In the recent budget 12-13 the finance minister made some very important yet subtle changes which have very far reaching consequences. One such change was adding of explanation 6 in section 9(1) (vi), which reads as follows:
Explanation 6.—For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;’.
The above explanation has been inserted wef 01st June 1976 and clarifies that the word process includes and had always deemed to have included wef 1st June 1976 any activity relating to transmission by satellite, cable, optic fibre or any similar technology and also includes the process of up-linking, down-linking and or amplification of any signal.
By introducing this clause the government has reversed retrospectively the judgment of Delhi High Court in the AsiaSat case, which had ruled that payment of Transponder hire charges is not in the nature of “Royalty” and hence no withholding taxes are applicable u/s 194J. Had this clarification been applicable prospectively the business community would have accepted the same with a pinch of salt, being the wish of the legislature which is supreme. But the applicability of this clarification has been made retrospectively and will cause much agony to the taxpayers and will open Pandora’s box.
Not only will the payments being made for leasing of transponders attract WHT under 194J but also all other payments being made to Telecom players for broadband services, leased lines, telephone and also carriage fees (paid by broadcasters), on which either tax was not deducted or deducted under 194C, will also be require tax to be withheld at a higher rate.
This is a very subtle silent change made by the Ministry of Finance in the Finance bill 2012 which requires much action on part of the industry members. They should start withholding taxes on all payments being made for their leased lines, broadband connectivity, telephone charges and carriage fees. No doubt this regressive step will cause working capital problems on the players in the telecom industry but also in the Media industry as well both of whom are already reeling under severe cash crunch and margin pressures.
Author - Vikash Khannah
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