Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc
Circular No. 742 was issued by the Central Board of Direct Taxes on 2 May 1996. Its subject is Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc.
Prescribes a presumptive basis for assessing foreign telecasting companies that have no branch office or permanent establishment in India or keep no country-wise accounts. Of the gross bills raised, the advertising agent retains about 15 per cent and the Indian agent of the foreign company about 15 per cent as service charges, and roughly 70 per cent is remitted abroad. The two agents are taxed on their own accounts. For the foreign company, taxable income is to be computed at 10 per cent of the gross receipts meant for remittance abroad, that is after excluding what the advertising agent and the Indian agent retain, or the income returned by the company, whichever is higher, and taxed at the prescribed rate, stated in the circular as 55 per cent at that time. The Board allows for the substantial capital cost, installation charges and running expenses of the early years in fixing that rate. Where the company has no branch or permanent establishment, tax has to be deducted and paid under section 195 by the person paying or remitting. Penalty proceedings are not to be started where the tax due with interest is paid voluntarily within thirty days of the date of the circular. The guidelines apply to all pending cases whatever the assessment year until 31 March 1998, after which the reasonableness of the profit rate is to be reviewed.
Foreign telecasting companies made a number of representations about their taxability and how much income arises from their Indian operations, and the Board found that in the absence of country-wise accounts Assessing Officers at different stations were adopting no uniform basis in what was then a new area of commercial activity.
Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc.
1. A number of representations have been received from foreign telecasting companies regarding their taxability and the extent of income that could be said to accrue or arise to them from their operations in India. A consequent issue raised is the method of computation of profits from their Indian operations, especially in the cases of those companies which do not have any branch office in India or are not maintaining country-wise accounts of their operations.
2. The matter has been examined in the Board and the assessment records of some of these companies have also been looked into. Since this is a new area of commercial activity, no uniform basis is being adopted by the Assessing Officers at different stations for computing the income in the absence of country-wise accounts of the foreign telecasting companies. It has, therefore, been decided by the Board to prescribe guidelines for the purpose of proper and efficient management work of the assessment of foreign telecasting companies.
3. It is seen that out of the gross amount of bills raised by a foreign telecasting company, the advertising agent retains commission at 15 per cent or so. Similarly, the Indian agent of the foreign telecasting company retains his service charges at 15 per cent or so of the gross amount. The balance amount of approximately 70 per cent is remitted abroad to the foreign company. So far as the income of Indian advertising agent and the agent of the non-resident telecasting company are concerned, the same is liable to tax as per the accounts maintained by them. As regards the foreign telecasting companies which are not having any branch office or permanent establishment in India, tax has to be deducted and paid at source in accordance with the provisions of section 195 of the Income-tax Act, 1961 by the persons responsible for paying or remitting the amount to them.
4. In the absence of country-wise accounts and keeping in view the substantial capital cost, installation charges and running expenses, etc., in the initial years of operation, it would be fair and reasonable if the taxable income is computed at 10 per cent of the gross receipts (excluding the amount retained by the advertising agent and the Indian agent of the non-resident foreign telecasting company as their commission/charges) meant for remittance abroad. The Assessing Officers shall accordingly compute the income in the cases of the foreign telecasting companies which are not having any branch office or permanent establishment in India or are not maintaining country-wise accounts by adopting a presumptive profit rate of 10 per cent of the gross receipts meant for remittance abroad or the income returned by such companies, whichever is higher and subject the same to tax at the prescribed rate, i.e., 55 per cent at present.
5. It has also been decided that while assessing the income in the aforesaid manner, penalty proceedings may not be initiated in the cases in which taxes due along with the interest are paid voluntarily within 30 days of the date of issue of this circular.
6. It is clarified that these guidelines would be applicable to all pending cases irrespective of the assessment year involved until 31st March, 1998, after which the position with regard to the reasonableness of the rate of profits of such companies will be reviewed.
Circular : No. 742, dated 2-5-1996.
An assessment of a foreign broadcaster for a mid-1990s year, or a remittance certificate under section 195 for advertising revenue going abroad.
Gross bills of Rs. 100 lakhs are raised. The advertising agent keeps about Rs. 15 lakhs and the Indian agent about Rs. 15 lakhs, leaving about Rs. 70 lakhs to be remitted. Income of the foreign company is taken at 10 per cent of that, Rs. 7 lakhs, unless it returns more, and tax is charged on that at the rate then prescribed.
Source: the Income Tax Department’s own published text — its page for this instrument.