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2012 (10) TMI 472 - AT - Income TaxDisallowance of discount paid/given to advertising consultants - Appellant has paid a sum of ₹ 49,93,84,045/- towards agents commission for sale of space for advertisements in newspapers and time slots for television broadcasting. Held that - The relationship between advertising consultant and the appellant, is on principal to principal basis, and not as an agent and principal for the reason that the advertising consultant neither act on the directions of the appellant nor rendered any services on behalf of the appellant to the advertisers. This is evident from fact that advertising consultant has to pay the bills of the publisher/broadcaster irrespective of the collections from their clients. As no services are rendered by the advertising consultant to the appellant, and further no payment/credit is made by the appellant, who is the publisher/broadcaster, to the advertising agency, the appellant is not liable for making any TDS and therefore, no disallowance can be made u/s. 4O(a)(ia) of the Act, for the said amount of ₹ 49,93,84,045 allowed towards discount to the advertising consultants.therefore, the payment by the assessee- company to accredited advertising agencies could not be terms as payment of commission and, therefore, the provisions of section 194H were not applicable to the instant case - against revenue. payment of data circuit rentals to BSNL - Assessee had incurred an amount of ₹ 8,68,80,460/- towards data circuit lines charges, which was paid to BSNL. The AO disallowed the said amount applying the provisions of section 40(a)(ia) on the ground that the assessee had not deducted any tax (TDS) on such payments. On appeal, the CIT(A) deleted the disallowance made by the AO observing that though in the assessment the AO has mentioned that the said payment made by the assessee to BSNL towards contractual obligation, he has not clarified as to how there is a contractual obligation for the said payment. Held that - U/s 194C, tax is required to be deducted when an assessee as contractee, makes payment to another person/party, which is a contractor, for execution of work. Since in this case there is no contract involved, provisions of section 194C are not applicable to the said payment made by the assessee to BSNL. There is no evidence to show that borrowed funds were used for the purchase of assets which had not been put to use. Therefore, we do not find any ground to interfere with the order of the CIT(A) and the same is hereby upheld - ground of appeal of the revenue is dismissed.
Issues Involved:
1. Disallowance of discount/commission paid to advertising consultants under Section 40(a)(ia) read with Section 194H of the Income Tax Act. 2. Disallowance of data circuit rentals paid to BSNL under Section 40(a)(ia) of the Income Tax Act. 3. Depreciation rate applicable to computer accessories and peripherals. 4. Disallowance of interest on borrowed funds for the purchase of printing machinery not put to use. Issue-wise Detailed Analysis: 1. Disallowance of Discount/Commission Paid to Advertising Consultants: The primary issue revolves around the disallowance of Rs. 49,93,84,045/- claimed by the assessee as agents' commission for the sale of advertisement space in newspapers and time slots for television broadcasting. The Assessing Officer (AO) disallowed this expenditure under Section 40(a)(ia) of the Income Tax Act, citing non-deduction of tax at source (TDS) under Section 194H. The assessee contended that since the payments were made directly by the agents after deducting their commission, provisions of Section 194H were not applicable. The CIT(A) upheld the assessee's view, stating that the relationship between the assessee and the advertising consultants was on a principal-to-principal basis, not principal-to-agent, thus negating the requirement for TDS deduction. The CIT(A) relied on multiple judicial decisions, including those from ITAT benches in Cuttack, Delhi, and Kolkata, which supported the view that such transactions were not subject to TDS under Section 194H. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal and confirming that no TDS was required for the discounts allowed to advertising consultants. 2. Disallowance of Data Circuit Rentals Paid to BSNL: The AO disallowed Rs. 8,68,80,460/- paid to BSNL for data circuit rentals, invoking Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) deleted the disallowance, clarifying that the payments were not contractual as per Section 194C, and thus, TDS was not applicable. The ITAT upheld this view, referencing the coordinate bench's decision in the assessee's own case, which aligned with the ruling in CIT vs. Bharati Cellular Ltd. (319 ITR 0139) (Del), where it was held that interconnect charges/port access charges do not qualify as fees for technical services requiring TDS. 3. Depreciation Rate Applicable to Computer Accessories and Peripherals: The AO restricted the depreciation on computer accessories and peripherals to 15%, treating them as plant and machinery instead of allowing 60% as claimed by the assessee. The CIT(A) reversed this decision, recognizing these items as integral parts of the computer system, thus eligible for 60% depreciation. The ITAT upheld the CIT(A)'s decision, citing the Hon'ble Delhi High Court's ruling in Asst. CIT vs. Amadeus India (P) Ltd. [2001] 79 ITD 407 (Del), which supported a liberal and broad interpretation of the term "computer system" to include peripherals. 4. Disallowance of Interest on Borrowed Funds for Purchase of Printing Machinery Not Put to Use: The AO disallowed Rs. 18,81,361/- as interest on borrowed funds used to purchase printing machinery that was not put to use. The CIT(A) deleted this disallowance, noting the absence of evidence linking borrowed funds to the purchase of the machinery. The ITAT upheld this decision, agreeing with the CIT(A)'s finding that there was no nexus established between the borrowed funds and the machinery purchase. Conclusion: The ITAT dismissed the revenue's appeals on all counts, upholding the CIT(A)'s decisions. The Tribunal confirmed that the assessee was not required to deduct TDS on discounts allowed to advertising consultants, data circuit rentals paid to BSNL were not subject to TDS, computer accessories and peripherals were eligible for 60% depreciation, and there was no evidence to support the disallowance of interest on borrowed funds for machinery not put to use.
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