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2016 (7) TMI 694 - AT - Income TaxTDS u/s 194C or 194J - payments made for supplying copies of final negative - Held that - As per section 194J the concerned company has to provide some technical input, as stated by Assessing Officer himself in the assessment order, that print processing charges included professional work such as processing of colour negative, etc., which is not the case in such process. The system is that one master print, number of prints are taken and send to the various distributors for exhibition. Thus printing of various prints from the master piece is known as print processing. However, as per section 194C, sub-clause 7(iv)(e) the work shall include manufacturing and supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer. It is noted that while completing the assessment under section 143(3), the learned Assessing Officer while dealing with identical issue for Assessment year 2007-08 himself mentions that TDS needs to be deducted under section 194C. Identical view was taken by the learned CIT(A) for Assessment year 2007-08 and the addition made by the Assessing Officer under section 40(a)(ia) was deleted saying that TDS has been deducted at appropriate rate. The certificate issued under section 197 by the Department to Adlabs itself mentions that TDS has to be deducted under section 194C and the annexures also mentions the name of the present assessee. Thus we find no force in the conclusion of the Assessing Officer. - Decided against revenue
Issues Involved:
1. Applicability of Section 194C vs. Section 194J of the Income Tax Act, 1961 for TDS on payments made for processing charges. 2. Determination of whether the services provided by Adlabs constitute professional services requiring TDS deduction under Section 194J. 3. Consistency in the assessee's practice of TDS deduction and its acceptance by the Department in previous years. 4. Validity of the CIT(A)'s order in favor of the assessee. 5. Tax effect and applicability of CBDT instruction No. 21 of 2015 regarding monetary limits for filing appeals. Issue-wise Detailed Analysis: 1. Applicability of Section 194C vs. Section 194J: The core issue revolves around whether the payments made by the assessee to Adlabs for processing charges should be subjected to TDS under Section 194C or Section 194J of the Income Tax Act, 1961. The Revenue contends that the services provided by Adlabs, including print processing, color negative processing, and other specialized tasks, are professional services necessitating TDS under Section 194J. The assessee, however, argues that these payments fall under Section 194C, which pertains to contractual work. 2. Determination of Professional Services: The Tribunal analyzed the nature of the services provided by Adlabs. It was found that there are two types of processing charges: negative processing, which requires professional skill, and positive processing, which is merely copying prints from a master print and does not require technical expertise. The Tribunal noted that the negative processing was subjected to TDS under Section 194J, whereas the positive processing, being a non-professional task, was rightly subjected to TDS under Section 194C. 3. Consistency in TDS Deduction Practice: The assessee had consistently deducted TDS on payments for film prints under Section 194C, and this practice was accepted by the Department in previous years. The CIT(A) also considered letters and certificates indicating that payments to Adlabs were covered under Section 194C. The Tribunal found no reason to deviate from this established practice, especially since the Department had issued certificates under Section 197 confirming the applicability of Section 194C for such payments. 4. Validity of CIT(A)'s Order: The CIT(A) had ruled in favor of the assessee, holding that the payments for supplying copies of the final negative were correctly subjected to TDS under Section 194C. The Tribunal upheld this decision, emphasizing that the Revenue failed to provide any documentary evidence to prove that the services utilized by the assessee from Adlabs required the professional skills necessitating TDS under Section 194J. The Tribunal also noted that the Assessing Officer had not demonstrated that the assessee used the professional features available with Adlabs for positive print processing. 5. Tax Effect and CBDT Instruction No. 21 of 2015: The Tribunal considered the latest CBDT instruction No. 21 of 2015, which directs the Department not to file appeals where the tax effect does not exceed the specified monetary limit. The learned counsel for the assessee produced demand notices indicating nil demand for both assessment years. Consequently, the Tribunal dismissed the Revenue's appeals based on the low tax effect, in line with the CBDT instruction. Conclusion: The Tribunal dismissed the Revenue's appeals, affirming that the payments made by the assessee to Adlabs for processing charges were correctly subjected to TDS under Section 194C. The Tribunal found no merit in the Revenue's contention that these payments required TDS under Section 194J, as the services provided did not constitute professional or technical services. Additionally, the Tribunal acknowledged the consistency in the assessee's TDS deduction practice and the low tax effect, further justifying the dismissal of the appeals.
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