Subscription Money Received In Advance By DTH Operators Is Taxable Only When Services Are Provided To The Subscribers: Chennai ITAT

The Bench, consisting of members V. Durga Rao (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member), held that the subscription money received by DTH operators is taxable only when the said amount is accrued to them, i.e., when the services are rendered by the DTH operators to the subscribers.

The assessee M/s Sun Direct TV Pvt Ltd is a 'Direct To Home' (DTH) satellite platform operator and offers DTH services in India. The Assessing Officer (AO) proposed to make certain additions to assessee's income which was shown as 'deferred income' in assessee's accounts, for the relevant year. The assessee submitted before the AO that it's business model predominantly operated under a prepaid model and the assessee received subscription income from various customers in advance. The assessee contended that it treated the amount collected in advance as 'deferred income' and did not recognize the revenue on the basis of collection. The assessee added that thereafter, the income pertaining to a particular day was transferred from the 'deferred income account' to the 'subscription income account', which was then offered to tax.

The AO however rejected the submissions of the assessee and held that the assessee had no liability to refund the amount collected from the customers / subscribers in advance and therefore, the income had accrued to the assessee in the relevant year in which it was collected.

Against the order of the AO, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)). The CIT (A) observed that the Chennai Bench of the ITAT in the case of ACIT versus M/s Sun TV Network Ltd (2013), on an identical issue, had observed that there was no illegality or irregularity in the methodology adopted by the assessee in registering the revenue in the year of telecast of programme as against the year of receipt. Thus, the CIT(A) allowed the appeal of the assessee and directed the AO to delete the additions made to assessee's income. Against the order of the CIT(A), the revenue department filed an appeal before the ITAT.

The ITAT observed that the assessee provided DTH services to various subscribers and received subscription amount, which was credited to the 'deferred income account'. The ITAT noted that the revenue earned, for each day, was thereafter transferred to the subscription account and was offered to tax.

The ITAT ruled that this method of accounting, which was in line with the requirement of AS-9 issued by ICAI, had been consistently followed by the assessee.

The ITAT held that the cardinal principal of taxing the income under mercantile basis of accounting was that the income should have accrued to the assessee. The ITAT added that mere advances could not be brought to tax.

The ITAT ruled that the amount lying in the 'deferred income account' were advances received by the assessee for rendering services in the future. The ITAT held that unless the receipts were held to be taxable under the statute, the same could not be taxed. The ITAT added that only the income which has accrued to the assessee during the year could be taxed.

The ITAT held that the unearned revenue and mere advances, which would accrue to the assessee in future, cannot be clothed as the income of the assessee. The ITAT added that the fact that the subscription money collected in advance was never refunded to the subscribers, was not germane to the issue since the subscription money paid by the subscribers was governed by the contractual terms between the assessee and the subscribers.

The ITAT observed that a co-ordinate bench of ITAT Chennai in the case of ACIT versus M/s Sun TV Network Ltd (2013), had upheld the methodology adopted by the assessee in registering the revenue in the year of telecast of programme and not on the basis of receipt.

The ITAT thus dismissed the appeal of the revenue department.

Case Title: ACIT versus M/s Sun Direct TV Pvt Ltd

Dated: 01.04.2022 (Chennai ITAT)

Representative of the Appellant/ Revenue Department: Mr. M. Rajan – CIT-DR

Representative of the Respondent/ Assessee: Mr. K. Ramkrishnan (CA)

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