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DDIT (IT) 2 (1), Mumbai Vs. Satellite Television Asian Region Ltd.,C/o Sr.Batliboi, 18th Floor, Express Towers, Nariman Point,Mumbai-400 021.
July, 10th 2012
      ,    `'  
IN THE INCOME TAX APPELLATE TRIBUNAL "L " BENCH,
                    MUMBAI

  .., ..                                  , ..   
 BEFORE SHRI P.M.JAGTAP, AM & SHRI AMIT SHUKLA, JM

               ./ ITA No.6473/Mum/2009.
             (   / Assessment Year: 2000-2001)
DDIT (IT) 2 (1), Mumbai                Satellite Television Asian Region
                                       Ltd.,C/o Sr.Batliboi, 18th Floor,
                             Vs.       Express Towers, Nariman Point,
                                       Mumbai-400 021.
     . /   . /PAN No. AACS 5680 D
 ( /Appellant) :      (  / Respondent)
                             / AND
                ./ ITA No.6474/Mum/2009
             (   / Assessment Year: 2001-2002)
DDIT (IT) 2 (1), Mumbai                Satellite Television Asian Region
                                       Ltd.,C/o Sr.Batliboi, 18th Floor,
                             Vs.       Express Towers, Nariman Point,
                                       Mumbai-400 021.
     . /   . /PAN No. AACS 5680 D
 ( /Appellant) :      (  / Respondent)
                             / AND
                ./ ITA No.6475/Mum/2009
             (   / Assessment Year: 2002-2003)
DDIT (IT) 2 (1), Mumbai                Satellite Television Asian Region
                                       Ltd.,C/o Sr.Batliboi, 18th Floor,
                             Vs.       Express Towers, Nariman Point,
                                       Mumbai-400 021.
     . /   . /PAN No. AACS 5680 D
 ( /Appellant) :      (  / Respondent)

-                                  /          Mr. Narendra Kumar
Appellant/Revenue by               :
 -                                 /            Mr. Porus Kaka
Respondent-Assessee by             :
                                      2                     ITA Nos : 6473/09,
                                                           6474/09 & 6475/09


         / Date of Hearing :
                                                      13th June 2012
        /Date of Pronouncement : 6 t h July, 2012




                           / O R D E R
PER AMIT SHUKLA (J.M.) :

      These are bunch of three appeals filed by the department

against consolidated order dated 22-9-2009, passed by the CIT(A)-11,

Mumbai in relation to penalty proceedings under Section 271C for the

assessment year 2000-2001, 20001-2002 & 2002-2003. Since the

common issues are involved in all the three appeals, therefore, all the

three appeals are being disposed off by this common order. For the

sake of ready reference, grounds of appeal in ITA No.6473/M/2009

(AY 2000-2001), which are common in all the three appeals, are

reproduced herein below :-

      "1.   On the facts and in the circumstances of the case and in
            law, the ld. CIT(A) erred in deleting the penalty u/s. 271C
            for non deduction of tax at source.

      2.    On the facts and in the circumstances of the case and in
            law, the ld. CIT(A) erred in holding that the assessee had
            a bonafide belief that the channel companies are not
            taxable in India and hence tax was not required to be
            deducted on payment made to channel companies.

      3.    The appellant prays that the order of the ld. CIT(A) on the
            above grounds be set aside and that of the Assessing
            Officer restored.

      4.    The appellant craves leave to amend or alter any ground
            or add a new ground which may be necessary."

2.    Brief facts of the case as culled out from the records are that the

assessee `Star Limited' is a company incorporated in British Virgin

Island and having its principal place of business at Hong Kong, is
                                      3                     ITA Nos : 6473/09,
                                                           6474/09 & 6475/09

engaged in the business of media/entertainment. The assessee is part

of STAR Group of companies and is wholly owned subsidiary                 of

`News Corporation" having its worldwide operations in the filed of

media and entertainment. The news corporation is also having indirect

holding in various `Channel Companies' which are owning and

telecasting TV channels in India. The description and details of

`Channel Companies' are as under :-

       Name of the `Channel Company'        TV Channels shown in India
       Star Television Entertainment Ltd.   STAR PLUS, STAR WORLD
       Star Asian Movies Ltd.               STAR GOLD
       Star International Movies Ltd.       STAR MOVIES
       formerly known as
       Star Television Sports Ltd.
       Star Television News Ltd.            STAR NEWS
       Channel V Music Network Ltd.         CHANNEL [V] INDIA



All these companies are also incorporated in British Virgin Island and

Principal place of business is Hong Kong. Thus, the assessee and

channel companies are non-resident companies.


2.1   With effect from 1st April, 1999, the assessee company sold the

advertising airtime for Star Plus, Star Movies, Star World, Star Gold,

Channel [V] and Star News and for this purpose, it has appointed Star

India Private Limited ( in short `SIPL'), a company incorporated in India

for marketing of advertising of airtime in India on the channels and

collection   of   advertisement   revenues.     These    various   channel

companies have entered into an agreement with satellite companies

(Asia Sat) for hiring of transponders, having footprints in India wherein
                                    4                   ITA Nos : 6473/09,
                                                       6474/09 & 6475/09

the channels are uplinked through decoders provided to the cable

operators for which prescribed fee are charged depending upon the

number of subscribers. The local cable operators decode the signals

and distribute the signals to the ultimate viewers via networks of

cables across roads, streets, buildings and flats. As per the Assessing

Officer, there are two distinct sources of revenue from India i.e.

advertisement revenue and subscription revenue. The advertisement

revenue is collected by SIPL, which is an Asian concern of the

assessee belonging to Star group. The revenue so collected from

advertisement is passed on to the Channel Companies through

assessee. The assessee had claimed that payments to Channel

Companies were being made for the purpose of airtime, therefore,

before making the payments to said Channel Companies, it was under

a bonafide belief that no tax is deductible at source under section 195

as the payment was made to a non-resident company from a non-

resident company in respect of its transaction with a Channel

Companies for procuring procurement of advertising time as their

companies were not taxable in India.


2.2   The assessment of the assessee company for the assessment

years in question were completed by the Assessing officer under

Section 143(3), wherein it was held that the channel companies have

business connection in India and further they undertake business

operations in India, hence, they are taxable in India. Thus, according
                                    5                   ITA Nos : 6473/09,
                                                       6474/09 & 6475/09

to the Assessing Officer, tax was required to be deducted at source by

the assessee from the credits/payments made to the Channel

Companies under section 195 of the Act. Since, the tax was not

deducted    and paid to the Government, the Assessing Officer

disallowed the cost of advertising airtime procured by the assessee

from the Channel Companies under the provisions of section 40(a)(i).

Against the said order, the assessee preferred an appeal before the

CIT(A), who upheld the order of the Assessing Officer. Thereafter in

second appeal before the ITAT, though the Tribunal upheld the

disallowance, but gave a categorical remark that this case involves

complex issue of question of law. Even though the assessment order

was passed under Section 143(3) for the assessment year 2000-2001,

2001-2002 & 2002-2003, however, no order was passed under

Section 201(1A) for any of the assessment year under consideration,

holding the assessee as `assessee in default' for failure to deduct tax

at source. The Assessing Officer after a gap had issued a show cause

notice on 9th March, 2006 for imposition of interest under section

201(IA) along with the levy of penalty under section 271C. In response

to the said notice, the assessee filed detail reply on 22-3-2006 and,

thereafter only order under section 201(IA) was passed and no penalty

order under section 271C was passed. It was only on February, 2008,

the Assessing Officer issued a show cause notice for levy of penalty

under section 271C. In response to the same, the assessee again

made a detail submission as to why it was not liable to deduct tax at
                                       6                    ITA Nos : 6473/09,
                                                           6474/09 & 6475/09

source under Section 195 on the amounts payment to Channel

Companies for the cost of advertising airtime and also under what

circumstances it had a bonafide belief that TDS was not to be

deducted. However, after considering the submissions of the

assessee, the Assessing officer, levied the penalty under Section

271C, on the ground that the assessee is a non-resident, which had

failed to deduct the withholding tax on the cost of advertising airtime

payable to Channel Companies and thus committed a default within

the meaning of 271C read with section 273B of the Act. Accordingly,

penalty     for all assessment years was levied, on the following

reasonings :-

          (i) The appellant has not provided any `reasonable
             cause' for failure to deduct tax on payments made to
             Channel companies. Considering the facts of the case
             in its entirety, it is a case of tax avoidance scheme;
          (ii) For imposing penalty under section 271C of the Act,
             the department need not establish that there has
             been `mens rea' or guilty mind. Further, it is apparent
             that there was certainly `mens rea' involved in the
             appellant's case and it is a fittest case for imposition
             of penalty;
          (iii) Though the appellant after making an application
             under section 195 of the Act, cured the defect, the
             levy of penalty cannot be stopped;
          (iv) Levy of penalty under section 271C of the Act
             operates by operation of law and accordingly, there is
             no requirement of order under section 201 of the Act
             before levy of penalty;
                                        7                     ITA Nos : 6473/09,
                                                             6474/09 & 6475/09

            (v) Show cause notice dated March 9, 2006 was for
               default under section 201(1) of the Act and 201(IA) of
               the Act and any mention of levy of penalty in the said
               notice has no relevance since the AO did not have
               jurisdiction to either initiate penalty proceeding or levy
               the penalty; accordingly, the time limit for levy of
               penalty under section 271C of the Act should run from
               the show cause notice dated February, 9, 2008. As a
               result, the order for levy of penalty under section
               271C of the Act is not time barred; and
            (vi) The appellant has introduced the abstract concept of
               `outright sale of advertisement airtime' and has tried
               to confuse the Revenue department. The intention of
               the appellant is to make the issue artificially
               complicated.

3.    Before the CIT(A), the assessee had made detail submissions

primarily on these grounds that :-

      (i)      penalty proceedings are barred by limitation;

      (ii)     there was bonafide belief for failure to deduct tax at

               source; and

      (iii)    the issue involved was a debatable issue where different

               opinion of various Courts have been rendered.

3.1   On the issue of limitation, learned CIT(A) rejected the contention

of the assessee quite elaborately after following the decision of the

Special Bench in the case of Mahindra & Mahindra, reported in 313

ITR 263 (AT), Mumbai Bench. On the issue of bonafide belief for

failure to deduct tax at source, Ld. CIT (A) cancelled the penalty after
                                     8                    ITA Nos : 6473/09,
                                                         6474/09 & 6475/09

giving detail reasonings which are from pages 16 to 32 of the appellate

order after referring to various judicial decisions. The sum and

substance of his findings are as under :-

      i)    That, the assessee has disclosed all the relevant facts

            relating to the claim of deduction of cost of airtime charges

            in the return of income and a detail note was given below

            the profit loss account from where the Assessing Officer

            has taken note of it, while discussing the issue in the order

            passed under Section 143(3). On the question regarding

            allowability of deduction in view of the section 40(a)(i),

            raised by the Assessing Officer, the assessee had filed

            detail submissions and explanations not only at the time of

            assessment but also at the time of penalty proceedings.

            The details regarding channel companies were also filed

            as required. Thus, the assessee has prima facie, given all

            the detail and reasoning for non-deducting of tax.

      ii)   The assessee had a genuine and bonafide belief in

            making the claim for deduction for the cost of advertising

            airtime procured from the channel companies that no tax

            was deductible at source under section 195. This belief

            was based on the decision of ITAT Mumbai Bench in the

            case of Shree Kumar Poddar, reported in 65 ITD 48

            (Mum) and the commentaries given in Kanga &

            Palkhivala's book. Thus, at the time of filing of return and
                                       9                    ITA Nos : 6473/09,
                                                           6474/09 & 6475/09

              for non-deducting of tax at source, there was a judicial

              precedence in favour of the assessee.

      iii)    Further, the ITAT while deciding the assessee's case for

              the assessment year 2000-2001 has observed that the

              issues involved are very complex. There is a wide scope

              of arguments, proposition and comments and the case

              involves complex question of law. In such a situation, it

              cannot be held that the assessee did not have bonafide

              belief for non-deducting of tax at source.

      iv)     The Hon'ble Supreme Court in the case of CIT Vs. Eli

              Lilly and Company Private Limited, reported in 312 ITR

              225, has held that liability for Penalty under section 271C

              of the Act can be fastened only if there is no good and

              sufficient reasons for not deducting tax at source.

3.2   Finally the CIT(A) has concluded his order after observing that in

this case there is difference of opinion on three questions of law :-

      "(a) Whether the payment by a non-resident made outside

             India requires application of 195 of the Act and

             whether such payment is chargeable to tax under the

             Income Tax Act.

      (b) Whether application is required to be made under

             section 195(2) of the Act by a taxpayer even where the

             payment to be made by him of any sum to another

             non-resident which is not chargeable to tax in India. In
                                         10                    ITA Nos : 6473/09,
                                                              6474/09 & 6475/09

               other words, even in respect of income not chargeable

               to tax, whether permission of Assessing Officer u/s

               195(2) of the Act is necessary.

        (c)    Whether    the   Channel       Companies,    recipient   of

               payment, have a business connection in India and

               whether their income is taxable in India."

Accordingly, he deleted the penalty on the ground that the assessee

had a genuine bonafide belief and had reasonable cause for non-

deduction of tax at source.


4.      Before us, the learned counsel on behalf of the assessee

submitted that the assessee had duly deposited the tax immediately

after    the    passing    of   the   assessment    order    passed     under

Section143(3) at the rate of withholding, determined by the Assessing

Officer. For the assessment years 2000-2001 & 2001-2002, the entire

payment of TDS was deposited in Central Government's account in

2004 and for assessment year 2002-2003 and all the payments were

deposited in 2005. By this time, no order under Section 201(1A) was

passed by treating the assessee as `assessee is in default' by the

Assessing Officer. Now, the penalty has been levied after expiry of

eight years for delayed of payment of tax.


4.1     On the issue of bonafide belief, learned counsel submitted that

the assessee had made on application under Section 197 before the

Assessing Officer for all the assessment years involved and order
                                    11                    ITA Nos : 6473/09,
                                                         6474/09 & 6475/09

under Section 197 was also passed. The dates of application and

order passed under Section 197 were given as below :-



       Assessment Year    Date of Application   Date of order u/s.197
      2000-2001          03-05-1999             19-05-1999
      2001-2002          04-04-2000             18-04-2000
      2002-2003          09-04-2001             13-06-2001
                         Revised order          13-07-2001



It was after passing of these orders under Section 197, that in March,

2003, the Assessing Officer had passed order under Section 143(3),

wherein it was held that the assessee is liable to deduct TDS, as the

Channel Companies have business connection in India, therefore, the

gross amount is taxable and, since the assessee has not come in

195(2), therefore, TDS has to be deducted on gross amount. Further,

it was submitted that as on the present date, the law has been settled

by the Hon'ble Supreme Court in the case of Vodafone International

Holdings Vs. Union of India, reported in (2012) 341 ITR 1, that

section 195 is not applicable on the payments made by one non-

resident to other non-resident. Therefore, the entire premises on

which the Assessing Officer has determined the income has no legs

to stand now.


4.2. On the issue that telecasting of signals by Satellite companies

in India is not a source of income in India or is there any business
                                    12                  ITA Nos : 6473/09,
                                                       6474/09 & 6475/09

connection in India or not, has been settled by the Hon'ble Delhi High

Court in favour of the assessee in the case of Asia Satellite

Telecommunications Co. Ltd. v. Director of Income-tax, reported

in (2011) 332 ITR 340 (Delhi). From these case laws, it has been

submitted before us, that there cannot be any doubt that the belief

entertained by the assessee was based on correct principles of law

which has now stands reaffirmed by the judicial pronouncements. Ld.

Counsel further submitted that failure to make an application under

Section 195(2) does not render the gross amount taxable as held by

the Assessing Officer and this view is fully supported by the decision

of the Hon'ble Supreme Court in the case of GE India Technology

Centre P. Ltd. v. Commissioner of Income-tax, reported in 327

ITR 456. Lastly, on the issue of bonafide belief, he has relied upon

catena of case laws including that of Hon'ble Supreme Court in the

case of CIT Vs. Eli Lilly and Company Private Limited (supra).


5.    Learned Senior DR submitted that, deductor cannot file

application under Section 197 and recourse for the assessee was to

file application under Section 195(2), which has not been done. The

law was always very clear and the assessee has even admitted its

default. All the submissions which were raised before the Assessing

Officer has been dealt with extensively with detailed reasons in the

penalty order to which he referred and relied upon.
                                    13                  ITA Nos : 6473/09,
                                                       6474/09 & 6475/09

6.    We have carefully considered the rival submissions, perused the

relevant findings given by the CIT(A) as well as the Assessing Officer

and also perused the material placed on record. It is an admitted fact

that the assessee is a non-resident company having its principal place

of business at Honkong and the various Channel Companies are also

non-resident companies based in Honkong. Hence, the payment in

question is made by a non-resident company to a non-resident

company. In the return of income, while computing the taxable income,

the assessee has shown his taxable income and also claimed

deduction of the cost of advertising airtime procured from the Channel

Companies on principal-to-principal basis outside India. At the time of

filing of return there was a prevalent view of the judicial

pronouncement by the ITAT Mumbai Bench in the case of Shree

Kumar Poddar Vs. CIT, reported in 65 ITD 248 and commentaries

given in Kanga and Palkhivala. Thus,      the assessee was under a

bonafide belief that no tax was deductible at source under section 195

with respect to transaction with the Channel Companies for advertising

airtime, since the companies were not taxable in India. It is also

undisputed fact that after passing of the assessment order under

Section 143(3), the assessee has deposited all the tax, the details of

which have been given at pages 11 to 12 of the impugned penalty

order. The basic charge of the Assessing Officer is that since the

assessee had not come before the Assessing Officer under Section

195(2), therefore, the gross amount was to be taxed. Even though this
                                     14                   ITA Nos : 6473/09,
                                                         6474/09 & 6475/09

was upheld by the CIT(A) and ITAT, however, it has been observed by

the ITAT that the issue involved is quite complex and is debatable.

Now in wake of law settled by the Hon'ble Apex Court in the case of

Vodafone International Holdings(supra), one can say that the

assessee was definitely under the bonafide belief that there was no

requirement to deduct TDS on the payment made by a non-resident to

a non-resident under Section 195. Even the telecasting of signals by

Satellite companies and location of ultimate viewership in India is not a

source of income in India or business connection in India, has been

upheld by the Hon'ble Delhi High Court in the case of Asia Satellite

Telecommunications Co. Ltd.(supra). From all these judicial

propositions, which have been settled recently, we hold that there was

no liability to deduct tax and atleast one can say that there was a

bonafide belief and reasonable cause for non-deducting of tax on the

payments made to the Channel Companies under section 195.


6.1.   Thus, in view of the decision of the Hon'ble Supreme Court in

the case of Eli Lilly & CO. Ltd. (supra), that if the assessee had a

bonafide belief that it was not required to deduct tax at source even if

the amount is held taxable lateron will not result in levy of penalty

under section 271C, we hold that no penalty under Section 271C

cannot be levied. Accordingly, the reasoning given by the CIT(A) for

deleting the penalty is upheld and the grounds taken by the

department are dismissed.
                                     15                   ITA Nos : 6473/09,
                                                         6474/09 & 6475/09



7.    Since, the facts in issues in all the three appeals are same,

hence, all the three appeals filed by the departments are dismissed.

8.    In the result, all the three appeals of the revenue are dismissed.

                 


      Order pronounced in the open court on 6th July, 2012 .

              6th July, 2012    

             Sd/-                                      Sd/-
  ( ..)                                     (   )
 ( P.M.JAGTAP)                             (AMIT SHUKLA)
  /ACCOUNTANT MEMBER                        /JUDICIAL MEMBER


  Mumbai;
                  Dated          06 / July /2012

. ./pkm.../PS

    /Copy of the Order forwarded to :

1.    / The Appellant
2.     / The Respondent.
3.     () / The CIT(A)-
4.     / CIT
5.    ,   ,            /
     DR, ITAT, Mumbai
6.     / Guard file.

               //True Copy//
                                                 / BY ORDER,

                              / 
                           (Dy./Asstt. Registrar)
                          ,    / ITAT, Mumbai
 
 
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