TaxTMI 
TaxTMI 
TaxTMI 
2010 (1) TMI 647
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....nfirmed 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 being general in nature, they are dismissed as non-consequential. In the remaining two grounds, the gist of the grievance of the assessee is largely confined to "The AO, without giving proper opportunity, has passed the orders and that he had erred in levying interest u/s 201(1 A) of the Act which have been confirmed by the C1T (A) instead of quashing the said orders." 4. In these appeals, the issues raised are identical and inter-linked pertain to the same assessee, for the sake of convenience, they are considered together and disposed off in this common order. 5. The history of the case, in brief, is that the assessee is, an advertising agency, involved in advertising activity exclusively in the print media. Trishul Communications [Trishul - in short] also located in the same premises was doing similar line of business in which the managing director of the assessee holding 50% shares. The assessee's premise was subjected to ac....
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....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 contended that the assessee was not a client, but, an advertising agency. Thus, the payment by the assessee to another agency would not fall within the scope of S.194C. Reliance was placed on the decisions of Hon 'ble High Court of Gujarat [253 ITR 310] and Hon'ble Supreme Court [293 ITR 226]wherein referring to the Board's Circular, the Apex Court held that demand u/s 201(1) cannot be enforced from the deductee assessee once the taxes have been paid by the deductee-assessee. 5.2. After considering the forceful contentions of the assessee, the AO was of the view that the payment was not made by a client to the advertising agency but by a company to an advertising agency and applying the CBDT's Circular was not viable as the payment was made from a 'client company' to an advertising agency and not to a print media as mentioned in the Board's Circular. He had also brushed aside the assessee's assertion that the assessee company receive....
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....xcept 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 payment to TC, the advertisements could not have been placed in the media at all. The existence of TC in the whole transaction was only for a limited purpose. It did not alter the advertisement work carried out by the appellant. Thus, TC cannot be considered as a 'contractor' and the payments made to it for onward payment to media cannot be considered as 'work' or advertisement so as to fall within the scope of section I94 (I). 8.3. In view of all this, I am of the opinion that clarification of the Finance Minister on the floor of the House is not applicable in the present case because the payment made by the appellant is to its sister concern and not to media. In order to provide credit facility to its clients the appellant entered into an agreement with Trishul Communications (TC), a sister concern of the appellant for placing the advertisement in the newspaper,....
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....use 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 Circular, the assessee was not a client, but, an advertising agency. The payment made by the assessee to another agency would not fall within the scope ofs. 194C. -Relies on - (a) CIT v. Rishikesh Apartments Co-op. Housing Society Ltd. 253 ITR 310 (Guj) (b) Hindustan Coca Cola Beverage (P) Ltd. 293ITR 226 (SC) (iii) Trishul had filed its ROI and paid the taxes. Thus, the assessee cannot be held as an assessee in default and tax cannot be recovered, J.B.Boda and Co. (P) Ltd. 223 ITR 271 (SC) s (iv) if an advertising agency was not accredited, payments nave to be made immediately to the newspaper publications. The clients while placing advertisements with the assessee insist on credit facility being extended to them or discharging their dues. Since the assessee was not an accredited advertising agency, the assessee tied up with an arrangement with Trishul - a sister c....
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.... 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 purpose of making payment to the media and the payment reached the media through Trishul. - Thus, the payment made to the media through Trishul should be considered as a direct payment made to the media by the assessee, as a result, s. 194C would have no application; (vii) the assessee was engaged in the business of advertising and public relations and that all the work in connection with the advertisements placed in the media was performed by the assessee and no part of the said work was being undertaken by Trishul. There was, in fact, no privity of contract between the clients and Trishid. Thus, the 'work' in relation to 'advertising' as envisaged in s. I94C having been undertaken by the assessee, Trishul cannot be regarded as a 'contractor' in respect of the said advertising work. The AO had wrongly treated the assessee as a 'client' by not correctly appreciating the relationship b....
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....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 had no access for releasing the advertisements in the media and Trishul was an accredited agency for releasing advertisements in the print media. As per the relevant provisions of the Act, deductions of TDS were to be effected on payments from one entity to another was a point for deduction of TDS. The assessee had entrusted the work of releasing advertisements to media to Trishul. Thus, the TDS payments has to be seen 'only between the assessee and Trishul' and no other entity. As the assessee had failed in its obligation to deduct TDS on the payments made to Trishul, the assessee was in default and, thus, the provisions of s.201(1) and s.201{1A) of the Act were squarely applicable to the facts of the case on hand. Since, the AO had taken a stand in a judicious manner which has been upheld by the Id. CIT(A) in toto, it was pleaded that the stand of the authorities below....
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....sion "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" were being precisely done by the assessee and that the finished materials (the contents of advertisements) were routed through Trishul to the media to avail accredited facility being enjoyed by Trishul. In fact, Trishul role was confined only to forward the advertisement materials devised by the assessee to the media. To put it in a nutshell, the assessee had made use of Trishul only for routing through its advertisements to the media. The collection of payments from the clients (the advertisers) was the job of the assessee. While making the payment to the assessee being the advertisement charges, the client (the advertiser) shall effect the TDS. Thus, the advertisement charges have since been suffered TDS when the clients made payments to the assessee. Trishul had indeed acted as a liaison between the assessee and the media for which ....
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....r 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 the mere transportation of goods by a common carrier does not affect or result in the goods carried or are the goods affected thereby and as such cannot be brought within the scope of section I94C" (iii) Sethi Transport & Others v. C.B.D.T. - 226 ITR 274 (Ori) : The Hon'ble Court while deliberating the case, has observed that - In Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435, the Supreme Court ruled that no ambiguity is found in the language employed in the subsection. Wlrat is contained in the sub-section, as appears from its plain reading and analysis, admits of the following formulations: (1) A contract may be entered into between the contractor and any of the organizations specified in the sub-section. (2) Contract in Formulation-1 could not only be for carrying out any work but also for supply of labour for carrying out a....
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....he 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 before the Supreme Court was limited to the applicability of section 194C to labour contracts. The various circulars of the Central Board of Direct Taxes were not before the Supreme Court. The Supreme Court interpreted section 194C de hors those circulars. It did not approve the narrow construction of the expression ' any work ' to include only ' works contracts '. The Bench took the view that the expression "any work" used in section 194C does not include transport contracts. In the case of Advertising Agency Association of India v. CBDT [1994] 210 ITR 152, the Bombay High Court also considered the effect of the decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435 and held that the Supreme Court has in no way extended or amplified the scope of section 194C of the Income-tax Act, 1961. It merely held that the said se....
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....n 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 Ltd. v. ITO - 237 ITR 630 (Kar): The jurisdictional Hon'ble High Court, while deciding the above case has analyzed the issue in a comprehensive manner and ruled that - "Another circular dated March 8, 1994. in dispute is on the basis of the judgment given in the case of Associated Cement Co. Ltd. [1993] 201 ITR 435 (SC), was issued by the CBDT where it was pointed out (hat "any work" is not restricted to "works contract" and is wide enough to cover any work which is carried out through a contractor in a contract. The circular dated March 8, 1994, provided that the term "transport contracts" would, in addition to contracts for transportation and loading/unloading of goods, also cover contracts for plying of buses, ferries, etc., along with staff(e. g., driver, conductor, cleaner, etc.), Circular No. 86 dated May 29, 1972 was withdrawn beside the Ci....
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....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 Taxman 525 has held that on the basis of the circular dated March 8, 1994 tax on carriage of goods cannot be levied. I have considered over the matter. The judgment given by the apex court in the case of Associated Cement Co. Ltd. [1993] 201 ITR 435 was in respect of loading of cement bags into wagons/trucks. It was in this context that the word "any work" was held not restricted to payment in relation to works contract. Even the circular dated May 29, 1972, interpreted the provisions of the section 194C and clarified that the tax is not to be deducted under section 194C by transport contractors. It was only because of the judgment given in the case of Associated Cement Co. Ltd. [1993] 201 ITR 435 (SC) another circular dated March 8, 1994 was issued by the Central Board of Direct Taxes and section 194C was held applicable only from April 1, 1994, and for su....
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.... 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 Haryana High Court in the case of Ekonkar Dashmesh Transport Co. v. CBDT [1996] 219 ITR 511 has dissented with the judgment given by the Bombay High Court and the Calcutta High Court referred to above and taking into consideration the judgment in the case of Associated Cement Co. Ltd. [1993] 201 ITR 435 (SC), held that the end-product may be the work but the income derived by the contractor for "carrying out the work" is certainly covered by the provisions of section, 194C. In the case of Associated Cement Co. Ltd. [1993] 201 ITR 435 (SC), the contract was for loading/unloading of goods and nothing was done to the goods. It was a pure and simple hire of labour for loading and unloading of goods which was the subject-matter of the decision in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435 (SC). The definition of the word "work" in various dictionaries is as und....
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.....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 Act, 1995, a number of queries have been received from the various associations and professional bodies on the scope of tax deduction at source. It would be desirable to clarify' the doubts by issuing a public circular in the form of question answer as under:- Q 1 : What would be the scope of an advertising contract for the purpose of section 194C of the Act ? A : 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 tax deduction at source 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 media. The deduction is required to be made at the rate of 1 per cent. Q 2 : Whether the advertising agency wou....
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....deration 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 media. The present assessee was not a client, but, an advertising agency. Considering Trishul as a media, for an argument-sake, whatever payments made by the assessee to Trishul, no tax need to be deducted at source according to the said Circular since neither the assessee (Sands) was a client nor Trishul a media. The word "work" has not been defined in the Act. The Board in its Circulars had repeatedly stressed that when a client makes payment to an advertisement agency, the client was obliged to effect the TDS. In the case on hand, when a client (the advertiser) made the payment to the advertising agency (the assessee), it had effected the TDS, whereas the assessee - being an advertising agency - reimbursed the advertising charges to Trishul which were neither a client nor a media and, thus, the provisions of S.194C have no role to play. 8.1.8. With due respects, we have ca....
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....rials 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 Minister on the floor of the House is not applicable in the present case because the payment made by the appellant is to its concern and not to media", the Ld. Counsel came up with a question, Whether reliance on Finance Minister's speech can be placed differently while interpreting a statutory provision? and answered that at the introduction of the Finance Bill, known as placing the Budget on the floor of the Parliament, the Hon'ble Finance Minister's budget speech among others contains a broader outline of the proposed amendments in direct tax regime. In other words, the Finance Minister outlines the underlying object or intent of the proposed amendment. This was the reason due to which the judiciary in India had re....
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....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 being an exercise in the ascertainment of meaning everything which is logically relevant should be admissible. The Finance Minister's speech, therefore, can be relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause.... " 8.1.12. In view of the various judicial pronouncements referred supra, we are of the firm view that the clarifications made by the Hon'ble Finance Minister on the floor of the Parliament cannot brushed aside on the plea that the payment made by the present assessee was to its sister concern and not to media. 8.1.13. The advertisement materials devised and defined by the assessee were being channelled through Trishul - thanks to its accredited agency status....