2013 (12) TMI 65 - AT - Income Tax

Charges for printing of the company s product catalogue Held that - Following CIT Vs. DCAO, Marfed Khanna Branch 2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT - Payments to the contractors for the purchase of printed packing material for the purpose of packing of its finished products is a contract of sale and not work contract - Supply of all kinds of printed material would not amount to works - The expenditure incurred by the assessee for the purpose of printing product catalogue and telephone index, in our view, is in the nature of contract for sale/purchase and not in the nature of works contract . Therefore, the impugned expenditure does not attract the provision of section 194C Decided in favour of assessee. Payment to Hotel Held that - According to the CBDT s circular no. 715 dated 08.08.1995 clarifying the position as regard the payments made to a hotel for hiring rooms u/s 194-I of the Act - for the purposes of section 194-I, payment made to hotels for hotel accommodation whether in the nature of lease or licence agreements are covered only if accommodation had been taken on regular basis - In the case of the assessee - The payment made to hotel for booking room is not taken on regular basis and only as per rate contract Decided in favour of Revenue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for failure to deduct tax at source under section 194(c).
2. Disallowance under section 40(a)(ia) for failure to deduct tax at source under section 194-I.

Issue 1: Disallowance under section 40(a)(ia) for failure to deduct tax at source under section 194(c):

The appellant contested the disallowance of Rs.3,93,278 under section 40(a)(ia) by the Ld.CIT(A) for not deducting tax at source under section 194(c). The appellant argued that the expense was for purchasing printed material and not a contract for work, thus TDS deduction was not required. The appellant cited legal precedents supporting their position. The Tribunal analyzed the nature of the expenditure and relevant legal interpretations. It was noted that the expenditure on printing product catalogues and telephone indexes did not involve sensitive responsibilities, unlike other cases where TDS was applicable. The Tribunal distinguished various court rulings to clarify that the expenditure in question did not fall under the purview of section 194(c). Consequently, the disallowance made by the AO and confirmed by the Ld.CIT(A) was deemed legally untenable and thus deleted.

Issue 2: Disallowance under section 40(a)(ia) for failure to deduct tax at source under section 194-I:

The appellant challenged the disallowance of Rs.2,12,200 under section 40(a)(ia) for not deducting tax at source under section 194-I. The AO disallowed the amount paid for room rent to a resort at Silvasa as TDS was not deducted. The Ld.CIT(A) upheld this disallowance based on a CBDT circular. However, the Tribunal observed that the circular applied to payments made for hotel accommodation taken on a regular basis, whereas in the appellant's case, rooms were booked as per a rate contract and not regularly. Therefore, the Tribunal concluded that the appellant was not required to deduct TDS on such expenditure. Consequently, the disallowance was deleted, and the appeal by the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, highlighting the specific legal interpretations and factual distinctions that led to the decisions.