CASE LAWS DETAILS
DECIDED BY: ITAT, BENCH `A’ CHENNAI,
IN THE CASE OF: Asia net Communications Ltd. Vs DCIT, APPEAL NO: ITA No. 1657/Mds./2002, DECIDED ON: December 11, 2009
ORDER
These are cross appeals filed by the assessee and revenue respectively for Assessment Year 1995- 96.
2. Revenue’s appeal is taken up first. Grounds taken by revenue read as under:
1. The ld. CIT(A) has erred in deleting the addition made viz. Rs. 20,62,32,621/- u/s 40(a)(i) of the Income-tax Act, 1961 [for short, the Act].
2. The ld. CIT(A) has erred in holding that the payment of transponder hire charges made by the assessee on which no tax has been deducted does not come within the purview of royalty fee in which case tax is required to be deducted.
3. The ld. CIT(A) failed to note that the charges paid to two foreign companies are covered by the provisions of section 5(2) r.w.s. 9(1)(vi) of the Act and the assessee company.
4. The Tribunal order relied on by the ld. CIT(A) in the case of M/s Raj Television Net Works Ltd has not been accepted by the department.
5. For these and other grounds that may be adduced at the time of hearing it is prayed that the order of the ld. CIT(A) may be set aside and that of Assessing Officer restored.”
3. Short facts apropos are that assessee engaged in the business of TV broadcasting and software development, filed a return of income showing loss of Rs. 24,60,840/- which was processed u/s 143(1)(a) of the Act by making prima facie adjustment through dis allowance of development expenses resulting in an assessed loss of Rs.19,70,012/-. Subsequently, the case was selected for scrutiny and assessment later completed u/s 143(3) of the Act and loss determined at Rs. 4,85,641/-. This order was set aside by ld. CIT(A) invoking powers u/s 263 of the Act, for, according to him, a sum of Rs. 20,62,23,621/- which was allowed to assessee as ‘Transponder Hire Charges’ ought to have been disallowed u/s 40(a)(i) of the Act, tax having not been deducted tax at source therefrom, as per section 195 of the Act. in the re-assessment, pursuant to the order of ld. CIT u/s 263 of the Act, assessee was requested to give details regarding transponder hire charges paid. Based on such details, Assessing Officer was of the opinion that transponder hire charges paid to two companies were covered by section 5(2) r.w.s. 9(1)(vi) of the Act. Therefore, according to him, assessee ought have deducted tax at source, before effecting payments, which it had failed to do. Assessing Officer noted that in so far as payments of Rs. 19,24,97,790/- made to M/s Menon Ltd., U.K., no tax was deducted and in so far as a sum of Rs. 3,08,79,261/- paid to M/s Rimsat, U.S.A. tax was deducted only at 11.11% against 20% which was deductible. Assessing Officer therefore put the assessee on notice that he was proposing disallowance on such sums prorata. Assessee’s reply was that such payments were not royalty nor technical services, but only hiring charges paid to foreign companies, which had no permanent establishment in India. Therefore, according to him, sec. 40(a)(i) of the Act was not attracted. Assessing Officer was, however, not impressed. According to him, such payments were nothing but royalty in view of Explanation 2 to section 9(1)(vi) of the Act. Assessing Officer was of the opinion that foreign companies were providing scientific knowledge, experience or skill in the field of satellite communication to the assessee company and hence fully covered by the definition of ‘royalty’ as given in Explanation 2 to section 9(1)(vi) of the Act. Vis-a-vis assessee’s argument that foreign companies were not having a PE in India, Assessing Officer noted that the utilisation of transponder and up linking services were integral part of assessee’s business, and services of the foreign companies were utilised in Indian soil. According to him, the payments made to the foreign companies, were income accruing to such companies in India only. Vis-a-vis assessee’s submission that services rendered by foreign companies were entirely outside India, Assessing Officer’s opinion was that there was exploitation of services in India and therefore, a vicarious liability cast on assessee, for deducting of tax at source. Again, according to Assessing Officer, fees for technical services paid by an Indian resident for services rendered anywhere in the world would be liable to tax in India and there was no necessity for having a business connection. Thus he held that assessee had not deducted tax at source which was statutorily deductible and, therefore, disallowed the following payments u/s 40(a)(i) of the Act:
