2015 (2) TMI 1175 - AT - Income Tax

TDS u/s 194C - payments to BCCL for advertisement - Held that - The payment made by the assessee to BCCL is towards advertisement and the assessee was liable to deduct tax at source under Section 194C of the Act. In view of the assessee s failure to deduct tax at source as required, the provisions of section 40(a)(ia) of the Act are attracted in the facts of the case and the payments by the assessee to BCCL for both assessment years 2008- 09 and 2009-10 are liable to be disallowed thereunder - Decided against assessee. Applicability of section 40(a)(ia) to disallow expenditure which was actually paid within the previous year - Held that - The details as to whether the payee, BCCL, has actually offered as income and paid taxes on the amounts ofRs.7,20,00,000 each for the relevant Assessment Years 2008-09 & 2009-10 and whether these expenditure have actually been paid during the concerned previous year s or remained payable / outstanding as on 31.3.2008 and 31.7.2009 are facts which are material to come to a decision on this issue and the examination of such details as are required are not available before us. In view of the above, in the interest of equity and justice, we deem it necessary to restore this issue to the file of the Assessing Officer to decide thereon - Decided in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Liability to deduct tax at source under Section 194C of the Income Tax Act, 1961.
2. Applicability of Section 40(a)(ia) of the Income Tax Act for disallowing expenditure.
3. Whether Section 40(a)(ia) can be invoked to disallow expenditure actually paid within the previous year.

Detailed Analysis:

1. Liability to Deduct Tax at Source under Section 194C:
The primary contention was whether the assessee was liable to deduct tax at source on payments made to Bennett, Coleman & Company Ltd. (BCCL) under Section 194C of the Income Tax Act, 1961. The assessee argued that the payments were for the purchase of bulk advertisement space, which should be considered a "contract of sale" rather than a "contract for work." The assessee relied on CBDT Circulars No. 714 and 715 and the decision of the Bangalore Tribunal in Sands Advertising Communication (P) Ltd V DCIT to support their claim.

The Tribunal, however, found that the payments made to BCCL were for advertising purposes, which falls under the definition of "work" as per clause (iv) of the Explanation to Section 194C. The Tribunal held that the assessee was liable to deduct tax at source on these payments, as the transaction was essentially for advertising services and not merely for the purchase of space. Consequently, the Tribunal upheld the findings of the Assessing Officer and the CIT (Appeals) that the assessee was required to deduct tax at source under Section 194C.

2. Applicability of Section 40(a)(ia):
The second issue dealt with whether the provisions of Section 40(a)(ia) could be invoked to disallow the expenditure of Rs. 7,20,00,000 due to the assessee's failure to deduct tax at source. The Tribunal noted that since the assessee failed to deduct tax at source as required under Section 194C, the provisions of Section 40(a)(ia) were attracted. Therefore, the disallowance of the expenditure by the Assessing Officer was justified. The Tribunal dismissed the grounds raised by the assessee challenging the applicability of Section 40(a)(ia).

3. Disallowance of Expenditure Actually Paid within the Previous Year:
The assessee raised an alternate ground that Section 40(a)(ia) should not be invoked to disallow expenditure that was actually paid within the previous year. The assessee relied on the decision of the Special Bench of the ITAT in Merilyn Shipping & Transport V ACIT and other judicial pronouncements, arguing that the disallowance should only apply to amounts payable as of the balance sheet date, not to amounts already paid.

The Tribunal noted that this issue was raised for the first time before them and was not considered by the authorities below. The Tribunal found that the necessary details, such as whether BCCL had offered the amounts as income and paid taxes, and whether the expenditure was actually paid during the previous year or remained payable, were not available. Therefore, the Tribunal remitted this issue back to the Assessing Officer for verification of facts and a fresh decision, considering the judicial pronouncements cited by the assessee.

Conclusion:
The appeals for both assessment years 2008-09 and 2009-10 were partly allowed for statistical purposes. The Tribunal upheld the liability to deduct tax at source under Section 194C and the applicability of Section 40(a)(ia) for disallowing the expenditure. However, the issue of whether Section 40(a)(ia) can be invoked for expenditure actually paid within the previous year was remitted back to the Assessing Officer for further examination and decision.