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Help Tax department turns its eyes on DTH operators
The Mumbai income-tax (I-T) department has begun surveying some direct-to-home (DTH) service operators to check for compliance with tax deducted at source (TDS) obligations in a move that some experts say may have more to do with interpretation than evasion.

Companies do not benefit by not paying Tax Deducted at Source because this comes from payments made by them to vendors and distributors (in this case) and isn’t a cost for them.

The department’s TDS wing last week surveyed Tata Sky Ltd for alleged non-deduction of TDS, according to two I-T officials who did not want to be identified as the investigation is not completed yet. The survey covered financial years 2008-09, 2009-10 and 2010-11.

Under section 133A of the Income-tax Act, surveys are conducted to verify the books of accounts, stock, cash and any document lying in the premises of the taxpayer.

“The department had conducted discreet enquiries to find out compliance by DTH operators. Based on the intelligence inputs, we conducted our first survey on Tata Sky and found that the company has not deducted tax on expenses of over Rs.280 crore,” said one of the officials.

Other operators will also be surveyed, this person added.

“Tata Sky has paid all taxes and levies as per the statute and is the highest payer of licence fee and entertainment tax on Rs.gross’ as well as Rs.per subscriber’ basis in the DTH industry,” a Tata Sky spokesman said in an email. “The issue highlighted by you is not of tax payment but of TDS, which even if it were to be deducted would not be a cost to Tata Sky; hence its non-deduction at source is not a cost-saving for Tata Sky.”

The second I-T official said Tata Sky has not deducted TDS on commissions charged by distributors who bring it subscribers. The total commission charged by these agents in the previous three fiscal years was at least Rs.110 crore, he said.

Similarly, the firm has allegedly not deducted TDS on commissions of Rs.170 crore paid to distributors for selling recharge vouchers.

The I-T law requires an assessee to deduct 10% TDS on commissions on technical fees.

Sujay Paul, associate director at consulting firm KPMG, said TDS rules for recharge vouchers are open to interpretation.

“The recharge vouchers for DTH are no different than mobile recharge coupons provided by cellular companies. The applicability of TDS on discount on recharge coupons depends on whether the arrangement between DTH operators and distributors is a principal-to-agent relationship (commission) or a principal-to-principal relationship (discount on sale),” he said.

In the case of mobile operators in similar disputes involving recharge coupons, certain high courts have ruled in favour of the income tax department. According to court judgements, discounts are subject to TDS as commission at the rate of 10%, Paul said.

Deducting TDS on recharge vouchers may add to the challenges DTH operators face as the discount, or so-called commission, is not actually paid by the operators but is a margin retained by the distributors.

The I-T department has also alleged that Tata Sky employs third parties for installation of hardware for customers and has incorrectly deducted TDS at 2% instead of 10% on the fee paid to third parties.

Sandeep Ladda, executive director and national leader for entertainment and media sector (tax and regulatory services), PricewaterhouseCoopers, said DTH players frequently enter into contracts with third party companies for setting up hardware in consumer homes.

“Since it is a technical service, the TDS withholding should be 10%. Section 194J states that a 10% withholding is applicable on technical services,” he said.

But Section 194C of the I-T Act defines work related to broadcasting and telecasting, including production of programmes, as applicable for TDS deduction of 2%.

“But installation of hardware is in no way connected to these areas—neither does it involve broadcast or telecast or production of content—which is why the 2% should not apply,” Ladda said.

Digital subscribers (DTH, digital cable and Internet protocol TV) are expected to exceed cable TV subscribers in 2013, according to a joint report by the Federation of Indian Chambers of Commerce and Industry and KPMG on media and entertainment.

The number of digital subscribers is expected to rise from 33 million in 2010, to 44 million this year and 99 million by 2015.

DTH subscribers increased from 16 million in 2009 to 28 million in 2010 and are estimated at 70 million by 2015.

A third I-T official, who also spoke on condition of anonymity, said the TDS target for Mumbai this fiscal year is Rs.50,000 crore, up 34% from last year, and the department is aggressively scanning the top 100 firms for tax leakages.

Mumbai makes up about one-third of India’s total direct tax collections. The direct tax target for Mumbai this fiscal year is Rs.182,000 crore, up 19.7% from last year.


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