Star seeks stay on I-T claims

Hong Kong-based Satellite Television Asian Region has filed an appeal at the Bombay High Court against an income-tax claim of Rs 400 crore, seeking a stay on the tax authorities' order.

Before this, the tax assessment had already been contested in the income-tax tribunal, which ruled that Star should pay up the claims.

The decision was taken on grounds that Star India, the Indian subsidiary of Star Hongkong, is collecting advertising revenues and getting paid for time slots in India.

There is a business connection between the two entities "" Star Hongkong, the parent, and its Indian entity Star India Pvt Ltd "" under section 5 and 9 of the I-T Act.

Thus, the tribunal had ruled that Star Hongkong ought to have deducted TDS (tax deductible at source) payments before paying its channel companies "" Star Plus, Channel V and Star News.

The matter will come for hearing in March. Beni Chatterjee, advocate for the I-Tax department, said the department has no objection to the delay in hearing as long as no stay is granted on the payment of the tax claims.

Under the current arrangement, Star India collects ad revenues from India and pays it to its parent Star Hongkong after deducting its commission. Star Hongkong then pays to the channel companies, three of which are based in the British colony, Virgin islands, which is a tax haven.

Star Hongkong has argued that the provisions of TDS are not applicable to a company where payments are made by one non-resident to another outside India. In this case, two non-residents are situated in Hong Kong and Virgin islands.

The appeal stated that the assessing officer was wrong in not establishing the taxability of the channel companies in India through an assessment before disallowing the claims for exemption under section 40(A)(I) of I-T Act.

The incomes of these channel companies are thus not taxable in India, as no business connection exists between Star Hongkong and the channels aired in India.

The appeal suggested that the assessing officer, alternatively, should have followed circular 40 of the Central Board of Direct Taxes, as per which tax is only applied to income in the hands of channel companies and not the parent.