2019 (11) TMI 811 - HC - Income Tax

High Court: Advertising space sale not subject to Income Tax Act. Control indicates sale, not work contract.

Times VPL Limited (Formerly Known As Vijayanand Printers Ltd) Versus The Commissioner Of Income Tax, Hubli

The High Court held that the contract for sale of advertising space was not subject to Section 194C of the Income Tax Act, 1961. The Court distinguished ... TDS u/s 194C - expenditure for purchase of advertisement space - whether contract in question is a contract for work ? - as per revenue expenditure incurred for purchase of bulk advertisement space ought to be disallowed, since assessee had not deducted at source thereon - HELD THAT:- If the order passed by the Commissioner of Income Tax as well as the order passed by the Income Tax Appellate Tribunal are read in conjunction in the light of the Circular No.13 of 2006 issued by the Central Board of Direct Taxes, it is axiomatic that provisions of Section 194C would apply to a contract for work and not to a contract for sale. The contention of the learned counsel for the Revenue that the Tribunal ought to have restricted its scrutiny with regard to the validity of the order of remand passed by the Commissioner of Income Tax, appears to be attractive at first blush, however, in peculiar facts of the case, we are not inclined to accept the aforesaid submissions as both the authorities on the basis of the materials available on record has recorded the finding in favour of the assessee that the contract in question is a contract for sale and is not a contract for work. Therefore, such an exercise in the fact of the case would be an exercise in futility. We are inclined to answer the additional substantial question of law framed by us today in the affirmative. Order passed by the Income Tax Appellate Tribunal as well as by the Commissioner of Income Tax insofar as it holds that for the assessment year 2007-08, the amount has to be disallowed under Section 40a(ia) of the Act is hereby set aside and it is held that the provisions of Section 194C do not apply to the case of the assessee. In the result, the appeal is allowed. Issues:Interpretation of Section 194C of the Income Tax Act, 1961 regarding applicability to a contract for sale of advertising space.Analysis:The case involved an appeal under Section 260-A of the Income Tax Act, 1961, where the primary issue was whether Section 194C applied to a contract for sale of advertising space entered into by the assessee. The appellant, a company engaged in printing and publishing newspapers, had purchased bulk advertising space from its holding company. The Assessing Officer proposed disallowance for failure to deduct tax at source under Section 194C. The Commissioner of Income Tax, in a subsequent order, held that the contract was for advertising and Section 194C applied. The Income Tax Appellate Tribunal upheld this decision.The appellant argued that the contract was for sale, not work, citing relevant case law and Circular No.13 of 2006 issued by the Central Board of Direct Taxes. The appellant contended that both the Commissioner and Tribunal erred in applying Section 194C. The Tribunal's finding emphasized that the appellant had control over the advertising space and engaged in selling it to others, indicating a contract for sale, not work.The High Court analyzed the intention and object of the contract, distinguishing between a contract for sale of goods and a works contract. Referring to relevant case law, the Court highlighted that the contract involved a transfer of advertising space for subsequent sale, aligning with a contract for sale rather than work. The Court also referenced Circular No.13 of 2006, which clarified the applicability of TDS under Section 194C to contracts for work, not sale.Ultimately, the Court held that the contract in question was for sale, not work, and therefore, Section 194C did not apply. The orders of the Commissioner and Tribunal were set aside, and the appeal was allowed in favor of the assessee. The Court's detailed analysis focused on the nature of the contract and the application of relevant legal provisions and precedents to determine the correct tax treatment in this case.