2010 (1) TMI 647 - AT - Income Tax

Assessee in default - Survey - TDS - Demand - The assessee as well as Trishul bills their respective clients separately in their names and collect the advertisement charges in their respective names after deduction of TDS - scope of an advertising contract for the purpose of section 194C of the Act - During the course of the 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 - The deduction is required to be made at the rate of 1 per cent Whether the advertising agency would deduct tax at source out of payments made to the media - The answer to the question is given in negative - . In the result, the assessee s appeals for the assessment years 2005-06, 2006-07 and 2007-08 are allowed

Issues Involved:
1. Whether the assessee was in default for not deducting tax at source while making payments to print media through its sister concern.
2. Whether the payments made by the assessee to its sister concern, Trishul, were subject to TDS under Section 194C of the Income Tax Act.
3. Whether the interest levied under Section 201(1A) of the Act was justified.

Issue-Wise Detailed Analysis:

1. Whether the assessee was in default for not deducting tax at source while making payments to print media through its sister concern:

The assessee, an advertising agency, routed its advertisements through its sister concern, Trishul, which was an accredited advertising agency. The AO contended that payments made by the assessee to Trishul should attract TDS under Section 194C as sub-contractual payments. However, the assessee argued that Trishul was merely a routing agency and not a sub-contractor, and thus, TDS was not applicable. The CIT(A) upheld the AO's view, stating that the payments to Trishul were not exempt from TDS.

2. Whether the payments made by the assessee to its sister concern, Trishul, were subject to TDS under Section 194C of the Income Tax Act:

The assessee argued that since Trishul was only a routing agency and not a sub-contractor, the provisions of Section 194C were not applicable. The assessee relied on the Board's Circular No. 715 dated 8.8.1995 and various judicial precedents, including the Hon'ble Supreme Court's rulings, to support their stance. The Tribunal noted that the assessee was not an accredited agency and used Trishul's accredited status to avail credit facilities. The Tribunal found that Trishul's role was limited to forwarding the advertisement materials to the media and did not involve any specific work assignment. Therefore, the Tribunal concluded that the payments made to Trishul did not fall within the ambit of Section 194C.

3. Whether the interest levied under Section 201(1A) of the Act was justified:

Given the Tribunal's conclusion that the payments made by the assessee to Trishul were not subject to TDS under Section 194C, the interest levied under Section 201(1A) was also found to be unjustified. The Tribunal emphasized that the fundamental rule of law that tax cannot be recovered twice on the same income was applicable, as the clients of the assessee had already deducted TDS when making payments to the assessee.

Conclusion:

The Tribunal allowed the assessee's appeals for the assessment years 2005-06, 2006-07, and 2007-08, concluding that the payments made to Trishul were not subject to TDS under Section 194C, and thus, the interest levied under Section 201(1A) was not justified. The Tribunal's decision was based on the interpretation of the relevant provisions of the Income Tax Act, the Board's Circulars, and various judicial precedents.

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