Ushodaya Enterprises Private Limited, ... vs Assessee

M/s. Ushodaya Enterprises V/s. Asstt. Commissioner of Income-tax Private Limited, Hyderabad Circle 15(2), Hyderabad

(PAN - AAACU 2690 P)

(Appellant) (Respondent)

ITA No.1858/Hyd/2014 : Assessment year 2002-03 ITA No.1859/Hyd/2014 : Assessment year 2003-04

Asstt. Commissioner of Income- V/s. M/s. Ushodaya Enterprises Private tax Circle 15(2), Hyderabad Limited, Hyderabad

(PAN - AAACU 2690 P)

(Appellant) (Respondent)

Assessee by : Shri V.Sivakumar

Department by : Smt. G.Aparna Rao DR

Date of Hearing 22.4.2015 Date of Pronouncement 24.4.2015

ORDER

Per Bench :

These four appeals, two filed by the assessee, being ITA No. 1820 and 1821/Hyd/2014 and two filed by the Revenue being ITA Nos.1858 and 1859/Hyd/2014 are cross appeals, which are directed against the common order of the learned CIT(A) II, Hyderabad dated 4.9.2014, whereby she disposed of the appeals filed by the assessee against the orders passed by the Assessing 2 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

Officer under S.201(1)/201(1A) of the Act for the assessment years 2002-03 and 2003-04.

2. The assessee in the present case is a company which is engaged in the business of publishing of newspapers, manufacturing of food items, dairy products and electronic media, i.e. TV channel, etc. A survey in the case of assessee was carried out on 3.3.2006. The findings of the survey as well as further enquiries made by the Assessing Officer revealed that there was failure on the part of the assessee in deducting tax at source from certain payments made during the years under consideration. In case of certain payments, the assessee was also found to have deducted tax at source at lower rate than prescribed in the statute. Accordingly, orders under S.201(1) and 201(1A) were passed by the Assessing Officer for both the years under consideration, treating the assessee as in default for non-deduction or short deduction of tax at source from the various payments as under-

Assessment year 2002-03

Head Default Interest Total u/s.201(1) u/s. 201(1A)

Discount 35228985 25364869 60593854 News Service Agency 7260934 5227872 12488806 Band Width 784308 564702 1349010 Transponder Rent 18442348 13278491 31720839 Internet 109829 79077 188906 Software 5243680 3775449 9019130 Data Circuit Rental 2093589 1507384 3600972

Grand Total 69163673 49797844 118961517 3 ITA No.1820/Hyd/2014 & three others

M/s.Ushodaya Enterprises Private Limited, Hyderabad

Assessment year 2003-04

Head Default Interest Total u/s.201(1) u/s.

201(1A)

Discount 18436709 11062026 29498736 News Service Agency 7870092 4722056 12592148 Band Width 827698 496619 1324316 Transponder Rent 18918931 10691358 28510289 Internet 106791 64075 170866 Software 6662009 3997206 10659214 Data Circuit Rental 3174612 1904767 5079380

Grand Total 54896842 32938107 87834949

3. Against the orders passed by the Assessing Officer under S.201(1)/201(1A) for both the years under consideration, appeals were preferred by the assessee before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) held that the assessee was not required to deduct tax at source from the payments made on account of discounts, data circuit rentals, bandwidth charges, internet charges and transponder rent. As regards the payments made by the assessee on account of News Service agencies and software expenses, the learned CIT(A) however, held that the assessee was required to deduct tax at source from the said payments and having failed to do so, it was rightly treated by the Assessing Officer as assessee in default under S.201(1). Accordingly, the appeals filed by the assessee for both the years under consideration were partly allowed by the learned CIT(A), vide his common appellate order dated 4.9.2014, which is impugned by both the revenue and the assessee in the present appeals filed before the Tribunal, on the following grounds, which are identical in both the years under consideration.

4 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

Assessee' Appeals:

1. The Order of the Commissioner of Income Tax (Appeals)-

II, Hyderabad dated 04-09-2014 is erroneous, contrary to law and facts of the case.

2. a) Commissioner Income Tax (Appeals)-II grossly erred in confirming the action of Assessing Officer treating the Appellant as defaulter u/s.201(1) r.w.s.194J for non- deduction of TDS on payments made by the Appellant to news service agencies holding that such payments are in the nature of professional and technical services and therefore attract the provisions of Section 194J of the Act.

b)Commissioner of Income Tax (Appeals)-II, ought to have seen that the contracts entered into by the Appellant with various news agencies is for collection of first hand news and providing them to the Appellant on its own presents such news including editing, capsuling or managing in any manner suitable for publication or telecast on its own equipment. Therefore the provisions of Section 194J are not attracted to such payments made to the news agencies since no technical services are rendered by them except providing raw news to the Appellant.

c)Commissioner of Income Tax (Appeals) in the alternative, ought to have seen that since news service agencies have filed their return of income considering the service charges as their income and paid taxes thereon there is no loss to the re'venue and hence there is no justification in treating the Appellant as defaulter u/s.201 (1) and 201 (1A) of the Act

3. a) Commissioner Income Tax (Appeals)-II grossly erred in confirming the action of Assessing Officer in treating the Appellant as defaulter u/s.201 (1) tvs.s. 194C for non-deduction of TDS on software expenses paid by the"

Appellant to Usha Kiron Television, Usha Kiron Movies and other parties holding that the provisions of Sec, 194C are attracted to such payments.,

b)Commissioner Income Tax (Appeals)-II grossly erred in stating that the assessee company entered into 5 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

agreement with Usha Kiron Television and Usha Kiron Movies for production of TV serials/programmes to be telecast by the Appellant.

c) Commissioner of Income Tax (Appeals) ought to have seen that it had entered into agreements with Usha Kiron Television, Usha Kiron Movies and others only for telecasting their programmes through the Appellant's TV channels on an understanding that the revenue generated on advertisements for time slots during telecasting of the said programmes shall be shared between them and not for production of TV serials/ programmes and hence subjecting to TDS the share of revenue given to the said parties invoking the provisions of Section 194C is not all justified.

d) Commissioner of Income Tax (Appeals) ought to have seen that the provisions of Section 194C are not attracted to the transaction between the Appellant and Usha Kiron Television, Usha Kiron Movies and others for the reason the said parties did not carry out any work for the Appellant within the meaning of the provisions of section 194C of the Act.

e)Commissioner of Income Tax Appeals (Appeals), without prejudice to the above, ought to have seen that since Usha Kiron Movies and Usha Kiron Television have filed their returns of income considering the amounts paid by the Appellant towards share of revenue for their programmes telecast by the Appellant as their income and paid the taxes thereon, there is no loss to the revenue and hence there is no justification treating the Appellant as defaulter u/s.201 (1) and 201 (1 A) of the Act by the Assessing Officer.

4. For all of the above and such other grounds as may be urged at the time of hearing it IS most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal by deleting the additions sustained by the Commissioner of Income Tax (Appeals) in the interest of justice

Revenue's Appeals:

1) Whether on the facts and circumstances, that CIT(A).II, Hyderabad erred in law in holding that there was no principal 6 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

agent relationship between the assessee and the advertising companies.

2) Whether on the facts and circumstances, the CIT(A).II, Hyderabad erred in coming to the conclusion that the amount retained by the advertising agencies did not partake the character of "commission" and the provisions of 194H were therefore not applicable.

3) Whether on the facts and circumstances, the CIT(A).II, Hyderabad erred in holding that data circuit rentals did not constitute technical services, thereby attracting the provisions of sec.194J of the Act.

4) Whether on the facts and circumstances, the CIT(A).II, Hyderabad erred in deleting the additions made on account of utilizing the band width provided to the assessee.

5) Whether on the facts and circumstances, the CIT(A).II, Hyderabad erred in deleting the additions made on account of internet charges.

6) Whether on the facts and circumstances of the case, the, CIT(A).II, Hyderabad erred in law in holding that payment of transponder rent was neither royalty nor fee for technical services.

7) Any other ground that may be urged at the time of hearing. "

4. We have heard the arguments of both the sides and also perused the relevant material on record. Let us first take up the appeals of the assessee for consideration, in which grounds No.1 and 4 are general and do not require specific adjudication. As regards the issue involved in grounds 2(a) and 2(b) relating to TDS liability under S.194J of the Act in respect of payments made to news service agencies, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1701/Hyd/2008 and 1706 to 1708/Hyd/2008. The Tribunal for those years has decided this issue against the assessee vide para 40 of its order dated 23.3.2012, which reads as follows-

7 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

"40. We heard both the parties and perused the materials available on record. We are unable to appreciate that no professional services are rendered by the reporters in collecting the data for publication of news. The work carried out by news paper agents requires professional qualifications and skills. Though, the data collected by such reporters has tobe reviewed glossed up and made fit to be published/presented. Nevertheless, procurement of the basic data cannot be done without qualified reporters who utilise their professional skills for collection of the same. Further, the newspapers employ reporters who have been trained to have interrogative ability, presence of mind and have specialised in a way for doing their work and hence they are rendering work in their professional capacity. Hence we agree with the CIT(A) in deducting TDS u/s 194J and not under section 194C and dismiss the assessee's appeal on this issue. The assessee's appeal is dismissed on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss grounds No.2(a) and 2(b) of the assessee in these appeals.

5. As regards Ground No.2(c) of the assessee's appeals, relating to its alternative claim, learned counsel for the assessee has submitted that the issue involved therein was also raised by the assessee in ground No.3(d) of its appeals filed before the learned CIT(A). He has submitted that the learned CIT(A) however, has not decided the same, and this position clearly evident from the impugned order of the learned CIT(A) is not disputed by the Learned Departmental Representative. We therefore, remit this issue involved in ground No.2(c) of the assessee's appeals relating to its alternative claim, to the learned CIT(A) for deciding the same on merits in accordance with law after giving sufficient opportunity of hearing to the assessee.

8 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

6. As regards the issue involved in grounds 3(a) to 3(d) relating to TDS liability in respect of payments made on account of software expenses, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1701/Hyd/2008 and 1706 to 1708/Hyd/2008. The Tribunal has decided this issue against the assessee for those years vide para 48 its order dated 23.3.2012, which reads as follows-

"48. We heard both the parties and perused the materials available on record. From the Profit and Loss account it was seen that in the ETV Telugu Division and ETV Other Channel Division, the assessee has made payments towards software expenses. These payments are further subdivided into 'revenue share'. 'Other programmes' and 'Direct purchases'. Expenses towards revenue shares are towards the agreed cost for production of TV serials/programmes. From the agreements with other parties, it can be concluded that the assessee is associating itself with the producers for getting the programmes telecasted on ETV channel and thereby the assessee gets a source for generating advertisement revenue. Hence the assessee is making payments to various agencies on revenue sharing basis from the income generated through advertisements by way of telecasting the serials or programmes produced by the agencies. The mode of payment is nothing but a payment for contract of work and is squarely covered by explanation III to section 194C which says 'work' shall include programmes for such broadcasting or telecasting. In view of the same, we hold that the nature of payments fall within the purview of section 194C. Therefore, we uphold the order of the CIT(A) on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned 9 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

order of the CIT(A) on this issue, and dismiss grounds No.3(a) to 3(d) of the assessee in these appeals.

7. As regards Ground No.3(e) of the assessee's appeals, relating to its alternative claim, learned counsel for the assessee has submitted that the issue involved therein was also raised by the assessee in ground No.7(f) of its appeals filed before the learned CIT(A). He has submitted that the learned CIT(A) however, has not decided the same, and this position clearly evident from the impugned order of the learned CIT(A) is not disputed by the Learned Departmental Representative. We therefore, remit this issue involved in ground No.3(e) of the assessee's appeals relating to its alternative claim, to the learned CIT(A) for deciding the same on merits in accordance with law after giving sufficient opportunity of hearing to the assessee.

8. In the result, both the appeals of the assessee are treated as partly allowed for statistical purposes.

9. Now taking up the appeals of the Revenue, as regards the issue involved in grounds 1 and 2 relating to non deduction of tax at source in respect of discounts on advertisements, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1708/Hyd/2008 and 1706 to 1701/Hyd/2008. The Tribunal for those years has decided this issue in favour of the assessee and against the revenue vide para 9 of its order dated 23.3.2012, which reads as follows-

"9. We heard both the parties. We have perused the order of the Delhi Bench 'C' wherein it has been decided in M/s TV 10 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

Today Network Ltd. in ITA No.3943/Del./2006 by their order dated 15.7.2011 that the assessee is not liable to deduct tax u/s 194H. The Tribunal followed another decision of Hon'ble Tribunal Delhi 'H' Bench in the case of Living Media India Ltd. in ITA No.3807/Del/2005 dated 31.5.2007. The CIT(A) followed the said decision in the case of living Media India Ltd. He also noticed that the Department's appeal against the said of the Tribunal was dismissed vide order in ITA No.1264 of 2007, a copy of which was placed before him by the assessee. We also find that the department conceded before the Tribunal and when the matter reached up to the Supreme Court and the decision of the Tribunal was upheld. Therefore, we are of the opinion that the issue is covered by the decision of the Co- ordinate Bench in the case of Living Media India Limited in ITA No.3807/Del./2005. Hence we confirm the order of the CIT (A) on this issue and hence the departmental appeal is dismissed on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss grounds No.1 and 2 of the Revenue in these appeals.

10. As regards the issue involved in ground 3 relating to non-deduction of tax at source under S.194J on payment of Data circuit rentals, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1701/Hyd/2008 and ITA Nos.1706 to 1708/Hyd/2008. The Tribunal for those years has decided this issue in favour of the assessee and against the revenue vide paras 13 and 14 of its order dated 23.3.2012, which read as follows-

"13. We heard both the parties and perused the materials available on record. We find that the decision in the case of Skycell communications has taken support of in the case of CIT Vs. Bharati Cellular Ltd. (319 ITR 0139) (Del) wherein it has been held that interconnect charges/port access charges cannot be regarded as fees for technical services. In this decision the meaning of technical services was explained and it was held 11 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

that there had to be involvement of human interface for a service to be called technical services.

14. Further, the authority for advancing Ruling has held in the case of Intertek Testing Services India P Ltd. (307 ITR

418)(AAR) that the offer of a standard facility to a number of customers such as telephone/cell phone users does not amount to rendering any 'technical service' within the meaning of the definition of technical service. Technical or consultancy service rendered should be of such a nature that it 'makes available' the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. It is enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.

Hence, we confirm the order of the CIT(A) that tax is not deductible on payment Data circuit rentals and dismiss the departmental appeal on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss ground No.3 of the Revenue in these appeals.

11. As regards the issue involved in ground 4 relating to non-deduction of tax at source on payment of band width charges, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1701/Hyd/2008 and 1706 to 1708/Hyd/2008. The Tribunal for those years has decided this issue in favour of the assessee and against the revenue vide para 17 of its order dated 23.3.2012, which reads as follows-

"17. The learned counsel for the assessee Shri Shiva Kumar relied on the decision of the Tribunal 12 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

Mumbai Bench in the case of Pacific Internet (India) P Ltd. Vs. ITO 318 ITR (AT) 0197 Mum wherein it has been held that payment made for using bandwidth and network operation are not technical services and tax needed not be deducted from such payments u/s 194J. The learned counsel for the assessee submitted that it is now settled that mere provision of facility to use equipment, whatever may be the sophistication that went into the creation of such facility, is not technical service. Following decision of the Coordinate Bench in Pacific Internet (India) P Ltd. Vs. ITO 318 ITR (AT) 0197 Mum. We uphold the order of the CIT(A) that payments of bandwidth are not liable for TDS under section 194J and dismiss the departmental appeal on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss ground No.4 of the Revenue in these appeals.

12. As regards the issue involved in ground 5 relating to non-deduction of tax at source on payment of internet charges, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1701/Hyd/2008 and 1706 to 1708/Hyd/2008. The Tribunal for those years has decided this issue in favour of the assessee and against the revenue vide para 21 of its order dated 23.3.2012, which reads as follows-

"21. We heard both the parties. We uphold the order of the CIT(A) that payments of Internet Charges are not liable for TDS relying on the following decisions:

1. Skycell Communications Ltd. Vs. DCIT 251 ITR 53 MAD.

2. Software Technology Parks of India Vs. ITO 3 SOT 529 (Bangalore)

3. Pacific Internet (India) Pvt Ltd. Vs. ITO (318 ITR (AT) 13 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

0179(Mum).

.... Hence we uphold the order of the CIT(A) holding the provisions of section 194J are not applicable to the impugned payments."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss ground No.5 of the Revenue in these appeals.

13. As regards the issue involved in ground 6 relating to non-deduction of tax at source on payment of transponder rent, learned representatives for both the sides have agreed that it is covered by the decision of the Tribunal dated 23.3.2012 in assessee's own case for assessment years 2004-05 to 2006-07 in ITA No.1699 to 1708/Hyd/2008 and 1706 to 1701/Hyd/2008. The Tribunal for those years has decided this issue in favour of the assessee and against the revenue vide para 32 of its order dated 23.3.2012, which reads as follows-

"32. We heard both the parties and perused the materials available on record. We find that in the case of ISRO satellite centre in 175 Taxman 97 AAR, the assessee was to make payment for taking on lease Space Segment Capacity consisting of L-1 and L-5 transponder Centered on an Inmarsat 4th Generation Satellite whose capacity is utilised through data commands sent from a ground station set up by applicant. The assessee paid a fixed annual charge regardless of actual use of transponder capacity. The AAR held that when by earmarking a space segment capacity of transponder for its use assessee does not get possession or control of equipment of IGL and the agency that received the payment charges paid by assessee cannot be regarded as payment for use of IGL's equipment. The AAR held that income arising to IGL out of payments received from applicant is neither in nature of 'royalty' under Act nor 14 ITA No.1820/Hyd/2014 & three others M/s.Ushodaya Enterprises Private Limited, Hyderabad

is fee for technical service. We are of the opinion that the ratio of the decision of the AAR is equally applicable to the assessee's case. Having regard to the facts of the case, the decision of the CIT(A) is upheld. The Revenue's appeal is dismissed on this issue."

Facts and circumstances of the case for the years under consideration being similar to those considered by the Tribunal in the above decision for the assessment years 2004-05 to 2006-07, respectfully following the said decision, we uphold the impugned order of the CIT(A) on this issue, and dismiss ground No.6 of the Revenue in these appeals.

14. In the result, both the appeals of the Revenue are dismissed.

15. To sum up, while appeals of the assessee are treated as partly allowed for statistical purposes, appeals of the Revenue are dismissed.

Order pronounced in the court on 24th April, 2015.

Sd/- Sd/- (Saktijit Dey) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 24th April, 2015

Copy forwarded to:

1. M/s. Ushodaya Enterprises Private Limited, 6-3-570, Eenadu Complex, Somajiguda, Hyderabad 500 0082.

2. Asstt. Commissioner of Income-tax Circle 15(2), Hyderabad

3. Commissioner of Income-tax(Appeals) II, Hyderabad

4. Commissioner of Income-tax I, Hyderabad 5 Departmental Representative, ITAT, Hyderabad.

B.V.S