, `'
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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