2010 (11) TMI 674 - AT - Income Tax

Disallowance u/s. 40a(ia) - TDS - works contract or contract of sale - held that - the predominant object underlying the transaction of receiving the T-shirts and making the payments is largely for purchase of goods and even if there is some logo of the assessee printed on the, it would not change the nature of the transaction to works contract, so as to attract the provisions of S.194C of the Act - This issue is covered by the decision of the Delhi High Court in the case of CIT V/s. Dabur India Ltd. 2005 -TMI - 9609 - DELHI High Court - Thus, the grounds of the Revenue in appeal are rejected - Decided in favour of assessee.

Summary

Issues: Disallowance of advertisement expenditure under S.40(a)(ia) for non-deduction of tax at source.

In this judgment, the Appellate Tribunal ITAT, Hyderabad addressed the dispute concerning the disallowance of advertisement expenditure totaling Rs.2,91,20,349 by the Assessing Officer under S.40(a)(ia) of the Act due to the non-deduction of tax at source by the assessee. The facts of the case revealed that the assessee, engaged in the business of manufacturing and sale of IMFL brands, had entered into an agreement for marketing its products. The Assessing Officer disallowed the expenditure as the assessee failed to deduct tax at source in accordance with S.194C of the Act. However, the CIT(A) overturned this decision, leading to the Revenue's appeal. The Revenue contended that the CIT(A) erred in deleting the addition made by the Assessing Officer. The Tribunal examined the nature of the expenditure, which was for the purchase of T-shirts bearing the assessee's logo to be distributed to its retailers by another entity as per the marketing agreement. The Tribunal noted that the transaction primarily involved the purchase of goods and did not constitute a 'works' contract under S.194C. The Tribunal relied on the decision of the Delhi High Court in a similar case and upheld the CIT(A)'s order, dismissing the Revenue's appeal.

Overall, the Tribunal's decision centered on the interpretation of the nature of the transaction involving the purchase of T-shirts for distribution, emphasizing that it was a purchase of goods rather than a 'works' contract subject to tax deduction at source. The judgment highlighted the importance of the specific terms of the agreement and the absence of direct involvement by the assessee in the production process of the T-shirts. The reference to a previous court decision strengthened the Tribunal's reasoning and supported the CIT(A)'s decision to delete the disallowance of the advertisement expenditure.