2014 (12) TMI 721 - AT - Income Tax

TDS u/s 194C Putting up a logo on aircraft is also a type of hoarding which is advertising contract or not Board s Circular No.715 dated 8th Aug. 1995 - Nature of payment and the impact of non-deduction of tax - Held that - The payment made to M/s Sahara Airlines Ltd. was in the form of subsidy against passenger s ticket sale and in return thereof M/s Sahara Airlines Ltd. was entrusted with the job of printing of logo and colour scheme, etc of the appellant-company on the boarding card, ticket, baggage tag on board on their aircraft so that the passengers travelling could know about the company. In Re Google Online India Private Ltd. (GIPL) 2005 (12) TMI 1 - Authority for Advance Ruling, New Delhi it has been held that it has an inclusive definition that the advertisement means to make something known to the public or a segment of the public, to announce publicly by a printed notice or broadcast to call public attention to, especially by emphasizing, desirable qualities so as to arouse a desire to buy and patronize and it includes notices, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas - an advertisement is generally of goods and services and is information intended for potential customers - the advertisement includes publicity, but vice-versa may not be possible - but whenever publicity of a brand or logo brings commercial benefit either apparent or hidden, it will assume the character of advertisement . It is very hard to believe that a businessman would publicize his logo or brand without visualizing any commercial benefit out of it - if the agreement is read carefully, it has been mentioned that the parties to the agreement have agreed that it was executed to give extensive publicity to the activities of the assessee in order to promote their business and area of operation and for doing so M/s Sahara Airlines Ltd. was required to display the logo of the appellant-company on both sides of the aircraft, tickets, boarding passes, baggage tags, newspapers, hoardings etc. - the only inference can be drawn from the agreement and the revised agreement that it was executed for the purpose of advertisement of the logo of the appellant-company - the assessee has agreed for advertisement of its logo for which it is required to deduct TDS u/s 194C of the Act. Whether provisions of section 201(1) of the Act can be invoked in the light of the fact that the deductee/recipient i.e. M/s Sahara Airlines Ltd. has already paid taxes or it did not have any tax liability on account of continuous business loss returned by it Held that - In Hindustan Coca Cola Breweries P. Ltd. vs. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA it has been held that recovery provisions u/s 201(1) of the Act can be invoked only when loss to the Revenue is established and that can only be established when it is demonstrated that recipient of income has not paid taxes on the income - recovery provision u/s 201(1) of the Act can only be invoked when loss to the Revenue is established and the onus is upon the Revenue to demonstrate that the recipient of income has not paid due taxes - in the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same - the provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact - once assessee furnishes the requisite basic information, the AO can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. Levy of interest u/s 201(1A) Held that - This interest is compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes the same has been held in Bennett Coleman & Co Ltd. Vs ITO 1984 (11) TMI 58 - BOMBAY High Court - this aspect was not examined by the CIT(A) as he was not required to do so in the light of the fact that he has concluded that the impugned payment was made for publicity and not for advertisement, for which the assessee was not required to deduct TDS - But now as it has been concluded that the payments were made for advertisement, this aspect of the issue requires a proper examination thus, the matter is remitted back to the AO for verification and adjudication Decided in favour of revenue. Deletion of penalty u/s 271C Liability to deduct TDS u/s 194C Held that - The assessee has made the payments for advertisement and not for publicity and therefore, it was required to deduct the TDS u/s 194C of the Act - once it is held that there was no tax liability upon the recipient/deductee at any point of time with regard to the receipts, the assessee can neither be held to be in default nor chargeable to interest u/s 201(1A) - the difference between the publicity and advertisement is very thin as defined in various dictionaries as decided in Woodward Governor India P. Ltd. Vs Commissioner of Income-tax 2001 (4) TMI 34 - DELHI High Court section 273B starts with a non obstante clause which means that it has overriding effect over other provisions of law and initial burden is on the assessee to show there existed reasonable cause which was the reason for the failure referred to in section 271 - assessee has not deducted TDS on the impugned payments under the bonafide belief that the payments made by it is in the nature of publicity and not for advertisement for which he was required to deduct tax u/s 194C - the payments were made to the group concern of the assessee i.e. M/s Sahara Airlines Ltd., whose financial position might be known to the assessee - the assessee had a bonafide belief or reasonable cause for non-deduction of TDS for which penalty u/s 271C of the Act cannot be levied - assessee had a reasonable cause for non-deduction of TDS and thus the penalty levied u/s 271C of the Act is not leviable thus, the order of the CIT(A) in setting aside the penalty is upheld Decided against revenue.

Summary

Issues Involved:
1. Whether the payment made by the appellant to M/s Sahara Airlines Ltd. was for advertisement or publicity.
2. Whether the appellant was liable to deduct tax at source (TDS) under section 194C of the Income Tax Act, 1961.
3. Whether the appellant can be treated as an assessee in default under section 201(1) of the Income Tax Act.
4. Whether interest under section 201(1A) of the Income Tax Act is applicable.
5. Whether the penalty under section 271C of the Income Tax Act is leviable.

Detailed Analysis:

1. Nature of Payment: Advertisement vs. Publicity
The primary issue was whether the payment made by the appellant to M/s Sahara Airlines Ltd. was for advertisement or publicity. The appellant contended that the payment was a subsidy for displaying its logo and color scheme on aircraft, tickets, boarding passes, and baggage tags, which did not constitute an advertisement. However, the Assessing Officer (AO) and the Revenue argued that the agreement between the appellant and M/s Sahara Airlines Ltd. was essentially an advertisement contract. The AO relied on the agreement's clauses and various definitions of "advertisement" and "publicity" to conclude that the payment was for advertisement. The Tribunal agreed with the AO, stating that the agreement's intention was to promote the appellant's business and area of operation, making it an advertisement contract.

2. Liability to Deduct TDS under Section 194C
The Tribunal held that the payment made by the appellant to M/s Sahara Airlines Ltd. was indeed for advertisement purposes. Therefore, the appellant was liable to deduct TDS under section 194C of the Income Tax Act. The Tribunal noted that the appellant's argument that the payment was for publicity and not advertisement was not tenable, as publicity and advertisement overlap each other, and the agreement's primary purpose was to promote the appellant's business.

3. Assessee in Default under Section 201(1)
The Tribunal examined whether the appellant could be treated as an assessee in default under section 201(1) of the Income Tax Act. The Tribunal referred to the Supreme Court's judgment in Hindustan Coca Cola Breweries P. Ltd. vs. CIT and the Allahabad High Court's judgment in Jagran Prakashan Ltd. vs. DCIT (TDS), which held that recovery provisions under section 201(1) could be invoked only when there is a loss to the Revenue. The Tribunal concluded that if the recipient (M/s Sahara Airlines Ltd.) had filed returns declaring losses and had no tax liability, the appellant could not be treated as an assessee in default. The matter was remanded to the AO for verification of the recipient's tax status.

4. Interest under Section 201(1A)
The Tribunal also addressed the issue of interest under section 201(1A) of the Income Tax Act. It held that interest under section 201(1A) is compensatory in nature and is applicable for the period from the date on which tax was required to be deducted till the date it was actually paid. However, if the recipient had no tax liability due to continuous business losses, interest under section 201(1A) could not be charged. The Tribunal remanded this issue to the AO for verification of the recipient's tax status.

5. Penalty under Section 271C
The Tribunal examined whether the penalty under section 271C of the Income Tax Act was leviable. It noted that the appellant had a bona fide belief that the payment was for publicity and not advertisement, and the recipient was a group concern known to be in financial loss. The Tribunal concluded that the appellant had a reasonable cause for non-deduction of TDS, and therefore, the penalty under section 271C was not leviable. The Tribunal confirmed the CIT(A)'s order deleting the penalty.

Conclusion:
The Tribunal concluded that the payment made by the appellant to M/s Sahara Airlines Ltd. was for advertisement purposes, and the appellant was liable to deduct TDS under section 194C. However, the appellant could not be treated as an assessee in default under section 201(1) if the recipient had no tax liability. The issue of interest under section 201(1A) and the penalty under section 271C were remanded to the AO for verification of the recipient's tax status. The appeals for assessment years 2003-04 and 2004-05 were dismissed as they were barred by limitation. The penalty under section 271C was not leviable due to the appellant's reasonable cause for non-deduction of TDS.