Q : Whether there should be contractual relationship for applying section 194C ?
Or
A : When payments to newpapers publisher are made as an agent of customer whether provisions of Section 194C for deduction of TDS will apply ?
Facts of the case
Briefly stated, the assessee is carrying on the business of marriage bureau. The assessee had paid a sum of Rs. 17,00,000 out of the total advertisement expenses to various newspapers for publication of matrimonial advertisements. The payment to each publisher exceeded Rs. 50,000 in a year. The assessee claimed that the payments were made on behalf of its clients and the payment ranged between Rs. 600 to Rs. 1,200 each. The assessee also submitted before the Assessing Officer that advertisements were issued by it in the capacity of an agent of its customers.
Assessing Officer View :
The Assessing Officer also held that the assessee had charged lump sum amounts from its clients for the services rendered, that the services included publishing advertisements in the newspapers and therefore, section 194C applied to the expenses incurred on advertisements. The Assessing Officer also held that for purposes of section 194C(3), what was relevant was the amount paid by the assessee to the publisher and not the amount charged by the assessee from its individual clients and that since the payments for the advertisements exceeded the prescribed limits, the assessee was obliged to deduct tax. The Assessing Officer further held that the assessee’s claim that it was an agent to its customers was not relevant since it was the assessee who was making the payment to the news paper publishers and therefore, it was the assessee which was responsible for deducting the tax.
Decision
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 Rs. 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.
IN THE ITAT HYDERABAD BENCH ‘A’
Income-tax Officer
v.
Vanaja Rao Quick Marriages (P.) Ltd.
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NO. 1518 (HYD.) OF 2014
C.O. NO. 63 (HYD.) OF 2014
[ASSESSMENT YEAR 2005-06]
FEBRUARY 6, 2015
ORDER
Asha Vijayaraghavan, Judicial Member – This is an appeal by the Revenue and the cross-objection filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-IV, Hyderabad, dated July 11, 2014, relating to the assessment year 2005-06.
2. Briefly stated, the assessee is carrying on the business of marriage bureau. The assessee had paid a sum of Rs. 17,00,000 out of the total advertisement expenses to various newspapers for publication of matrimonial advertisements. The payment to each publisher exceeded Rs. 50,000 in a year. The assessee claimed that the payments were made on behalf of its clients and the payment ranged between Rs. 600 to Rs. 1,200 each. The assessee also submitted before the Assessing Officer that advertisements were issued by it in the capacity of an agent of its customers.
3. The Assessing Officer did not accept the explanation and held that section 194C cast an obligation on a person “who is responsible for paying any amount to the resident” (contractor) that the assessee was responsible for making payment to the contractor and therefore liable under section 194C for deducting tax. The Assessing Officer also held that the assessee had charged lump sum amounts from its clients for the services rendered, that the services included publishing advertisements in the newspapers and therefore, section 194C applied to the expenses incurred on advertisements. The Assessing Officer also held that for purposes of section 194C(3), what was relevant was the amount paid by the assessee to the publisher and not the amount charged by the assessee from its individual clients and that since the payments for the advertisements exceeded the prescribed limits, the assessee was obliged to deduct tax. The Assessing Officer further held that the assessee’s claim that it was an agent to its customers was not relevant since it was the assessee who was making the payment to the news paper publishers and therefore, it was the assessee which was responsible for deducting the tax.
4. Aggrieved in the appellate proceedings, the assessee reiterated its submissions made before the Assessing Officer that Rs. 17,00,000 incurred on matrimonial columns published in various newspapers was made by the assessee in the capacity of an agent and that there was no contractual relationship between the assessee and the newspapers. The Commissioner of Income-tax (Appeals) held that section 194C applies when the payments are made in pursuance of the contract and there is no evidence that a contractual relationship exist between the assessee and the newspaper publishers for carrying advertisements placed by the assessee and hence 194C is not applicable. The Commissioner of Income-tax (Appeals) also observed that mere fact that the assessee had placed advertisements on a regular basis throughout the year for which payments in excess of Rs. 50,000 had been made to the publisher, does not create a contractual relationship between the assessee and those publishers, hence section 194C does not apply to payments made to the newspapers for advertisements.
5. Aggrieved, the Revenue is in appeal and the assessee has also filed cross-objection. The grounds of appeal raised by the Revenue read as follows :
| “1. | The learned Commissioner of Income-tax (Appeals) erred both in law and on facts of the case. | |
| 2. | Whether the learned Commissioner of Income-tax (Appeals) is correct in law in holding that there is no contractual relationship between the assessee and the newspaper publishers in view of the fact that the assessee is the person responsible for placing the advertisements in the newspapers. | |
| 3. | Whether the learned Commissioner of Income-tax (Appeals) is correct in law in holding that section 194C does not apply to the payments made to the newspaper publishers for advertisements was given by the assessee as a service provider to its clients in running the matrimonial services. | |
| 4. | Whether the learned Commissioner of Income-tax (Appeals) is correct in law in holding that the assessee is not covered under the provisions of section 194C in the absence of any contractual relationship with newspaper publishers, in spite of the fact that the assessee itself had accepted for disallowance of expenditure incurred towards advertisement in electronic media under section 40(a)(ia), with whom also the assessee did not have any agreement as observed during the scrutiny proceedings.” |
6. We find from the facts on record that during the year under consideration, the assessee has debited expenditure under the head “Advertisement” for an amount of Rs. 19,47,817, out of which Rs. 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 Rs. 1,80,600 attract deduction of tax under section 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 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 Rs. 600 to Rs. 1,200 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 Rs. 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. Hence, we confirm the order of the Commissioner of Income-tax (Appeals).
7. In the result, the appeal filed by the Revenue is dismissed.
C.O. No. 63/Hyd/2014
8. In the cross-objection, the assessee raised the following grounds :
| “1. | The learned Commissioner of Income-tax (Appeals) ought to have held that no disallowance can be made under section 40(a)(ia) of the Income-tax Act as the amounts were paid during the previous year relevant for the assessment year and they were not remaining unpaid at the end of the previous year. | |
| 2. | The learned Commissioner of Income-tax (Appeals) ought to have held that the provisions of section 40(a)(ia) have no application to the amounts paid during the previous year.” |
9. We find that the issues agitated by the assessee in the cross-objection are squarely covered by the decision of the co-ordinate Bench in the case of Arcadia Shares & Stock Brokers (P.) Ltd. v. Dy. CIT [2015] 54 taxmann.com 214 (Mum.) for the assessment year 2006-07, wherein it has been held as follows (page 494) :
“6. We have heard the rival submissions and carefully perused the record. We shall first take up the last alternative ground, i.e., when the payment is made by the assessee whether section 40(a)(ia) can be attracted ? On this issue this very Bench, in the case of Amit Naresh Shah (I. T. A. No. 4154/Mum/2013), had taken a consistent stand that in the light of the decision rendered by the hon’ble Supreme Court, in the form of dismissal of the Revenue’s special leave petition in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 357 ITR 642 (All) section 40(a)(ia) is not applicable with reference to payments already made since the expression ‘payable’ has to be satisfied for invoking provisions of section 40(a)(ia). The Bench, in the aforecited decision, observed in this regard as under :
‘4. Before us, the Departmental representative (DR) stated that the order of the Special Bench delivered in the case ofMerilyn Shipping & Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] has been kept in abeyance by the hon’ble Andhra Pradesh High Court, that the hon’ble Gujarat High Court had taken a different view. The authorised representative (AR) supported the order of the first appellate authority. We have heard the rival submissions and perused the material before us. We find that expenses related to professional fees, advertisement and management were debited in the profit and loss account, that same were paid. Therefore, in our view, no disallowance under section 40(a)(ia) of the Act should be made. We further find that while deciding the appeal in the case of CIT v. Janapriya Engineers Syndicate (I.T.T.A. No.352 of 2014, dated June 24, 2014) [2015] 371 ITR 439 (T & AP) the hon’ble Andhra Pradesh High Court has clarified the issue of interim stay granted by it in the case of Merilyn Shipping and Transportsv. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]. We will like to reproduce the relevant part of the said order and the same reads as under (page 440 of 371 ITR) :
“4. We are of the view that until and unless the decision of the Special Bench is upset by this court, it binds smaller Bench and coordinate Bench of the Tribunal. Under the circumstances, it is not open to the Tribunal, as rightly contended by Mr. Narasimha Sarma, learned counsel, to remand on the ground of pendency on the same issue before this court, overlooking and overruling, by necessary implication, the decision of the Special Bench. We simply say that it is not permissible under quasi judicial discipline”.
From the clarification issued by the hon’ble High Court, it is clear that until and unless the decision of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] is reversed by the court, it is binding on all the Benches of the Tribunal. We find that the hon’ble court has held that judicial discipline mandates that the decision of the Special Bench has to be followed by other benches. As on today, the stay order granted by the hon’ble court has been vacated and the order of the Special Bench is binding on other Benches of the Tribunal. Therefore, respectfully following the same, we hold that the first appellate authority was justified in following the order of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]. Considering the facts of the case and the clarification issued by the hon’ble Andhra Pradesh High Court on June 24, 2014, in the case of CIT v. Janapriya Engineers Syndicate [2015] 371 ITR 439 (T & AP), we decide the effective ground of appeal in favour of the assessee and confirm the order of the first appellate authority.’
7. Reverting to the facts on hand, the tax authorities had not disputed the fact that the assessee paid depository charges without deducting the tax and taxes are already paid by the recipient (see paragraphs 3.3 and 3.4 of the order passed by the Commissioner of Income-tax (Appeals)). 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 Merilyn Shipping and Transports (supra) is applicable and by following the decision of the Income-tax Appellate Tribunal, 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 Rs. 6,27,423. In the light of the decision on merit it is not necessary for us to deal with the other aspects urged before us since they will be of academic importance. It would suffice to say that disallowance made by the Assessing Officer is not called for in the circumstances of the case, in the light of the decision of the Income-tax Appellate Tribunal (supra), which in turn was based upon the decision of the hon’ble Allahabad High Court in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 357 ITR 642.
8. In the result, the appeal filed by the assessee is allowed.”
10. Respectfully following the co-ordinate Bench decision, we allow the cross-objection filed by the assessee.
11. In the result, the Revenue’s appeal is dismissed and the cross-objection filed by the assessee is allowed.