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2005 (5) TMI 551 - AT - Income TaxTDS u/s 194C Or section 194-I - contractor/sub-contractor - Payments made by the advertising agents to the hoarding owners - HELD THAT - Section 194-I provides that a person who is responsible for paying to any person any income by way of rent shall deduct income-tax thereon at the rate prescribed therein. Explanation ( i ) to section 194-I defines rent to mean any payment by whatever name called under any lease sub-lease tenancy or any other agreement or arrangement for the use of any land or building together with furniture fittings and land appurtenant thereto. In the case before us the assessee has taken and acquired only the right of displaying advertisement to hoarding sites belonging to others. It is therefore clear that what is being used by the assessee in the case before us is only the right of displaying the advertisement. In our view section 194-I is more appropriately applicable to a case where rent is paid in consideration for the use of any land or building etc. under any lease sub-lease tenancy etc. In other words there should be a live link between payment of compensation known as rent and the use of land or building and this live link is by the lease sub-lease tenancy etc. This live link is absent in the case before us. We are therefore unable to say that the charges which were paid by the assessee were paid in consideration of mere use of any land or building. It was paid for commercial exploitation of display rights. Thus the order of ld. CIT(A) is confirmed. All the three appeals filed by the revenue are therefore dismissed.
Issues Involved:
1. Applicability of Section 194C vs. Section 194-I of the Income-tax Act, 1961 for TDS on payments made by the assessee to hoarding owners. 2. Liability of the assessee under Section 201 and interest under Section 201(1A) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Applicability of Section 194C vs. Section 194-I of the Income-tax Act, 1961: The central issue in these appeals is whether the payments made by the assessee to hoarding owners fall under the provisions of Section 194C or Section 194-I for the purpose of TDS. The revenue contends that the Assessing Officer correctly applied Section 194-I, treating the payments as rent, and thus the assessee should have deducted TDS at a higher rate. The assessee, however, argues that these payments are for advertising contracts and fall under Section 194C, which mandates a lower TDS rate. The revenue's argument is based on the premise that the hoarding sites are rented out to the assessee, making the payments liable to TDS under Section 194-I. The revenue also references CBDT's Circular No. 715, dated 8-8-1995, to support their stance that the payments should be treated as rent. Conversely, the assessee argues that the payments are for the right to display advertisements, which should be categorized under Section 194C. The assessee maintains that the nature of the contract is for the service of advertising, not for renting space. The assessee also argues that CBDT circulars are not binding on appellate authorities and should not override the clear provisions of the law. 2. Liability of the Assessee under Section 201 and Interest under Section 201(1A): The revenue contends that due to the incorrect application of Section 194C instead of Section 194-I, the assessee made short TDS and was thus treated as in default under Section 201. Consequently, interest was levied under Section 201(1A). The assessee counters this by arguing that the payees have already included the payments in their income tax returns and paid the due taxes. Therefore, the assessee should not be held liable for the shortfall in TDS. The assessee cites several judicial precedents to support the argument that if the payees have paid the taxes, the payer should not be penalized under Section 201 or charged interest under Section 201(1A). Tribunal's Findings: The Tribunal, after considering the arguments and relevant material, upheld the assessee's contention. It distinguished between different categories of parties involved in the advertisement process: landlords, advertising agents owning hoarding sites, advertising agents with display rights, and marketing agents. It noted that the assessee falls into the category of advertising agents with display rights, who pay for the right to display advertisements rather than renting space. The Tribunal emphasized that Section 194-I applies to payments made for the use of land or building under a lease, sub-lease, or tenancy. However, in this case, the payments were for commercial exploitation of display rights, not for renting land or building. Therefore, Section 194C, which covers payments to contractors for carrying out work, including advertising, was more appropriate. The Tribunal also noted that the payments made by the assessee were assessed as business income in the hands of the payees, supporting the assessee's argument that the payments were for advertising services. Conclusion: The Tribunal confirmed the order of the CIT(A), holding that the payments made by the assessee to hoarding owners fall under Section 194C and not Section 194-I. Consequently, the assessee was not liable under Section 201, and interest under Section 201(1A) was not applicable. All three appeals filed by the revenue were dismissed.
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