9911796707
TMI Blog2010 (1) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... MBER J. AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER J. Appellant by : Shri Padamchand Khincha Respondent by : Smt. Jacinta Zimik Vashai Shri Jason P. Boaz ORDER Per A. Mohan Alankamony, Accountant Member These six appeals preferred by the assessee company are directed against the consolidated order of the Ld.CIT(A)-V, Bangalore for the assessment years 2005-06, 2006-07 and 2007-08 u/s 201(1) and u/s 201(1 A) of the Act. ITA Nos: 790. 791 792/09 - Ays 2005-06, 2006-07 2007-08 u/s 201(1) of the Act: 2. In these appeals, the assessee company [the assessee - in short] has raised six identical grounds. Ground Nos: 1 and 6 are being general and no specific issues involved which, in our considered view, do not survive for adjudication. In the remaining grounds, the crux of the issue is that- The AO, without giving proper opportunity, has passed the orders u/s 201(1) of the Act which have been confirmed by the CIT(A) instead of quashing the said orders. " ITA Nos: 793, 794 796/09 - Avs 05-06. 06-07 07-08 u/s 201(1 A) of the Act: 3. Likewise, in these appeals too, the assessee has raised four identical grounds. Ground Nos: 1 and 4 bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the business of advertising and public relations. It was not an accredited advertising agency recognized by the Indian Newspaper society [INS]. Therefore, the assessee cannot avail the credit facility offered by publications as such facility being available only to accredited advertising agencies. To overcome this, the assessee had an arrangement with Trishul, a duly accredited advertising agency - sister concern of the assessee. The customers of the assessee make payments after deducting tax at source. Since all receipts from INS member publications were routed by the assessee through Trishul, the receipts were paid/credited to Trishul without making TDS. The amounts so paid to Trishul would not be liable for deduction of tax at source u/s 194C of the Act because Trishul was only a routing agency. The amounts paid by the clients to the assessee have already been subjected to tax - TDS. Since Trishul was only a routing agency and not a publisher of the advertisements, it cannot be regarded as sub-contractor also. Thus, the provisions of S.194C (2) of the Act would not be applicable to the instant case. (ii) Taking cue from the Board's Circular No.715 dated: 8.8.95, it was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce all the receipts from INS member publications are routed by the company through Trishul, amounts paid/credited to Trishul would not be liable for TDS U/S 194C because Trishul is only a routing agency. Since Trishul is only a routing agency and not the publisher of the advertisements, it cannot be regarded as sub-contractors. The company is not a client as per CBDT Circular. It is an advertising agency. The payment made by the company to another agency would not fall within the scope of S.194C. in the present case, all the work in relation to the advertising contracts was undertaken by the appellant itself. No part of the said work was carried out by TC. TC was only a router or conduit through which payment was made to the Media. TC was roped in with a view to availing the credit facility. TC had no role to play and had no interest in the advertising contracts except to the above and extent. There was no product or work achieved as a result of the arrangement between the appellant and TC. Had the payments not been made to the media through TC, the only effect was that the appellant would not have been eligible for the credit facility. It was not a situation where without making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the finding of the Ld. CIT (A), the assessee has come up with the present appeals before us. The Ld. AR's forceful arguments mostly revolved around what was contended before the first appellate authority. The submission of the Ld. Counsel, for the sake of clarity, is summarized as under: (i) the assessee was engaged in the business of advertising and public relations. It was not an accredited advertising agency as recognized by INS. As the assessee cannot avail the credit facility offered by publications, the assessee had an arrangement with Trishul - a sister concern; (ii) the assessee's customers make payment after deduction of tax at source. Since all the receipts from INS member publications were routed by the assessee through Trishul, amounts were paid/credited to Trishul without TDS; -the amounts paid to Trishul would not be liable for TDS u/s 194C because Trishul was only a routing agency; -the amounts paid by the clients to the assessee have already been subjected to TDS; -since Trishul was only a routing agency and not the publisher of the advertisements, it cannot be regarded as sub-contractor [source: CBDT Circular No. 715 dt:8.8.95] -as per Board's Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the amounts paid or payable to any resident (contractor) for carrying out any work (including supply of labour for carrying out any work). Explanation III below s. 194C (2) enlists certain activities which are considered as 'work' for the purposes of s.194C. -Extensively quoting from the Hon 'ble Finance Minister's Budget speech for the year 1995 and also Board's Circulars No. 714 dt.3.8.95 andNo.715 dt: 8.8.1995, it was contended that it is manifest that S.194C would be applicable only when a client makes a payment to an advertising agency. It would not apply when the advertising agency makes payment to the media. The assessee is an advertising agency and not a client and, thus, the payment by one advertising agency to another advertising agency for onward remittance to the media cannot be considered as amounts paid 'for carrying out any work in relation to advertising'. Thus, the payment made to Trishul would not fall within the scope of S.194C as the payment was made in connection with the advertisements published in the media. The invoice for the advertising charges was raised by the media and in view of the arrangements, the assessee paid the sums to Trishul for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to it for onward payment to media cannot be considered as 'work' or advertisement so as to fall within the scope ofs.!94C(l). The name and recognition of Trishul being an accredited agency was utilized in order to secure the credit facility. Out of the income earned from placing the advertisement contracts, 3% was retained by Trishul in consideration of utilizing its name and recognition. The said payment could at the best be described as 'royalty'. (ix) for the said reasons, S.194C has no application and, thus, there was no liability to withhold tax at source under Ch. IIB from the payments made to Trishul 7.1. To buttress his arguments; the Ld. A R had placed strong reliance on the various judicial pronouncements to drive home his point, During the course of hearing, he had furnished three paper books containing [1- 58 pages, 1-127 pages and 1 - 28 pages respectively] which consist of, inter alia, copies of (i) show-cause notice, (ii) judgments of various Courts, (iii) Memorandum of understanding between Sands and Trishul etc, 7.2. On her part, the Ld. D R was very vehement in her resolves that the assessee and Trishul were sister concerns. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges were to be Rs.100/-, after reducing an amount of Rs.15/- being commission, Rs.85/- only will be paid by Trishul to the newspaper publishers. Trishul will in turn raise: (i) a debit note on the assessee for the entire advertisement charge of Rs.100/-(ii) a credit note for Rs.12/- on the assessee. Thus, out of total commission of Rs.15/-, thanks to accredited recognition, Rs.3/-will be retained by Trishul and the assessee stands to gain Rs. 12/-. 8.1.2. Let us have a glimpse of S.194C (1): "(1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and (2) Any person Explanation III-For the purposes of this section, the expression "work" shall also include- (a) advertising (b) .. [Explanation was brought on the Statute Book by the Finance Act 1995 w.e.f 1.7.199 5] 8.1.3. The argument of the assessee was that the spadework with regard to advertisements such as sketch, material, getting approval of the clients of "advertisement substance devised and designed" we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined to issue administrative instructions. The impugned circulars travel beyond the provisions of S.194C and have no legal force and are liable to be quashed. The authorities functioned under the Income-tax Act are not bound by them. (ii) Calcutta Goods Transport Association Another v. UOI (Ors) - 219 ITR 486 (CAU): The Hon'ble Court had observed that "The word "work" does not have the widest possible connotation is also clear from the fact that Parliament had sought to bring professional services and other such "works" in the wider sense within the net of tax deduction at source. If such "work" were already covered by section 194C, it was wholly unnecessary to introduce separate statutory provisions in this regard. The only conclusion that follows from this is that the word "work" is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces such result. The petitioners have correctly submitted that the word "work" as used in section 194C has been used in this sense. That is also why the specific extension to supply of labour was necessary. That being so th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the ' work ' but for its specific inclusion in the sub-section. In the said decision, the Supreme Court also decided the controversy relating to the exact amount to be deducted from the dues of the contractor. That question, however, is not relevant for the purpose of the present case. The Bombay High Court in the casg of Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136, specifically considered the question of validity of the circular of the Board bearing No. 681, dated March 8, J 994, requiring deduction of tax at source under section 194C in the case of contracts for carriage of goods. The court held that such circular is illegal and without jurisdiction in so far as it requires deduction of tax at source under the section in the case of contracts for mere carriage of goods which do not include any other services like loading and unloading and are not connected with any work to be performed by the carrier. Referring to the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435, it was observed: ".... the controversy befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider the question whether any other type of contract likes carriage contract, advertisement contract, etc., comes within the purview of section 194C. We are also in agreement with the view taken by the Bombay High Court that section 194C does not extend to contracts for mere carriage of goods. Therefore, the circular of the Board extending section 194C to contracts for mere carriage of goods is based on a misreading and misconstruction of the judgment of the Supreme Court. Further, while purporting to clarify the legal position, as lay down by the Supreme Court, the Board has introduced a definition of the term "transport contracts "which was not considered by the Supreme Court. The Board has also not given any other reason for reversing its previous circulars. We may add here that whether a particular case would come within the purview of section 194C of the Income-tax Act or not depends upon the facts and circumstances of the case, the stipulations in the agreement between the parties, and other relevant factors. The Board's circular to the effect that transport contracts in general come within the purview of section 194C is erroneous and illegal. (iv) V. M. Salgaocar Bros L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider the circular dated March 8, 1994, and agreeing with the decision given by the Bombay High Court observed that section 194C does not extend to the contract for mere carriage of goods, to that extent, the circular issued was held illegal. The Calcutta High Court in the case of Calcutta Goods Transport Association v. Union of India [1996] 219 ITR 486 has taken into consideration the definition of the word "work" as defined in New Shorter Oxford English Dictionary, and Stroud's Judicial Dictionary and came to the conclusion that the word "work" is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces the result. That being so the mere transportation of goods by a common carrier does not affect or result in the goods being carried nor are the goods affected thereby and as such cannot be brought within the scope of section 194C of the Act. It was declared that common carriers of goods by road are not liable to deduction of tax at source under section 194C of the Act. The Delhi High Court in the case of Delhi Goods Transport Association v. CBDT [1995] 80 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would have fallen outside the 'work' but for its specific inclusion in the subsection. " According to the interpretation of the Department which was prevalent till April 1, 1994, the transport contractors were not considered to be falling within the ambit of section 194C. Mere transportation of goods by a common carrier does not affect or result in the goods neither carried nor are the goods affected. The legislative intent could also be seen from the subsequent amendments. Explanation III was inserted by the Finance Act, 1995, by which advertising and travelling agencies, etc., were included thereunder. Whether the Explanation could be considered to be explanatory so as to apply for the transaction between April 1, 1994, to June 30, 1995? An interpretation which had continued and acted upon for more than a decade is not to be easily deviated. Circular No. 108 dated March 20, 1973, has dealt with the service contracts not involving carrying out of any work and has specifically said that the transport contract would not be included in the purview of section 194C as transport contract cannot be regarded as contract for carrying out any "work". However, the Punjab and Har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, task function." From a perusal of the above definition it is evident that the word "work" has relation with the word "labour" which has to be put by a person for occupation, employment, business, task or function. The word "work" refers and comprehends the activities of the workmen and not the operation in the factory or on machines. It is the physical force which has been comprehended in the word "work". Section 194C(1) refers to carrying out of any work. If the sub-section (1) is read as a whole then it could be interpreted that it is the work of labour which is done by the contractor or he may supply the labour to do the work as a sub-contractor. Sub-section (2) of section 194C also refers to the contract for carrying out the work undertaken by the contractor or for supplying wholly or partly any labour which the contractor has undertaken to supply." 8.1.6. We have a glimpse of Board's Circular No.715 dated: 8.8.1995 and the relevant portions of which, for ready reference, are extracted hereunder: "The Finance Act, 1995, has enlarged the scope of income-tax deduction at source by making various amendments. In regard to the changes introduced through the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of commission to external parties for procuring orders for the company's product? A : Rendering of services for procurement of orders is not covered under the provisions of section 194C. However, rendering of such services may involve payment of fees for professional or technical services, in which case tax may be deductible under the provisions of section 194J. Q 30: Whether the deduction of tax at source under section 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses? A : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source. 8.1.7. Even on a close reading of the Circular makes it very clear that the term "advertising" has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of section 194C would apply when a client makes payment to an advertising agency and NOT when an advertising agency makes payment to the media which includes both print and electronic m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts and works contracts. .. (v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above. .. . (viii) the provisions are wide enough to cover not only written contracts but also oral contracts. . 8.1.9. Even the Board vide its subsequent Circular No.715 dated: 8.8.1995 had made it amply clear that when an advertising agency makes payment to the media, the amended provisions of tax deduction at source would not apply. In the present case, the assessee being an 'advertising agency' had not made the payments to the media directly, but, the advertisement materials were routed through Trishul for the publication of its advertisements in the newspapers since Trishul was an accredited agency through which the advertisements of the assessee were being released to the media. The role of Trishul was only confined to channelizing the advertisement materials devised and designed by the assessee to the media. 8.1.10. To counter the stand of the Ld. CIT (A) that "8.3 ..I am of the opinion that clarification of the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentation is made by the maker of Legislation at the time of introduction of the Bill or construction thereupon is put by the Executive upon its coming into force, the same carries a great weight. (iv) The Hon'ble Bombay High Court, in its ruling in the case of CIT v. Ajanta Pharma Ltd. (2009) 318 1TR 252 relying the Apex Court's verdict in K. P. Vergese v. ITO referred supra, had observed thus - "Whether speeches made on the floor of the house were admissible in interpreting the provisions. Speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the Legislation and the object and purpose for which the legislation was enacted. The Supreme Court in K.P. Varghese s case (supra) said that this is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a Statute bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s confined only to transit the advertisement materials devised by the assessee to the media which does not visualize any product or result. Mere routing ,, through the advertising materials invented by the assessee doesn 't produce any result and-as such it cannot be brought within the ambit ofs.!94C of the Act as ruled by the Hon 'ble High Court of Calcutta referred supra (2191TR 486); (v) In fact, 15% of discount, royalty, commission as the case may be -AAA status enjoyed by Trishul - received from the media was being shared in the ratio of 12: 3 by the assessee and Trishul which in effect, the assessee was not paying even a penny from its coffer to Trishul. Even 85% of amounts paid by the assessee to Trishul were reimbursement of the advertising charges paid by Trishul to media; (vi) The advertising charges paid by the assessee to the media thro' Trishul had, in fact, landed in the hands of the print media and in the process Trishul stands to gain a paltry discount of 3% being AAA and nothing-else; - In effect, the Board's Circular No.715 referred supra comes to the rescue of the assessee. At the cost of repetition, the relevant portion of which are reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
