Income Tax Appellate Tribunal - Kolkata
Nuri Suri, Kolkata vs Department Of Income Tax on 8 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH 'A', KOLKATA
(Before Shri P. M. Jagtap, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ITA No.958/Kol/2013 : Assessment Year: 2009-10
I.T.O., Ward-30(4),
Kolkata
Vs
Smt. Niru Suri
PAN: ARPPS 1485F
(APPELLANT)
(RESPONDENT)
Appellant by : Shri Rajat Kumar Kureel, JCIT, Sr.DR
Respondent by : Shri Manish Tiwari, FCA
Date of Hearing : 31.05.2016
Date of Pronouncement :08.06.2016
ORDER
Shri P.M.Jagtap, A.M. This appeal is preferred by the assessee against the order of ld. CIT-XIV, Kolkata, dated 08.02.2013 for the assessment year 2009-10.
2. In ground no.1, the Revenue has challenged the action of the ld. CIT(A) in deleting the disallowance of Rs.2,64,86,490/- made by the AO under section 40(a)(ia) on account of payment made to advertising agency without deduction of tax at source.
3. The assessee in the present case is an individual who is engaged in the business of rendering advertising services. The return of income for the year under consideration was filed by her on 22.09.2009 declaring total income of Rs.10,80,110/-. During the course of assessment proceedings, it was noticed by the AO that the assessee has made payments to advertising agencies aggregating to Rs.2,64,86,490/-. According to the AO, the assessee was liable to deduct tax at source from the said payment as per Clause (k) of section 194C(1) of the Act and since there was failure on the part of the assessee to comply with the said requirements, she was called upon by the AO to explain as to why the payment made to advertising agencies should not be disallowed under section 40(a)(ia) of the Act.
4. In reply, it was submitted by the assessee that arrangement was made with accredited advertising agency mainly to channelize her advertising materials through them to the print media and since no specific work was assigned to advertising agencies, mere routing of the advertising material invented by the assessee through advertising agencies did not produce any work so as to attract the provisions of section 194C. This plea of the assessee was not found acceptable by the AO for the following reasons given in the assessment order.
"The provision of section 194C of the LT. Act is as under:-
(i) "any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the Contractor and person as specified in (a) to (k) shall deduct tax at source at the time of credit of such sum to the account of the Contractor or at the time of payment whichever is earlier".
So, under the existing provision of Section 194C of the I.T. Act, deduction of tax at source is required to be made from the payment of any s um to resident Contractor/Sub-contractor for 'carrying out any work' at the time of payment or credit of such sum to the account of such person.
It is embedded in the provision of Secton194C that 'any' person responsible for paying 'any' sum to any resident contractor /Subcontractor for 'carrying out any work ..... ' The expression 'Contract for carrying out any work' implies that the Contractor/Sub-contractor should have carried out such activities. Here 'any' is a word which excludes the limitation and qualification and can mean 'all' 'each' and 'every' as well as 'carrying on' implies as repetition of 'work' So the provision relating to deduction of tax at source from payment made to contractors and sub-contractors are wide enough to cover any contract."
5. Before the AO, it was also submitted by the assessee that as the advertising agencies were only routing agencies and not entrusted with the publication of the advertisements, they could not be regarded as sub-contractor. In support of its contention, reliance was placed by the assessee on CBDT circulars no.715 dated 08.08.1995 andd 714 dated 03.08.1995 clarifying that the provisions of section 194C should be applicable only when a client makes a payment to an advertising agency and it would not be applicable when the advertising agency makes a payment to the media. This contention of the assessee was also not found acceptable by the AO for the following reasons given in the assessment order.
"It is apparent from the record that during the relevant financial year, the assessee had made direct payment to various print media mounting to Rs.1,42,86,110/- and Rs.2,64,86,490/- to the advertising agencies for the work entrusted by the assessee.
So, the assessee had opportunity to place the order of contract for advertising directly to the print media. However, the assessee had made contract with the advertising agencies for placement of work.
As per provision of Circular No.715 dated 08-08-1995, it is mentioned that when a client makes a payment to n Advertising Agency, tax is liable to be deducted, and not when the Advertising Agency makes payment to the Print or Electronic media, directly. So, it is vividly mentioned in the Circular that payment made to the Print or Electronic media by an Advertising Agency, is exempted from deduction of tax.
In the instant case, pursuant to the above Circular, the assessee being an Advertising Agent, had made payment to the Print Electronic Media amounting to Rs.1,42,86,110/- that may be exempted from deduction of tax, but the payment made to the Advertising Agency as a client amounting to Rs.2,64,86,490/- are not subjected to non-deduction of tax at source, so, as per provision of Section 194C of the I.T. Act, the assessee was liable to deduct tax at source against such sub-contract payment.
As per provision of CBDT's Circular No.714 dated 03-08-1995, there is also provision of deduction of tax at source against the payment made to print or electronic media for advertising including production of programme for such broadcasting and telecasting to be used in such advertising. As per CBDT's Circular No.715 dated 08-08-1995, there is also a provision of deduction of tax at source when a client makes payment to an advertising agency. Only the Advertising Agencies, who makes direct payment to the print/electronic media, are exempted for deduction of tax at source. It is also pointed out when an advertisement agency makes payment to their models, artist, photographs, etc., the tax is also to be deductible at the prescribed rate as per provision of law, as well as, there is no such provision of enrouting by other agencies in the said Circular.
So, there is no provision in the Circular No.715 that any client enrouting through advertising agency to publish any advertisement in the print/electronic media would be exempted from deducting tax at source. The assessee in her submission had also admitted that she is an unaccredited agent. She had made with contract with the advertising agencies for performance of work against the payment made to the advertising agency and the work may be related to the publication of any advertisement in print/electronic media or to the souvenir or any payment to any other advertising activities that may not be restricted to printing of advertisement in the print media, that may be related to the payment of putting up a hoarding etc. As per provision of Circular 715 dated 08-08-1995, tax has to be deducted on payments for cost of advertisements issued in the souvenir brought out by the various organizations, as well as contract for putting up for hoarding is also in the nature of advertisement and provision of section 194C would be applicable.
So, the payment made to advertising agency does not necessarily mean that the payment is made only for publication of advertisement in print media. Moreover, since the assessee is an unaccredited agent, so the assessee is treated as client, when she makes payment to an advertising agency. Since, as there is no provision of exemption of non-deduction of tax at source by an unaccredited agent to his/her payment to the advertising agent, so, the assessee's contention of 'routing through' the advertising agency is not acceptable. As well as the assessee's contention of 'reimbursement' of expenses is not acceptable on the ground that the assessee had made payment to the advertising agency against her contract and not to the print media. From the ledger copies of the Advertising Agency, submitted by the assessee, it is seen that the payments were made to the advertising agency against the placement of work. So, the advertising agency had earned income against such order placed by the assessee. It is not the case that the advertising agency had done the work at free of cost. So, as per provision of the Act, tax is deductible at source by the assessee against such income earned by the advertising agency."
5.1 For the reasons given above, the AO held that the payments made by the assessee to the advertising agencies were covered by the provision of section 194C and since no tax at source was deducted by the assessee from the said payments as required by section 194C, the amount of Rs.2,64,86,490/- paid by the assessee to advertising agencies was disallowed by the AO by invoking the provision of section 40(a)(ia).
6. The disallowance of Rs.2,64,86,490/- made by the AO under section 40(a)(ia) on account of payments made to advertising agencies was challenged by the assessee in the appeal filed before the ld. CIT(A) and after considering the submissions made by the assessee and the material available on record, the ld. CIT(A) deleted the said disallowance for the following reasons given in paragraph 8 of his impugned order.
"8. I have carefully considered the assessment order and the submissions of the appellant. I am of the considered view that the facts of the present case are identical to the facts of Premlata Maheswari. I find that on these facts, the case is directly covered by the above said decisions of the Hon'ble ITAT Bench, Bangalore, in the case of M/s. Sands Advertising Communication Pvt. Ltd. cited supra and ITAT bench, Kolkata, in the case of Premlata Maheswari Vs. ITO, Ward-32(2), Kolkata, cited supra. In the present appeal also, the assessee devised and defined the advertisement materials which were channelized through Campaign Advertising Services Pvt. Ltd. and other 5 (five) Accredited Advertising Agencies (AAA) and then to the Print Media. Therefore, respectfully following the aforesaid orders of the Hon'ble I.T.A.T., in the cases cited supra, it is held that the assessee's case does not fall within the ambit of Sec. 194C of the I.T. Act, 1961. Hence, it is held that the provisions of Sec. 40(a)(ia) are not attracted on the facts of the instant case. Accordingly, disallowance of Rs. 2,64,86,490/- is not justified and it is deleted. Hence, Ground No. 2 (a) of the appeal is allowed."
7. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue involving identical facts and circumstances has been decided by the Bangalore Bench of this Tribunal against the assessee vide its order dated 06.02.2015 passed in ITA Nos. 1193&1194/Bang/2013 after discussing all the relevant aspects in detail in paragraph nos.6.1 to 6.5 of its order which read as under:
"6.1 The main contention of the assessee is that it is not liable to deduct tax at source on the payments of Rs.7,20,00,000 to BCCL in both assessment years concerned. It is the contention of the assessee that the provisions of section 194C of the Act apply only to "contract for work" and not to "contract of sale". According to the assessee, the contract with BCCL related to the purchase and sale of bulk advertisement space is not a "contract for work". As per the assessee, the term "advertising" only includes payments made by clients to advertising agency and not payments made by the advertising agency to the print media and the TDS provisions are applicable only when the client makes payment for advertising either to media directly or to advertising agencies and not when advertising agencies make payment to the media. It was contended by the assessee that BCCL is not doing any work for it and they are only buying the advertisement space in bulk from BCCL for entering into onward agreement to advertise with their clients. Therefore, the provisions of withholding of tax are not attracted on the payments made by the assessee to BCCL. In support of its contentions, the assessee cited and placed reliance, inter alia, on the following :-
(i) CBDT Circular NO.714 dt.3.8.1995 and CBDT Circular No.715 dt.8.8.1995;
(ii) The decision of the co-ordinate bench of the Bangalore Tribunal in the case of Sands Advertising Communication (P) Ltd V DCIT (37 SOT 179) (Bang).
6.2 In the decisions cited by the assessee, the scope and meaning of work is explained in detail and there is no dispute on this score. In terms of clause (iv) of Explanation to section 194C of the Act, advertising is also an activity which falls within the ambit of "Work". This, in the context of the case on hand, is the work which the media does for a client for a certain consideration. In the case on hand, the media is BCCL which does the advertisement for the assessee or its clients. Therefore, we find that there is no merit in the assessee's contention that BCCL is not doing any "Work" for the assessee. The payments made for booking of the advertisement space is essentially for advertisement purposes and not for the space as such. The client does not pay to take ownership of the space but for advertisement of his product / service. At the time of booking the advertisement space, BCCL is not concerned about whom the advertisement is intended for. It's only requirement is that the advertisement should comply with the laws in force at that time. Therefore, it follows that the payment made by the assessee to BCCL is for advertisement, which is unambiguously included in the provisions of section 194C of the Act.
6.3 The assessee has placed reliance on CBDT's Circular No.714 dt.3.8.1995 to contend that the transaction in question would not fall under "advertising" within the meaning of section 194C of the Act. Section 194C of the Act provides that tax is to be deducted at source against payments made to contractors / sub-contractors, for carrying on any work (including the supply of labour for carrying out any work) by a contractor. Such work must be in pursuance of a contract (including sub-contractor) between the contractor and a specified persons defined in the Explanation to section 194C of the Act. The word "work" in this section would include advertising.
6.4 In CBDT Circular No.715 of 1995, cited by the assessee, the scope of advertising contract was clarified in Answer to Question 1 as under :-
"The term "advertising" has not been defined in the Act. During the course of consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when an advertising agency makes payment to the media, which includes both print and electronic media..."
In the case on hand, various terms of the Agreement between the assessee and BCCL indicate that theassessee has not entered into the agreement in the capacity of an advertising agency. The terms of the Agreement indicate that the assessee purchased bulk advertisement on principal-to-principal basis. After purchasing the same, the assessee is at liberty to sell the space to anyone and BCCL has no role or part in that regard. In this factual matrix, the inevitable conclusion that follows is that the assessee has purchased the advertisement space for itself and not on behalf of any specific clients in the capacity of an advertising agency. Therefore, it is clear from the agreement that at the time of purchasing the bulk advertisement space, the assessee is merely a client to the media, BCCL in this case. In this view of the matter, it can be inferred from the CBDT Circular No.715 of 1995 that the assessee was liable to deduct tax at source on the payments of Rs.7,20,00,000 in the impugned assessment years.
6.5 The assessee has also placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Sands Advertising Communications (P) Ltd. (supra). On perusal thereof, we find that the facts of the cited case are distinguishable. In the case of Sand Advertising Communication (P) Ltd. (supra), the assessee was an advertising agency involved in activity of advertising in the print media. It's sister concern was in similar business, but was an accredited agency. The assessee extend into an agreement with the sister concern under which all advertisements created / developed by the assessee for its clients were to be released to the print media through the sister concern, for which certain consideration was to be paid to it. The Assessing Officer was of the view that the provisions of section 194C of the Act was applicable, while the contention of the assessee was that the sister concern was only a routing agency and not a sub-contractor. It was held by the co-ordinate bench of the Tribunal that the provisions of section 194C of the Act is applicable only when payment is to be made to an advertising agency and not when payment is made by an advertisement agency to the print media as clarified in CBDT Circular NO.715 of 1995 and therefore it was held that no TDS was required to be made in that case. In the case on hand, however, the assessee is not a routing agency. It makes outright purchase of advertising space and exercises exclusive control over the space. It has the right to sell the space or retain it with itself. Further, this is not a case of payment made by an advertising agency to the print media. There is a transfer of advertisement space from BCCL to the assessee, who in turn sells it to other parties. In this factual matrix, we are of the view that the reliance placed on the CBDT Circular no.715 of 1995 and the decision in the case of Sands Advertising Communications (P) Ltd. (supra) does not come to the rescue of the assessee."
7.1 A perusal of the order of the Tribunal passed in the case of M/s. Metropolitan Media Company Ltd. (supra) clearly shows that all the relevant aspects including the CBDT circulars and decision as earlier rendered in the case of M/s. Sands Advertising Communication Pvt. Ltd. (supra) relied upon by the ld. CIT(A) in his impugned order have been considered by the Tribunal while deciding the similar issue against the assessee and the impugned order of the ld. CIT(A) giving relief to the assessee on this issue is liable to be set aside by following the said decision of the Coordinate bench of this Tribunal.
7.2 At the time of hearing, the ld. Counsel for the assessee also has not disputed this position. He however has raised an alternative contention that the issue may be restored to the file of the AO for the limited purpose by considering the same in the light of second proviso inserted in sub-clause (ia) of clause (a) of section 40 by the Finance Act, 2012, w.e.f. 1.4.2013 which is applicable retrospectively. In support of this alternative contention, the ld. Counsel for the assessee has relied on the decision of the Coordinate bench of this Tribunal in the case of New Alignment in IT Appeal No.504/Kol/2014 dated 6th April, 2016, wherein the similar alternative prayer made on behalf of the assessee was accepted by the Tribunal and the matter was restored to the file of the AO for deciding the same afresh in the light of second proviso to section 40(a)(ia) inserted by the Finance Act, 2012, w.e.f. 1.4.2013 holding that the same was applicable retrospectively. We, therefore set aside the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and restore the matter to the file of the AO for the limited purpose of deciding the same in the light of second proviso to section 40(a)(ia) which is applicable retrospectively as held by the Coordinate bench of this Tribunal in the case of New Alignment (supra). Ground no.1 of the Revenue's appeal is treated as allowed for statistical purposes.
8. In ground no.2, the Revenue has challenged the action of the ld. CIT(A) in deleting the disallowance of Rs.4,41,418/- made by the AO under section 40(a)(ia) on account of payments made by the assessee to various parties towards collection of advertisement.
9. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the payments in question made by the assessee to various parties against the collection of advertisement were treated by the AO as in the nature of professional charges covered by section 194H and the same were disallowed under section 40(a)(ia) as there was failure on the part of the assessee to deduct tax at source. On appeal, the ld. CIT(A) accepted the stand of the assessee that the payments in question were in the nature of professional charges as covered by section 194J and since all such payments individually were less than Rs.20,000/-, he held that the assessee was not required to deduct tax at source and the question of disallowance under section 40(a)(ia) would not arise. At the time of hearing, the ld. DR has taken us through the relevant portion of the orders of the AO and the ld. CIT(A) to show that going by the services rendered by the concerned parties, the nature of payment is commission only as covered by section 194H and not professional charges covered by section 194J and the ld. Counsel for the assessee has not been able to controvert this position. He however has raised an alternative contention by relying on the second proviso to section 40(a)(ia) as done in respect of issue involved in ground no.1 with a request to restore the matter to the file of the AO for the limited purpose of deciding the same afresh in the light of the said proviso. We, therefore set aside the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and restore the matter to the file of the AO for the limited purpose. Ground no.2 of the Revenue's appeal is treated as allowed for statistical purposes.
10. In the result, the appeal filed by the Revenue is treated as allowed for statistical purposes.
Order Pronounced in the Open Court on 8th June, 2016.
Sd/- Sd/-
(S.S.Viswanethra Ravi) (P.M.Jagtap)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 08/06/2016
Talukdar/Sr.PS
Copy of order forwarded to:
1
Smt. Niru Suri, 2-B, Iswar Chowdhury Road, Kolkata - 700 029
2
I.T.O., Ward-30(4), Kolkata
3
The CIT(A),
45
CIT,
5. D.R.
True Copy, By order,
Asstt. Registrar, ITAT, Kolkata
11 ITA No.958/Kol/2013
Assessment Year 2009-10