TaxTMI 
TaxTMI 
2014 (12) TMI 721
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....9, 490, 491 and 492/LKW/2009 emanating from the order passed under section 201(1) of the Act. In these appeals, the order of the ld. CIT (A) is, inter alia, challenged on common grounds. For the sake of reference, we extract the grounds raised in appeal No.488/LKW/2009 as under:- 1. Under the fact in and circumstances of the case Ld CIT (A) has erred on fact and in law while deciding appeal and holding that demand raised u/s 201 should be deleted. 2. Under the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting demand created u/s 201 relying upon the version of assessee that assessee has paid subsidy for display logo of Sahara India Commercial Corpn. on ticket and on aircraft etc. 3. Under the facts and in circumstances of case the CIT(A) failed to appreciate the fact that putting up a logo on aircraft is also a type of hoarding which is advertising contract and provision of section 194-C is applicable as explained in Board's Circular No.715 dated 8th Aug. 1995. 4. Under the facts and in circumstances of the case the Ld. CIT(A) failed to appreciate the fact of case that subsidy has been defined by Calcutta High Court in (1991) 191 ITR 518(Cal....
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....greement with M/s Sahara Airlines Ltd. in which the appellant-company gave a subsidy to M/s Sahara Airlines Ltd. against their passenger's ticket sale and in return of the subsidy, which was provided to the airlines, they were entrusted with the job of printing of logo, colour scheme, etc. of the appellant-company on boarding card, ticket, baggage tag on board their aircraft so that the passengers travelling could know about the company. 4. It was further stated that M/s Sahara Airlines Ltd. has not undertaken any advertisement activity for and on behalf of the appellantcompany which could have a contractor-contractee relationship and as such provisions of section 194C of the Act in respect of tax deducted at source against advertisement are not applicable as the arrangement does not tantamount to advertisement contract within the meaning thereof. Reliance was placed upon the provisions of section 194C of the Act in support of his contention that provisions of section 194C of the Act does not include arrangement which had been entered into between the appellant-company and M/s Sahara Airlines Ltd. in which M/s Sahara Airlines Ltd. has only given the boarding cards, baggage tag, ....
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.... "Before arriving at any decision as to whether the agreement entered into by M/S Sahara India Commercial Corporation Ltd. with M/s Sahara Airlines Ltd. [Now known as M/s Jetlite (India) Ltd,] attracts TDS provisions u/s 194C of the Income tax Act 1961 or not, it is relevant to peruse the agreement and documents submitted by the assessee company on various opportunities. The very agreement dated.30.03.1995 is reproduced below for judging the nature of payment. No.SIHL/MARC/DIR/95/ DATED: 30.03.1995 M/s Sahara India Airlines Limited. Sahara India Bhawan, 1, Kapoorthala Complex, Lucknow. Dear Sirs, Sub : Our Publicity through your Airlines. We refer to the discussions of the undersigned had with your Director, Shri Subrata Roy Sahara, on the above matter in several meetings. What we want you Airlines to do, is to give extensive publicity to our activities in order to promote our business and area of operations. We confirm that the following arrangements have been arrived at with you by us. (1) All your Aircrafts will have exactly the same logo and in the same colour as used by us and the same will be prominently displayed outside of both sides of each and ever....
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....ting that it was an arrangement for publicity and not a contract for advertisement would not change the very nature of payment and the intentional spirit of the agreement. Further, determination and terms of payment will also not change the object of the advertising agreement. Secondly vide letter dated 30.06.2008 the assessee company annexed photocopies of renewed/amended agreement (A-1 to A-5 of the annexure-A which is a part of this order) where correspondences were made for revision of Advertisement-tariff between the deductor and deductee company. This again proves that the payment made pursuant to the agreement (by whatever name called) was actually payment for advertisement that is why the subject matter of these amended/renewed agreements were "Revision of Advertisement Tariff. Thirdly if copies of General Ledger filed by the assessee company is perused as narrated year-wise above, it would prove that it was an Advertisement expenses on the basis of narration of the general entries. Therefore, the reasoning furnished by the company with regard to its posting in the books of account whether as "workin- progress" or otherwise is again not acceptable as the nomenclature ....
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....roadcast to call public attention to, especially, by emphasizing, desirable qualities so as to arouse a desire to buy and patronize. To this meaning of the term the definition adds notices, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas. An advertisement is generally of goods and services and is information intended for potential customers (2006)280 ITR 211(AAR) BEFORE THE AUTHORITY FOR ADVANCE RULINGS GOOGLE ONLINE INDIA P. LTD., In re "Section 65. Definitions.-In this Chapter, unless the context otherwise requires...... (2) 'advertisement' includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas; Recently, the Supreme Court in ICICI Bank v. Municipal Corporation of Greater Bombay [2005] 6 Scale 110 held that whether a particular action is an advertisement or not would depend on whether the person wants to promote his product or service. If by any communication, the communicator tries to influence people to buy his product or service or attract towards his product or service ....
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.... advertisement contract within the meaning thereof. Here we find another attempt of the deductor company to defeat the spirit of TDS provision by way of colouring the advertisement agreement as a agreement in return of subsidy. Thus once again, it has equally, been important to glance at the literal meaning of the word "subsidy" which are given as below. In Kesoram Industries' case [1991 ] 191 ITR 518 (Cal), the meaning of the word "subsidy" had been considered in great detail which is to the following effect: "Webster's New World Dictionary, 1962: 'a grant of money, specifically (a)... (b) a government grant to a private enterprise considered of benefit to the public. Shorter Oxford English Dictionary: "Help, aid, assistance... Financial aid furnished by a State or a public corporation in furtherance of an undertaking or the upkeep of a thing....' Chambers' Twentieth Century Dictionary, revised edition: 'assistance, aid in money... a grant of public money in aid of some enterprise, industry; etc., or to keep down the price of a commodity.........' The Reader's Digest Great Encyclopaedic Dictionary Vol. II (M-Z) 2. Financial aid given by go....
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....d the method of posting entries in the books of accounts are nothing but an attempt to defeat the spirit of provisions of section 194C of the I.T. Act, 1961. In view of the above, it is established that the deductor company (M/s Sahara India Commercial Corporation Ltd.) has violated the statutory provisions of section 194C of the I.T. Act, 1961 for which the deductor company M/s Sahara India commercial corporation Limited is here by treated as assessee in default under section 201 of the I.T. Act, 1961 for the amount of TDS on entire payment made by M/s Sanara India Commercial Corporation Limited to M/s Sahara Airlines Limited (Now M/s Jetlite (India) Limited) from the financial year 2002-03 to financial year 2006-07. Thus the amount of short charge of TDS for which the assessee M/s Sahara India Commercial Corporation Limited, is in default is being calculated as under:- CALCULATION OF SHORT CHARGE OF TDS FROM THE F.T. 2002-03 TO FY. 2006-07. Thus the assessee in default i.e. M/s Sahara India Commercial Corporation Ltd. is directed to deposit Rs. 18,70,71,317/- as short charge of TDS u/s 201 of the I.T. Act, 1961 within the time stipulated in the notice of demand. Issue no....
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....trates that all the three are different categories and nature and it is only the word of advertisement which is included in the definition of section 194C of the Act. Reliance was also placed upon various judicial pronouncements with the submission that in earlier years no action was initiated under section 201(1) of the Act by the Revenue. It was also contended before the ld. CIT(A) that the receipts were duly credited to the account of the recipient and no tax liability has ever accrued against the recipient. In support of his contention it was stated that M/s Sahara Airlines Ltd. who is the recipient of the subsidy paid by the appellant-company is also an income-tax assessee which has duly filed return of income for different financial years and taxes which were due on the returned income have been duly paid by the payee company. It was also stated that the recipient company has filed return of income showing loss. Therefore, no tax liability has ever accrued against them. 8. The ld. CIT(A) re-examined the issue in the light of various Circulars, relevant provisions, judgments referred to by the assessee and formed a view that "advertisement" and "publicity" are not the same ....
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....s reciprocity arrangement. It is generally being given by the State authorities to promote Industries. But in the instant case subsidy was given with reciprocity arrangement with an intention to avoid incident of TDS. 10. He further contended that definition of "advertisement" in CBDT Circular No.714 is providing an inclusive clarification that advertisement may be in print or electronic media i.e. newspaper, periodicals, radio, T.V., etc. This "etc" and "may be" gives clear proof that this clarification is inclusive definition at best. The ld. D.R. has quoted an example that the "hoarding" do not find place in the definition of advertisement given through Circular; Does it mean that the hoarding which dot the city skylines are not "advertisement" at all? Therefore the definition given in the Act and also as per Circular is an inclusive definition. 11. It was further contended that the assessee has used the words such as "facilitation arrangement" and "work-in-progress" etc. to mislead the Revenue from real issue at hand. The ld. D.R. has also invited our attention to CBDT Circular No.715 dated 8.8.1995 with the submission that the Board has clarified question No.18 raised wi....
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....lared as an assessee in default under section 201(1) and liability of interest under section 201(1A) of the Act, be fastened on it. 13. In oppugnation, the ld. counsel for the assessee, besides reiterating its contentions as raised before the ld. CIT(A), has contended that "advertisement" and "publicity" are different words having different meanings. Shri. Perci Pardiwala, Senior Advocate have placed reliance upon the provisions of section 37(3B) of the Act which was brought on the statute w.e.f. 1.4.1984 and was omitted w.e.f. 1.4.1986 with the submission that the words "advertisement", "publicity" and "sales promotion" have been separately used by the Act which categorically demonstrate that all the three are different categories and the nature and it is only word "advertisement" which is included in the definition of section 194C of the Act. Therefore, the expenditure incurred for publicity cannot be termed to be the expenditure incurred for advertisement. Therefore, provisions of section 194C of the Act cannot be invoked. He has also invited our attention to the judgment of the Hon'ble Supreme Court in the case of ICICI Bank Ltd. and Another vs. Municipal Corporation of ....
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....nd the assessee is required to deduct TDS, the assessee cannot be held to be an assessee in default under section 201(1) of the Act as there is no tax liability on the deductee on receipt of these payments which were credited in the books of account of the deductee. 15. The ld. counsel for the assessee, Shri. Perci Pardiwala has also invited our attention that for assessment years 2003-04 and 2004-05 the ld. CIT(A) has given a specific finding that action under section 201(1) of the Act is barred by limitation as it was initiated after four years, but the Revenue has not challenged this order of the ld. CIT(A) on this ground as the Revenue has raised the grounds of appeal on merit. Therefore, the appeals for assessment years 2003-04 and 2004-05 are not sustainable in the eyes of law. The ld. counsel for the assessee has also invited our attention to the judgment of Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corporation vs. DCIT (supra) and the judgment of Hon'ble Himachal Pradesh High Court in the case of CIT vs. Satluj Jal Vidyut Nigam Ltd. [2012] 345 ITR 552 (HP) in support of his contention that action under section 201(1) of the Act cannot be init....
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....Publicity through your Airline. We refer to the discussions of the undersigned had with your Director, Shri Subrata Roy Sahara, on the above matter in several meetings. What we want your AirLines to do, is to give extensive publicity to our activities in order to promote our business and area of operations. We confirm that the following arrangements have been arrived at with you by us. (1) All your Aircrafts will have exactly the same logo and in the same colour as used by us and the same will be prominently displayed outside of both sides of each and every aircraft in the manner that the same is clearly visible to general public at least from the distance of 200 metres. (2) You will use our logo and its colour scheme on all your tickets. Boarding Passes, Baggage tags, publicity materials and advertisements in newspapers, hoardings, etc. (3) Our brouchers (to be supplied by us) will have to be distributed with each ticket issued by you. (4) You have agreed to make other arrangements required from our side to popularise our business as may be intimated by us to you after mutual consent. (5) Since the publicity is, mainly, directly linked with the tickets issued by ....
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..... We have also examined the revised agreement dated 10.3.2000 in which the parties to the agreement has used the terminology as "revision of advertisement - Tariff for publicity". If all these documents are read together, we would find that at the time of agreement, the appellant had no intention to execute this agreement only for publicity of its logo as it has used the word "advertisement" in the agreement itself. The appellant is now making its efforts to distinguish the terminology "advertisement" and "publicity" and tried to demonstrate that this agreement was executed for the publicity of logo for which the assessee would not get any business benefit; it was simply for its publicity. We are unable to digest this argument as no businessman will enter into a contract for publicity of its brand or logo without foreseeing any business benefit out of it. On account of publicity, there may not be a direct business benefit, but hidden benefit is always there. The ld. counsel for the assessee has tried to demonstrate that wherever contract for publicity is given the assessee would not be liable to deduct TDS, as the appellant is only required to deduct TDS under section 194C of the A....
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....ed under section 194C or 194-I of the Act, it was clarified that the contract for putting up hoardings is in the nature of advertising contract and provisions of section 194C of the Act would be applicable. Similarly question No.18 i.e. whether deduction of tax is required to be made under section 194C of the Act for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc., put up by the organizers was clarified by the Board by saying that the agreement for sponsorship is in essence, an agreement for carrying out a work of "advertisement". Therefore, provisions of section 194C of the Act shall be applied. We have also examined the judgment of the Hon'ble Apex Court in the case of ICICI Bank Ltd. and Another vs. Municipal Corporation of Greater Bombay and Others (supra) and we find that while adjudicating the interpretation of word "advertisement", their Lordships have examined the meaning of "advertisement" given in different dictionaries and concluded that it cannot be held that the sign boards indicating ATM Centres cannot have commercial interest but would only tell about th....
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....he case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and the Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT (TDS) (supra), in which it has been categorically held that recovery provisions under section 201(1) of the Act can be invoked only when loss to the Revenue is established and that can only be established when it is demonstrated that recipient of income has not paid taxes on the income. This issue was examined by us in the case of ICICI Bank Ltd. vs. DCIT in ITA No. 668/LKW/2011 in the light of the judgment of the Apex Court in the case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and Jagran Prakashan Ltd. vs. DCIT (TDS) (supra) and we have concluded that recovery provision under section 201(1) of the Act can only be invoked when loss to the Revenue is established and the onus is upon the Revenue to demonstrate that the recipient of income has not paid due taxes thereon. The relevant observations of the Tribunal in the aforesaid case are extracted hereunder for the sake of reference:- "6. We find that it is a settled legal position now that once recipients have paid tax on income embedded in these payments, and in the light of Ho....
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....t all such information about the recipient as he is obliged to maintain under the law, once this information is submit ted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law la id down by Hon'ble Allahabad High Court. 8. It is also important to bear in mind that the lapse on account of non deduction of tax at source is to be visited with three different consequences - penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue....
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....that he has concluded that the impugned payment was made for publicity and not for advertisement, for which the assessee was not required to deduct TDS. But now as we have concluded that the payments were made for advertisement, this aspect of the issue requires a proper examination. During the course of hearing of the appeal, the ld. counsel for the assessee has pointed out specifically that the recipient/deductee, M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years. Therefore, there was no tax liability even on the receipt of payments on account of advertisement charges. In that situation, these facts require a proper verification by the Assessing Officer. If it is established that the recipient, M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years, provisions of section 201(1) of the Act cannot be invoked and the appellant cannot be held to be an assessee in default. Accordingly this issue is restored to the file of the Assessing Officer for verification and adjudication in terms indicated above after affording opportunity of being heard to the ass....
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.... ld. counsel for the assessee, Shri. Perci Pardiwala has emphatically argued that since the recipient/deductee has filed return in loss, there was no tax liability on such receipts on the deductee/recipient i.e. M/s Sahara Airlines Ltd. at any point of time. Therefore, no interest can be charged under section 201(1A) of the Act. He has also invited our attention to the judgment of the jurisdictional High Court in the case of Jagran Prakashan Ltd. vs. DCIT( TDS) (supra) in which it has been held that the assessee cannot be held to be an assessee in default under the provisions of section 201(1) of the Act till it is found that the deductee has also failed to pay such tax directly. Once this finding about non-payment of tax by the recipient is held to be a condition precedent to invoke provisions of section 201(1) of the Act, the onus is on the Assessing Officer to demonstrate that the condition is satisfied. Undeniably the recipient has filed return in loss and was also assessed at loss. Therefore, at no point of time there was any tax liability on the recipient with regard to the impugned payments. In the light of these facts where no tax liability has ever arisen against the recip....
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....s return in loss. Meaning thereby, for levying interest under section 201(1A) of the Act, it is to be established that there was a loss to the Revenue on account of nonpayment of tax due on the receipts. 29. We have come across the recent order of the Tribunal in this regard in the case of Thomas Muthoot vs. DCIT (TDS) [2013] 55 SOT 390 in which an identical issue came up for adjudication before the Tribunal and the Tribunal while dealing with the issue has categorically held that if any interest is liable to be charged under the Act, the same can be charged only if the Government is deprived of its funds or any loss is caused to the Government, since interest is compensatory in nature. Therefore, where the firm after including the receipt suffers loss, it would not have any tax liability. Therefore, the assessee-deductor would not be liable to penalty under section 201(1) of the Act or interest under section 201(1A) of the Act. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- "18. However, we find force in the second point. The question that requires consideration is about the nature of interest charged under the Income tax Act, i....
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.... in nature and is not in the nature of penalty. We may also note the decision of the Bombay High Court in the case of CIT v. Kotak Mahendra Finance Ltd.265 ITR 119(Bom.), wherein the Bombay High Court observed that it was well settled that interest under Section 234B was compensatory in character and that it was not penal in nature. Another decision which would be relevant is of a Division Bench of this Court in the case of Dr Prannov Roy v. Commissioner of Income-tax and Another :254 ITR 755(Del.). In that case, the provisions of Section 234A were in issue. The question before the court was whether interest could be charged under Section 234A when, though the return had not been filed in time, the tax had been paid. The argument raised on behalf of the Revenue that such payment of tax did not strictly comply with the meaning of advance tax and would therefore, have to be disregarded for the purposes of charging interest under Section 234A, was rejected. The Court also held that interest under section 234A was compensatory in nature and unless any loss was caused to the Revenue, the same could not be charged from the assessee. It may be relevant to point out that the matter was tak....
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....The question that arose before the Hon'ble Delhi Court was whether interest u/s 234A is leviable or not in the said facts. Under section 234A, interest is chargeable if the return is not filed within the prescribed due date. The Hon'ble Delhi High Court held that interest is not leviable in the facts and circumstances of that case, mainly on the reason that interest is compensatory in nature and unless any loss is caused to revenue, the same could not be charged from the assessee. The said view was also accepted by the Hon'ble Supreme Court CIT v. Pranoy Roy [2009]309 ITR 231/179 Taxman 53, which was referred to by the Hon'ble Delhi High Court in the case of Anand Prakash (supra). Hence, it is well established principle now that the if any interest is liable to be charged under the Act, the same can be charged only if the Government is deprived of its funds or any loss is caused to the Government, since interest is compensatory in nature. It is pertinent to note that the ratio of the decision rendered in the case of Dr. Prannoy Roy (supra) was followed by the Mumbai J bench of the Tribunal in the case of Mrs. Sheela Jaisingh v. Asstt. CIT [2007]13 SOT 617and the Vis....
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....the recipient cannot suffer disallowance in assessment of payer. Therefore, the crux of the issue is that disallowance on a particular demand or chargeability of interest on the due amount depends upon the chargeability of taxation of the amount in the hands of the recipient. If the amount is not chargeable to tax due to one reason or the other, neither the payment can suffer any disallowance nor any interest can be levied for default in payment of tax. 31. Before the lower authorities, except the contentions of the assessee, no evidence was placed to substantiate that the recipient, M/s Sahara Airlines Ltd. has suffered loss in all the impugned assessment years. Though it was specifically claimed before us that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, but no evidence was placed. Therefore, it cannot be conclusively held that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years. and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is established that the recipient had filed....
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....payment of publicity, it was not required to deduct TDS u/s 194C of the Act. The learned Counsel for the assessee further contended that undeniably the recipient was always assessed at loss, therefore, there is no tax liability on the recipients at any point of time. Since there was no loss to the Revenue, the penalty u/s 271C of the Act cannot be levied. 35. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the material available on record, we are of the view that the issue of penalty u/s 271C of the Act should be examined in the light of our finding with regard to liability of deduction of TDS on payment for Publicity or Advertisement to M/s Sahara Airlines Ltd. as per the agreement. In the foregoing appeals, we have categorically held that the assessee has made the payments for advertisement and not for publicity and therefore, it was required to deduct the TDS u/s 194C of the Act. But while adjudicating the issue whether the assessee can be held to be in default and also chargeable to interest u/s 201(1A) of the Act in the light of the fact that the recipient/deductee M/s Sahara Airlines Ltd. had filed all its returns for these ye....
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.... under the surrounding circumstances under which payment was made. 37. In the case of Income-tax Officer Vs Muthoot Financiers 286 ITR (AT) 71, the Tribunal has held that penalty provisions under section 273B of the Act are not automatically attracted merely upon failure on the part of the assessee to comply with the law. Before levying penalty the concerned officer is required to find out whether the failure referred to in the concerned provision was without any reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause. Thereafter the officer has to consider whether the explanation offered by the assessee as regards the reason for the failure was on account of reasonable cause. Only if the cause shown is found to be frivolous, without substance or foundation, the prescribed consequence would follow. 38. Further in the case of Commissioner of Income-tax Vs NHK Japan Broadcasting Corporation 284 ITR 357 (Del), it was held that the question whether there was any reasonable cause for not making a deduction is a question of fact. 39. In the case of Woodward Governor India P. Ltd. Vs Commissioner of Income-tax [2002] 253 ITR 745 (Del), ....
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....ind out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. "Reasonable cause" as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow." 40. Having carefully examined the facts of the case in the light....