perused the copies of the agreements entered into between the respondent- assessee and the cable operators/Multi System Operators (MSOs), that the cable operators pay a fee to the respondent for acquiring rights to distribute the channels. It is pointed out that the cable operators face bandwidth constraints and due to the same, the cable operators are in a state to decide which channel will reach the end viewer at what frequency (placement). Accordingly, broadcasters make payments to the cable operators to carry their channels at a particular frequency. Fee paid in that behalf is known as “carriage fee” or “placement fee”. The payment of placement fee leads to placement of channels in prime bands, which in turn, enhances the viewership of the channel and it also leads to better advertisement revenues to the TV channel.

14. The Commissioner (Appeals) has given a finding of fact on the perusal of sample copies of the agreements. The agreements are entered into with the respondent by the cable operators for placement of channels on agreed frequencies on which the respondent wishes to place a particular channel. The placement fee is the consideration for providing choice of the desired placement of the channels. That is how, channel placement charges are paid to the cable operators under the agreement. Under the agreement, the cable operators agree for placing a particular channel on agreed frequency band. As stated earlier, the respondent has deducted tax at the rate of 2% at source by invoking Section 194C of the Income Tax Act while making payment towards placement fees to the cable operators/MSOs. If Section 194J is to be applied, the deduction would be of 10%. The Commissioner (Appeals) has also gone through the method followed by the cable operators/MSOs. The Commissioner (Appeals) has also gone into the submission of the Revenue that, in fact, Section 194J would apply. In substance, the argument is that placement charges are basically for rendering technical service. The Commissioner (Appeals) has recorded a finding of fact on the basis of material on record that the placement charges are consideration for placing the channels on agreed frequency bands. It was found that, as a matter of fact, by agreeing to place the channel on any preferred band, the cable operator does not render any technical service to the distributor/TV channel. Reference is made to the standard fee paid for basic broadcasting of a channel at any frequency. The Commissioner (Appeals) has considered clause (iv) of the explanation to Section 194C which incorporates inclusive definition of “work”. Clause (iv) includes broadcasting and telecasting including production of programmes for such broadcasting and telecasting. The Commissioner (Appeals) rightly found that if the contract is executed for broadcasting and telecasting the channels of the respondent, the same would be covered by Section 194C as it falls in clause (iv) of the definition of “work”. Therefore, when placement charges are paid by the respondent to the cable operators/MSOs for placing the signals on a preferred band, it is a part of work of broadcasting and telecasting covered by sub-clause (b) of clause (iv) of the explanation to Section 194C. As a matter of fact, it was found by the Commissioner (Appeals) that whether the payment is towards a standard fee or placement fee, the activities involved on the part of the cable operators/MSOs are the same. When placement fee is received, a channel is placed on a particular prime band. It was found that by an agreement to place the channel on a prime band by accepting placement fee, the cable operator/MSO does not render any technical service. As far as Appellate Tribunal is concerned, again the definition of work in clause (iv) of the explanation to Section 194C was looked into. We must note here that a grievance was made by the learned counsel appearing for the appellant that there are no detailed findings recorded by the Appellate Tribunal. However, the Commissioner (Appeals) has recorded detailed findings on the basis of material on record and by referring to the findings, the Appellate Tribunal has expressed general agreement with the findings recorded by the first Appellate Authority. While affirming the judgment of the first Appellate Authority, it is open for the Appellate Tribunal to express such general agreement.

15. Now, turning to the second grievance regarding subtitling charges, again the Commissioner (Appeals) has gone into the details of the factual aspects. Subtitles are textual versions of the dialogs in the films and television programmes which are normally displayed at the bottom of the screen. Sometimes, it is a textual version of the dialogs in the same language. It can also be a textual version of the dialogs in a particular language other than the language of the film or the TV programme. Again the stand of the Revenue was that this will be covered by Section 194J and not by Section 194C. We must note here that in this appeal, the Revenue has not made any grievance regarding applicability of Section 194C to dubbing charges. The finding of fact recorded by the Commissioner (Appeals), which is confirmed by the Appellate Tribunal, is that work of subtitling will be covered by the definition of “work” in clause (iv) of explanation to Section 194C. Reliance is placed by the Commissioner (Appeals) on the CBDT notification dated 12th January 1977. The said notification includes editing in the profession of film artists for the purpose of Section 44AA of the Income Tax Act. However, the service of subtitling is not included in the category of film artists. As noted earlier, sub-clause (b) of clause (iv) of the explanation to Section 194C covers the work of broadcasting and telecasting including production of programmes for such broadcasting or telecasting. The work of subtitling will be naturally a part of production of programmes. Apart from confirming the finding of fact recorded by the Commissioner (Appeals) on both the aspects on placement fee and subtitling charges, the Appellate Tribunal has noted that both Sections 194C and 194J having introduced into the Income Tax Act on the same day, it is observed that the activities covered by Section 194C are more specific and the activities covered by Section 194J are more general in terms. Therefore, for the activities covered by Section 194C, Section 194J cannot be applied being more general out of the two.

16. In the alternative, a submission was canvassed by the learned counsel for the appellant that the carriage fees or the placement charges are in the nature of commission or brokerage as defined in explanation to Section 194H of the Income Tax Act. Further, in the alternative, it was submitted that carriage fees/placement charges were in the nature of royalty covered by Section 194J of the Income Tax Act.

17. We have already discussed in detail the findings of fact recorded by the Commissioner (Appeals) as regards placement fees/carriage fees. We have agreed with the findings of fact based on material on record that when the payment is made towards standard fee or placement fee, the activity involved is the same in both cases. As stated earlier, when services are rendered as per the contract by accepting placement fee or carriage fee, the same are similar to the services rendered against the payment of standard fee paid for broadcasting of channels on any frequency. In the present case, the placement fees are paid under the contract between the respondent and the cable operators/MSOs. Therefore, by no stretch of imagination, considering the nature of transaction, the argument of the appellant that carriage fees or placement fees are in the nature of commission or royalty can be accepted.

18. Thus, as far as both the grounds of challenge are concerned, there are findings of fact recorded by both the authorities. We concur with the view taken by the Appellate Tribunal. In our view, no question of law arises in these appeals. There is no merit in the appeals and the same are dismissed with no order as to costs.

[Citation : 399 ITR 443]