Income Tax Appellate Tribunal - Mumbai
Viacom 18 Media P.Ltd, Mumbai vs Assessee on 26 November, 2014
आयकर अपीलीय अिधकरण, अिधकरण ",Q" खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'F' BENCH.
सव[ौी ǒवजयपाल राव , Ûयाियक सदःय एवं राजेÛि, लेखा सदःय Before S/Sh.Vijay Pal Rao, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.3887/Mum/2013,िनधा[ िनधा[रण वष[/Assessment Year-2005-06 M/s Viacom 18 Media Pvt. Ltd. ACIT Range-11(1), Zion Bizworld, Subhadh Road-A Vs Aaykar Bhavan, Near Garware Office, Vile Parle (E), Mumbai-400020 Mumbai-400057 PAN:AAACM9164E (अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent) आयकर अपील सं/.ITA No.3888/Mum/2013,िनधा[ िनधा[रण वष[/Assessment Year-2006-07 M/s Viacom 18 Media Pvt. Ltd. ACIT Range-11(1), Zion Bizworld, Subhadh Road-A Vs Aaykar Bhavan, Near Garware Office, Vile Parle (E), Mumbai-400020 Mumbai-400057 PAN:AAACM9164E (अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent) िनधा[ǐरती ओर से / Assessee by : Shri Farokh Irani राजःव कȧ ओर से/ Revenue by : Shri Pawan Kumar Beerla & Parminder Kaur सुनवाई कȧ तारȣख/ Date of Hearing : 03-11-2014 घोषणा कȧ तारȣख / Date of Pronouncement : 26-11-2014 आयकर अिधिनयम 1961 कȧ धारा 254 ( 1 ) के अÛतग[ त आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra,AM ले खा सदःय राजे Ûि के अनु सार: ार Challenging the orders dated of CIT(A)-3,Mumbai,the assessee had filed following grounds of appeal for the above referred two assessment years.
ITA/3887/Mum/2013-AY.2005-06:
1.On the facts, and in the circumstances of the case, and in law, the Hon'ble Commissioner of Income-tax (Appeals)-3, Mumbai {'CIT(A)'] ought to have held that reassessment proceedings are bad in law and the order passed by the learned Assessing Officer under Section 143(3) r.w.s. 147 of the Act is unwarranted, without jurisdiction, bad in law, barred by limitation, void ab-initio and hence ought to be quashed in light of the provisions of the Income-tax Act, 1961 ('the Act').
2.Without prejudice to the above, on the facts, and in the circumstances of the case, and in law, even assuming (without admitting) that the reassessment proceedings are within the jurisdiction, the Hon'ble CIT(A) ought to have allowed deduction for the distribution expenses of Rs. 2,23, 04, 019 paid by the Appellant to Nickelodeon Asia Pte Ltd ('Nick Asia') for AY 2005-06.
3.Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) ought to have admitted the additional evidence under Rule 46A of the Income-Tax Rules, 1962.
4.Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 1,92,72,111 ought to be allowed as deduction in AY 2005-06 as appropriate taxes in respect of the same were deducted at source in AY 2005-06 as per the provisions of Section 195 r.w.s 197 of the Act.It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs 1,92,72,111 (out of Rs. 2,23,04,019 paid to Nick Asia for AY 2005-06) as the taxes have been appropriately deducted at source in AY 2005-06 and paid into
2 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
the government treasury as per the provisions of the Act.
5.Without prejudice to the above, on the facts and in the circumstances of the case and in law, the balance distribution expenses of Rs. 30,31,908 (2,23,04,019 - 1,92,72,111) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r.w.s 197 of the Act. It is prayed that the learned AO be directed to allow deduction of balance distribution expenses of Rs. 30,31,908 (2,23,04,019 - 1,92,72,111) in the year(s) in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r.w.s 197 of the Act.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing."
ITA/3888/Mum/2013-AY.2006-07:
1.On the facts, and in the circumstances of the case, and in law, the Hon'ble Commissioner of Income-tax (Appeals)-3, Mumbai ['CIT(A)'] ought to have held that reassessment proceedings are bad in law and the order passed by the learned Assessing Officer under Section 143(3) r.w.s. 147 of the Act is unwarranted, without jurisdiction, bad in law, barred by limitation, void ab-initio and hence ought to be quashed in light of the provisions of the Income-tax Act, 1961 ('the Act').
2.Without prejudice to the above, on the facts, and in the circumstances of the case, and in law, even assuming (without admitting) that the reassessment proceedings are within the jurisdiction, the Hon'ble CIT(A)ought to have allowed deduction for the distribution expenses of Rs. 5,55,28,565 paid by the Appellant to MTV Asia LDC ('MTV Asia') for AY.2006-07.
3.Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) ought to have admitted the additional evidence under Rule 46A of the Income-Tax Rules, 1962.
4.Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 1,72,88,715 ought to be allowed as deduction in AY 2006-07 as appropriate taxes in respect of the same were deducted at source in AY 2006-07 as per the provisions of Section 195 r.w.s 197 of the Act.
It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs.1,72,88,715 (out of Rs.5,55,28,565 paid to MTV Asia for AY 2006-07) as the taxes have been appropriately deducted at source in AY 2006-07 and paid into the government treasury as per the provisions of the Act.
5.Without prejudice to the above, on the facts and in the circumstances of the case and in law, the balance distribution expenses of Rs. 3,61,92,613 (5,55,28,565-1,72,88,715- 20, 47, 237) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r.w.s 197 of the Act. It is prayed that the learned AO be directed to allow deduction of balance distribution expenses of Rs. 3,61,92,613 (5,55,28,565-1,72,88,715-20,47,237) in the year(s) in which the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r.w.s 197 of the Act.
6.Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 20,47,237, which were reversed in AY 2008-09, should be reduced while computing income of the Appellant for AY 2008-09.It is prayed that, in case distribution fees paid to MTV Asia of Rs 20,47,237 is disallowed in AY 2006-07, the learned AO be directed to reduce the same while computing income of the Appellant for AY 2008-09 as the said amount is written back in AY 2008-09.
7.Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 29,97,586 paid to Nickelodeon Asia Holdings Pte Ltd for AY 2005-06 ought to have been allowed in AY 2006-07 since the taxes have been deducted at source and paid into the government treasury as per the provisions of Section 195 r.w.s 197 of the Act in AY 2006-
07.It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs. 29,97,586 in AY 2006-07 as the taxes have been deducted at source and paid into the government treasury in AY 2006-07.
8.On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) had erred holding that interest under Section 234B and 234C of the Act should be levied despite there not being any specific direction in the assessment order regarding levy of interest.
3 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
It is prayed that the learned AO be directed not to levy interest under Section 234B and 234C in the absence of any specific direction in the assessment order.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing."
ITA/3887/Mum/2013-AY.2005-06:
Assessee-company,engaged in the business of production/acquisition of programmes,filed its return of income on 31.10.2005 declaring loss of Rs. 11.02 Crores.Later on a revised return was filed on 06.12.2006 declaring total income of Rs. Nil.The AO finalised the assessment u/s 143(3) of the Act on 15.12.2008 determining the income of the assessee at Rs. 17.12 Crores, the assess - ment was reopened by issue of notice u/s 148 of the Act dated 29.03.2011. The reasons recorded for reopening the assessment were as under:
"The assessment in this case for the assessment year 2005·06 had been completed u/s.143(3) of the I.T. Act, 1961 vide order dated 15.12.2008 assessing the income at Rs.17,12,83,880/-. The assessment was subsequently rectified in January, 2009 to allow set off of brought forward losses and thereby taxable income was revised to Rs.7,51,31,480/-.
The assessee company as per agreement entered into paid 50% of subscription income to M/ s. Nickelodeon Asia Holding Pin. Ltd. for acting as a distributor of their channel. It was observed from the records of Nickelodeon Asia Holdings Pvt. Ltd. (NICK] for A. Y.2005-06 which is being assessed in the charge of DDIT(IT),4(2), Mumbai that while finalizing the assessment, the Department held that Distribution revenue received from Viacom 18 Media Pvt. Ltd. is in the nature of royalty as per Indo-Singapore DTAA. Accordingly, Royalty income of Rs.2,20,70,048/- received from Viacom 18 was taxed 15% f the amount is in fact Rs.2123,04,019/- as per the books of accounts of Viacom 18, The variation, appears to be due to difference in rate of exchange adopted by DDIT (IT), 4(2). It was further observed that the above stand of DDIT(IT) 4(2) was confirmed by CIT(A)-Xi in July, 2009.
It was however, observed from the records of M/ s. Nickelodeon Asia Holding Pvt. Ltd. that no TDS was deducted by Viacom 18 in respect of Distribution Royalty paid. Further; it also appeared from the r. cords that the non observance of TDS provision was not reported to ACIT· 11(1) for invoking the provisions of section 40(a)(ia). Thus, the non-coordination between DDIT (IT) 4(2) and ACIT-11(1) resulted in assessee getting irregular deduction of distribution royalty of Rs.2,23,04,019/· without observing TDS provision. The omission to disallow the same resulted in under assessment of income.
Similarly, for non-deduction of TDS @15% amounting to Rs.33,45 603/- and not crediting the same to government account, the assessee is also liable for interest u/s. 201 (1A) of Rs.2,07,362/- On account of the facts and circumstances as above, I have reasons to believe that income had escaped assessment for A. Y.200S-06 under the meaning of section; 147 of the I T. Act."
2.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).After considering the order of the AO and the submissions of the assessee,he held that the assessment had been reopened beyond 4 years at the end of relevant assessment year,that as per Explanation-2 to section 147 the assessment could be reopened after recording reasons for the reopening in case assessment was made at too low rate,that the payment made by the assessee to NAHPL was in the nature of royalty as per Indo Singapore DTAA on which no TDS was deducted by it,that the assessment was made at lower a rate,that the word assessment meant the ascertainment of the account of taxable income and all the tax payable thereon,that when there was no ascertainment of tax payable thereon it could never be said that such income was assessed,that it had merely filed some details of distribution expenses as per Audit report,that it could not be said that relevant material was on record.Referring to the case of Praful Chunilal Patel(236ITR832)of Hon'ble Gujarat High Court,he held that the AO would acquire jurisdiction to reopen of assessment u/s.147 on the basis of specific reliable and relevant information coming to his position subsequently,that in the case under consideration the AO had received information subsequently that the payment of subscription income to NAHPL was in the nature of royalty as held by the DDIT(IT)-4(2), Mumbai,that the FAA had upheld the order of the DDIT(IT)-4(2),that 4 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
the AO had reason to believe that by reason of omission or failure on the part of the assessee to make full and true disclosure of all material facts necessary for his assessment income had escaped assessment,that deduction of payment allowed resulted in irregular assessment and said amount remained to be disallowed u/s.40(a) (ia) of the Act,there had been reasonable belief of the AO,that sufficiency of the reason for forming the belief was not to be judged,that it would be immaterial whether the AO at the time of making original assessment could or could not have found the said fact,that every disclosure was not and could not be treated as truly or fully disclosure.He placed reliance in the case Shree Krishna Pvt. Ltd. (221 ITR 538) wherein it was held that every disclosure could not be treated to be truly and full disclosure.He further held that the AR of the assessee had cited various decisions but there could not be any precedent of fact, that precedent could be only on point of law,that the AO had appropriately recorded the reasons and conveyed to the assessee,that it could be concluded that reopening of assessment was in accordance with law,that the reasons so recorded were made available to the assessee and objections for reopening of assessment were also disposed of by passing separate order on 24.11. 2011,that the distribution of payment was wrongly allowed as deduction as it was required to be subjected to TDS provisions and it did not come to the notice of the AO,that it amounted to non- disclosure of facts.
2.3. The AR argued that there was no failure on part of the assessee, that in the reasons recorded no allegation was made by the AO that assessee had not furnished full and true particulars of the income for the year under consideration, that failure of the assessee had to be recorded by the AO, that the taxability of royalty was debatable issue that on debatable issues notice u/s 148 could not be issued.He relied upon the cases of Hindustan Lever Ltd.(268 ITR 332) and Arthur Anderson and Co.(324 ITR 240). DR supported the order of the FAA.
2.4.We have heard the rival submissions and perused the material before us.In our opinion,the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax had escaped assessment.Secondly,the reasons for reopening an assessment have to be tested or examined only on the basis of the reasons recorded at the time of issuing a notice under section 148 of the Act,seeking to reopen an assessment.Besides,the reasons cannot be improved upon or supplemented.It is said that the mandate of proviso to section 147 of the Act is very clear.It requires the AO not only to clearly mention but also to prove that because of the failure of the assessee,to disclose material facts truly and fully,taxable income had escaped assessment. Proviso was incorporated in the Act to prevent misuse of re-opening the assessments by the AOs after period of four yeaRs.Tax laws envisage that completed assessment should not be disturbed without solid reasons.We hold that the Proviso casts onus on the AO to prove failure of the assessee.In other words,the AO had to mention,in the reasons recorded,about the alleged failure and had to explain as which material facts were not disclosed by the assessee.If the AO fails to do so,then assessment passed by him in pursuance of re-opening notice,looses legal validity and sanctity.At this juncture,we would like to consider the latest legal position regarding re-opening of assessment after expiry of period of four years.In the matter of Tecumseh Products India Pvt. Ltd.(361ITR429)the Hon'ble AP High Court had discussed the proviso to the section 147 as under:
"Before any notice is issued after the expiry of four years, the officer concerned must be satisfied that there had been an escapement in assessment of income, which is chargeable to tax and that this is because of the failure on the part of the assessee to make a return under section 139 of the Income-tax Act, 1961, or in response to a notice issued under sub-section (1) of section 142 or section 148 for not disclosing the material facts. These conditions must be reflected in the notice itself. In the absence of the conditions, exercise of jurisdiction in issuance of the notice under the provision is patently illegal."
Similarly,in the case of General Motors India Pvt. Ltd.(360ITR527)the Hon'ble Gujarat High Court had also dealt with the similar issue.In that matter the assessee had challenged the validity of the notice issue u/s.148 after the expiry of four years.Deciding the writ petition in favour of the 5 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
assessee,the Hon'ble Court held as follow:
"...there was not even a whisper to the effect that income had escaped assessment on account of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.......in the absence of any satisfaction having been recorded by the Assessing Officer that the income had escaped by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, assumption of jurisdiction under section 147 was not valid and, therefore,notice under section 148 could not be sustained."
From the above it is clear that where the provisions of section 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the AO having reason to believe that any income chargeable to tax had escaped assessment, it must also be established as a fact that such escapement of assessment had been occasioned by either the assessee failing to make a return under section 139 either, etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Undisputed facts of the present case are that the assessee original assessment was completed u/s.143(3) of the Act,that the AO had issued notice u/s.148 as the AO had reasons to believe that taxable income had escaped assessment,that the assessee had objected to the notice issued u/s.148,that the FAA had upheld the reopening of assessment,that the AO had never held that there was any failure on part of the assessee to disclose material facts fully and truly.In the reasons recorded he had held that because of between the DDIT(IT)and certain amounts remained untaxed.He had not held that the assessee had concealed the facts that resulted in escapement of income.If there was lack of coordination between two AO.s.,the assessee cannot be penalised for that.The power to reopen a completed assessment is one of the extraordinary powers conferred upon the AO.s.,but it cannot be used in a routine matter-especially when a notice u/s.148 of the Act is to issued after four years.In the matter before us,failure of the assessee had not been brought on record.In these circumstances,we hold that the re-assessment proceedings were not initiated validily.Reversing the order of the FAA,we decide ground no.1 in favour of the assessee.As the re-opening had been held invalid,so the remaining grounds of appeal are not being adjudicated.
Considering the facts of the case and circumstances,appeal filed by the assessee for the year under consideration stands allowed.
ITA/3888/Mum/2013-AY.2006-07:
3.The first ground of appeal deals with reassessment proceedings.The assessee had filed its return on 29.11.2011 declaring Nil income.The AO completed the assessment on 11.11.2010 u/s 143(3) r.w.s.144C(5)of the Act, in accordance with the directions of the Dispute Resolution Penal (DRP), Mumbai.The assessment was re-opened, as per the notice issued u/s.148 of the Act on 29. 03. 2011,recording following reasons:
1. It was observed from the records of MTV Asia LDC(Non-resident) which is assessed in the charge of DDIT(IT), 4(1), Mumbai that MTV Asia LDC entered into agreement with Viacom 18 on principal to principal basis of sharing of 50% of Distribution revenue collected by Viacom 18 Media Put. Ltd. The DDIT (I.T.) 4(1) while finalizing assessment for AY2006-07 of MTV Asia we had held that distribution revenue received from Viacom 18 in the nature of royalty in terms of Article 12 of Indo-Singapore DTAA. This issue was discussed at length in the assessment order.
Accordingly, the distribution receipts of 5,69,64,4521- ( the amount is in fact 5,55,28,565/- as per the books of accounts of Viacom 18 the variation appears to be due to difference in rate of exchange adopted by DDIT (IT), 4(1)] received from Viacom 18 was taxed treating the same as Royalty. It was further observed that the above stand of DDIT(IT) 4(1) was upheld by CIT(A) in earlier assessment years. It was however, observed from records of MTV Asia LDC that IDS was deducted by Viacom 18 in respect of Di1strilmticn Royalty paid. Thus, the assessee had been granted relief of Rs. 5,55,28,565/- which ought to have been disallowed u/s 40(a)(ia) due to non- observance of the provisions of TDS which had resulted in assessee getting irregular deduction of 6 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
distribution royalty of '5,55,28,5651- without observing TDS provision. The omission to disallow the same resulted on under assessment of income.
2. Further it is observed form Profit & Loss account that assessee company had credited below line net prior period income 12,10 61 803/-. Though this income was considered while computing book profit, the same was excluded while arriving at profit and gains of business under the normal provisions. In the note No.18 to schedule 15 it is stated that during F. Y.2004-05 at the specific request of M/s. MTV Asia LDC and Nickelodeon Asia Holdings Pvt. Ltd. (NICK) certain additional marketing and sales promotion expenses incurred for production of programmes however the same were not accepted by MTV and NICK. It is also stated that as per the opinion of the management as these expenses are not of routine nature the same were treated as cost of production to be recovered from and NICK. Similarly assessee-company during F.Y.2004-05 incurred certain marketing cost at the request of NICK, the reimbursement thereof, however was again not accepted by NICK. After considerable deliberations both the above companies finally agreed to pay these expenses to the assessee. Accordingly, the assessee company accounted for prior p nod income of aggregating to 12,30,67,766/- which consisted of production cost from MTV and NICK of 7,23,89,976/- and 4,20,34,314/- respectively. Besides, marketing cost of '86,43,476/- was also recovered from NICK.
3. It is crystal clear from the above that assessee company had incurred expenses in connection with the 'Prior Period income' in FY 2004-05 and as per the Mercantile system of accounting followed by the assessee, these expenses must have been booked in F. Y.2004- 05 itself. Even if it is considered that these expense were not claimed in FY 2004·05, the same being prior period expenses cannot be allowed during FY 2005-06. Moreover, the expenses incurred i.e. sales promotion expenses for production of programme and marketing expenses for earning advertising ales commission are also in the line and in connection with the regular business activity of the assessee.
In view of the above, entire prior period income of 12,10,61,803/- was required to be brought to tax under normal provision of l. T. Act. The omission to do so resulted in under-assessment of income.
On account of fact and circumstances as above, I have reasons to believe that income of Rs. 17,65,90.368/- had escaped assessment for A.Y.2006-07 under the meaning of section 147 of the L T. Act.
You may note that the scrutiny proceedings u/s 147 are pending in your ca e for assessment year 2006-07( In earlier notice wrongly mentioned as A.Y.2009-10) In this regard, you are requested to submit all the relevant information on 18-10-2011."
3.1.In the appellate proceedings the FAA held that a notice u/s.148 had been issued within four years,that notice within four years could be issued even if there was no failure on the part of assessee to disclose all material truly and fully necessary for assessment,that the notice issued u/s.148 was as per law.Placing reliance on the matter of Grind well Norton Ltd.(267 ITR 673),he held that as per the provisions of explanation 2 to section 1 47 of the Act where the Department re-opened assessment within a period of 4 years, it could do so on the ground of income having escaped assessment,even if there is no failure on the part of assessee to disclose fully and truly all material fact.He also relied upon the case of Dr Amin's Pathology Laboratory(252 ITR 673) and held that the reason had to be a reason of a prudent person,that reason should be fair and not necessarily due to failure of the assessee to disclose fully or partially some material facts relevant for assessment,that mere production of account books from which material evidence could have been discovered by the AO will not necessarily amount to disclosure within the meaning of the proviso,that mere production of the balance-sheet, profit and loss account or account books will not necessarily amount to disclosure,that the payment made by the appellant to MTV Asia LDC was in the nature of royalty as per Indo Singapore DTAA on which no TDS was deducted by the appellant, that assessment was made at lower rate,that the word "assessment" would mean the ascertainment of the account of taxable income and all the tax payable thereon when there was no 7 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
ascertainment of tax payable thereon it could never be said that such income was assessed,that in the matter under consideration the assessee had merely filed some details of distribution expenses as per Audit report, which could not be said to be relevant material was on record.He further held that the AO had received information subsequently that the payment of subscription income to MTV /VHI was in the nature of royalty as held by the DDIT(IT)-4(1),Mumbai which had been also confirmed by the FAA,that the AO had reason to believe that income had escaped assessment for the year under appeal,that the deduction of payment allowed lead to irregular assessment and said amount remained to be disallowed u/s.40(a) (ia) of the Act.Finally,he upheld the order of the AO with regard to reopening.
3.2.The AR left the issue of reopening of the assessment for the year under appeal to the discretion of the Bench.From the reasons recorded it is clear that notice u/s.148 was issue within the four year.The basis for re opening was taxation of royalty income in the hands of recipient. Once the AO found out the factual position about the payment,he reached at certain conclusions and initiated proceedings u/s.147 of the Act.Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment. We are of the firm opinion that the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded.What can be seen to whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion.The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assessee.The satisfaction arrived at by the AO should be prima facie level.Considering the facts of the case we are of the opinion that AO had rightly invoked the provisions of section 147 of the Act for reopening the assessment. So, confirming the order of the FAA,we decide ground no.1 against the assessee.
4.Next four grounds of appeal (GOA 2-5)deal with payment made by the assessee to MTV Asia and other parties.These grounds pertain to different aspects of the payment.During the assessment proceedings,the AO found that the assessee had claimed distribution expenses of Rs.5,55,28,565/- under the head payment to MTV Asia LDC.A perusal of the assessment records in the case of MTV Asia LDC revealed that distribution revenue received was in the nature of royalty as per Indo- Singapore DTAA.It was also found that tax was not deducted by the assessee in respect of distribution royalty of Rs.5.55 Crores.The AO was of the opinion that the matter was of irregular/non deduction of tax on distribution of royalty as per TDS norms.He directed the assessee to explain as to why the same should not be disallowed u/s.40(a) (ia) of the Act. The assessee,vide its letter dated 14.11.2011,stated that it had deducted the taxes at appropriate rates on distribution fees payable by the assessee company of Rs.5,55,28,565/-, in accordance with certificate issued u/s. 197 of the Act,that it had withheld the taxes on a sum of Rs.3,01, 18,939/- in accordance with the certificate issued u/s.197 and paid the same within the time limit prescribed u/s.200(1).
The AO examined the submission of the assessee and held that same were not acceptable, that as per agreement in question the assessee had made payment of royalty of Rs.5,55,28,565/-,that TDS was not deducted by the assessee as prescribed by Chapter XVIIB of the Act,that as per section 40(a)(ia) of theAct no deduction would be allowed in case of non-deduction/non-payment/late payment or belatedly deposit to the government treasury,that the amount paid by the assessee was royalty on which TDS ought to have been deducted,that the assessee had not placed on record any clinching any convincing evidence including proof of payment of TDS such as TDS Challans and TDS return to accept its claim or contention,that it had defaulted in payment of TDS as required under the provisions of the Act. As there was a failure on the part of the assessee to deduct TDS on the amount of Rs.2,23,04,019/-,therefore,he disallowed the same u/s.40(a) (ia) of the Act.
4.1.Aggrieved by the order of the AO,the assessee filed an appeal before the FAA.After considering the order of the AO and submissions of the assessee,he held that the assessee had paid 8 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
50% of subscription income to MTV Asia for acting as a distributor of their channel,that the payment received from MTV Asia were held to be in the nature of royalty by the DDIT(IT)- 4(1), Mumbai and the same had also been confirmed by the FAA,that MTV Asia had filed appeal against the order of the FAA contesting that payment received by them is not in the nature of royalty and that MTV Asia had no PE,that the above payment to MTV Asia had been held to be royalty by DRP, Mumbai in case of MTV Asia.,that MTV Asia had not agitated the above order of DRP before the Tribunal withdrawn the aforesaid ground during the hearing before the Tribunal,that the decision of DRP attained finality,that the payment amounting to Rs.5,55, 28, 565/- made by the assessee was in the nature of royalty and taxable in the hands of M/s. MTV Asia,that the assessee was required to deduct tax thereon in accordance with the provisions of section 195 of the Act,that payment made without deduction of TDS could not be allowed. He further mentioned that the assessee had paid 50% subscription income to M/s. Nickelodeon Asia Holdings Pvt.Ltd.(NAHLP) for acting as a distributor of their channel,that distribution revenue received was in the nature of royalty as per Indo Singapore DTAA,that no TDS was deducted by it in respect of distribution royalty paid of Rs.2.23Crores,that it was case of irregular/ non deduction of tax on distribution of royalty as per TDS norms,that the payment amounting to Rs.2,23,04,019/- made by the assessee was in the nature of royalty and taxable in the hands of NAHPL,that the assessee was required to deduct tax thereon in accordance with the provisions of section 195 of the Act,that payment made without deduction of TDS could not be allowed as per the provisions of section 40(a) (ia) of the Act,that as per Explanation 2 to section 9(1)(vi) of the Act royalty means consideration received on account of transfer of all or any right (including the granting of a licence) in respect of patent, invention, model, design, secret formula or process or trademark and similar property of transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting,that Explanation 6 provided that the expression "process" included transmission by satellite including up-linking, amplification, conversion for down-linking of any signal,cable, optic fiber or by any other similar technology,that disallowance made u/s.40(a) (ia) were accordance with law. Finally, he upheld the order of the AO.
4.2.Before us,the AR stated that while completing the assessment, addition of Rs. 5.51 Crore was made whereas in the notice amount of Rs. 12.10 Crores was mentioned, that the assessee had deducted tax with regard to the payment of Rs. 5.51 Crores @ 4.3%, that AO was of the opinion that the assessee should have deducted tax @ 15%, that for short deduction of tax provisions of section 40(a)(ia) of the Act could not invoked, that assessee had not been given credit for the tax deducted, that the assessee had produced additional evidences before the FAA,that he did not consider the evidences produced by the assessee. He referred to page no. 72, 73, 74B, 128 of the paper book and stated that tax deducted at source had to be considered in one of the years.The DR relied upon the order of the FAA and stated that assessee had not produced any evidences before the AO.
4.3.We have heard the rival submission and perused the material before us.We find that the ADIT (IT)-3(2),Mumbai,vide its order dated 31.08.2005,passed u/s.197 of the Act,addressed to MTV Asia,has directed it that taxes be deducted at source at 4.30% from the sums payable as distribution revenue to the assessee under its agreement with MNIPL(Pg.73 of the Paper book).We further find that at page no.128 of the paper book the assessee had made detailed submissions and had requested the FAA to admit additional evidence,in form of confirmation certificates from the banks/extracts from NSDL website about the payment of taxes,as per the provisions of section 46A of the Income tax Rules,1962(Rules).The assessee had given the reasons for not submitting the same before the AO.It is also found that the assessee had filed a detailed explanation about deducted taxes and reasons for non deduction (Pg.128-130)of taxes.We find that while deciding the appeal the FAA has neither considered the additional evidences nor has deliberated upon the arguments of the assessee.The request made by the assessee about giving 9 ITA No. 3887 & 3888/M/2013 M/s Viacom 18 Media Pvt. Ltd.
credit in either of the years of the deducted taxes has not been dealt by the FAA.In these circumstances,we are of the opinion,that in the interest of justice matter should be restored back to the file of the FAA for fresh adjudication.He is directed to consider the additional evidences filed by the assessee while deciding the issue in addition to the issue of giving credit of taxes in one of the assessment years.Grounds no.2-5 are partly allowed in favour of the assessee.
5.Sixth ground of appeal is about distribution expenses of Rs. 20.47 lakhs that were reversed in the AY.2008-09.As per the AR if the said amount paid to MTV Asia was to be disallowed in the AY.2006-07,same should be reduced while computing the income of the assessee for the year 2009-09. We have,in the earlier part of the order,directed the FAA to reconsider the fact about payment of taxes and pass fresh orders.He is directed to pass a speaking order about the amount in question while deciding the issues arising out of ground no.2-5. Ground no.6 is allowed in favour of the assessee,in part.
6.Next ground of appeal is about distribution expenses of Rs. 29,97,586 paid to Nickelodeon Asia Holdings Pvt.Ltd for AY 2005-06.Before us,AR stated that if the order for the AY.2005-06 was decided in the favour of the assessee,the ground would not survive.We have,in the paragraph no.2.4 of our order have held,that the order for the year 2005-06 was not valid.Therefore,in our opinion ground no.7 need not to be adjudicated.
7.Next ground deals with levy of interest u/s.234 B of the Act.Before us,the AR and the DR stated that ground no.8 was consequential in nature.As the ground is of consequential nature,same is not being adjudicated.
As a result,appeal filed by the assessee for the year 2005-06 stands allowed and the appeal for the AY.2006-07 is partly allowed..
फलतः िनधा[ǐरती कȧ िन.व.2005-06 के िलए दाǔखल अपील मंजरू कȧ जाती है और िन.व.2006-07 के िलए दाǔखल अपील अंशतः मंजरू कȧ जाती है .
Order pronounced in the open court on 26th November,2014.
आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 26 uoa uoca j,2014 को कȧ गई ।
Sd/- Sd/-
(ǒवजयपाल राव/Vijay Pal Rao) राजेÛि/Rajendra)
(राजे ि
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
,मुंबई/Mumbai,Ǒदनांक/Date:26.11.2014.
SK
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथȸ 2. Respondent /ू×यथȸ
3. The concerned CIT(A)/संबƨ अपीलीय आयकर आयुƠ,4.The concerned CIT /संबƨ आयकर आयुƠ
5. DR "F" Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध ,Q खंडपीठ,आ.अ.Ûयाया.मुंबई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai