2014-VIL-914-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

I.T.A. Nos. 4991 & 4992/Mum/2013

Date: 29.10.2014

MADISON COMMUNICATION PVT. LTD.

Vs

DY. CIT (TDS) -1 (1) , MUMBAI

For The Appellant : Shri Vijay Kumar Bora
For The Respondent : Shri Paras Savla & Ms. Priyanka Gada

BENCH

SHRI JOGINDER SINGH AND SHRI N. K. BILLAIYA, JJ.

JUDGMENT

Per N. K. Billaiya, AM:

These two appeals by the Revenue and the cross objections by the assessee are directed against the very same order of the ld. CIT(A)-14, Mumbai dated 18.03.2013 pertaining to Assessment Years (A.Y.) 2010-11 and 2011-12. As the first appellate authority has decided the appeal for the two years by a consolidated order and as the issues are common in both the years, these appeals were heard together and disposed of by this common order for the sake of convenience.

2. In the appeals filed by the Revenue, the sole issue is whether the ld. CIT(A) was justified in deleting the interest levied u/s.201(1A) of the Act on the issue of payments made by the assessee for the purpose of display of advertisement of the assessee’s clients and whether the ld. CIT(A) was correct in holding that the provisions of section 194C would apply and not the provisions of section 194J, though quantum of interest may defer in both the appeals.

3. During the course of scrutiny assessment proceedings for the years under consideration, the Assessing Officer (A.O.) noticed that the assessee has shown expenditure on advertisement through outdoor display which includes payment for advertisement on hoarding/board. The A.O. further noticed that the assessee has deducted TDS @ 2% u/s.194C on these payments. The A.O. was of the firm belief that the provisions of section 194I apply on the facts of the case, drawing support from the CBDT Circular No. 715 dated 08.08.1995. The assessee was asked to justify why TDS has been made as per the provisions of section 194C of the Act and why 194I should not be applied. The assessee filed a detailed reply dated 13.01.2012. It was claimed that the contract between the assessee and the two payee firms is covered under the definition of work contract as given in Explanation to section 194C of the Act, which includes the word ‘advertising’ in definition of “work”. It was further explained that there was no nexus between the assessee and the owner of the land, building, or plant and machinery, etc. Therefore, there is no question of assessee being liable to deduct the tax u/s.194I of the Act. The assessee relied upon the decision of the Tribunal in ITA Nos. 1277 to 1279/Mum/2001. The explanation filed by the assessee did not find favour with the A.O. The A.O. relied upon certain judicial decisions and held the assessee to be liable for interest u/s.201(1A) of the Act. The assessee carried the matter before the ld. CIT(A) and reiterated its claim after considering the facts and the submissions, the ld. CIT(A) at para 5.9 of his order observed as under :

‘5.9 The Appellant had booked hoarding sites through hoarding contractors on behalf of its clients for display of their advertisements. The Appellant neither puts up a hoarding nor does it take any space on rent from the hoarding contractors. It only obtains the right of displaying the advertisement on hoardings put up by the hoarding contractors. In other words, the Appellant had subcontracted the work for putting up the hoardings to hoarding contractors. The prime responsibility of payment of rent of the sites is of the hoarding contractor and not of the Appellant who acts as the main contractor. The subcontractor (hoarding contractor), in turn hires the sites and is responsible to put up the hoarding. Accordingly the provisions of the section 194C would be attracted and not the provisions of section 194-1, as held by the AO.’

and finally concluded by holding that the payments made by the assessee do not fall in the category of the rent. Hence the tax was not required to be deducted u/s.194I of the Act. Aggrieved by this the Revenue is before us.

4. The ld. Departmental Representative (DR) stated that since the payee firms were found to have sublet the hoarding sites to the assessee-company, the payment made by the assessee-company for hiring the hoarding sites was liable to TDS u/s.194I of the Act. It is the say of the ld. DR that work contract for advertising covered under the provisions of section 194C is limited to contract between the client of the advertising company and the advertising company. Any other arrangement with any other person by advertising company to advertise its client’s products is not necessarily an advertising contract covered u/s.194C of the Act. The ld. DR further stated that advertising services is included in definition of professional services subject to TDS u/s.194J. The ld. DR concluded by saying that the decisions relied upon by the ld. CIT(A) are no more relevant after the amended definition of rent in section 194I w.e.f. 13.07.2006. Per contra the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the ld. Counsel that the assessee has only to deliver the advertisement material (flax) to the contractee and thereafter it was incumbent upon the contractee to display the advertisement material properly on the display board/hoardings. The ld. Counsel continued saying that any discrepancy in the display would result into non-payment to the contractee. Therefore, the assessee has correctly deducted the tax at source as per the provisions of section 194C of the Act.

5. We have considered the rival submissions and have carefully perused the orders of the authorities below. It is an undisputed fact that none of the hoarding sites are owned by the assessee nor taken on rent. The assessee has only the limited right to display its clients advertisement on that hoarding for a particular period of time. It would not be out of place to consider the following extract from the CBDT Circular No. 715 dated 08.08.1995.:

‘Question 5: Whether a contract for putting up a hoarding would be covered under section 194C or 194-1 of the Act?

Answer: The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C of the Act.’

6. Being an advertising/media agency, the assessee does not put up a hoarding or takes any space on rent. It only pays to the hoarding contractors for allowing the assessee to display its client’s advertisement on their hoarding. It is also an undisputed fact that the assessee has booked hoarding sites through hoarding contractors on behalf of its clients for display of their advertisement. Thus, the prime responsibility of payment of rent of the sites is of the hoarding contractor and not of the assessee. The CBDT in its Circular No. 714 dated 03.08.1995 has clarified that the tax will be deducted at source u/s.194J from payments made for professional services. Thus, when an advertising agency makes the payments for professional service to a film artist such as an Actor, Cameraman or a Director, etc., tax will be deducted @5%.

7. Considering all the facts in totality, we find that the assessee has entered into a contract with other parties for display of advertisement of its client and the transaction is purely in the nature of contract for the work of advertising as defined in clause VA of Explanation to section 194C of the Act. We decline to interfere with the findings of the ld. CIT(A) and the appeals filed by the Revenue are accordingly dismissed.

8. In its cross objections, the only surviving ground relates to the issue whether the consultancy charges paid by the assessee are in the nature of salaries u/s.192 of the Act or whether it is in the nature of fees or professional service attracting the provisions of section 194J of the Act. During the course of assessment proceedings, the A.O. observed that the assessee has paid professional charges to the retainers and the assessee was having a employer-employee relationship and therefore the assessee was liable to deduct the tax at source as per the provisions of section 192(1) of the Act. In support of its claim, the assessee filed copies of appointment letter of professionals. The A.O. was of the firm belief that the relationship between these professionals and the company is in the nature of employer-employee and therefore the assessee was held to be in default by not deducting the tax as per the provisions of section 192 of the Act. Aggrieved by this the assessee carried the matter before the ld. CIT(A) but without any success.

9. Aggrieved by this the assessee is before us. It is the say of the ld. Counsel that there exists no employer-employee relationship or master-servant relationship between the assessee and the retainers. The ld. Counsel further pointed out that the retainers in their professional capacity have collected service tax and have paid the same to the Service Tax Department. Therefore, it cannot be said that the professionals were not providing services. Per contra the ld. DR strongly supported the findings of the Revenue authorities.

10. We have carefully perused the orders of the authorities below. The appointment letter clearly shows that the persons have been appointed as a consultant. Though there is a restrictive clause that during the pendency of agreement with the assessee, the consultants will not take up any other assignment of temporary or permanent nature with any other person. However in our considered opinion, such restrictive covenants are provided in contract to safeguard the interest of the company and to make it sure that the consultants do not give services to the rivals in the same line of business. Merely because of this restrictive covenant, no employer-employee relationship could be established. Further, it is an undisputed fact that the consultants have charged service tax to the assessee and the service tax so collected have been paid to the government. By any stretch of imagination no employee would charge service tax to its employer. Therefore, we do not find any merit in the views taken by the Revenue authorities. The assessee has correctly deducted the tax. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O. to accept the assessee’s contention.

11. In the result, these cross objections of the assessee is allowed for both the years. All other grounds taken in the cross objections filed by the assessee become otiose in view of our confirming the order of the ld. CIT(A) in Revenue’s appeal and allowing the ground of CO as above.

Order pronounced in the open court on October 29th, 2014

 

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