FICCI-KPMG-Report-13-FRAMES

The power of a billion: Realizing the Indian dream 189
Broadcasting industry
• Key tax issues
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TDS on various payments by TV channel
companies
TV channel companies make significant payments to
software production houses towards production of TV
programs. They also pay placement / carriage fees to
DTH operators, multi system operators and various
cable operators towards placement / carriage of the
channels. The channel companies are of the view that
such payments attract TDS under section 194C of
the IT Act at the rate of 2 percent. However, the Tax
authorities contend that such payments are liable for
TDS at 10 percent on the ground that the payments
are towards technical services / royalty. This has
resulted in protracted litigation.
A suitable clarification by the Government to the
effect that tax needs to be deducted on the above
payments at the rate of 2 percent and not at the
rate of 10 percent is much needed to put the above
controversy to rest.
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Taxation of Foreign Telecasting Company (‘FTC’)
The two primary sources of revenue for FTCs are
income from sale of advertising airtime on the TV
channel and subscription revenues.
Taxation of advertisement revenues
Under the IT Act, advertisement revenues of FTCs
are taxable in India in case FTCs have ‘business
connection’ in India. In case an FTC operates from
a country with which India has a tax treaty, the
advertisement revenues would be taxable in India
only if the FTC has a permanent establishment in
India.
The taxability in such cases is only on the income
which is attributable to the PE / operations carried
out in India. The circumstances in which the FTCs
constitute a PE / business connection in India and
the determination of income attributable to such
PE / operations carried out in India, continues to be
a contentious issue between the FTCs and the Tax
authorities.
FTCs generally appoint agents in India for marketing
advertisement airtime slots. Agents also facilitate
collection of advertisement revenues from
advertisers and its remittance abroad.
The Tax authorities contend that the agent of the FTC,
who concludes contracts on behalf of FTC or secures
orders wholly or almost wholly for FTC in India,
constitutes its PE in India.
The Bombay High Court (HC) in the case of SET
Satellite (Singapore) Pte. Ltd 2 . has held that where an
FTC has an Agency PE in India (i.e. PE on account of
its agent), a payment of arms length remuneration by
the FTC to its Indian agent extinguishes its tax liability
in India. A similar view has been taken by the Delhi
HC in the case of BBC Worldwide Ltd. with the matter
now pending before the Supreme Court.
Taxation of Subscription revenues
Subscription revenues are generally collected by the
Indian distributors and subsequently paid to the FTCs.
02. Set Satellite (Singapore) Pte. Ltd v DDIT(IT) – 173 Taxman 475 (Bombay HC)
03. Asia Satellite Telecommunications Co. Ltd – 197 Taxman 263 (Delhi HC)
FTCs are of the view that the payment for grant of
distribution rights is not for any copyright and hence,
is not in the nature of royalty (taxable on gross basis
at a specified rate). FTCs have been taking a view that
the payment is in the nature of business income and
is not taxable in India in the absence of a PE in India.
However, the Tax authorities hold a divergent view
and contend that the subscription revenues are liable
to tax as royalties. The issue is pending adjudication at
appellate levels.
——
Taxation of Transponder charges
Broadcasting companies make payments for
transponder charges. The Tax authorities contend
that payments made towards transponder charges
are in the nature of royalty. However, in the case of
Asia Satellite Telecommunications Co Ltd 3 (Asia Sat),
the Delhi HC has held that such payments do not
constitute royalty and are not liable to tax in India.
With a view to override the above decision, the
definition of royalty under the IT Act has been
amended vide the Finance Act 2012 to bring within
its ambit payments made for transmission of signals
by satellite. However, non-resident taxpayers can
continue to take the benefit of tax treaties entered
into with India to contend that such payment is not in
the nature of royalty under the treaty and hence not
liable to tax in India.
• Recent developments
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Service tax on services of actors and technicians
As is the case in the film industry, actors and
technicians who were not liable to service tax in the
Broadcasting industry thus far, will now fall within the
service tax net and are liable to service tax effective 1
July 2012.
——
Taxability of broadcasting charges earned by
foreign broadcasters
Hitherto, service tax payable on selling of airtime
slots, subscription revenue, etc earned by foreign
broadcasters was discharged by agents of these
broadcasters in India. The agents were defined as
deemed broadcasters and were accordingly made
liable to service tax. Thus, any charges that were
collected by Indian agents or representatives with
respect to broadcasting by the foreign broadcasters
were liable to service tax in the hands of the Indian
agents or representatives under the taxable service
category of ‘broadcasting services’.
However, under the negative list regime, effective
1 July 2012, the service categories are done away
with and accordingly, the definition of taxable service
pertaining to broadcasting services and definition of
broadcasting agency or organization no longer form
part of the service tax law. In view of this, instead
of the Indian agent or representative, the foreign
broadcasters (for the broadcasting services provided
in India), will now be liable to obtain service tax
registration in India and discharge the service tax
liability on these activities.
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