ITO (TDS) (OSD) 1(2), MUMBAI vs. EURO RSCG ADVERTISING P. LTD, MUMBAI

आदेश / O R D E R

2 EURO RSCG Advertising P.L. Per Ashwani Taneja (Accountant Member): The aforesaid appeal filed by the Revenue and Cross Objection filed by the assessee is against the order of Ld. CIT(A) dated 18.07.2014 passed against the order of the AO u/s 201(1) & 201(ii) of the Act, dated 26.03.2012 for A.Y. 2010-11 (F.Y. 2009-10). 2. During the course of hearing, arguments were made by Mr. Paras Savla & Ms. Keerthiga Sharma, Authorised Representatives (ARs) on behalf of the Assessee and by Shri B.S. Bist, Departmental Representative (DR) on behalf of the Revenue. 3. First we shall take up Revenue’s appeal filed on the following grounds: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition on account of short deduction of TDS and interest on payments in the nature of "production charges" and " AMC charges u/s 194J of the Act, treating the same as TOS payment u/s 194C, without properly appreciating the factual and technical issues of the case, as clearly brought out by the AO in his order u/s.201(1)1201(1A) of the Income Tax Act, 1961. 2. On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not appreciating the fact that production of TV commercials require highly technical job of professionals such as director and cameramen, and payments for this purpose should fall within the ambit of section 194J of the IT Act. 3. On the facts and in the circumstances of the case and in law ,the Ld. CIT(A) has erred in not appreciating the fact that the maintenance of laptop, computer, servers and specialized software require the services of highly professional and technical persons and cannot be done by non-qualified persons , therefore the payments fall within the ambit of section 194J of the Act. 4. On the facts and in the circumstances of the case and in

3 EURO RSCG Advertising P.L. law, the Ld. CIT(A) has erred in not properly considering the CBDT's clarificatory circular No. 715 dated 08.08.1995, which clearly states that the payments made by advertising agency to even in a situation where such services are sub contracted, are liable for TDS u/s 194J of the I T Act, and where technical services are rendered, provision of section 194J is applicable even to normal maintenance contracts. 5. The appellant craves to leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing of the case or thereafter. 6.The order of CIT(A), being erroneous be set aside and Ld A.O.'s order be restored. 4. Similarly, Cross Objection has been filed on the following grounds: 1. On the facts and in the circumstances of the case and in law, the Learned Commissioner or Income Tax (Appeal) CIT(A)') erred in confirming the action of Assessing Officer ('AO') by treating payments made towards dubbing, editing and royalty as fees for technical services and thus eligible to TDS under Section 194J instead of under Section 194C, thereby treating assessee as assessee in default under Section 201(1) and levying interest under Section 201(l A). 2.On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in confirming the action of AO by treating the payment made towards car parking charges of Rs.9,87,277/- as rent under Section 1941 instead of as a contractual payment attracting the provisions of Section 194C of the Act, thereby treating assessee as assessee in default under Section 201(1) and levying interest under Section 201(1A). 3.Without prejudice to Ground No 2, on the facts and circumstances of the case and in law, the Ld CIT(A) and Ld AO legally erred in alleging TDS rate © 20% on car parking charges instead of the applicable rate under Section 1941 of the Act. 5. Ground Nos.1 to 4 raised by the Revenue and Ground No.1 raised in the Cross Objection by the assessee. These

4 EURO RSCG Advertising P.L. grounds are related with the Revenue’s grievance in the action of Ld. CIT(A) in deleting the addition made by the AO on account of short deduction of TDS and interest upon payments of production charges and AMC charges. Whereas, the assessee is aggrieved with the part disallowance sustained by Ld. CIT(A) by holding that payments made towards dubbing, editing and royalty as fee for technical services liable for deduction u/s 194J as against TDS deducted u/s 194C by the assessee. 5.1. The brief background is that the assessee is engaged in the business of communication services; including advertising, marketing research, sales promotion, direct marketing and corporate communication. During the year under consideration, the assessee had incurred expenses on computation charges, annual maintenance charges and parking charges on which TDS was deducted u/s 194C. The AO initiated proceedings u/s 201 and held that TDS should have been deducted u/s 194J on payments made for production charges and AMC charges and u/s 194I on payments made for parking charges. 5.2. In appeal before the Ld. CIT(A) part relief was allowed to the assessee. Ld. CIT(A) held that TDS on payment of production charges and annual maintenance charges was to be deducted u/s 194C of the Act. However, payments relating to dubbing charges warranted deduction of tax u/s 194J of the Act. Further, it was also held that tax was to be deducted u/s 194I of the Act on payment of parking charges. Lastly, the Ld. CIT(A) held that the assessee would not be considered as

5 EURO RSCG Advertising P.L. an assessee in default u/s 201 of the Act in case the payees have paid tax on the payment made to them. Both the parties have come in appeal before us for their respectful grievances against the order passed by the Ld. CIT(A). Ld. DR has relied upon the order of the AO. Whereas the Ld. counsel of the assessee has taken following arguments: (i) The assessee had made payment to production houses for production charges and the payments have not been made to individual persons for the individual services. Thus, payments have been made in pursuance to contract; therefore, TDS has rightly been deducted u/s 194C. Thus, Ld. CIT(A) has erred in bifurcating the payments in the two parts. All the payments should be put into the category of u/s 194C. (ii) The Ld. CIT(A) has held that assessee should not be considered as assessee in default u/s 201 of the Act in case payees have paid tax on the payments made to them. All the payees of the assessee are income tax assessee’s. This fact may be verified by the AO by exercising powers conferred upon him under the law. Therefore, no tax should be recovered from the assessee. In view of the judgments of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT 293 ITR 226 (SC) as well as judgments of Hon’ble Allahabad High Court in the case of Jagran Prakashan Ltd. v. DCIT 345 ITR 288(All). It was also submitted that SLP filed by the department against above judgments has been dismissed by the Hon’ble Supreme Court vide order dated 5th May 2014. It was thus vehemently

6 EURO RSCG Advertising P.L. submitted that in absence of any leakage of revenue, no tax should be recovered from the assessee. (iii) It was lastly submitted that tax effect involved in Revenue’s appeal less than Rs.10 lakhs. Therefore, Revenue’s appeal should be dismissed in view of his Board’s circular no. 21 of 2015 dated 10.12.2015. It was also submitted that Cross Objection can be adjudicated independently, in view of the judgment of Delhi Bench of Tribunal in the case of ACIT v. Ajay Kalia 157 ITD 187 (Del). 5.3. We have gone through the facts of the case. It is noted that in addition to the decision on merits, Ld. CIT(A) gave relief to the assessee by relying upon judgment of Hon’ble Supreme Court by observing as under: 3.3.3 As regards the alternate plea / ground of appeal raised by the appellant that it ought not to be held liable for payment of taxes as the payees must have paid taxes thereon in their respective returns of income, the same is found to be tenable in view of the Hon'ble Apex Court's decision in the case of Hindustan Coca Cola Beverages Private Limited Accordingly, the A.O. is hereby directed to allow relief on this count in respect of the invoices specifically mentioned in the preceding paragraph after due verification as to whether the payees have actually offered the corresponding income to tax in their respective returns of income for the year. Notwithstanding the above, the appellant shall be liable for the liability of interest u/s 201(1A) of the Act as per the decision cited supra. Thus, the relevant Ground No.3 of appeal stands partly allowed. 5.4. In this regard Ld. counsel has supported the view taken by the Ld. CIT(A) with the judgment of Hon’ble Allahabad

7 EURO RSCG Advertising P.L. High Court in the case of Jagran Prakashan Ltd. (supra) wherein similar view was taken with following observations: “Section 191 provides that in the case of income in respect of which provision is not made under this chapter for deducting income tax at source and where income tax has not been deducted in accordance with the provision of this chapter, income tax shall be payable by the Assessee direct. Thus, both the conditions i.e. (i) in the case of income in respect of which provision is not made under chapter XVII for deducting income tax at the time of payment and ('ii) in case where income tax has not been deducted in accordance with the provisions of Chapter XVII the Income tax is payable by the Assessee direct. Section 191 thus re-enforces that primarily the liability of payment of income tax is on the person, who income is to be taxed as delineated under subsection (1) of section 4 and sub-section (2) of section 190. The explanation to Section 191 provides that where a deductor who was required to deduct income tax at source does not deduct or after deduction does not pay and where the Assessee has also failed to pay such tax directly then such person shall without prejudice to any other consequence be deemed to be an Assessee in default within the meaning of sub- section (1) of Section 201 in respect of such tax. The explanation to section 191 thus has to be read into section 201 (1). Sub-section (1) of Section 201 provides that where deductor does not deduct or does not pay after deduction such person shall without prejudice to any other consequences which he may incur, be deemed to be an Assessee in default in respect of such tax. The language of the explanation to Section 191 and sub-section (1) of Section 201 is almost similar except with one difference. In Explanation to Section 201, the deductor shall be deemed to be an Assessee in default where the Assessee has also failed to pay such tax directly, whereas in sub-section (1) of Section 201, the above condition is not mentioned. While interpreting the provisions of sections 191 and subsection (1) of Section 201, a harmonious construction has to be adopted and such interpretation is to be put which gives meaning and purpose to both the provisions. Explanation

8 EURO RSCG Advertising P.L. to section 191 specifically mentions “ ….be deemed to be an Assessee in default within the meaning of sub-section (1) of section 201 in respect of such tax.” The above meaning thus has to be read in sub-section (1) of section 201, which has been specifically provided for Not repeating the said condition again in section 201 (1) is inconsequential. Thus, deductor who fails to deduct income tax at source shall be deemed to be an Assessee in default only when the Assessee has also failed to pay such tax directly. Thus, it flows that there is no occasion to treat the deductor as an Assessee in default unless the Assessee has not paid the tax directly.” 5.6. It was also stated before us that the aforesaid order was carried by the department to the Hon’ble Supreme Court, where SLP filed by the department has been dismissed by the Hon’ble Supreme Court. Thus, the view that merges before us is that where TDS has been deducted by the deductor in most bona file manner as applicable and no revenue leakage has been pointed out, then the deductor should not be penalized for any unintended short fall in deduction of TDS so long as the payees are income tax assessee and they have included the impugned payments as part of their income offered to tax. In the case before us, the admitted case of the assessee is that all the payees are properly identified and duly assessed with the income tax department. Ld. CIT(A) has already followed this view and accordingly directed the AO to verify these facts and exonerated the assessee from the liability of short fall under such cases. Under these circumstances, respectfully following aforesaid judgments we uphold the view taken by in this regard by Ld. CIT(A), and direct the AO to exercise his powers under the law to make requisite verification with the payees. If the payee is assessed with the tax department and has filed its

9 EURO RSCG Advertising P.L. income tax return, then liability on account of short deduction of TDS would not be recovered from the assessee. The assessee shall extend requisite cooperation to the AO by submitting complete particulars of the payees containing name, address, PAN No. and copies of invoices. Further, if the need arises, the assessee shall be free to demonstrate that the assessee had made the payments to production houses and not to the persons directly for availing technical services and shall also be free to raise all legal and factual issues to establish that TDS was deducted in accordance with law only. The AO shall also take into account all the facts of the case as well as the judgments as may be relied upon by the assessee. Thus, Ground no.1 of the CO may be treated as allowed for statistical purposes. 5.7. As far as the relief granted by the Ld. CIT(A) is concerned for which Revenue is aggrieved, it is noted that during the course of its business the assessee had utilized the services of production houses. The AO was of the opinion that these services rendered by these production houses were highly technical in nature; therefore, payments made to these persons were covered u/s 194J. Ld. CIT(A) analysed the provisions of section 194C as well as circular of the Board No.714 of 1995 dated 03.08.1995 and circular no.715 of 1995 dated 8th August 1995 and held that all the payments made to the production houses (other than the payments which have been contested by the assessee in its C.O.) were covered u/s 194C, since payments made for production of broadcasting and telecasting programme are covered within the definition of

10 EURO RSCG Advertising P.L. work as contained in section 194C of the Act. He relied upon the judgment of Hon’ble Delhi High Court in the case of CIT v. Prasar Bharti 292 ITR 580 (Del) wherein it was held that section 194C of the Act specifically includes production of programme for broadcasting and telecasting. He gave his decision after analyzing the facts of the case that payments made to the production houses towards cost of production of film/advertisement were nothing but contract payments made by the assessee company in pursuance of the purchase orders, and therefore, these would fall within the purview of provisions of section 194C and not u/s 194J of the Act. 5.8. Similarly, with regard to AMC services, Ld. CIT(A) analysed all the facts of the case as well as aforesaid circulars of the Board and held that these payments are within the purview of provisions of section 194C of the Act. We find that order of the Ld. CIT(A) is based upon proper reasoning and analysis of facts. Therefore we do not find any justification to interfere in the finding of Ld. CIT(A). Thus, all the grounds raised by the Revenue are hereby dismissed. 6. Now, we shall take up Ground nos. 2 & 3 of Cross Objection wherein assessee is aggrieved with the action of lower authorities in treating payments made towards car parking charges as rent under Section 194I instead of contract payment covered under Section 194C. It has been held by AO that car parking charges were in the nature of rent and thus liable for deduction of TDS u/s 194I of the Act. Ld. CIT(A) though upheld the action of the AO, however allowed part relief to the assessee to the extent payee had

11 EURO RSCG Advertising P.L. paid tax or offered to tax the amount received by them. During the course of hearing before us, detailed arguments have been made by the Ld. Counsel. It has also been submitted that AO had not worked out the liability after verifying the facts from the payees. Under these circumstances, we send these issues back to the file of the AO to make direct verification with the payee with the same directions as were given while disposing Ground No 1 of the CO. If need arises, the assessee would be free to take all the legal and factual issues with regard to its liability to deduct tax u/s 194C and not u/s 194I.These grounds may be treated as allowed for statistical purposes. 7. In the result, appeal filed by the Revenue is hereby dismissed and Cross Objection filed by the assessee is allowed for statistical purposes as indicated above.

Order pronounced in the open court on 11th January, 2017.

Sd/- Sd/- (Mahavir Singh ) (Ashwani Taneja) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 11 /01/2017 ctàxÄ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.

12 EURO RSCG Advertising P.L. आदेशानुसार/ BY ORDER,स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar)आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai