M/S S.S.S.Net Works,, Hyderabad vs Assessee

Assessee by: Shri A.V. Raghuram, Advocate Department by: Smt. Esther Nianghauvung Hangal, (DR)

Date of Hearing: 21/01/2015 Date of Pronouncement: 28/01/2015

ORDER

Per Saktijit Dey, J.M.

This appeal of the assessee is directed against the order of ld CIT (A) Guntur, dated 28.11.2012 pertaining to the A.Y 2009-10. The solitary issue in this appeal is with regard to disallowance of Rs.35,69,715/- by invoking the provisions of section 40(a)(ia) of the Act.

2. Brief facts of the case relating to the issue in dispute are, the assessee, a partnership firm is engaged in the business of providing cable network services. For the A.Y under consideration, the assessee filed its return of income on 30.09.2009 declaring total income of Rs.2,15,260. During the assessment proceedings, the AO while examining the P&L a/c of the assessee relevant to financial year noticed that the assessee has paid an amount of

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Rs.36.15 lakhs to various pay channels like ESPN, Star Sports, ETV, Gemini TV, MAA TV, Sony TV, Star TV, 10Sports etc. He, therefore, called for information from the concerned pay channels to furnish the details of the service contract, the amount received from the assessee, mode of payment and whether any tax at source has been deducted by the assessee at the time of making such payments. As noted by the AO in the assessment order in response to the letter issued by him, M/s. Ushodaya Enterprises (P) Ltd submitted information inm respect of renewals of subscription agreement of transmission of ETV network channels for the period 1.4.08 to 31.03.09 and the agreement amount, the mode of payment and the amount paid etc. On verification of the information obtained, the AO noticed that as per the written agreement between the assessee and the concerned TV channels, there is a specific period of contract and also specific amount to be paid. The AO therefore, informed that the assessee is having written agreement with the pay channels for a specific period and the amount, hence the assessee is liable to deduct tax at source u/s 194C of the Act on the payments made to the pay channels. As the assessee had not deducted any tax, he issued a show cause notice to the assessee requiring him to explain why payments of Rs. 36,15,907/-should not be disallowed u/s 40(a)(ia) of the Act. In response to the show cause notice the assessee submitted that there is no contract for work with the concerned TV channels. It was submitted that the nature of transactions between the assessee and the pay channels cannot be considered as works contract as envisaged u/s 194C. AO however, rejecting the explanation of the assessee disallowed an amount of Rs. 35,69,715/- by invoking section 40(a)(ia) of the Act.

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3. Being aggrieved of such disallowance, assessee preferred appeal before the ld CIT (A). Before the first appellate authority the assessee, apart from reiterating that the payments made to the pay channels cannot be deemed to be in pursuance to works contract as envisaged u/s 194C of the Act, alternatively, also submitted that as the entire amount was paid within the relevant financial year and nothing remains to be paid, the ratio laid down by the ITAT Visakhapatnam Special Bench in the case of Merillyn Shipping & Transport vs. Add.CIT in ITA No.477/Viz/2008 dated 29.03.2012 would apply and no disallowance can be made u/s 40(a)(ia). The ld CIT (A) however, did not find merit in the contention of the assessee that the payments do not come within the purview of section 194C of the Act. He also rejected the alternative contentions of the assessee by observing that the decision of the ITAT Visakhapatnam Special Bench in the case of Merillyin Shipping & Transport (Supra) has been stayed by the Hon'ble Andhra Pradesh High Court in order dated 8.10.2012. Being aggrieved of the aforesaid order of the CIT (A), the assessee is in appeal before us raising following grounds:

"1. The order of the ld CIT (A) is erroneous both on facts and in law.

2. The ld CIT (A) erred in holding the payments for purchase of activation card from TV channels attract TDS provisions u/s 194C and thereby confirming the order of the AO disallowing Rs.35,69,715/- u/s 194C.

3. The ld CIT (A) failed to appreciate the provisions of section 194C which deal with broadcaster or telecasting but not a person who distributes right to view such broad casting or telecasting and thereby erred in holding that the assessee is liable to deduct tax when he is purchasing the activation card from TV Channel.

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4. The ld CIT (A) failed to appreciate the fact that purchase of activation card by assessee is as a user, is as good as purchasing a sim card for cellphone which does not attract provisions of tDS and thereby erred in holding that there is service as held in the case of Idea Cellular holding sale of sim cards includes commission and TDS is required to be made failing to appreciate the difference between sale of sim cards to dealers of SIM cards and sale of same to user and thereby erred in holding that this amounts to a service as held therein.

5. The ld CIT (A) erred in holding that provisions of section 40(a)(ia) attracts even when the amount did not remain payable on the ground that the decision in the case of Merillin Shipping is stayed by High Court failing to appreciate the fact that such stay will operate only to that assessee and the decision of Teja Constructions on similar lines holds good.

6. Any other ground that may eb urged at the time of hearing".

4. Ground Nos. 1 & 6 being general in nature, do not require any specific adjudication. At the outset, the ld AR requested for taking up the legal issue as raised in Ground No.5 in which event the other grounds on the merits of disallowance may not be necessary to be dealt with. Arguing on the legal issue, the ld AR submitted, the observation of the ld CIT (A) that ratio laid down by the ITAT Special Bench in the case of Merillyn Shipping & Transport Vs. Add.CIT (Supra) will not apply as it has been stayed by the Hon'ble jurisdictional High Court is not a correct conclusion as the Hon'ble High Court itself in judgment dated 24.6.2014 in case of CIT vs. M/s Janapriya Engineers Syndicate in ITA No.352/14 has held that until and unless the decision of the Special Bench in case of M/s Merillyn Shipping & Transport is

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reversed by the Hon'ble jurisdictional High Court, it will be binding on lower authorities as well as the Coordinate Benches of the Tribunal. The ld AR submitted that following the aforesaid view expressed by the Hon'ble High Court, the ITAT in case of Ushodaya Enterprises vs. DCIT in ITA No.676/Hyd/09 dated 7.1.15 has also directed the AO to follow the ratio laid down in the case of Merillin Shipping & Transport vs. Add.CIT (Supra)by the ITAT Special Bench.

5. The ld DR has not controverted the submissions made by the ld AR.

6. We have heard the parties and perused the orders of the revenue authorities and other materials on record. On a perusal of the assessment order, it is seen that in Para 3 of the assessment order, the AO has noted that the assessee has paid an amount of Rs.36.15 lakhs to various TV channels. If that is the case, then nothing remains payable by the assessee by the end of the relevant financial year. Accordingly the ratio laid down by the ITAT Visakhapatnam Special Bench in the case of Merillyn Shipping & Transport vs. Add CIT (Supra) squarely applies to the facts of assessee's case. Further, it is to be noted that the Coordinate Bench of this Tribunal in case of Ushodaya Enterprises vs. DCIT (Supra) following the judgement of the Hon'ble A.P. High Court dated 24.06.2014 in case of CIT vs. Janapriya Engineers Syndicate in ITA No.352/14 has held as under:

"8. We have heard both the parties. We direct that the AO may follow the decision of the Special Bench in the case of Merilyn Shipping & Transports v. ACIT in ITA No.477/Viz/2008 dated 29.03.2012 and the

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disallowance u/s 40(a)(ia) may not be made by the AO for the amounts/payments which have already been paid before the end of the relevant accounting year, out of the amounts disallowed which have been upheld by the CIT (A). This ground is partly allowed for statistical purposes".

7. In view of the aforesaid decision, we direct the AO to follow the decision of ITAT, Special Bench in case of Merillyin Shipping & Transport vs. ACIT (Supra) and allow the expenditure of Rs.35,69,715/-, if it is found to have been paid within the relevant financial year. This ground is considered to be allowed for statistical purposes.

8. In view of the aforesaid direction, other grounds raised by the assessee have become redundant, hence need not be adjudicated.

9. In the result assessee's appeal is partly allowed for statistical purposes.

Order pronounced in the Open Court on 28th January, 2015.

Sd/- Sd/- (P.M. Jagtap) (Saktijit Dey) Accountant Member Judicial Member Hyderabad, dated 28th January, 2015. Vnodan/sps Copy to:

1. K.Vasantkumar & A.V.Raghuram, Advocates, 610, 6th Floor, Babukhan Estate, Basheerbagh, Hyderabad-1

2. Income Tax Officer Ward-1 (1) Gudur, Nellore

3. The CIT(A) Guntur

4. The CIT Guntur

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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