2016 (5) TMI 37 - AT - Income Tax

TDS u/s 194C - payments to camera attendants engaged on ad-hoc basis for a day or two or as and when required basis - Held that - The payments to the persons engaged on ad-hoc basis do not fall within the expression work for the purposes of section 194C of the I.T. Act, 1961. The appellant has incurred the impugned expenditure on account of engaging some camera attendants on ad-hoc basis i.e. for a day or two or as and when required basis. Obviously, an activity of engaging some camera attendants for using them in the business of providing of video production services would not amount to contract for carrying out of work as contemplated under section 194C of the I.T. Act, 1961. There is no material on record to demonstrate that the impugned payments constituted payments for carrying out of any work within the meaning of section 194C. of the Act. The Assessing Officer has not asserted that there was any contract between the appellant and the above individuals for providing services as camera attendants. Engaging some persons on ad-hoc basis or as and when required basis, in my view, cannot be equated to a contract contemplated u/s 194C of the I.T. Act, 1961. Therefore, considering the facts and circumstances of the case, hold that the AO was not justified invoking section 40(a)(ia) and making impugned disallowance. - Decided in favour of assessee Payment of interest for delayed payments of certain types of taxes and imposts i.e. cess, purchase tax, sales-tax etc.- whether the impugned sum was compensatory or penal in nature? - Held that - The expenditure in respect of payments of interest on late deposit of service tax is an allowable business expenditure incurred by the appellant for the purpose of carrying on its business. The interest on delayed payments of service tax is certainly compensatory in nature and hence allowable as deduction as it is not in the nature of penalty. The facts of the cases cited by the Assessing Officer are completely different from the facts of the instant case as they relate to non-compliance of specific provisions of Income-tax Act and payment of penalty for nonpayment/ delayed payment of sales-tax. Penalty and interest are two different things and thus cannot be equated. The penalty is an impost for an infraction/violation of any law whereas interest is an impost of a compensatory nature for holding the statutory dues for a period longer than as stipulated by the relevant law. Therefore, considering the facts and circumstances of the case and respectfully following the various case laws hold that that the interest claimed on delayed payment of service-tax is an allowable expenditure u/s 37(1) of the I.T. Act, 1961 - Decided in favour of assessee

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of interest on delayed payment of service tax.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The case involved an appeal by the revenue against an order passed by the ld. CIT(A)-XXXII, New Delhi, relating to the assessment year 2010-11. The assessee, a service provider engaged in providing events and programs for broadcasting, had made payments without deducting TDS. The AO disallowed an amount under section 40(a)(ia) of the Act, which the assessee contested. The ld. CIT(A) examined the facts and submissions, determining that the payments were made to camera attendants hired on an ad-hoc basis, exempting them from TDS provisions. The tribunal upheld the ld. CIT(A)'s findings, stating that engaging camera attendants on an ad-hoc basis did not fall within the purview of section 194C of the Act, thereby dismissing the revenue's appeal.

Issue 2: Disallowance of interest on delayed payment of service tax:
The second issue revolved around the disallowance of interest on delayed payments of service tax by the AO. The tribunal analyzed whether the interest was compensatory or penal in nature. The ld. CIT(A) found that such interest was compensatory and deductible as a business expenditure under section 37(1) of the Act. The tribunal concurred with this view, emphasizing that interest on delayed payments of certain taxes is compensatory and not penal. As the revenue failed to provide evidence to challenge the ld. CIT(A)'s findings, the tribunal upheld the decision, resulting in the dismissal of the revenue's appeal.

In conclusion, the tribunal dismissed the revenue's appeal, upholding the ld. CIT(A)'s decisions on both issues. The judgment clarifies the applicability of TDS provisions to ad-hoc payments and distinguishes between compensatory interest and penalties in tax matters, providing a detailed analysis of the legal principles involved in each issue.