Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc.
1. A number of representations have been received from foreign telecasting companies regarding their taxability and the extent of income that could be said to accrue or arise to them from their operations in India. A consequent issue raised is the method of computation of profits from their Indian operations, especially in the cases of those companies which do not have any branch office in India or are not maintaining country-wise accounts of their operations.
2. The matter has been examined in the Board and the assessment records of some of these companies have also been looked into. Since this is a new area of commercial activity, no uniform basis is being adopted by the Assessing Officers at different stations for computing the income in the absence of country-wise accounts of the foreign telecasting companies. It has, therefore, been decided by the Board to prescribe guidelines for the purpose of proper and efficient management work of the assessment of foreign telecasting companies.
3. It is seen that out of the gross amount of bills raised by a foreign telecasting company, the advertising agent retains commission at 15 per cent or so. Similarly, the Indian agent of the foreign telecasting company retains his service charges at 15 per cent or so of the gross amount. The balance amount of approximately 70 per cent is remitted abroad to the foreign company. So far as the income of Indian advertising agent and the agent of the non-resident telecasting company are concerned, the same is liable to tax as per the accounts maintained by them. As regards the foreign telecasting companies which are not having any branch office or permanent establishment in India, tax has to be deducted and paid at source in accordance with the provisions of section 195 of the Income-tax Act, 1961 by the persons responsible for paying or remitting the amount to them.
4. In the absence of country-wise accounts and keeping in view the substantial capital cost, installation charges and running expenses, etc., in the initial years of operation, it would be fair and reasonable if the taxable income is computed at 10 per cent of the gross receipts (excluding the amount retained by the advertising agent and the Indian agent of the non-resident foreign telecasting company as their commission/charges) meant for remittance abroad. The Assessing Officers shall accordingly compute the income in the cases of the foreign telecasting companies which are not having any branch office or permanent establishment in India or are not maintaining country-wise accounts by adopting a presumptive profit rate of 10 per cent of the gross receipts meant for remittance abroad or the income returned by such companies, whichever is higher and subject the same to tax at the prescribed rate, i.e., 55 per cent at present.
5. It has also been decided that while assessing the income in the aforesaid manner, penalty proceedings may not be initiated in the cases in which taxes due along with the interest are paid voluntarily within 30 days of the date of issue of this circular.
6. It is clarified that these guidelines would be applicable to all pending cases irrespective of the assessment year involved until 31st March, 1998, after which the position with regard to the reasonableness of the rate of profits of such companies will be reviewed.
Circular : No. 742, dated 2-5-1996.
JUDICIAL ANALYSIS
EXPLAINED IN – TVM Limited v. CIT [1999] 102 Taxman 578 (AAR-New Delhi) in following words:
“[Guidelines contained in Circular No. 742, dated 2-5-1996 regarding taxation of foreign telecasting companies] are only general in character and it is open to assessees to accept them if they are beneficial to them. To the extent these guidelines purport to extent the applicability of the presumptive rate of profits even to cases where the foreign telecasting company has no permanent establishment in India, it cannot be treated as laying down the correct position in law.” (p. 598)
