Nov 07,2020 | 8 min read

"Tax Issues In Media, Entertainment And Telecom" Industry By Jay Bhansali

The Indian Media & Telecom Industry has been at the forefront of tax controversies under the Income-tax Act, 1961 (hereinafter referred to as “the Act”). Through this article, it is my humble attempt to discuss some of the tax issues for ready reference.

  1. Whether TDS applicable on Channel Placement Fees under section 194J or 194C of Income-tax Act, 1961?

“Placement fees” have been defined by Telecom Regulatory Authority of India (“TRAI”) to mean “any fee paid by a broadcaster to a distributor of TV channels, for the placement of the channels of such broadcaster vis-à-vis channels of other broadcasters, on the distribution platform owned or operated by such distributor of TV channels”. In essence, it is a fee charged by broadcasters to put such channels on a certain frequency or bandwidth in a way that will ensure that such channels gain more viewership. The dispute between the department and the taxpayer has always been whether the payment of such fees is subject to withholding tax under section 194C @ 2% or under section 194J at 10%. 

Under the provisions of section 194C payment to any resident for carrying out work is subject to withholding tax. The term ‘work’ has been defined in Explanation to section 194C of the Act, to include broadcasting and telecasting, including the creation of broadcasting or telecasting programs. According to the taxpayer, channel placement fees paid to resident cable operator / DTH service provider attract TDS under section 194C of 2% being payment for ‘work’ carried out by the recipients. Their rationale is that the placement services provided being incidental to broadcasting and telecasting would fall within the definition of ‘work’ and therefore attracting TDS at 2%.

On the other hand, according to the tax authorities contend that such payments are in the nature of royalty/fees for technical services and consequently liable to be taxed under section 194J of the Act.

Courts have held that payment for channels placement fees amounts to work in the nature of broadcasting and telecasting and accordingly the provisions of section 194C would apply. It has been held that once such fees come within the ambit of the ‘work’ as defined in provisions of section 194C of the Act specifically, the provisions of section 194J would not apply. This is based on established norms of interpretation, that the specific provision would over-rule the general provision as explained in by the Hon'ble Delhi High Court in the case of CIT Vs. Prasar Bharati (Broadcasting Corporation of India) (292 ITR 580) (Delhi) which made it clear that when two provisions are simultaneously introduced in the Act, one is specific and another is more general in terms then the resort must be to the specific provision. Therefore, when channel placement fees being work of broadcasting and telecasting of the programmes specifically falls under the ambit of provisions of section 194C, the provisions of section 194J would not apply.

The Bombay High Court in the case of CIT Vs. Times Global Broadcasting Co. Ltd., (105 313) (Bom.) putting the matter to rest held that carriage fees/channel placement fees paid to Cable Operators/Multi-System Operators / DTH operators being payment for work contract are covered under section 194C of the Act.  The Revenue filed an SLP before Hon‘ble Supreme Court challenging aforesaid decision of Hon‘ble Bombay High Court in the case of Times Global(supra) has been dismissed by Hon‘ble Supreme Court by keeping it on the reality of the situation, no question of law arises in the said SLP. The same is reported in 105 314.

  1. Whether TDS applicable on Transponder service?

A transponder is a device for receiving and rebroadcasting a television signal. These devices are designed to receive signals from satellite uplink stations, amplify them for beaming over designated footprint areas, from where they are downlinked such that the ultimate viewers are able to view TV channels seamlessly. The peculiar activities performed by the satellite make payments by broadcasters to satellite companies a subject matter of tax controversy.

The Income-tax department has been taking a view that the payment made by the foreign television channel broadcasters to foreign satellite companies for utilising its transponder facility to showcase its channel in India would be taxable in India on the footing that (i) payment of such fees constitutes ‘royalty’ as defined in section 9(1)(vi) of the Act for being the use of ‘equipment’ or ‘process’ (i.e., transponder). (ii) satellite owners have a business connection in India since the footprint area of the TV channel is in India. Accordingly, payments to such companies are subject to TDS.

The Hon’ble Delhi High Court in the case of Asia Satellite Telecommunications Co Vs. DIT (197 Taxman 263) (Delhi) while considering whether income of transponder service paid by broadcasters to satellite owners was taxable in India with reference to section 9 of the Act, held as under:

  • Merely because the footprint area includes India and programmes by ultimate consumers/viewers are watching the programmes in India, would not mean that the assessee is carrying out business operations in India. Hence, the foreign companies have no business connection and therefore not taxable on this count.

  • For a payment to be classified as royalty, the payment must be for use of equipment or ‘secret process’ (just not any process). By use of transponder, there was no use of “secret process” by the broadcaster of television channels. The transponder / uplinking facility is for relaying TV signal to the desired footprint area. The same is a standard facility used by the entire Industry, hence nothing secret about the process. 

  • The payment made by the TV broadcasters was for availment of transponder service to relay signals of channels to reach the ultimate viewer and not essentially to “use of equipment” especially since the payer did not have control of equipment (i.e., satellite/ transponder).

  • Hence, payments to satellite companies are not chargeable under the Act as ‘royalty’ under section 9(1)(vi) or on the count of business connection in India under section 9(1)(i) of the Act.

To overrule the aforesaid decision of the Delhi High Court, explanation 5 and explanation 6 have been introduced by Finance Act 2012 to section 9(1) (vi) with retrospective effect from 1 June 1976, to clarify that the term royalty includes consideration in respect of any right, property or information, whether or not its possession or control is with the payer, or is used directly by the payer, or is in India. It further clarifies that the term process includes transmission by satellite whether the process is secret or not.

However, such unilateral amendments under the Act would not extend to the definition of ‘royalty’ under existing Double Taxation Avoidance Agreements, a principle now well settled by the decision of the Delhi High Court in the case of DIT Vs. New Skies Satellite BV (382 ITR 114) (Delhi). Hence, the interpretation of existing Treaties would not change. The Court held that the Finance Act, 2012 will not affect Article 12 of the DTAAs and that it would follow that the first determinative interpretation given to the word “royalty” in Asia Satellite (supra),. If, in fact, the meanings were pari materia (in the absence of any contouring explanations), the field will continue to be kept for the purposes of the assessment years preceding the Finance Act 2012 and in all cases involving the Double Tax Avoidance Arrangement, unless the DTAAs are amended jointly by both parties to incorporate such revenue as royalty sharing or to amend the definitions in a what income automatically becomes a royalty.

  1. Whether the subscription income received by the broadcaster from the distributor of channels is royalty?

A broadcaster may distribute the television channels through its own distribution network or engage an aggregator to distribute its channels. In a contract where broadcasters grant rights to distribute their channels in Indian territory to Multi-System Operators (“MSO”) / cable operators, the revenues from ultimate subscribers are shared between a distributor and the broadcaster on a principal to principal basis. The distributor collects the charges stemming from ultimate viewers of the channels, retains its shares and remits the balance to the broadcaster. The question arises whether the amount paid to the broadcaster by the distributor amounts to ‘royalty’ subject to withholding tax under section 194J of the Act or section 195 (in case of foreign broadcaster).

To fall within the definition of Royalty under Section 9(1)(vi) of the Act, the payment of consideration must be for use of any copyright, patent, trademark or similar property. Mere acquiring distribution work from the broadcaster for consideration would not result in the use of any copyright, patent or trademark. The Bombay High Court in the case of CIT Vs. MSM Satellite (Singapore) Pte. Ltd. (ITXA 103 of 2017), It dealt with the taxability of the distribution charges earned under the terms of the Act as well as the India-Singapore tax treaty as a result of the telecasting of TV channels in India. The High Court held that, because the taxpayer did not part with any of the copyrights and payment was not for any copyright in literary, creative, science work, such receipts are not taxable as royalty.

  1. Whether the Discount given by Companies to pre-paid card distributors is subject to TDS?

Telecom companies sell the pre-paid cards, recharge vouchers/sim cards at reduced value from MRP to the distributor. For example, the distributor in need of Vouchers/Sim cards, the MRP of which is Rs.100 can purchase the same at a discounted value of Rs. 96. Accordingly, the distributor has obtained a Voucher of Rs. 100 by paying a sum of Rs. 96. The distributor is entitled to sell a Voucher of Rs. 100 purchased by him at Rs. 96 at any price he wishes, to the sub-distributor similarly who in, will turn to sell it to the ultimate customer. Through this entire modus operandi, the ultimate viewer gets a Voucher worth Rs. 100. Even, certain broadcasters/DTH service providers sell recharge vouchers for subscriptions of channels in a similar manner.

According to the Telecom Companies, discount given to distributors cannot be re-characterized as commission liable for withholding tax under section 194H of the Act especially since the modus operandi is on principal to principal basis. However, according to the department, the discount from MRP is the commission given by Telecom Companies to the distributor who is essentially an agent selling such vouchers to ultimate consumers and therefore the discount is equivalent to a commission which is subject to TDS under section 194H of the Act.

The Hon’ble Bombay High Court in the case of CIT (TDS) Vs. Vodafone Cellular Ltd. (ITXA 1152 of 2017 decided on 27.01.2020) and Bharti Airtel Ltd. Vs. DCIT (372 ITR 33) (Bom.) dealt with an issue whether provisions of Section 194H of the Act will be applicable in case of discounts given by the assessee to the distributors on account of prepaid SIM cards, wherein, the Court held that the sale of SIM cards/recharge coupons at a discounted rate to distributors being on a principle to principle is not commission and therefore the provisions of Section 194H of the Act are not applicable on such discounts. The Karnataka High Court in the case of Bharti Airtel (supra) observed as under:

“The condition precedent for attracting section 194H is that there should be an income payable by the assessee to the distributor. In other words, the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct Income-tax thereon at the rate of 10 per cent and then pay the remaining portion of the income to the distributor. In this context, it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs.20, that Rs.20 does not represent the income at the hands of the distributor because the distributor, in turn, may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs.20 which is allowed as a discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent.”

From the reasoning of the judgment, one will have to closely look at the terms of the agreement and the modus operandi to decide whether the discount is in the garb of commission or not. If so, the provisions of section 194H would apply.

  1. Whether roaming charges paid by one mobile network to another are subject to TDS?

In order to make telecom services available to a subscriber in geographical regions where the subscriber’s network (“home network”) does not have the reach, the home network operator enters into an agreement with another telecom operator (“host network”) having a presence in the said region. Of instance, the host operator charges the home operator for supplying the subscriber of the latter with telecommunications services. The host operator will invoice the home operator, which the home operator would retrieve from its own user, depending on the use.

According to the department payment of roaming charges by the home network operator to host network operator amounts to fees for technical services liable to TDS under section 194J of the Act at 10%. According to the taxpayer, what falls within the ambit of fees for technical services are those fees in nature technical services requiring human intervention. Upon analysis of the definition of fees for technical services under section 9(1)(vii) of the Act which has been defined to mean rendering of managerial, technical or consultancy services, one can apply the principle of esjudem generis whereby the term technical would have to be interpreted in the context of the words around it namely managerial and consultancy, both which require human intervention. Hence, the term “technical services” too shall include within its ambit those services requiring human intervention and not all services which require the use of sophisticated technology. The roaming charges paid by the home network are for standardized services requiring no human intervention and therefore, such charges are not classifiable as fees for technical services. The Karnataka High Court in the case of Vodafone South Ltd. (72 347) (Kar.), on the aforesaid principle held that payment made by the assessee to another mobile service provider for utilisation of roaming mobile data and connectivity could not be termed as technical service in the absence of human intervention and, therefore, no TDS was deductible under section 194J of the Act.

Alternatively, according to the Department, the payment of roaming charges amounts to payment for use of equipment falling within the meaning of ‘rent’ and subject to TDS under section 194-I of the Act. However, the Courts have held that there is no use of equipment by home operator. It is only a case where the home network collects charges from the subscriber and pays it to the host network and therefore the payment by home network operator is not for use of any equipment. Accordingly, the provisions of section 194-I will not apply since the consideration would not amount to rent. In the case of Vodafone Essar Ltd. (9 ITR(Trib) 182) (Mum.), the issue was whether national roaming charges could be regarded as rent for “use of equipment” under section 194I and thus, liable for withholding tax. The taxpayer entered into an agreement with IDEA Cellular Ltd., whereby a subscriber of a cellular network can also gain access to the services of any other network operators in their respective licensed area for a specific charge called as national roaming charge. The Tribunal held that the payment of roaming charges for use of the visited network cannot be regarded as for use of the equipment and would thus, not be subject to withholding tax.

  1. Whether Foreign TV Channel Companies Selling Airtime to Indian Entities Were Liable to Tax in India?

Indian as well as Foreign Telecasting Companies sell ad air time i.e. the advertising time and programmes sponsorship available on each of the channels throughout the territory, the channel is viewable. Foreign Telecasting Companies sell advertisement time through agents in Indian companies which is a common practice by such global channel operating companies. Such agents generally charge a commission of 15% of the ad revenues generated for the foreign company. Taxability of such income from the sale of advertisement time slots is the subject matter of argument between taxpayers and the tax authorities, especially at the lower levels.

According to the Foreign Telecasting Companies, the income from space selling advertisement slots being business profits is chargeable to tax only if there is a Permanent Establishment in India within the meaning of Article 5 of the Double Taxation Avoidance Treaty. It is the submission of these companies those agents which merely solicit ad revenues having no authority to conclude contracts would not constitute a Permanent Establishment in India. Moreover, the commission of 15% would be an arm’s length remuneration which would extinguish any tax liability in India even assuming the agent constitutes a Permanent Establishment in India.

The Hon’ble Bombay High Court in the case of DIT Vs. B4U International Holdings Ltd. (374 ITR 453) (Bom.) dealt with an issue wherein, the assessee, a Mauritius based company, was engaged in the business of telecasting of TV channels such as B4U Music, MCM etc. The assessee's income from India consisted of collections from time slots given to advertisers through its affiliates. The Assessing Officer held that affiliated entities of assessee constituted a permanent establishment of assessee within the meaning of article 5 of India-Mauritius DTAA. Accordingly, the amount received from advertisers was brought to tax in India. It was noted that assessee carried out entire activities from Mauritius and all contracts were concluded in Mauritius. It was also undisputed that activity carried out in India was incidental or auxiliary/preparatory in nature which was carried out in a routine manner.  It was held that the affiliates/agents of the assessee in India did not constitute its PE in India in terms of paragraph 5 of article 5 of India-Mauritius DTAA and, thus, the amount in question received from advertisers was not liable to tax in India.

Further, in the case of SPE Networks India Inc Vs. DCIT (87 345) (Mum.), dealt with an issue wherein, the assessee-company was incorporated and was a resident of USA. It was engaged in the business of operating satellite television channels, marketing and distribution of television channels and related activities. For purpose of marketing its channels, the assessee had appointed SET India as non-exclusive advertising and sales agent for canvassing airtime for its channel. In course of assessment, revenue authorities opined that activities of both entities were interconnected and interdependent and thus the relationship between the assessee and SET India was that of Principal and an agent. Accordingly, a part of net revenue earned by assessee was brought to tax in India. It was found that assessee was carrying out its operations from the USA and it did not have any office premises or fixed place of business in India. It was also undisputed that SET India had no authority to conclude any contract on behalf of assessee in India. It was held that assessee did not have PE in India and, thus, impugned order passed by authorities below was to be set aside.

Alternatively, Courts have held from time to time that the commission of 15% remunerated to the Indian agent if being at arm’s length extinguishes any tax liability in India even assuming the agent constitutes a Permanent Establishment in India. In the case of International Global Networks BV Vs. ADIT (84 188) (Mum.) wherein the assessee, a Netherland based company was engaged in the sale of advertising time in India on channels of STAR TV Network and entered into an agreement with an Indian entity, SIPL, to procure business from Indian advertisers on a commission basis, the Tribunal held that since SIPL carried out its activities in the ordinary course of business and it had no power to bind assessee in legal obligation, SIPL could not be regarded as assessee's PE in India. The Tribunal considered one more aspect and that is the payment made by the assessee to SIPL is at arm's length. The assessee had paid commission to SIPL at the rate of 15% and the rate was as per the norms of the industry. Therefore, the Tribunal held that there cannot be further attribution of income in the hands of the assessee. It is a settled position that where the Indian agent is remunerated on an arm's length basis by foreign principal there would not be any further attribution of profits in the hands of the foreign principal. Hence, the addition was deleted.

Judicial Precedents:

The below table summarizes the issues faced by the Media & Telecom Industry along with a list of judicial precedents on the issue.


Channel Placement Fees are subject to TDS under section 194C of Act

·         CIT Vs. UTV Entertainment Television Ltd. (88 214) (Bom.)

·         CIT Vs. Times Global Broadcasting Co. Ltd. (105 313) (Bom.)

·         SLP before Hon‘ble Supreme Court was dismissed (105 314) (SC)

·         CIT Vs. Zee Entertainment Enterprises Ltd. (254 Taxman 370) (Bom.). SLP before Hon‘ble Supreme  Court was dismissed (114 533) (SC)

·         CIT Vs. Wire & Wireless (India) Ltd. (ITXA 214 of 2017) (Bom.) 

·         Kurukshetra Darpans (P) Ltd. Vs. CIT (169 Taxman 344) (P&H)

·         CIT Vs. Media World Wide Pvt. Ltd. (ITA 23 of 2015) (Cal.) 

·         ACIT Vs. NGC Networks (I) Pvt. Ltd. (48 149) (Mum.)

·         CIT Vs. UTV News Ltd. (117 138) (SC)

·         Star India (P.) Ltd. Vs. ACIT (117 988) (Mum.)

Whether the income of transponder service is subject to TDS?

Transponder fees paid to a non-resident would not be subject to TDS?


·         ADDIT Vs. Taj TV Ltd. (72 143) (Mum.) 

·         Zee Entertainment Enterprises Limited Vs. ACIT (4652/Mum/2016) (Mum.)

·         United Home Entertainment Private Limited Vs. Dy. CIT (ITA No 1289/Mum/2016) (Mum.)

·         Independent News Service (P.) Ltd. Vs. ITO (90 163) (Delhi - Trib.)

·         New Delhi Television Ltd. Vs. ACIT, New Delhi (83 282) (Delhi - Trib.)

·         DIT Vs. New Skies Satellite B.V (68 8) (Delhi)

·         Pr. CIT Vs. NEO Sports Broadcast (P.) Ltd. (107 17) (Bom.)

·         B4U International Holdings Ltd. Vs. DCIT (21 529) (Mum.)

Contrary view: 

·         Verizon Communications Singapore Pte Ltd. Vs. ITO (39 70) (Madras) 

·         Viacom 18 Media (P.) Ltd Vs. ACIT (44 1) (Mum.)

Whether the subscription fees received by the Taxpayer from its Indian customers should be treated as being in the nature of "royalty" and taxed in India?

·         CIT Vs. MSM Satellite (Singapore) Pte. Ltd. (ITXA  103 of 2017)

·         ADDIT Vs. Taj TV Ltd (72 143) (Mum.)

·         CIT Vs. Taj TV Ltd. (115 305) (Bom.) 

·         CIT Vs. Wire & Wireless (I) Ltd. (ITXA 214 of 2017) (Bom.)

·         Turner Broadcasting System Asia Pacific Inc. Vs. DDIT (120 155) (Delhi - Trib.)

Whether the Discount Offered by a Telecom Company to a Wholesaler is to be Subject to TDS?

·         Videocon d2H Ltd. (formerly known as Bharat Business Channels Ltd.) Vs. DCIT (ITA 7200-01/Mum/2012) (Mum.)

·         PCIT Vs. Shri Bhim Sain Garg (ITA No. 101 of 2015) (Raj.)

·         SLP before Hon‘ble Supreme Court was dismissed (2018) (406 ITR 9)

·         CIT(TDS) Vs. Idea Cellular Ltd. (ITA No. 8 of 2016) (Raj)

·         DCIT Vs. Tata Teleservices (Mah) Ltd. (ITA 3857/Mum/2016) 

·         Tata Sky Limited Vs. ACIT (ITA 6923 to 6926/Mum/2012)

·         Tata Teleservices Ltd Vs. ITO (71 285) (Jaipur-Trib.)

·         Jagran Prakashan Ltd. Vs. DCIT (TDS) (2012) (345 ITR 288) (All).

·         Vodafone Idea Ltd. Vs. ACIT (109 466) (Chandigarh- Trib.)

·         Bharti Airtel Ltd. Vs. DCIT (372 ITR 33) (Kar.)

·         Pr. CIT Vs. M/s. Reliance Communications Infrastructure Ltd. (ITXA No. 702 of 2017 decided on 22.07.2019) (Bom.) 

·         CIT Vs. M/s. IDEA Cellular Ltd. (ITXA No. 1129 of 2017 decided on 13.01.2020)

·         CIT Vs. Vodafone Cellular Ltd. (ITXA 1152 of 2017 decided on 27.01.2020) 

·         Vodafone Idea Limited Vs. ACIT (ITA Nos. 306 to 309/CTK/2019 decided on 05.06.2020)

Contrary decisions to be taken note of:

·         CIT Vs. Idea Cellular (325 ITR 148) (Delhi) 

·         Director, Prasar Bharati Vs. CIT (92 11) (SC)

Whether roaming charges are subject to TDS?

·         Vodafone Essar Ltd. Vs. DCIT (9 31) (Mum.)

·         DCIT Vs. M/s. Vodafone West Ltd. (1318/Ahd/2016)

·         CIT Vs. Vodafone South Ltd. (72 347) (Kar.)

·         Vodafone Digilink Ltd. Vs. CIT (87 315) (Delhi- Trib.).

·         M/s Bharti Airtel Ltd. Vs. ACIT (ITA No. 2195/Ahd/2016) (Ahd Trib.)

·         DCIT Vs. Reliance Communications Ltd. (ITA No. 3947/Mum/2017) (Mum.)

Taxability of advertisement income earned by Foreign Telecasting Companies under the DTAA

·         DIT Vs. B4U International Holdings Ltd. (374 ITR 453) (Bom.)

·         SPE Networks India Inc. Vs. DCIT (87 345) (Mum.)

·         International Global Networks BV Vs. ADIT (84 188) (Mum.)

·         DDIT (IT) Vs. Asia Today Limited (ITA No. 4346/Mum-2009) (Mum.)

·         Zee TV USA Inc. Vs. ADIT(IT) (ITA No. 8862/Mum-2010) (Mum.)

·         DIT (IT) Vs. Delmas France (232 Taxman 401) (Bom.)


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Jay Bhansali

I am practicing advocate and fellow member of Institute of Chartered Accountants of India. I am a Bcom graduate as a University Rank Holder. My area of expertise is in the field of direct tax ranging from tax advisory to litigation including representation before Income-tax Appellate Tribunal & High Court. I have previously worked with distinguished advocates and have experience of more than 8 years.