2016 (7) TMI 105 - AT - Income Tax

TDS u/s 194C - payment made to advertising agency without deduction of tax at source - 2nd proviso to section 40(a)(ia) inserted by the Finance Act, 2012, w.e.f. 1.4.2013 applicable retrospectively - Held that - Assessee accepting the tds liability has raised an alternative contention that the issue may be restored to the file of the AO for the limited purpose by considering the same in the light of second proviso inserted in sub-clause (ia) of clause (a) of section 40 by the Finance Act, 2012, w.e.f. 1.4.2013 which is applicable retrospectively. In support of this alternative contention, the ld. Counsel for the assessee has relied on the decision of the Coordinate bench of this Tribunal in the case of New Alignment 2016 (5) TMI 753 - ITAT KOLKATA wherein the similar alternative prayer made on behalf of the assessee was accepted by the Tribunal and the matter was restored to the file of the AO for deciding the same afresh in the light of second proviso to section 40(a)(ia) inserted by the Finance Act, 2012, w.e.f. 1.4.2013 holding that the same was applicable retrospectively. We, therefore set aside the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and restore the matter to the file of the AO for the limited purpose of deciding the same in the light of second proviso to section 40(a)(ia) which is applicable retrospectively - Decided in favour of revenue for statistical purposes. TDS u/s 194H or 195J - payments made by the assessee to various parties towards collection of advertisement - Held that - At the time of hearing, the ld. DR has taken us through the relevant portion of the orders of the AO and the ld. CIT(A) to show that going by the services rendered by the concerned parties, the nature of payment is commission only as covered by section 194H and not professional charges covered by section 194J and the ld. Counsel for the assessee has not been able to controvert this position. He however has raised an alternative contention by relying on the second proviso to section 40(a)(ia) as done in respect of issue involved in ground no.1 with a request to restore the matter to the file of the AO for the limited purpose of deciding the same afresh in the light of the said proviso. We, therefore set aside the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and restore the matter to the file of the AO for the limited purpose. Appeal filed by the Revenue is treated as allowed for statistical purposes.

Issues Involved:
1. Deletion of disallowance under section 40(a)(ia) for payments made to advertising agencies without tax deduction at source.
2. Deletion of disallowance under section 40(a)(ia) for payments made towards collection of advertisements.

Issue-wise Detailed Analysis:

1. Deletion of disallowance under section 40(a)(ia) for payments made to advertising agencies without tax deduction at source:

The primary issue in this case is whether the payments made by the assessee to advertising agencies amounting to ?2,64,86,490/- should be disallowed under section 40(a)(ia) due to non-deduction of tax at source as per section 194C of the Income Tax Act.

The assessee, engaged in the business of rendering advertising services, argued that the payments were merely for routing advertising materials through accredited advertising agencies to print media, and thus, no specific work was assigned to the agencies that would attract the provisions of section 194C. The Assessing Officer (AO) rejected this argument, interpreting section 194C broadly to include any payments made for carrying out any work, including advertising.

The AO also dismissed the assessee's reliance on CBDT Circulars No. 714 and 715, which clarify that tax deduction at source applies when a client pays an advertising agency but not when the agency pays the media. The AO contended that since the assessee made direct payments to advertising agencies and not the media, the provisions of section 194C were applicable.

Upon appeal, the CIT(A) deleted the disallowance, citing decisions from the ITAT Bench, Bangalore, and Kolkata, which held that similar payments did not fall under the ambit of section 194C. The CIT(A) concluded that the assessee's case was identical to these precedents and, therefore, the disallowance under section 40(a)(ia) was not justified.

The Tribunal, however, referred to a similar case decided by the Bangalore Bench, where it was held that payments for booking advertisement space are for advertising purposes and fall under section 194C. Consequently, the Tribunal set aside the CIT(A)'s order and restored the matter to the AO to reconsider in light of the second proviso to section 40(a)(ia), which is applicable retrospectively.

2. Deletion of disallowance under section 40(a)(ia) for payments made towards collection of advertisements:

The second issue pertains to the disallowance of ?4,41,418/- made by the AO under section 40(a)(ia) for payments made towards the collection of advertisements. The AO treated these payments as professional charges under section 194H and disallowed them due to the assessee's failure to deduct tax at source.

The CIT(A) accepted the assessee's argument that the payments were professional charges under section 194J and, since each payment was less than ?20,000/-, no tax deduction was required. Therefore, the disallowance under section 40(a)(ia) was not applicable.

The Tribunal, however, found that the nature of the payments was more consistent with commission payments under section 194H, not professional charges under section 194J. The Tribunal, agreeing with the Revenue's position, set aside the CIT(A)'s order and restored the matter to the AO to reconsider in light of the second proviso to section 40(a)(ia).

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the CIT(A)'s decisions on both issues and remanding the matters to the AO for reconsideration in light of the second proviso to section 40(a)(ia), which is applicable retrospectively.

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