Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc.

1. The Central Board of Direct Taxes vide Circular No. 742, dated 2-5-1996 had laid down certain guidelines for the computation of profits of FTCs from advertisement payments received by them from India. These guidelines were extended till further orders by Circular No. 765, dated 15-4-1998.  The Central Board of Direct Taxes hereby withdraws the above Circular with effect from 31-3-2001.

2. The total income of FTCs from advertisements, hitherto computed on a presumptive basis shall now be determined by the Assessing officers in accordance with the other provisions of the Income-tax Act, 1961 in relation to the assessment year 2002-2003 and subsequent assessment years. In case, accounts for Indian operations are not available, the provisions of rule 10 of the Income-tax Rules, 1962 may be invoked. Where an FTC is a resident of a country  with whom India has a Double Taxation Avoidance Agreement (DTAA), its business income (including receipts from advertisement) can be taxed only if it has a Permanent Establishment in India. Therefore, the taxability of an FTC in this regard shall be determined on the facts and circumstances of each case. Taxation of FTCs who are residents of countries with whom India does not have a DTAA, shall be governed by the provisions of section 5, read with section 9 of the Income-tax Act, 1961.

3. It may be reiterated that the guidelines for computation of profits of FTCs in Circular No. 742 and 765 were applicable only to the income stream from advertising. Other kinds of income like subscription charges receivable from cable operators in respect of pay channels and income from the sale or lease of decoders, etc., shall continue to be taxed in accordance with the paragraph 2 above.

Circular :  No. 6/2001, dated 5-3-2001.

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)

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