2015 (9) TMI 1000 - AT - Income Tax

TDS liability - u/s 192 or 194J - whether the payment made to the Creative Consultants was in the nature of professional fee paid? - as per the Assessing Officer the terms of the employment of the consultant showed that it was a case of employer-employee relationship and, therefore, the payments made by the assessee were liable to be subjected to tax deduction at source in terms of section 192 - Held that - The restrictive covenants which are sought to be interpreted by the Assessing Officer to mean that it establishes an employer-employee relationship between assessee and the consultants have to be understood in the context of the business realities in which the assessee operates. Such restrictions cannot imbibe an employer-employee relationship to the contract with consultants. It is also quite clear that that the benefits of an employer-employee relationship which are normally available, do not apply to the impugned consultants, for instance, provident fund, leave encashment, gratuity benefits, etc. In a similar situation, our Coordinate Bench in the case of DCIT vs. Madison Communication Pvt. Ltd (2015 (9) TMI 945 - ITAT MUMBAI) has also upheld the stand of the assessee that such payments are subject to deduction of tax at source under section 194J of the Act and not under section 192 of the Act. In conclusion, we therefore, uphold the plea of the assessee and set aside the order of CIT(A) and direct the Assessing Officer to treat the payments made to the Creative Consultants as liable for deduction of tax at source under section 194J of the Act and not under section 192 of the Act. As a consequence, the demand raised on account of shortfall of deduction of tax at source under section 201(1) of the Act and interest under section 201(1A) of the Act qua the aforesaid issue is hereby set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of the nature of payments made to Creative Consultants and the applicable section for tax deduction at source.
2. Classification of payments for hoarding charges and the relevant section for tax deduction at source.

Detailed Analysis:

Issue 1: Nature of Payments to Creative Consultants and Applicable TDS Section

The primary issue in the appeals for the assessment years 2010-11 and 2011-12 was whether payments made to Creative Consultants should be subjected to tax deduction at source under section 194J (professional fees) or section 192 (salaries) of the Income Tax Act, 1961. The assessee, a company engaged in advertising and marketing communication services, had deducted tax under section 194J, treating the payments as professional fees. However, the Assessing Officer contended that the terms of employment indicated an employer-employee relationship, necessitating tax deduction under section 192.

The Tribunal analyzed the nature of the relationship between the assessee and the consultants. It was noted that the consultants charged service tax, did not receive employment benefits like Provident Fund, leave encashment, or gratuity, and were not restricted from working with other entities, provided they did not work in the same field as the assessee. The Tribunal concluded that these factors indicated an independent professional relationship rather than an employer-employee relationship. The restrictive covenants were interpreted as business safeguards rather than indicators of employment.

The Tribunal referenced a similar case, DCIT vs. Madison Communication Pvt. Ltd., where it was held that such payments should be subjected to tax deduction under section 194J. Consequently, the Tribunal set aside the orders of the CIT(A) and the Assessing Officer, directing that the payments to Creative Consultants be treated under section 194J, thereby nullifying the demand for shortfall and interest under sections 201(1) and 201(1A).

Issue 2: Classification of Payments for Hoarding Charges

The second issue involved the classification of payments for hoarding charges and whether these should be subjected to tax deduction under section 194I (rent) or section 194C (contract) of the Act. The Assessing Officer treated these payments as rent, while the assessee argued they were for advertising services, thus falling under section 194C.

The Tribunal referred to a previous decision in the assessee's own case for A.Y 2002-03, where it was held that payments for hoarding charges were for composite advertising services and not for renting space. The Tribunal upheld this view, noting that the nature of the work involved various services integral to advertising, and thus, the payments were rightly subjected to tax deduction under section 194C. The Tribunal also cited the CBDT Circular No. 715, which clarified that contracts for putting up hoardings fall under section 194C unless a specific space is rented and then sublet.

Following this precedent, the Tribunal affirmed the CIT(A)'s decision for both assessment years, holding that the payments for hoarding charges were liable for deduction under section 194C, not section 194I.

Conclusion:

The Tribunal allowed the assessee's appeals, setting aside the demands for shortfall and interest related to the payments to Creative Consultants. It dismissed the Revenue's appeals regarding the classification of hoarding charges, affirming that these payments were correctly subjected to tax deduction under section 194C. The cross-objections filed by the assessee were rendered infructuous and dismissed. The consolidated order was pronounced on 28th August 2015.