Income Tax Appellate Tribunal - Mumbai
Asst Cit 11(1), Mumbai vs Zee Entertainment Enterprises Ltd, ... on 28 February, 2019
fAayakr ApIlaIya AiQakrNa " K " nyaayapIz maM u b a[- mao .
IN THE INCOME TAX APPELLATE TRIBUNAL " K" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य एविं श्री राजेश कुमार लेखा दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
Aayakr ApIla saM . / ITA No. 1912/Mum/2014
(inaQa- a rNa baYa- / Assessment Year 2009-10)
Aayakr ApIla saM . / ITA No. 774/Mum/2015
(inaQa- a rNa baYa- / Assessment Year 2010-11)
Zee Entertainment Jt. Commissioner of Income
Enterprises Limited Tax, Range -11(1), Aayakar
135, Continental Building, Dr. Vs. Bhavan, Room No. 467,
A.B. Road, W orli, Mu mbai-400 Mumbai-400 020
018
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AAACZ0243R
Aayakr ApIla saM . / ITA No. 1331/Mum/2014
(inaQa- a rNa baYa- / Assessment Year 2009 -10)
Aayakr ApIla saM . / ITA No. 1063/Mum/2015
(inaQa- a rNa baYa- / Assessment Year 2010 -11)
Jt. Commissioner of Income Zee Entertainment
Tax, Range-11(1), Aayakar Enterprises Limited
Bhavan, Room No. 467, Vs. 135, Continental Building,
Mumbai-400 020 Dr. A.B. Road, W orli,
Mumbai-400 018
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AAACZ0243R
अपीलाथी की ओर े / Appellant by : Shri Jay Bhansali, AR
प्रत्यथी की ओर े / Respondent by : Shri Amrita Ranjan, CIT DR
2
ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4
77 4 & 10 6 3/ Mu m/ 2 01 5
ुनवाई की तारीख / Date of hearing: 07-12-2018
घोषणा की तारीख / Date of pronouncement : 28-02-2019
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
These appeals are arising out of the orders of Dispute Resolution Panel-II, Mumbai [in short 'DRP'], in objection Nos. 135 & 55 vide directions dated 23.12.2013 & 14.11.2014 respectively. The Assessments were framed by the Jt. Commissioner of Income Tax-Range 11(1), Mumbai (in short 'JCIT/AO') for the assessment year 2009-10 & 2010-11 vide orders dated 17.01.2014 & 23.12.2014 under section 143(3) read with section 144C(13) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The first common issue in these cross appeals is as regards to the order of Transfer Pricing adjustment made by Revenue on account of Guarantee fee. The Revenue in ITA No. 1331/Mum/2014 for AY 2009-10 raised the following ground No. 2: -
"Revenue's Ground
2. On the facts and circumstances of the case and in law, the Ld. DRIP was not justified in holding that the rate of 1.5% is appropriate for charging commission to provide corporate guarantee on behalf of the Associated Enterprises (AE) as against the rate of 3% taken by the TRO and the A.O. 3 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 The assessee in ITA No. 1912/Mum/2014 for AY 2009-10 has raised the following ground No. 1:-
Assessee's Ground
1. Ground I - Transfer Pricing Adjustment
- Guarantee Fees 1.1 The Ld. DRP/ AO/ TPO erred in law and facts in making addition of Rs.
228,76,000/- to income on account of difference in arm's length fees chargeable for corporate guarantee given for borrowings by Associated Enterprises. The reasons given by them for doing so are wrong, contrary to the facts of the case and against provisions of law.
1.2 The DRP/ AO/TPO ought to have appreciated that in the facts & circumstances of the AE no guarantee was required to take loan nor the AE is benefited by the guarantee issued to the bank hence no guarantee commission is chargeable hence no Transfer Pricing adjustment warranted."
3. Briefly stated facts are that the assessee Zee Entertainment Enterprise Ltd. is integrated Media and Entertainment Company engaged primarily in the business of broadcasting and contend development, production and its delivery via satellite. It is engaged in the broadcasting 4 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 of various Hindi Entertainment and Music channels in India and various other international territories through various subsidiaries and its associated companies. During the year under consideration the TPO computed the guarantee fee being guarantee commission at the rate of 3% for computing arm's length guarantee fee. The facts relating to the same are that the assessee has executed a guarantee agreement with Barclays Bank Plc on 04.12.2006 of USD 30 Million extended to ATL, Mauritius. The TPO and AO noted in the respective orders passed under section 143(3) of the Act read with section 92CA(3) of the Act that as in preceding assessment years, the guarantee commission at the rate of 3% is computed as Arm's Length guarantee fee commission. The assessee carried the matter to DRP and DRP after considering the submissions of the assessee noted that in an international transaction between unrelated parties' guarantee would not have been given without charging commission considering the credit worthiness of the parties, margins, security etc. Therefore, the DRP after considering the facts and circumstances of the case and submissions of the assessee re-computed the guarantee commission charged by TPO from 3% to 1.5%. Aggrieved both, assessee as well as Revenue came in appeal before Tribunal.
4. At the outset, the learned Counsel for the assessee stated that the Tribunal in assessee's own case in ITA No. 3406/Mum/2014 for AY 2008- 09, has considered the issue and restricted the guarantee commission rate on 0.50% following the decision of Hon'ble Bombay High Court in the case of CIT vs. Everest Kento Cylinders Ltd. (2015) 378 ITR 57 (Bom) by observing in Para 8.5 and 8.6 as under: -
"8.5 We have carefully considered the rival submissions. As observed by us earlier, the limited issue before us relates to the efficacy of the arm's length rate of 3% determined by 5 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 income tax authorities on account of fee/commission for corporate guarantee provided on behalf of the associated enterprise. Factually speaking, in the present case, assessee company has issued corporate guarantee on behalf of its associated enterprise for the loan facility availed by it from the bank. The determination of arm's length commission/corporate guarantee fee @ 3% by the Transfer Pricing Officer is based on the fees charged by the banks. Quite clearly, the aforesaid approach of the income-tax authorities is inconsistent with the judgment of the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd.(supra). As per Hon'ble Bombay High Court, the instance of a commercial bank issuing bank guarantee is incomparable to a situation where a corporate entity issues guarantee to the bank that if the subsidiary/associated enterprise does not repay a loan, the same would be made good by such corporate entity. Therefore, following the ratio of the judgment of the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd.(supra), the rate of 3% deserves to be rejected. So however, the addition is required to be sustained on the basis of an arm's length rate and in this regard a reference has also been made to the decision of the Mumbai Tribunal in the case Thomas Cook (India) Limited in 6 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 ITA No.859/Mum/2014 dated 29/04/2016, wherein a rate of 0.5% has been adopted for the purposes of determining the arm's length rate of corporate guarantee/fee. The Ld. Representative for the assessee has canvassed for adoption of a lower rate, whereas the Ld. Departmental Representative appearing for the Revenue has referred to the alternate plea of the assessee itself, which was raised before the CIT(A) that such rate be taken as 1%. In our view, the arguments of the Ld. Departmental Representative appearing for the Revenue with reference to the rate of 1% canvassed by the assessee before the CIT(A) cannot be accepted because such a rate was canvassed based on the rate charged by the Barclays Bank from the associated enterprise. Ostensibly, the adoption of such a rate would militate against the ratio laid down by the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd.(supra). At the same time, the plea of the Ld. Representative for the assessee that a rate lower than 0.5% be adopted is also not justified. In sum and substance, the plea of the assessee is that the loan raised by the associated enterprise has adequate primary security in the shape of the net worth of the associated enterprise itself and, therefore, the risk of devolvement of the guarantee given by the assessee is minimal. In our 7 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 considered opinion, the said feature cannot be considered as a peculiar situation so as to warrant a rate lower than 0.50%, which has been approved in a number of decisions of the Mumbai bench of Tribunal, namely:-
(1) M/s.Everest Kanto Cylinders Ltd.
vs. DCIT,ITA No.542/Mum/2012 order dated 23/11/2012. (2) Aditya Birla Minacs Worldwide Ltd. vs. DCIT, 56 taxman.com 317 (Mum-Trib) (3) M/s.
Godrej Household Products Ltd. vs. Addl. CIT, ITA No.7369/Mum/2010 order dated 22/11/2013 (4) ACIT vs. Nimbus Communications Ltd., ITA No.3664/Mum/2010 dated 12/06/2013.
8.6 Therefore, considering the entirety of facts and circumstances, we are inclined to uphold the rate of 0.5% for the purposes of determining arm's length rate of the corporate guarantee commission/fee. Thus, on this aspect, we set-aside the order of CIT(A) and direct the Assessing Officer to recompute the addition as per our aforesaid direction. Thus, on this aspect assessee partly succeeds."
5. We find that this issue is squarely covered in assessee's own case by Tribunal's decision, respectfully following the same, we direct the AO to restrict the transfer pricing adjustment at the rate of 0.50% on guarantee commission. Accordingly, this issue of the Revenue's appeal is dismissed and that of the assessee is partly allowed.
8ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5
6. The next common issue in these cross appeals for AY 2010-11 in ITA No. 774 & 1063/Mum/2015 for assessee and Revenue respectively, is as regards to the Transfer Pricing adjustment made by Revenue on account of Guarantee fee. For this, both assessee and Revenue has raised following grounds: -
"Assessee's Ground for AY 2010-11 Ground 1-Transfer Pricing Adjustment-
Guarantee fees
1.1 The Ld DRP/ AO/ TPO erred in law
and facts in making addition of Rs
1,44,52,500/- to income on account of alleged difference in arm's length fees of corporate guarantee given to bank for loan availed by Associated Enterprises The reasons given by them for doing so are wrong, contrary to the facts of the case and against provisions of law.
1.2 The DRP/ AO/TPO ought to have accepted that as there is no cost involved to assessee for giving corporate guarantee and hence it does not fall within the ambit of Transfer Pricing provisions.
1.3 Without prejudice to The above. The DRP/TPO/AO erred in law and facts in making addition on outstanding opening balance as on 01.04.2009 for the entire 12 months instead of on average outstanding during the year 9 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 Revenue's Ground for AY 2010-11
1. Whether on the facts and circumstances of the case and in law, the Hon'ble DRIP-11, Mumbai is justified in deleting the addition made to the tune of Rs. 1,25,00,000/- on account of guarantee fee by holding that no loan had been availed by the AE."
7. We have already adjudicated the issue of Transfer Pricing adjustment on account of guarantee fee for AY 2009-10 in above cited para vide Para nos. 2 to 5 of this order. The learned counsel for the assessee as well as learned CIT DR both conceded that the facts and circumstances are identical in this year also as is in AY 2009-10. Hence, the same is to be followed in this year also. This ground of assessee as well as Revenue is decided accordingly.
8. The next issue in assessee's appeal for AY 2009-10 in ITA No. 1912/Mum/2014 is as regards to the transfer price adjustment made by AO and affirmed by DRP on account of comfort fee. For this assessee has raised the following ground No. 2: -
Ground 2 - Transfer Pricing Adjustment - Comfort Fees 2.1 The Ld. DRP/AO/TPO erred in law and facts in making addition of Rs. 76,30,500/- to income on account of difference in arms length fee chargeable for letter of comfort issued by assessee to bank for borrowings by Associated Enterprises (AE). The reasons given by them for doing so are wrong, 10 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 contrary to the facts of the case and against provisions of law.
2.2 The Ld. DRP/AO/TPO erred in law and facts in making addition of Rs. 76,30,500/- on account of difference in ALP which was made relying TPO order of earlier year, whereas in fact, there was no such difference computed in earlier year.
2.3 The Ld. DRP/AO/TPO ought to have appreciated that comfort provided is neither in the nature of guarantee nor cost or liability to the assessee for giving letter of comfort nor there is benefit to the AE by the comfort hence it does not fall within the ambit of Transfer Pricing provisions and such addition is required to be deleted.
2.4 Without prejudice to above, the Ld. DRPIAO erred in law and facts in upholding the adjustment © 0.6% of loan balance of AE even when TPO determined the adjustment on the basis of 20% of guarantee fees (ground 1 above) which works out to Rs.
45,75,200/- only. The reasons given by them for doing so are wrong, contrary to the facts of the case and against provisions of law."
9. Brief facts are that the assessee executed a letter of comfort with Barclays Bank Plc for a credit facility of USD 20 million extended to Asia Today Ltd. a hundred percent subsidiary of the assessee company and an owner of TV channels in UK/USA etc. runs independently in these 11 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 countries through its subsidiaries. The AO / TPO passed the order by noting the findings given by TPO in the preceding assessment years computed the comfort fee at 0.6% for computing the arm's length price of comfort fee. The AO computed the comfort fee calculated at the rate of 0.6% per annum on the amount based on the number of days, as the comfort letter was outstanding during the financial year 2008-09 relevant to this FY 2009-10. Accordingly, the AO computed the arm length on account of comfort fee at Rs. 76,30,500/-. Aggrieved, assessee carried the matter before DRP and DRP has confirmed the action of the AO /TPO by noting that without the letter of comfort fee bank would not have provided loan to its AE's and there is an undertaking with assessee through which would keep watch on operation of the AE, so that it remains viable and loan would ultimately be repaid. Accordingly, the DRP noted that charging of fee by the TPO is in order to arrive at arm's length value of these transactions and hence, rate of 0.6% is appropriate and this objection was dismissed. Aggrieved now assessee is in appeal before Tribunal.
10. Before us, the learned Counsel for the assessee stated the facts that Asia Today Limited a hundred percent subsidiary of the assessee, was sanctioned loan of USD 25 million in 2005 and assessee has given a letter of comfort for USD 25 million to Barclays Bank Plc for the loan taken by the AE namely Asia Today Limited for outstanding demand balance of USD 2,34,17,226/- as on 31.03.2009. The learned Counsel for the assessee stated that the assessee has not charged any commission as it is neither in the nature of guarantee nor the assessee has running any risk or liability nor the AE benefited with this comfort guarantee to the bank as referred in this sanction letter. The learned Counsel stated that it was not required/represented this guarantee commission in form No. 3CEB being transfer pricing report. The learned Counsel for the assessee 12 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 further contended that the letter of comfort provided to its AE for the loan taken should be computed at 'nil' and adjustment made on this account is unnecessary due to the following reasons: -
(i) The comfort letter does not create any financial obligation, guarantee, liability, indemnity etc. In fact, the comfort letter acknowledges the approval of subsidiary company's attempt for financial assistance taken/to be taken by the AE from the bank.
(ii) The creditworthiness/ solvency of the AE was very high as it had net worth of USD 194 Million and profit of USD 38 million for the year 31.03.2009 and credit rating of AA+ which is considered to be high degree of safety regarding timely 'servicing of financial obligations. The AE has provided security of USD 315 million of assets for the loan of USD 25 Mn + 30 Mn hence it has provided sufficient security with huge margin, whereby even if comfort provided is construed as guarantee, the assessee carry no risk.
(iii)The assessee is holding Rs. 870 million (approx. USD 20 Mn) interest free of the AE to be remitted/ payable which can be considered as counter guarantee for any contingency if comfort is constructed as guarantee."
On the other hand, the learned CIT DR heavily relied on the order of DRP and that of the TPO.
13ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5
11. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the Asia Today Limited obtained an overdraft facility to USD 25 million from Barclays Bank Plc. The amount outstanding as on 31.03.2009 is USD 122.16 crores. In this respect the assessee has provided comfort letter for giving/ following overdraft facility by the AE. The main contention of the assessee is that the letter of comfort does not constitute an indemnity or guarantee and no liability falls upon assessee on default by Asia Today Limited and this is evident from the letter of comfort given by assessee to Barclays Bank Plc, which is enclosed at page 141 of the assessee's paper book dated 17.08.2005. It is also a fact that auditors have not shown the bank overdraft taken by Asia Today Limited as a contingent liability. Further, to substantiate the fact that no liability falls upon the assessee on default by ATL and contingent liability, schedule 15 of the assessee's paper book show a maximum contingent liability of Rs. 156.50 crores which refers to USD 13 million facility, whose outstanding as on 01.04.2008 is amount to Rs. 51.93 crores and outstanding as on 31.03.2009 is Rs. 100.13 crores. The learned Counsel for the assessee before us made alternative arrangement that the adjustment made by TPO is very high being 0.65% (20% of 3% as taken by the TPO for loan facility) on entire sanctioned facility of USD 25 million, which is not warranted. We have considered the alternative submissions of the assessee and also noted from the fact that the letter of comfort guaranteed in favour of Barclays Bank Plc is not only by assessee but also by Zee Multimedia Worldwide Limited which is evident from the details filed by the assessee in assessee's paper book at page 138, wherein the paragraph relating to security provides the same. In such circumstances, we are of the view that TP adjustment if any should be made or be restricted at 0.1% and that to also at an average of the facility 14 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 utilized during the relevant previous year of the respective parties i.e. the assessee as well as Zee Multimedia Worldwide Limited. In term of the above, this ground of assessee's appeal is partly allowed.
12. The next issue in assessee's appeal for AY 2010-11 in ITA No. 774/Mum/2015, is as regards to the transfer price adjustment made by AO and affirmed by DRP on account of comfort fee. For this assessee has raised the following ground No. 2: -
"Ground 2 - Transfer Pricing Adjustment - Comfort Fees 2.1 The Ld. DRP/TPO/AO erred in taw and facts in making addition of Rs. 75,00,000/- to income on account of alleged difference in arm's length fee for letter of comfort provided to bank for borrowings by Associated Enterprises. The reasons given by them for doing so are wrong, contrary to the facts of the case and against provisions of law.
2.2 The Ld. DRP/AO/TPO ought to have appreciated that comfort provided is neither in The nature of guarantee nor There is cost or liability to the assessee for giving letter of comfort nor There is benefit to the AE by the comfort hence it does not fail within the ambit of Transfer Pricing provisions and such addition is required to be deleted.
2.3 Without prejudice to the above, The DRP/TPO/AO erred in law and facts in making addition on sanctioned loan for the 15 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 entire 12 months instead of on average outstanding during the year."
13. We have already adjudicated the issues of comfort fee for AY 2009-10 in above cited para vide Para nos. 8 to 11 of this order. The learned counsel for the assessee as well as learned CIT DR both conceded that the facts and circumstances are identical in this year also as is in AY 2009-10. Hence, the same is to be followed in this year also. This ground of assessee is decided accordingly.
14. The next common issue in these cross appeals for AY 2009-10, in ITA No. 1331 & 1912/Mum/2014 for Revenue and assessee's appeal respectively, is as regards to the order of CIT(A) restricting the disallowance made by AO of expenses relatable to exempt income under section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 (hereinafter the 'Rules'). For this assessee has raised the ground regarding disallowance of expenses at 30,06,985/-. For this both Revenue as well as assessee has raised the following grounds No. 3: -
"Ground in Assessee's appeal Ground 3 - Disallowance u/s 14A r.w.r. 8D 3.1 The Ld. DRP/ AO erred in law and facts in disallowing Rs. 30,06,985/- out of expenses u/s 14 A of the Act. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law.
3.2 The Ld. DRP/AO erred in law and facts in disallowing expenses, calculating as provided u/r 8D, without proving any nexus or relation 16 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 to/for investments or none of the expenses are proved to have been incurred for other than business purposes AO."
Ground in Revenue's appeal
3. On the facts and circumstances of the case and in law, the Ld. DRIP was not justified in deleting the disallowance of Rs.56,32,613/- u/s. 14A in respect of the interest."
15. Briefly stated facts are that the AO noted in his assessment order that the assessee has earned dividend income of Rs. 1.77 crores and claimed the same as exempt under section 10(34) of the Act. The assessee has not offered any disallowance relatable to this exempt income under section 14Aof the Act read with Rule 8D of the Rules. The AO worked out the disallowance under section 14A of the Act read with Rule 8D of the Rules of expense relatable to exempt income being interest at Rs. 56,32,613/- and administrative expenses at 30,06,985/- under Rule 8D(2)(ii) and under Rule 8D(2)(iii) respectively. Aggrieved, assessee filed objections before DRP. Before DRP, assessee contended that the investment made during the year was only Rs. 14.5 lakhs out of which 11.50 lakhs was in Zee holding a foreign subsidiary. The balance of Rs. 3 lacs is out of on accruals. The assessee contended that it's profit is to the tune of Rs. 388 crores during the year and further interest free funds available with the assessee was to the tune of Rs. 1138 crores as against investment in the instruments giving exempt income is only Rs. 60.15 crores. The assessee before DRP relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). It was also contended before DRP by assessee that the 17 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 interest paid of Rs. 27.24 crores on this loans, if excluded from the interest paid as provided under Rule 8D(2)(ii)of the Rules, there remains no interest which can be disallowed. The DRP after considering the submissions of the assessee deleted this disallowance. Aggrieved, Revenue is in appeal. On the other hand, DRP confirmed the disallowance of administrative expenses of Rs. 30,06,985/- for the reason that the investment cannot be made without help of financial advisers and directors and for that purpose, according to DRP, some administrative cost would be incurred for maintenance of huge investment portfolio.
16. Before us, the learned Counsel for the assessee stated that the issue is squarely covered by Tribunal's decision in assessee's own case for earlier AY 2008-09 in ITA No. 3406/Mum/2014, wherein Tribunal vide Para 9.2 has confirmed the action of the DRP and dismiss the issue of Revenue's appeal by observing as under: -
"9.2 We have carefully considered the rival submissions. A perusal of the assessment order reveals that the pertinent plea of the assessee was that no interest expenditure is liable to be disallowed under section 14A of the Act since assessee had sufficient owned funds to cover the investments and for this proposition reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra). The submissions of the assessee, which have been reproduced in the assessment order, also clearly establish that the owned interest-free funds of the assessee comprised of Share Capital and 18 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 Reserves & Surplus amounting to Rs.2128.24 crores, whereas the investments are to the tune of Rs.60.12 crores. Even in the course of hearing before us, the Ld. Representative for the assessee has referred to the Paper Book to justify the aforesaid figures. There is no repudiation of the said factual matrix either before us or in the assessment proceedings and, therefore, following the ratio of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra) it has to be presumed that the investments are out of own interest free funds. The said proposition is also applicable in the context of section 14A of the Act as held by the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT, 366 ITR 505(Bom). Therefore, considering the aforesaid fact-situation, we find no reason to uphold the disallowance made under section 14A of the Act on account of interest expenditure."
17. When this was pointed out to the learned CIT DR, she only relied on the order of AO/ TPO. As the issue is squarely covered in favour of assessee by Tribunal's decision in assessee's own case for AY 2008-09, as there is no change of facts and circumstances, respectfully following the same, we affirm the order of DRP deleting the addition.
18. As regards to the disallowance affirmed by DRP on administrative expenses relatable to exempt income, we find that the Tribunal in earlier 19 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 year also affirmed the addition and confirmed the order of DRP by observing in Para 9.3 as under: -
"9.3 So far as the disallowance out of overhead expenses is concerned, the Ld. Representative for the assessee pointed out that the disallowance has been calculated by applying Rule 8D(2)(iii) of the Rules and that there was no justification for the same. It was also pointed out that in the assessment year 2007-08, 5% of the dividend income was disallowed on account of the overhead expenses incurred towards administrative expenses. On this aspect, we find that the Assessing Officer has adequately brought out that during the year assessee has undertaken activities, which involve taking investment decisions and, therefore, some amount of management/administrative costs are liable to be attributed to such activity. Considering the entirety of circumstances, in our view, in so far as the administrative expenses is concerned, the application of Rule 8D(2)(iii) of the Rules to compute disallowance under section 14A of the Act is quite justified. Thus, on this aspect, we hereby affirm the stand of the Revenue."
19. When this was pointed to the learned Counsel, he only made request that the AO can be directed to compute the disallowance only on the investment giving rise to exempt income in view of the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investments 20 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB). When this was pointed to the learned CIT DR, she also agreed that the matter can be remanded back to the file of the AO for verification.
20. After hearing rival contentions and going through the facts and circumstances of the case, we direct the AO to recompute the disallowance by taking only investments giving rise to exempt income in view of the decision of Vireet Investments (P.) Ltd. (supra). Accordingly, this issue is set aside and partly allowed in favour of assessee.
21. The next common issue for AY 2010-11 in ITA No. 774 & 1063/Mum/2015 for assessee and Revenue respectively, is as regards to the order of CIT(A) restricting the disallowance made by AO of expenses relatable to exempt income under section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 (hereinafter the 'Rules'). For this assessee and Revenue has raised the following grounds: -
"Assessee's ground Ground 3 - Disallowance u/s 14A r.w.r. 8D 3.1 The Ld. DRP/AO erred in law and facts in disallowing Rs. 25,65,840/- out of expenses u/s 14 A of the Act. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law.
3.2 The Ld. DRP/AO erred in law and facts in disallowing expenses mechanically calculated as provided u/r 8D, when none of the expenses are proved to have been in- curred in relation to/for investments and none 21 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 of the expenses are proved to have been incurred for other than business purposes by the Ld. AO.
Revenue's Ground
2. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP-11, Mumbai is justified in restricting the disallowance u/s.14A to 0.5% of the average investment and deleting the disallowance out of interest claimed by the assessee."
22. We have already adjudicated the issue for AY 2009-10 in above cited para vide Para nos. 14 to 20 of this order. The learned counsel for the assessee as well as learned CIT DR both conceded that the facts and circumstances are identical in this year also as is in AY 2009-10. Hence, the same is to be followed in this year also. This ground of assessee as well as Revenue is decided accordingly.
23. The next issue in assessee's appeal for AY 2009-10 in ITA No. 1912/Mum/2014, is as regards to the addition on account of addition on account of loss of interest rate swap loss being treated as speculative loss. For this assessee has raised the following ground No. 4: -
"Ground 4 - Interest rate swap loss treated as speculation loss 4.1 The Ld. DRP/ AO erred in law and facts in disallowing of crystallized & realised foreign exchange loss of Rs. 44,35,19,320/-, on account of structured interest rate foreign exchange swap transactions entered by the assessee in the normal course of business by 22 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 considering the same as speculation loss u/s 43 (5) of the Act. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law.
4.2 The Ld. DRP/AO ought to have allowed the realised interest rate swap loss in the normal course of business being expenditure of revenue in nature incurred for the business of the company and allowable u/s 36 /37 of the Act."
24. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO has proposed the disallowance at Rs. 44,35,19,320/- and the assessee carried the matter before DRP who directed the AO to disallow and added the same to the total income of the assessee. The learned Counsel for the assessee before us, stated that this ground of appeal is covered by Tribunals decision in assessee's own case for earlier AY 2008-09 in ITA No. 3406/Mum/2014, wherein Tribunal has set aside the matter to the file of the AO for denovo consideration. The learned Counsel for the assessee pointed out to Tribunals order for AY 2008-09 in assessee's own case, whereby the Tribunal reads as under: -
"11.6 Section 43(5) of the Act defines the expression speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Quite clearly, the short controversy 23 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 before us is as to whether interest rate swap is liable to be understood as a 'commodity' for the purposes of section 43(5) of the Act. To put it differently, in the present case, what is of relevance is to examine whether the transaction in interest rate swap entered by the assessee with the Standard Charted Bank constitutes a transaction for the purchase or sale of any commodity within the meaning of section 43(5) of the Act. In this context, reference may be made to the judgment of the Hon'ble Bombay High Court in the case of Bharat R. Ruia(HUF)(supra), which was a case where assessee had entered into futures contract for purchase of shares of certain companies at specified future date and at a specified price, which were to be settled in cash without actual delivery of the shares. The issue before the Hon'ble Bombay High Court was whether such a contract constituted a contract for the purchase of commodity within the meaning of section 43(5) of the Act. As per the Hon'ble Bombay High Court the future contract being articles of trade and commerce, which are legally permitted to be traded on the stock exchange would be a transaction in a commodity as contemplated under section 43(5) of the Act. Therefore, the loss incurred in such a transaction was held to be falling for consideration as a speculative transaction within the meaning of section 43(5) of the 24 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 Act. In coming to such conclusion, the Hon'ble High Court noted that the transaction involved trading in underlying security/derivates, which was tradable on the stock exchange. Thus, coming back to the instant case, in order to treat the impugned interest rate swap arrangement to be 'speculative' in terms of section 43(5) of the Act, the Revenue would have to demonstrate that an interest rate swap arrangement was a tradable commodity. This crucial aspect has not been addressed by the lower authorities and infact the assessee has been consistently arguing that instant arrangement do not qualify to be a commodity for the purposes of section 43(5) of the Act. No doubt, before us the Ld. CIT-DR has attempted to show that interest rate swap arrangements are akin to. tradable derivates, but no such aspect is emerging from the respective orders of the lower authorities. Infact, the order of the Assessing Officer is quite inconsistent because at one place he says that "the present transactions are not derivative transactions", while at other place he says that the "transaction of interest rate swap is a derivative falling within the meaning ......". Thus, in our view, the said issue requires to be revisited by the Assessing Officer to bring out why the impugned transaction falls for consideration as a speculative transaction for the purposes of 25 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 section 43(5) of the Act so that the assessee can meet the point in an appropriate manner. Therefore, we setaside the order of the CIT(A) on this aspect and restore the issue back to the file of the Assessing Officer for a de novo consideration. Needless to say, the assessee-company shall be allowed an appropriate opportunity of being heard and only thereafter the Assessing Officer shall pass an order afresh on this limited aspect as per law. Thus, on this aspect assessee succeeds for statistical purposes."
25. When these facts were confronted to the learned CIT DR, she fairly conceded that the matter can be remitted back to the file of the AO for denovo consideration of 43(5) of the Act. In view of the above facts, we remit the matter back to the file of the AO who will decide in term of the Tribunal's decision for AY 2008-09. Accordingly, this issue of assessee's appeal is set aside and allowed for statistical purposes.
26. The next issue in assessee's appeal for AY 2010-11 in ITA No. 774/Mum/2015, is as regards to the addition on account of addition on account of loss of interest rate swap loss being treated as speculative loss. For this assessee has raised the following ground: -
"Ground 4 - Interest rate swap loss treated as speculation loss 4.1 The Ld. DRP/AO erred in law and facts in disallowing the crystallized & realised loss of Rs. 2,78,20,170/-, suffered on account of structured interest rate swap in foreign exchange entered by the assessee in the 26 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 normal course of business considering the same as falling within the definition of commodity and treating the said loss as speculation loss u/s 43 (5) of the Act. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law.
4.2 The Ld. DRP/AO ought to have allowed the realised interest rate swap loss in the normal course of business being expenditure of revenue in nature incurred for the business of the company and allowable u/s 36 /37 of the Act."
27. We have already adjudicated the issue for AY 2009-10 in above cited para vide Para nos. 23-25 of this order. The learned counsel for the assessee as well as learned CIT DR both conceded that the facts and circumstances are identical in this year also as is in AY 2009-10. Hence, the same is to be followed in this year also. This ground of assessee is decided accordingly.
28. The next issue in assessee's appeal for AY 2009-10 in ITA No. 1912/Mum/2014, is against the order of DRP confirming the action of the AO/TPO in disallowance of premium on redemption of FCCB. For this assessee has raised following ground No. 5 as under: -
"Ground 5- Premium on Redemption of FCCB 5.1 The Ld. DRP/AO erred in law and facts in disallowing of premium on redemption of FCCB of Rs.39,80,700/-, on 27 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 the ground that FCCB are not redeemed during the year. The reasons given by them for doing so are wrong, contrary to the facts of the -ae and against the provisions of law.
5.2 Without prejudice to above, the Ld. AO be directed to allow the premium as expense in the year of redemption of FCCB as it is not claimed in the year of redemption."
29. At the outset, the learned Counsel for the assessee conceded that the assessee is not interested in prosecuting this ground and hence, the same is dismissed as not pressed.
30. The next issue in this appeal of Revenue for AY 2009-10 in ITA No 1331/Mum/2014 is against the order of DRP, the disallowance made by AO/TPO on account of channel placement fee expenses as TDS was not deducted under section 194J of the Act. For this Revenue has raised the following ground No. 1: -
"1. On the facts and circumstances of the case and in law, the Ld. DRP was not justified in deleting the disallowance of Rs.94,37,99,537/- made on account of channel placement fees u/s.40(a)(ia) as TDS was not deducted u/s.194J.
31. Briefly stated facts are that during the year under consideration, the assessee paid carriage fee of Rs. 94,37,99,537/-. The AO from the details of expenses noted that the assessee has deducted TDS under section 194C of the Act for such fees at the rate of 2%, whereas it should have deducted TDS under section 194J of the Act at the rate of 10%. As there was short deduction of TDS on channel / placement/ carriage fee, 28 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 according to AO, this channel /placement/ carriage fee falls under explanation 6 to section 9(1)(vi) of the Act and accordingly tax should be deducted under section 194J of the Act. Aggrieved assessee carried the matter before DRP. The DRP accepted the objection of the assessee and stated that the assessee has deducted TDS under section 94C correctly and no disallowance under section 40a(ia) of the Act is warranted. The DRP observed in Para 8.4 as under: -
"8.4 Direction of DRP: the arguments are considered, the of AO and material on record perused. The assessee paid carriage fees to MSO/ Cable operator to impose its viewership. The signals of broadcasters like assessee are distributed through cable operators/ MS on DTH service providers. In India where cable operators work on analog system which has only limited capacity of 80/100 channels. But there are about 400 channels in India. Channels shown on high frequency get better viewership on account of good picture and sound quality. Therefore to get better viewership and in turn better advertisement reserve carriage fees is paid by broadcasters to put their channels on preferred high frequencies based on agreement. The AO has elaborated on the broadcasting process which includes satellite owners/down linking agent/aggregators and then MSO/LSOS & DTH providers. AO thus held that placing a channel on a particular frequency is an integral part of Broadcasting process. Neither broadcaster nor MSO can 29 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 independently place a channel without intervention of other involved in the process. The AO has held that this process would fall within ambit of Royalty as per Explanation 2 to 9(l)vi and Explanation 6 which states that 'process' includes Transmission by Satellite (including uplinking, amplication conversion for down linking of any signal) cable, optic fibre or any other similar technology whether or not such process is secret. This Panel is of the view that the payment of carriage fees is not tantamount to payment of fee for transmission purposes which includes hiring of transponders, uplinking, down linking etc. to pay the assesses to get channel signal from the assessee. Carriage fees are given to place the channel in preferred frequencies. Hence carriage fees does not come within definition of 'Royalty' and therefore provision of Section 194J are not applicable. As assessee has deducted tax u/s. 194C disallowance u/s 40(a)(ia) is not warranted. This objection is allowed."
Aggrieved, Revenue came in appeal before Tribunal.
32. The learned CIT DR relied on the order of AO. On the other hand, the learned Counsel for the assessee stated that the issue is squarely covered by the Tribunal's decision in assessee's own case for AY 2006- 07 to 2010-11 in ITA Nos. 3931 to 3935/Mum/2013 wherein Tribunal decided the issue vide Paras 11 & 12 read as under: -
30ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 "11. We have heard the arguments and have pursued the orders of both the Revenue authorities and we find that the Commissioner of Income-tax (Appeals) had correctly applied the provisions of law, i.e., in section 194C, "work includes broadcasting and telecasting including production of programmes". We are also helped by the order of the coordinate Bench of the Income-
tax Appellate Tribunal, Mumbai in the case of Asstt. CIT (TDS) v. UTV Entertainment Television Ltd. [I. T. Appeal No. 2699 (Mum) of 2012], wherein the Income-tax Appellate Tribunal held that while making the payment of carriage fee to cable operators, TDS has to be deducted under section 194C.
12. In such a circumstance, we endorse the finding of the Commissioner of Income-tax (Appeals) and respectfully following the order of the Income-tax Appellate Tribunal in the case of UTV Entertainment Television Ltd. (supra), we sustain the order of the Commissioner of Income-tax (Appeals) and reject the grounds of appeal raised by the Department."
33. It was contended by the learned Counsel for the assessee that even Hon'ble Bombay High Court in assessee's own case in ITA Nos. 117, 1107, 1174 of 2015 and 126 of 2016 vide order dated 28.02.2018, wherein the question referred was as under: -
31ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 "Whether in the facts and circumstances of the case and in law, the Tribunal is justified in holding that the placement fees / carriage fees paid to Cable Operators / MSO / DTH Operators are payments for work contract covered under section 194C and not fees for technical services under section 194J, without appreciating that the services received by assessee are technical and managerial in nature?"
And the same was answered by Hon'ble High Court as under: -
"(a) Mr. Suresh Kumar, learned Counsel for the appellant - Revenue very fairly states that the impugned order of the Tribunal while dismissing the Revenue's appeal placed reliance upon the decision of its co-ordinate bench in ACIT v. UTV Entertainment Television Ltd.
[IT Appeal No.2699 (Mum.) of 2012, dated 29-10-2014] to hold in favour of the respondent assessee. The Revenue being aggrieved by the order of the Tribunal in UTV Entertainment Television Ltd. (supra) had preferred an appeal to this Court being CIT v. UTV Entertainment Television Ltd. [2017] 88 taxmann.com 214/399 ITR 443 (Bom.) and by its order the appeal of the Revenue was dismissed.
(b) In the above view, the question (i) as
proposed does not give rise to any
32
ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4
77 4 & 10 6 3/ Mu m/ 2 01 5
substantial question of law. Thus,
not entertained."
34. As the issue has is covered by the Hon'ble Bombay High Court in assessee's own case, respectfully following the same, we are of the view that the assessee has rightly deducted TDS u/s 194C of the Act and for that purpose no disallowance can be attributed by invoking the provisions of section 40a(ia) of the Act as there is no case for deduction of TDS under section 194J of the Act. Respectfully following the order of DRP deleting the disallowance, this issue of Revenue's appeal is dismissed.
35. The next issue in assessee for AY 2009-10 in ITA No. 1912/Mum/2014, is as regards to the order of DRP confirming the disallowance of deduction under section 40(a)(ia) of the Act on account of agency commission i.e. trade discount allowed to the customers in the invoices treated as commission liable to TDS under section 194H of the Act. For this assessee has raised the following ground No. 6: -
"Ground 6--Disallowance u/s 40(a)(ia) -- Agency Commission-
6.1 The Ld. DRP/ AO erred in law and facts in treating the Trade discount allowed to the customer in the invoice as commission liable to TDs u/s 194H of the Act and disallowing Rs.
130,61,98,104/- u/s 40(a)(ia) of the Act for non-deduction of TDS even there was no such claim of expenses by the assessee. The reasons given by them for doing so are wrong, contrary to the 33 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 facts of the case and against the provision of law.
6.2 The Ld. DRP/ AO ought to have appreciated that ₹ 130,61,98,104/- is discount allowed in the invoice to the customer (Advertiser or Ad agency) in accordance with contract & the prevailing business practice is not liable to TDS being trade discount.
6.3 The Ld. DRP/AO failed to consider various contentions of the assessee i.e. relationship between the assessee and the customer advertisers/ ad agencies is on principal to principal basis. The assessee neither appointed any agency to sale Ad space / Airtime nor Ad agency rendered any service to the assessee, the assessee neither debits its books of account or claimed such discount as expenses nor credited or paid any amount to account of the advertisers or ad agencies hence Section 194H/40 (a) (ia) of the Act cannot be applied.
6.4 The Ld. DRP/AO failed to properly construe the transaction and business process and wrongly concluded that commission is payable by the assessee to the Ad agency and presumed that commission is paid by 34 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 adjustment from Ad revenue while the assessee's invoice to advertisers/ad agencies is net of discount and the net amount is its revenue accounted and received as revenue.
6.5 The Ld. DRP/AO failed to consider that the Ad agency generally negotiates & buys media space on its own account to service his group of customers and accordingly appellant billed Ad agency on telecast of Ad and in turn Ad agency sold & billed to the advertiser at the same price & and charged its commission, service tax thereby the Ad bill including his profit / commission has suffered TDS from advertiser and there is no non-
compliance of provision of Chapter XVIIB of the Act by the assessee.
6.6 The Ld. DRP erred in law and facts in upholding disallowance u/s 40(a)(ia) of the Act relying on case law, facts of which are entirely different from the facts of the assessee's case.
The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provision of law."
36. Briefly stated facts are that the assessee is a broadcaster and operator of TV Channels. The assessee claimed before us that its main 35 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 income is from advertisement on TV Channels The advertisements slots are booked by ad agencies working for advertisers On release and telecast of advertisement on channels, the assessee raises invoice on ad agency on principal lo principal basis allowing a discount (say 15%) in the invoices. The assessee recognizes 85% as ad revenue i.e. net of discount. In these circumstances, the AO treated the discount of 15% to be in the nature of commission. It was claimed by assessee that it neither appoints any agency to sale ad space/ air time nor ad agency renders any service to the assessee. Accordingly, in its accounts the assessee neither debits for expenses by way of discount nor credit account of the advertisers or ad agencies. The assessee does not may any payment to advisers or ad agencies, in fact the assessee receives advertising revenue from them net of deductions / discounts. The commission assumed by AO / TPO/ DRP does not come under the definition of commission or brokerage given under section 194H of the Act. The assessee claimed that the provisions of section 94H are not applicable in the case of the assessee and at the same time, the advertisers or ad agencies had not credited any income receivable from the assessee nor received from assessee. But, neither the AO nor DRP accepted the plea of the assessee and finally rejected the objections of the assessee by observing in Para 9.3 as under: -
"9.3 Directions of DRP: We have carefully examined the issue. Assessee during the year has received net advertising revenue of ₹ 7,85,9146,583/- after reducing amounts retained by advertising agencies to the tune of ₹ 130,61,98,104/-. The assessee contends that amount retained is in the nature of a discount. The advertising agency receives 36 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 payment after deduction of TDs under section 194C from the advertiser. It is argued that the relationship between broadcaster and advertising agency is that of principal to principal and hence section 194H is not applicable. AO had observed the discount is given to so that buyer is induced to place an order and subsequently to make payment in time. Discount is not given against any services provided by a middleman. In the case of assessee, ad agency performs a service by mobilizing advertisement to be broadcast by the assessee. Circular 618/1991 clarified that even if commission is retained by the agent/consignee without actual payment by consignor/principal it is constructive payment subject to TDS u/s 194H. AO has also referred to answer to question No.27 in Circular No.715/1993 which stated that 194J is applicable to advertising agency commission. As the assessee has failed to deduct tax on this constructive payment the expenses are disallowable u/s 40(a)(ia). In CIT vs Director Prasar Bharti Doordarshan Kendra (325 ITR 205 Ker) it was held that relationship between broadcaster and advertising agency was principal to agent and amount allowed to be retained by agent was commission and broadcaster was liable to deduction tax u/s 194H. In view of the above this objection is not allowed."37
ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 Aggrieved, assessee preferred the appeal before Tribunal.
37. Before us, the learned Counsel for the assessee argued that the assessee's issue is covered by the decision of the Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd Vs. DCIT (2012) (345 ITR 288) (ALL), wherein it has been held that trade discount given by newspaper agencies to advertising agencies working for advertisers is not in the nature of 'commission' as per the provisions of Explanation (3) to section 194H inviting TDS obligations. The said decision also distinguished the decision of Hon'ble Kerela High Court in the case of CIT Vs. Director, Prasar Bharti (325 ITR 205). The learned Counsel for the assessee also referred to the CBDT circular no. 5 of 2016 dated 19-02- 2016 and Press Release dated 08-03-2016, wherein it has been clarified that the similar issues examined by the Hon'ble Allahabad High Court in Jagran Prakashan (supra) and by the Delhi High Court in Living Media Limited and it was held in both cases that the relationship between media company and advertising agency is that of 'principal to principal and, therefore, not liable for TDS under section 194H of the Act. The learned Counsel further referred that even the SLP filed by the Department in the matter of Living Media Ltd. and Jagran Prakashan Ltd have been dismissed by the Hon'ble Supreme Court vide order dated 11-12-2009 order dated 05.05.2014 respectively. It was also clarified that ratio of the aforesaid decisions in the context of print media is equally applicable 10 electronic media/ television advertising as the broad nature of activities involved is similar. The learned Counsel also argued that on the principle of consistency also this issue has been accepted by the Department right from AYs 2006-07 to AY 2008-09 and AY 2012-13 to AY 2015-16 while completing scrutiny assessment under section 143(3) of the Act. The assessee filed a complete chart qua this fact. It was explained that in AY 2011-12, the AO in the draft assessment order proposed to make 38 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 disallowance under section 40(a)(ia) of the Act w.r.t. the same agency commission but DRP directed the AO to delete the proposed disallowance, which was duly incorporated by the AO in the final assessment order and against which the department is not in appeal before the Tribunal.
38. At the time of hearing, the learned CIT Departmental Representative relied on the decision of Hon'ble Supreme Court in the case of Director, Prasar Bharti Vs. CIT (2018) (SC) affirming the decision of the Kerala High court (supra) and the learned Counsel for the assessee distinguish the facts of the Director, Prasar Bharti (supra) by stating that in that case, the assessee entered into an written agreement by which it appointed several advertising agencies in terms of which the advertising agency was required to make an application to the assessee to get the 'accredited status' for their agency so as to enable them to do business with the assesses of telecasting the advertisements of several consumer products manufactured by several companies on the assessors Doordarshan, TV Channels. The agreement, inter alia, provided that the assesses would pay 15 per cent by way of commission to the agency On these facts, the Hon'ble Supreme Court held that Section 194H of the Act would be applicable to payments made by assesses, a government organization running TV channel called 'Doordarshan', to advertising agencies to secure more business as these were in nature of 'commission1 paid to agencies as defined in Explanation appended to section 194H of the Act. The learned Counsel for the assessee narrated the facts of the present case and stated that the facts in the instant case are completely different for the following reasons:
39ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5
(i) There is no written agreement between the assessee and ad agency to appoint ad agencies as agents much less to pay any commission The relationship, therefore between the assessee and ad agency is that of principal to principal basis. The reduction of 15% in the invoice is purely in the nature of trade discount.
(ii) The Hon'ble Supreme Court itself distinguished the case of Jagran Prakashan (supra) (akin to the assessee case) as distinguishable on facts since in the case of Prasar Bharti (supra) the relationship of principal and agent was fully established. This is so because the advertising agency was appointed as agent by written agreement and there was specific clause that tax shall be deductible at source on payment of trade discount. The relevant portion of the judgement read as under:
................62. In the aforesaid case, the relationship of principal and agent was fully established since the advertising agency was appointed as agent by written agreement and there was specific clause that tax shall be deductible at source on payment of trade discount. In the said circumstances, the Kerala High court held that section 194H of the Income Tax Act was applicable. In the present case, there is no agreement between the petitioner and the advertising agency and the advertising agency has never been appointed as agent of the petitioner. Thus the above case of the Kerala High Court is clearly 40 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 inapplicable and the reliance on the said judgment for fastening the liability of tax and interest on the petitioner is wholly untenable. The judgment of the Kerela High Court thus does not help the respondent in the present case.
37. In our opinion, the Allahabad High Court very rightly noticed the distinction the fact in the present case of Jagaran Prakashan Ltd. (supra) and the caw with which we are concerned in these appeals and held that it depends upon the facts of each case to decide as to what is the nature of payment made by the party concerned. Their Lordships rightly noticed that the case before them (Jagaran Prakashan Ltd.) did not have any agreement the payment was being made by the appellant (assessee) to the agencies by way of "commission".
In our view, therefore, the decision of the Allahabad High Court is of no help to the case of the appellant for taking at different view. In view of the aforesaid, the AO/ DRP have erred in treating discount as commission and thereby disallowing the said discount under section 40(a)(ia) of the Act for non-deduction of tax under section 194H of the Act.
41ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5
39. In view of these facts, the learned Counsel for the assessee argued that the DRP has erred in treating trade discount as commission and thereby disallowing the claim of expenses by invoking the provisions of section 40(a)(ia) of the Act for non-deduction of TDS under section 194H of the Act.
40. In view of the above arguments of the both the sides, discussion carried out in the above paras and facts of the case, we are of the view that there is no relationship of assessee and the ad agencies as of principal-agent. Whereas, the facts are that the advertisement slots are booked by agencies working for advertisers. On release and telecast of advertisement of channels, the assessee raises invoice on ad agencies on principal to principal basis allowing discount of 15% on invoices and assessee itself recognizes 85% as ad revenue net of discount. According to us, this is merely a trade discount and not commission and hence, the assessee is not liable to deduct TDS under section 194H of the Act on the advertisement revenue. Accordingly, disallowance made by AO and affirmed by DRP by invoking the provisions of section 40(a)(ia) of the Act is deleted. This issue of assessee's appeal is allowed.
41. The next common issue for AY 2010-11 in ITA No 774 & 1063/Mum/2015 for assessee and Revenue respectively, is against the order of DRP, the disallowance made by AO/TPO on account of channel placement fee expenses as TDS was not conducted under section 194J of the Act. For this, assessee and Revenue has raised the following ground: -
"Assessee's ground Ground 5 - Disallowance u/s 40(a)(ia) - Agency Commission 42 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 5.1 The Ld. DRP/AO erred in law and facts in treating the trade discount allowed to the customer i.e. advertisers or Ad agencies in the invoice as commission u/s 194H of the Act and disallowing Rs. 134,58,71,051/- u/s 40(a)(ia) of the Act for non-deduction of TDS even trade discount is neither claimed as expenses nor it is in the nature of commission. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provision of law.
5.2 The Ld. DRP/AO ought to have appreciated that Rs. 134,58,71,051/- is trade discount allowed in the invoice to the customer (principal to principal basis transaction) (Advertiser or Ad agency) as per the contract & the prevailing business practice and not for any services rendered by the customer hence not covered u/s 194H liable to TDS.
5.3 The Ld. DRP/AO failed to consider various contentions of the assessee i.e. relationship, between the assessee and the customer - advertisers / ad agencies on principal to principal basis, the assessee neither appointed such customer as agent to sale Ad space / Airtime nor Ad agency rendered any service to the assessee, the assessee neither debits in its books of account nor claimed such discount as expenses nor paid or credited the discount to 43 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 advertisers or ad agencies. Hence Section 194H/40 (a) (ia) of the Act cannot be applied.
5.4 The Ld. DRP/AO erred in law and facts to properly construe the business transaction assuming that commission is payable by the assessee to the advertiser/ Ad agency which is paid by adjustment from Ad revenue while the assessee's invoice to advertisers/ad agencies is net of discount and the net amount is accounted as revenue and received.
5.5 The Ld. DRP erred in law and facts in upholding disallowance u/s 40(a)(ia) of the Act relying on case law, facts of which are entirely different from the facts of the as- sessee's case. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provision of law.
Ground 6 - Provisions of Section 40 (a)(ia) are applicable only to amount payable at year end The Ld. DRP/AO erred in law and facts in applying provisions of section 40(a)(ia) to the amounts which are not payable as at the end of the year. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law.
Ground 7 - Jurisdiction of AO or IDS Officer 44 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 The Ld. DRP erred in law and facts in upholding the order of AO who decided the matter of deducibility of TDS without jurisdiction and beyond his authority / power by transgressing in to the jurisdiction of the TDS Officer. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provision of law.
Revenue's ground
3. Whether on the facts and circumstances of the case and in law, Hon'ble DRP is justified in allowing the objection of the assessee filed against the disallowance made by the assessing officer u/s. 40(a)(ia) of Carriage Fees amounting to Rs.84,57,18,649/- by holding that carriage fees does not come within definition of 'Royalty' and therefore provisions of section 194J are not applicable."
42. We have already adjudicated the issue for AY 2009-10 in above cited para vide Para nos. 30 to 40 of this order. The learned counsel for the assessee as well as learned CIT DR both conceded that the facts and circumstances are identical in this year also as is in AY 2009-10. Hence, the same is to be followed in this year also. This ground of assessee is decided accordingly.
43. The next issue in assessee appeal for AY 2009-10 in ITA No. 1912/Mum/2014, is against the order of DRP confirming the action of the AO/TPO for deduction of TDS. For this assessee has raised following ground No. 7 as under: -
45ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 "Ground 7- Jurisdiction of AO or TDS officer The Ld. DRP/AO erred in law and facts in decided the matter of deductibility of TDS acting without jurisdiction and beyond his authority / power by transgressing in to the jurisdiction of the TDS Officer (who has specialized knowledge). The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provision of law."
44. At the outset, the learned Counsel for the assessee conceded that the assessee is not interested in prosecuting this ground and hence, the same is dismissed as not pressed.
45. In the Result, the appeals of assessee are partly allowed as indicated above and the appeals of Revenue are dismissed.
Order pronounced in the open court on 28-02-2019.
Sd/- Sd/-
(राजेश कुमार /RAJESH KUMAR) (महावीर स ह
िं /MAHAVIR SINGH)
(लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER)
मुिंबई, ददनािंक/ Mumbai, Dated: 28-02-2019 सुदीप सरकार, व.निजी सचिव / Sudip Sarkar, Sr.PS 46 ITA s No . 1 91 2 & 1 33 1 / Mu m/ 2 01 4 77 4 & 10 6 3/ Mu m/ 2 01 5 आदे श की प्रनिलिपप अग्रेपिि/Copy of the Order forwarded to :
1. अपीलाथी / The Appellant
2. प्रत्यथी / The Respondent.
3. आयकर आयुक्त(अपील) / The CIT(A)
4. आयकर आयुक्त / CIT
5. ववभागीय प्रयतयनधि, आयकर अपीलीय अधिकरण, मुिंबई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
आदे शािस ु ार/ BY ORDER, त्यावपत प्रयत //True Copy// उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपीिीय अचिकरण, मुिंबई / ITAT, Mumbai