FORTUNE COMMUNICATIONS LTD. (NOW HTA MARKETING SERVICES PVT. LTD.),MUMBAI vs. A.C.I.T.(OSD)-2(1), MUMBAI

1.1 The Commissioner of Income Tax (Appeals)-4, Mumbai (hereinafter referred to as CIT(A)) erred in holding that the Assistant Commissioner of Income Tax (OSD)-2(1), Mumbai (herein after referred to as the ACIT) was right in disallowing actual reimbursement of staff salaries to the Appellants Holding Company amounting to Rs. 1,90,35,493/- under section 40(a)(ia) of the Act on the ground that the Appellants had not deducted tax under section 194J of the Act.

The brief facts of the case are that the assessee who is engaged in the business of advertising and communication filed his return of income on 29.09.2009 for assessment year 2009-10, declaring total income of Rs. 94,28,730/-. The return was processed u/s 143(1) of the Act. Statutory notice was served and after giving the opportunity passed the order of assessment, while making the assessment the AO made the disallowance of Rs.1,90,35,493/- u/s 40(a) (ia) of the Act. The AO further disallowed the sum of 10% of Rs.4,43,040 on account of reasonable commission in case for the payment to M/s. Reliance Life Insurance and initiated the penalty proceedings u/s 271(1)(c) of the IT Act, in its order dated 05-12-2011, against which the first appeal was filed before CIT(A)-4 Mumbai.

The ld. CIT(A) confirmed the additions made by the AO u/s 40(a)(ia) and deleted the addition made on account of payment made to Reliance Life Insurance, in the impugned order dated 15.10.2012, against which the present appeal is filed by assessee before this Tribunal. 4. Today none, has appeared on behalf of assessee despite repeated calls, from the order sheet it is revealed that ld. AR of the assessee appeared on 27/10/2014, and sought adjournment in thepresent appeal and the same was adjourned for 8/12/2015. As none appeared today on behalf of assessee thus the appeal was heard to ex-party.

The ld. DR of the revenue has argued that appeal filed by the assessee is liable to be dismissed as the disallowance u/s40(a)(ia) was rightly made by the AO ,as no TDS on payment of Rs. 1,90,35,493/- made to Hindustan Thompson Pvt. Ltd.(HTA) was deducted by the assessee. It is seen that the assessee has submitted before the AO that assessee is 100% subsidiary of Hindustan Thompson Pvt. Ltd, who engaged in the business of advertising and do not have any employees on their pay roll. The advertising is a service oriented business and the assessee do not have any employees on the pay roll. And the employees of the holding company are deputed to carry out the advertising and other related activities. Details of the deputed employees of the deputed by the assessee were given to AO along with the basic salary, total salary , deductions towards provident fund, income tax (TDS) was also furnished and further explained that salary of those employees were paid by the holding company directly.

The AO observed in its order that the assessee is not having any employee on its pay roll and makes the payment to the employees of HTA and the payments are bifurcated and the salaries are paid directly to the employees and other payments to HTA and the form 16A was issued to the employees in the name of HTA which creates the liability of TDS to be deducted for obtaining technical and professional services and were liable to tax u/s 194J of the IT Act. 7. Further, we have seen that the Ld. The first appellate authority/ Ld. CIT(A) while dealing with this ground, in paragraph, 5 of its order has observed as under. 5. I have considered the facts of the case and submissions of the assessee. Admittedly, the persons who have worked on the jobs of the assessee company belong to HTA and they are not the employees of the assessee company. Assessee has claimed that these employees have been deputed by HTA to the assessee company and therefore, it is for the assessee to prove with evidence that there is an agreement for deputation of employees and then show that the same has been followed by the assessee with regard to the work of the employees and their payment. Whereas, assessee filed no such agreement or contract with HTA either before the A.O. or during appellate proceedings and no other evidence in this regard has been produced or filed. Therefore, assessee failed to prove that the employees of HTA have been deputed merely as employees and nothing more. Therefore, it is clear that whatever payments have been made by the assessee either to HTA or to its employees, they are construed as payments to HTA only. se payments are made for certain consideration which may be supply of manpower or other professional work, which is carried out by these employees and therefore, these payments are for a contract or agreement which exists between HTA and the assessee, in writing or by way of understanding but such payment cannot be said to be a payment of salaries. Hence, these are payments for work. As has been accepted by the assessee, it is for the work relating to its profession, therefore, the payments are for professional work, hence, they are subject to TDS provisions u/s.194J. Whereas, assessee has failed to make TDS from these payments and deposit to government accounts. Therefore, AO has rightly rejected the submissions and made addition to the income of the assessee u/s40a(ia) of Income- tax Act. Any TDS made or deposited by HTA on account of salaries paid and not on account of professional fee, therefore, the TDS by HTA cannot be substituted for the TDS to be made by the assessee. Assessee has also claimed that the TDS was required to be made u/s.192 and not 194J, but the employees who carried out the professional work are not the employees of the assessee and therefore, assessee was not liable for TDS u/s.192 whereas, services rendered by HT A employees are of professional nature, therefore, the TDS was to be made u/s.194J.

We have perused the order of the authorities below and found that there is no illegalities or infirmity in the order passed by the AO in respect of addition made u/s 40(a)(ia) which was confirmed by the first appellate