2015 (8) TMI 700 - AT - Income Tax

TDS u/s 194C - publishing advertisements in the newspapers - Held that - The assessee has debited expenditure under the head advertisement for an amount of ₹ 19,47,817, out of which ₹ 2,47,731 was paid to the electronic media. The assessee on its own admission stated that payments to three electronic medias to the extent of ₹ 1,80,600 attract deduction of tax u/s 194C. The assessee s stand that it acted as an agent to its customers and that there is no contractual relation with the newspaper publishers for carrying on the advertisement placed by the assessee is correct. The assessee has a contractual relationship with only clients for providing marriage related services for which the assessee placed matrimonial advertisements in the newspapers. Further, the payments made on behalf of the clients and the payments ranged between ₹ 600 to ₹ 1200 each. Hence it appears that the assessee has placed advertisements from time to time as per requirements of its business. Though, the payments for the entire year was in excess of ₹ 50,000, in the absence of a contractual relationship between the assessee and the publishers, section 194C does not apply to the payments made to the newspaper publishers for the advertisements made by the assessee. - Decided in favour of assessee. Disallowance u/s 40(a)(ia) - assessee paid depository charges without deducting the tax - Held that - Assessee paid depository charges without deducting the tax and taxes are already paid by the recipient. Since the amount was already paid and the taxes are paid by the recipient, in our opinion, the decision of the Special Bench in the case of Marilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM is applicable and by following the decision of the ITAT, Mumbai Benches (supra) we hold that the Tax Authorities have wrongly invoked provisions of section 40(a)(ia) in the instant case. We, therefore, set aside the orders passed by the Tax Authorities disallowing ₹ 6,27,423/-. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 194C - Whether the assessee is liable to deduct tax on payments made to newspaper publishers for advertisements.
2. Existence of contractual relationship - Whether section 194C applies when there is no contractual relationship between the assessee and the newspaper publishers.
3. Applicability of section 40(a)(ia) - Whether disallowance can be made under section 40(a)(ia) for amounts paid during the previous year.

Interpretation of section 194C:
The case involved the question of whether the assessee, engaged in the business of a marriage bureau, was liable to deduct tax under section 194C on payments made to newspaper publishers for publishing matrimonial advertisements. The Assessing Officer (AO) contended that the assessee was responsible for making payments to the publishers and thus liable to deduct tax. However, the assessee argued that it acted as an agent for its clients and had no contractual relationship with the publishers. The Commissioner of Income Tax (Appeals) (CIT (A)) held that section 194C applies only when payments are made in pursuance of a contract, and since there was no evidence of a contractual relationship between the assessee and the publishers, section 194C was not applicable. The ITAT upheld the CIT (A) decision, stating that in the absence of a contractual relationship, section 194C did not apply to the payments made for advertisements.

Existence of contractual relationship:
The dispute also revolved around the existence of a contractual relationship between the assessee and the newspaper publishers for the advertisements placed. The Revenue contended that section 194C should apply even without a formal contract, as the assessee was responsible for placing the advertisements. However, both the CIT (A) and the ITAT held that without a contractual relationship, section 194C could not be invoked. The ITAT emphasized that the assessee acted as an agent for its clients and did not have a direct contract with the publishers, thereby confirming the decision of the CIT (A).

Applicability of section 40(a)(ia):
Regarding the applicability of section 40(a)(ia) for disallowance of expenses, the assessee raised a cross objection challenging the disallowance made by the Tax Authorities. Citing a decision of the Coordinate Bench, the ITAT allowed the cross objection, stating that the Tax Authorities wrongly invoked section 40(a)(ia) as the payments were already made, and taxes were paid by the recipient. The ITAT relied on previous decisions and set aside the disallowance, following the principle that section 40(a)(ia) does not apply to payments already made.

In conclusion, the ITAT dismissed the Revenue's appeal, upheld the decision of the CIT (A) regarding section 194C, and allowed the cross objection filed by the assessee concerning section 40(a)(ia) disallowance. The judgment provided clarity on the interpretation of tax deduction obligations and contractual relationships in the context of advertisement expenses, ensuring adherence to legal provisions and precedents.