© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
Upcoming SlideShare
Loading in …5
×

Payment for pay channel charges made prior to retrospective amendment are taxable as royalty, however, it cannot be disallowed for non-deduction of tax

157 views
145 views

Published on

Recently, the Cochin Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Kerala Vision Ltd. (the taxpayer) held that payment made for pay channel charges is taxable as royalty. The taxpayer is engaged in distributing the television channels or signals by cable by receiving signals through satellite and such kind of transmission is included within the definition of ‘process’ under the definition of royalty under the Income-tax Act, 1961 (the Act).

However, the Tribunal held that though the pay channel charges are taxable as royalty with the introduction of retrospective amendment in the Act, the same could not be disallowed under Section 40(a)(ia) of the Act as it was not taxable before the introduction of the amendment.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
157
On SlideShare
0
From Embeds
0
Number of Embeds
12
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Payment for pay channel charges made prior to retrospective amendment are taxable as royalty, however, it cannot be disallowed for non-deduction of tax

  1. 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Payment for pay channel charges made prior to retrospective amendment are taxable as royalty, however, it cannot be disallowed for non-deduction of tax 12 June 2014 B Background Recently, the Cochin Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Kerala Vision Ltd. 1 (the taxpayer) held that payment made for pay channel charges is taxable as royalty. The taxpayer is engaged in distributing the television channels or signals by cable by receiving signals through satellite and such kind of transmission is included within the definition of ‘process’ under the definition of royalty under the Income-tax Act, 1961 (the Act) 2 . However, the Tribunal held that though the pay channel charges are taxable as royalty with the introduction of retrospective amendment in the Act, the same could not be disallowed under Section 40(a)(ia) of the Act as it was not taxable before the introduction of the amendment. _______________ 1 Kerala Vision Ltd. v. ACIT (ITA No. 794/Coch/2013) – Taxsutra.com 2 Post retrospective amendment made in the Finance Act, 2012 Facts of the case  The taxpayer was engaged in the business of distributing cable signals. It receives satellite signals from various channel companies.  During the Assessment Year (AY) 2009-10, the taxpayer made payment towards pay channel charges to various channel companies for receiving the signals. The taxpayer had not deducted tax from the said payments relying on the decision of the Madras High Court in the case of Skycell Communications Ltd. 3 .  The Assessing Officer (AO) held that the pay channel charges falls within the definition of royalty and was liable for deduction of tax under Section 194J of the Act. It was held that decision rendered in the case of Skycell Communications Ltd. was not applicable to the facts of the instant case.  The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the order of the AO. ____________ 3 Communications Ltd. v. DCIT [2001] 251 ITR 53 (Mad)
  2. 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tribunal’s ruling Taxability of pay channel charges  For the purpose of Section 194J of the Act, the term ‘royalty’ shall have the meaning provided in Explanation 2 to Section 9(1)(vi) of the Act where the expression ‘process’ is included.  The Finance Act, 2012 has inserted Explanation 6 below Section 9(1)(vi) of the Act defining 4 the word ‘process’. As per the said definition, the expression ‘process’ includes and shall be deemed to have always included transmission by satellite, cable, optic fibre of any other technology.  The taxpayer was engaged in the business of transmitting the television channels or signals by cable by receiving signals through satellite. Such kind of transmission (both receipt of signal and transmission of the same) is included in the definition of ‘process’ by the Finance Act, 2012.  Since this Explanation starts with the words ‘for removal of doubts’, it was clarificatory in nature and it would apply for the year under consideration also.  The transfer of all or any rights in respect of a ‘process’ shall fall within the category of ‘royalty’ as per Section 9(1)(vi) of the Act. Therefore, the payment made by the taxpayer towards pay channel charges was held as royalty under the Act. Withholding of tax and disallowance  The taxpayer’s view that the pay channel charges could not be considered as royalty was supported by the decision of the Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd 5 .  Though the Explanation 6 to Section 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the taxpayer’s view was supported by the decision of Asia Satellite Telecommunication Co. Ltd, the taxpayer could not be held to be liable to deduct tax from the pay channel charges in the relevant financial year.  Accordingly, it has been held that the pay channel charges cannot be disallowed under Section 40(a)(ia) of the Act. ______________ 4 The expression ‘process’ includes and shall be deemed to have always included transmission by satellite (including up-lining, amplification, conversion for down- linking of any signal), cable, optic fibre or by any other similar technology whether or not such process is secret 5 Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 197 Taxman 263 (Del) Our comments Deduction of tax at source on royalty related payment made before the retrospective amendment introduced by the Finance Act, 2012 has been a matter of debate before the Tribunal. The Cochin Tribunal in this decision has held that though the pay channel charges are taxable as royalty with the introduction of retrospective amendment in the Act, the same could not be disallowed under Section 40(a)(ia) of the Act as it was not taxable before the introduction of the amendment. The Mumbai Tribunal in the decision of Channel Guide India Ltd 6 held that the taxpayer cannot be held to be liable to deduct tax relying on the subsequent amendments made in the Act with retrospective effect. It was impossible for the taxpayer to deduct tax in the past when as per the relevant legal position prevalent in the past, the obligation to deduct tax was not on the taxpayer. Accordingly, the Tribunal deleted the disallowance under Section 40(a)(i) of the Act. Subsequently, the Agra Tribunal in the case of Metro and Metro 7 relying on the decision of Channel Guide India Ltd held that the disallowance under Section 40(a)(i) of the Act could not be made since before the retrospective amendment the payment was not taxable in India. _____________ 6 Channel Guide India Ltd. v. ACIT [2012] 25 taxmann.com 25 (Mum) 7 Metro & Metro v. ACIT (ITA No. 393/Agra/2012)
  3. 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903,Near Vodafone House,Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

×