THE issues before the bench are - Whether acquiring the right
of displaying advertisement at hoarding site and making payment to hoarding site
owners involve lease, sub-lease or tenancy arrangement; Whether deduction of TDS
u/s 194-I is applicable in such case; Whether connectivity charges paid as per
the agreement for using of pipeline connection for gas transportation, is in the
nature of carriage of goods and covered u/s.194C; Whether it would be considered
differently, in case the pipeline was owned by a third party and was opened for
service to other clients also; Whether in case, an assessee uses the facility of
hiring helicopters for transportation of its employees, deduction of TDS u/s
194I is tenable in law; Whether in case an asset is taken on hire basis and the
control lies with the actual owner only, deduction of TDS on payment made can be
u/s 194I; Whether in case the services provided by an event Manager were taken
for managing a particular event only, deduction of Tax u/s 194J is tenable in
law and Whether an assessee can claim expenses from a particular event as its
business expense. And the verdict goes against the Revenue.
Facts of the
case
A)
Assessee, a Public
Sector Undertaking, had made payment to M/s Proveg Communication Pvt. Ltd.(PCPL)
The AO had stated that the assessee Co. had submitted a letter regarding hiring
the hoardings at 17 major locations in Gujarat and fixed the monthly rate of Rs.
34,24,2607/-. The A.O. observed that the assessee Co. had made payment of Rs.
6,85,43,740/- to the aforesaid contractor during the year under consideration.
However, assessee had deducted tax @ 2% u/s 194C as against 10% u/s 1941. The
assessee was show-caused. After considering assessee's reply, AO held that
assessee was liable for 10% TDS as against 2% deducted. On appeal before CIT(A),
assessee placed an order vide a letter with PCPL, for "Display of Hoarding
Advertisement” at 17 major locations in Gujarat. AO found in his show cause
notice that assessee had made monthly payments of Rs. 34.24 lacs. As per office
note, it had specifically been mentioned that this was purely a hiring charges
of hoardings and all other charges of Flex providing etc. were extra. This
proves that charges paid on monthly basis from May, 2008 lo February 2009 were
of nature of rent and as such assessee was required lo deduct tax @ 2 % . Please
show cause why tax was not deducted @ 10% u/s 194 I. Assessee had submitted that
it had taken the services of PCPL with the only purpose of "Brand Building".
Assessee was not in the business of taking "Hoardings on Rental basis". It had
sole purpose of advertisement and building its image in the State of Gujarat.
For the very same reason PCPL had been appointed as an agency to render
specialized services for display of hoarding of advertisement. PCFL itself does
not own the "Hoardings" and it was natural for them to obtain the same from
"Hoarding Owners" on rental basis. It was obvious that assessee had to pay PCPL
for the charges of the hoardings as a part of the advertisement contract.
However this entire procedure was a part of the wide understanding of rendering
advertisement related services. It was submitted that what was contemplated was
brand building and there was no question of hoardings or rental given, but the
idea was to build up the corporate image, hence, assessee was liable to deduct
tax at the rate of 2% plus applicable surcharge and cess. AO had grossly erred
in ignoring the Judgment of ITAT in the case of ITO vs. Roshan Publicity Private
Limited (2005-TIOL-258-ITAT-MUM) where
the Tribunal had held that the amount paid for advertisement purpose would
attract the provisions of section 194C.
B) During
assessment, AO had observed that the assessee company made payment to Gujarat
State Petronet Ltd.(GSPL). It was observed that the assessee Co. had made
payment of Rs. 8,90,69,820/- to Gujarat State Petronet Ltd. Towards gas
transportation charges by hiring Pipeline Connection. However, the assessee had
deducted tax @ 2% u/s 194C as against 10% u/s. 1941. The assessee was
show-caused. Its contention was not accepted by the AO and raised demand of Rs.
77,28,335/-. On appeal before CIT(A), assessee had submitted that AO had not
asked any details regarding payment made to GSPL during the course at survey. It
was found by the AO in show cause notice that assessee had deducted TDS @ 2%
only i.e. u/s 194C on gas transportation charges paid to GSPL. Whereas this
payment was of rental nature and it was required to deduct tax @ 10%. In reply
assessee has submitted that it had deducted tax at the rate of 2% U/s 194C for
the payment made for "Gas Transportation Charges" of Rs. 12 Crores to GSPL
instead of TDS @ 10% U/s. 194-I as the same was of rental nature. It was further
observed that payment was also made to GSPL towards "Pipeline Payment Charges /
Connectivity Charges" after deducing tax at the rate 2% U/s 194C instead of
deducing tax at the rate of 10% U/s 194-I. Assessee had submitted that payments
were made to GSPL for transportation of Gas. Revenue had wrongly classified it
as "Pipeline Payment Charges / Connectivity Charges". Gas Transportation Charges
were paid only and only to ensure that the Gas reaches to the consumer and it
was not for hiring of pipelines. Hence, there was no question of hire and
therefore the provisions of Section 194J were not applicable. Assessee was not
in the business of hiring of pipelines.
CIT(A) after taking into
consideration the submission of assessee had given relief to assessee and
observed that assessee made payments of transmission of gas for which it
deducted tax u/s 194C. However, the AO considered the payment as rent in view of
amended definition of Sec. 194I for use of equipment such as gas pipelines. In
the order, A.O. did not discuss or even mention as to how transmission of gas by
GSPL will be equivalent to use of equipment by the appellant. For carrying out
any work or transporting or transmitting goods, machines and equipments are used
but question is who used these equipments. If the equipments have been given on
lease, sublease, tenancy or under any other arrangement, then provisions of Sec.
1941 is attracted. In the absence of any of these, use of equipment for any
work, transmission etc by the owner of these equipments will not attract the
provision of Sec. 194-I. In case of assessee, the gas pipeline was owned
operated and maintained by GSPL who used the pipeline for transporting the gas.
A certificate from GSPL was submitted by the assessee in which it was confirmed
that GSPL provided services of transport of gas through the pipeline owned,
maintained and operated by GSPL and assessee does not have any right, exclusive
or otherwise on the pipelines. It was also confirmed that same pipeline was used
or transport of gas for many other customers. Having considered the facts of the
case, the gas transmission agreement, mode and basis for payment use of pipeline
for transmitting gas for many consumers, operation and maintenance of pipeline
by GSPL and no possession or exclusive right to use the pipeline at any given
point of time, it was clear that the payment for gas transmission by the
appellant will not attract the provisions of Sec. 194I. Thus assessee had not
committed default u/s 201(1) and accordingly tax u/s 201(1] and interest u/s
201(1A) was not payable by the appellant.
C) It was objected
by the assessee that CIT(A) had erred in law by holding that assessee's contract
was not for transportation but for hiring of Helicopter Services and therefore,
it falls in the category of equipment rent. The CIT(A) had also erred in law and
on facts in confirming the action of the AO to levy interest of Rs.
5,02.500/-U/s. 201(1A) on shortfall of TDS u/s 201(1). He ought to have
appreciated that once the tax had already been paid by the deductee the same
together with interest and penalty cannot be recovered from the deductor even
though deductor had failed to deduct tax at source in view of decision of
Children's Education Society Vs. DCIT (2010-TIOL-04-HC- KAR -IT) Karnataka
HC and decision of Hindustan Coca Cola Beverages Pvt Ltd. Vs CIT (2007-TIOL-144-SC-IT). Thus, assessee
had submitted that the contention of CIT(A) was bad in law and hence the same
should be deleted.
Further CIT(A) had erred in law by
holding that appellant had made payment of Rs 28,16.500/- for arrangement of
corporate cricket tournament which were squarely covered u/s. 194J and
accordingly assessee was required to deduct tax at source. He had failed to
appreciate that assessee had made payment to 3rd I Event management for managing
and organizing the "GSPC Invitation 20-20 Corporate Cricket Tournament 2008" and
therefore assessee was required to deduct tax as per provisions of section 194C.
The CIT(A) had also erred in law and on facts in confirming the action of AO to
recover short deduction of tax of Rs 2,26,278/- and interest of Rs 18,102/- U/s.
201(1A) on short fall of TDS u/s. 201(1). Thus assessee had submitted that the
contention of the CIT(A) was bad in law and hence the same should be
deleted.
Assessee Company had executed a
service contract with M/s Global Vectra Helicrop Ltd. Its office was situated at
Mumbai. Assessee company desires for hiring of Helicopter service for its
offshore drilling sites and fixed the monthly rent for operating the Helicopter.
On verification of the details submitted by the assessee, it was noticed that
assessee had made payment of Rs. 3,67,93,523/- to M/s Global Vectra Helicrop.
Ltd. and deducted TDS @ 2% u/s 194C as against 10% u/s 194I. Assessee submitted
that as per AO's assessee's contention was not acceptable in view of Taxation
Laws Amendment Act 2006 extended the definition of rent to include payment for
the use of machinery, plant equipment, furniture, fittings etc. Hiring of
vehicle to attract TDS u/s 1941. Thus, payment made to GVHL were in nature of
Rent Equipment' as defined in section 194-I and tax was required to be deducted
@ 10 % upto the period of obtaining the certificate u/s 197. Hence, there was a
short deduction of tax by 8% + EX. Therefore, interest u/s 20l(IA) was mandatory
and continued until tax was paid. Thus the A.O. raised demand of Rs. 34,58,490/-
u/s 201(1) & 201 (1A) r.w.s. 194I.
On appeal, CIT(A)
had confirmed the action of AO and observed that assessee had deducted 2% tax on
hiring of Helicopter Service u/s 194C whereas AO considered the same as covered
by Sec. 194I considering the same as rent of equipment and the differential tax
deducted and interest thereon was raised as liability. Assessee hired the
Helicopter service for logistic support for its employees and consultants. As
per details submitted by the assessee, the contract with GVHL was for hiring
Helicopter on rental basis which was also for associated services. Assessee's
contract was not for transportation but for hiring of Helicopter services
therefore, it falls in the category of equipment rent. Even GVHL had applied for
lower deduction u/s 197 r.w.s. 194I with regard to the payment received from
appellant. Thus, the transaction was for hiring of Helicopter and not for
transportation. The decisions relied upon by the assessee were therefore, not
relevant. Thus, CIT(A) confirmed the action of the ITO. Assessee had argued that
in the case of Hindustan Coca-Cola Ltd., recipient had paid taxes on receipt and
filed the return of income, therefore, the tax demand was not recoverable from
the appellant. Wherever the income subject to TDS has been offered for tax and
taxes have been paid on the same, the demand u/s 201(1) cannot be enforced.
ITO.TDS. was therefore, directed to verify the appellant's claim and if the
taxes had been paid on the Income received by the deducted demand u/s 201(1)
will be reduced. Interest u/s 201(1A) will however, be leviable in view of the
same decision of apex court. In case of CIT vs. Reliance Engineering Associated
Pvt. Ltd, it was held that agreement for hiring services of contractors for
rendering transportation services for goods and passengers by buses cars sumos
utility vans etc would be covered u/s. 194C and not u/s. 194I.
D) Assessee
company made payment to 3rd I Event Management. The assessee company issued a
work order dtd. 23/05/2008 to 3rd I Event Management Group for managing and
organizing the “GSPC Invitation 20-20 Corporate Cricket Tournament 2008” for an
amount of Rs. 28, 16,500/-. The work order was placed offer inviting quotations
from the interested parties. Further, 3rd I Event Management have also charged
service charges @ 12% for the services provided to GSPC. Accordingly, the
assessee Co. has made payment to the contractor and deducted the tax at source @
2% only as against 10 % u/s 194-J of the Act. Since the payment was made to the
person who managed the event (i.e. even management), the assessee was required
to deduct the tax as per the provisions of Section 194J of the Act. As the tax
was deducted @ 2% only on the above payment, there was short deduction of tax by
8% +5C+EC. The assessee was show-cause. After considering assessee’s reply AO
raised demand U/s 201(1) and 201(1A).
Assessee had submitted that it had
issued a work order vide a letter to 3rd I Event Management Group for organizing
the "GSPC Invitation 20-20 Corporate Cricket Tournament 2008" for an amount of
Rs. 28,16,500/-. The AO had observed that assessee had made payment to 3m I
event Manager of Rs. 13,32,140/- after deducing TDS @ 2% u/s 194C, whereas this
services rendered by 3rd I Event Manager was of professional skills and
therefore attracts TDS provision u/s 194I. Assessee was asked to show cause why
tax was not deducted u/s 194I. It was submitted that assessee had issued an
order to 3rd I event Manager - 3rd I primarily to organize a "Corporate Cricket
Tournament involving GSPC, ONGC Reliance, TATA, Indian Railways and Income Tax.
The entire responsibly of the management of the cricket tournament for a period
of 12 days was on the shoulders of 3rd I and it was to be paid management fees
at the rate of 15% of the total value of billing. GSPC had taken the services of
3rd I for holding the "Cricket tournament". The order was for the arrangement of
"Entire tournament" in an efficient manner. It was therefore obvious for GSPC to
deduct tax as per the provisions of Section 194C. Services rendered by 3rd I
were not covered by any professions and hence payments made by GSPC to 3rd I
were certainly not covered by the professional payments category. Also the
services rendered by 3rd I were not covered by technical services. AO had
grossly erred in ignoring the decision of ITAT in the case of Gujarat State
Electricity Corporation Limited vs. ITO wherein it was held that in the case of
agreement for operation and maintenance of power project, payment made by
assessee company to Gujarat State Electricity Board for entire operation and
maintenance of power plant under a comprehensive contract could not be treated
as payment of fees for professional services as contemplated in sec, 194J. Such
payment would come within the limb of exclusive part, viz "consideration for
like project' excluded fn the definition of "fees for technical services" given
in Expln. to sec 9 (1A) (vii). Deduction of tax at source at 2% as per section
194C was justified.
CIT(A) had confirmed the action of
AO and observed that assessee had made payment for management services however,
deducted tax u/s 194C only. A.O. considered the same in the category of
managerial consulting services. The kinds of services received by the appellant
definitely fall in this category. The decision relied upon by the appellant in
the case of Guj. Electricity Ltd, was not relevant since that contract was for
comprehensive services. However in the case of appellant it was only management
fees which are squarely covered u/s. 194-J. Accordingly, A.O. ’s action was
confirmed. Assessee's related ground in view of SC's decision in the case of
Hindustan Coca-Cola Ltd. was that the recipient 3 I Event Management had paid
taxes on receipt and filed the return of income, therefore, the tax demand was
not recoverable from the assessee. CIT(A) agreed with the appellant that
wherever the income subject to TDS had been offered for tax and taxes had been
paid on the same, the demand u/s 201(1) cannot be enforced. ITO. TDS was
therefore, directed to verify the appellant’s claim and if the taxes had been
paid on the income received by the dedcutee, demand u/s 201(1) will be reduced.
Interest u/s 201 (1A) will however, be leviable in view of the same decision of
SC.
Held
that,
A) ++ after taking
into consideration assessee's submissions, CIT(A) allowed the appeal of assessee
and observed that assessee paid to M/s Proveg Communication Ltd for the purpose
of Brand Building and taking hoardings for advertisement included sever other
services apart form hiring hoardings. Appellant relied upon ITAT, Mumbai
decision in the case of ITO. Vs. Roshan Publicity Pvt. Ltd. (2005-TIOL-258-ITAT-MUM). In the
said decision it was held that in acquiring the right of displaying
advertisement at hoarding site and making payment to hoarding site owners does
not involve lease, sub-lease or tenancy and therefore, sec. 194-I is not
applicable as the payment cannot be termed as rent. Applicant’s case is also
identical since it had advertisement contract with PCPL. The advertising company
who hires the hoardings will fall within the purview of 194-1 and not the person
who pays advertisements charges. From the details of advertisement charges
submitted it is clear that only the part of the amount relates to hoardings, the
remaining part is for other services referred in appellant's reply such as
business promotion, printing and stationary Brand Building etc. Considering this
and respectfully following the decision of Mumbai ITAT referred above, the ITO.
TDS’s action is not upheld and this ground is allowed;
++
since CIT(A) has given relief to the assessee by following the decision of
Mumbai ITAT in the case of ITO vs. Roshan Publicity Pvt Ltd (2005-TIOL-258-ITAT-MUM) and no contrary decision was cited
by the revenue at the time of hearing before us we feel no need to interfere
with the order passed by Ld. CIT(A) and the same is hereby upheld. This ground
of revenue’s appeal is dismissed;
B) ++ since
CIT(A)’s above finding is in conformity with the finding of the Tribunal in the
case of ACIT vs. Gujarat State Petronet Ltd (2013-TIOL-304-ITAT-AHM) on identical issue wherein it was
observed that the first payment namely vehicle hiring charges has not been
prescribed u/s. 194I Vehicles and Chauffers supplied by the contractor and was
under the complete control of the contractor. Thus, we confirm the order of the
CIT(A) on this issue. Similarly, the second payment for connectivity charges
were paid to GPSC against the agreement for using of pipeline connection of GAIL
for gas transportation. This pipeline was owned by the GAIL and was opened to
service to its other clients also, which was in nature of carriage of goods and
covered u/s.194C. Thus, on second issue also, the CIT(A) found justified and we
do not find the reason of any intervention in the order of the CIT(A) on this
issue. The third and last payment was gas transportation charges. The appellant
paid these payments for gas transportation purposes to Gujarat Gas Company Ltd.
and avail them facility of pipeline of it. The ownership and complete control of
this pipeline is of Gujarat Gas Company Ltd. This pipeline owned by the
contractor is open for use for other clients also and it was a work performed
carriage of goods as prescribed u/s.194C. Thus, it is covered u/s. 194C and
CIT(A) was right to decide this issue is as a contract for the transportation of
gas. The appellant has also submitted the confirmation from the deductee that
these receipts had been disclosed in their respective income and all the
deductees are limited company. Thus, in view of the SC decision in case of
Hindustan Coca Cola Beverages Pvt. Ltd, the assessee cannot be treated as deemed
defaulter within u/s. 201(1). Accordingly, we dismiss the appeal of the Revenue
and allow the CO of the appellant. We feel no need to interfere with the order
passed by CIT(A) and the same is hereby upheld. This ground of the revenue is
also dismissed. In the result, revenue’s appeal is dismissed;
C) ++ we find that
assessee had executed a service contract with M/s Global Vectra Helicorp Ltd for
availing helicopter services in relation to air logistic support for crew and
personnel of the assessee and any of its consultants or suppliers as well as
supply of essential cargo to and from offshore rig. Assessee while making
payment to Global Vectra Helicorp Ltd has deducted tax @ 2 % as per provisions
of section 194C. AO however was of the view that the payment made to M/s GVHL
was covered by Section 194I, considering the same as rent of equipment and
therefore assessee was to deduct tax @ 10 %. As per contract between assessee
and M/s GVHL, the helicopter services were hired by the assessee for air lift of
crew including company’s and company’s third party personnel and essential cargo
required at the rig. Assessee had not taken possession of those helicopters from
M/s. GVHL and responsibility of operating and maintaining of the helicopters was
of M/s GVHL only. Therefore this contract between assessee and GVHL falls u/s
194C. This view of ours gets support from the decision of the HC in the case of
CIT vs. Reliance Engineering Associates P. Ltd. In that case, the assessee had
engaged the services of contractors for rendering transportation services for
goods and passengers by buses, cars, sumos utility vans etc. It had not taken
possession of those vehicles from the contractors and the responsibility of
operating and maintaining of the vehicles was of the contractor. The assessee
made deduction of tax in accordance with provision u/s 194C. The revenue
authorities however held that carriages for the purpose of carrying goods and
passengers would be treated to be machineries within the meaning of explanation
to section 194I and therefore the assessee was liable to deduct higher amount of
tax as per section 194I. On appeal the Tribunal decided in assessee’s favour. On
revenue’s appeal jurisdictional High Court confirmed the order of ITAT. In view
of the above, lower authorities were not justified in holding that payment made
by the assessee to M/s GVHL for hiring of helicopters for transportation of his
employees falls under the category of equipment hiring and TDS @ 10% was
deductable on this payment u/s 194I of the Act. Therefore their orders are
hereby set aside and this ground of assessee’s CO is allowed;
D)
++ before us counsel of the assessee reiterated the submission made before
CIT(A) and submitted that though services provided by M/s 3rd Eye Event
Management are managerial in nature but the same services were not taken by the
assessee for managing its business but these services were taken for managing a
20-20 cricket tournament only. Therefore payment made to M/s 3rd Eye Event
Management is not covered by the provisions of section 194 J. This argument
advanced by the assessee is devoid of any merit as the expenses incurred by the
assessee on organizing of cricket tournament have been claimed by the assessee
against its business income as if the same were incurred for business purposes.
Therefore it cannot be said that managerial consultation services of Third Eye
Event were not for its business. The assessee cannot take contrary stand to
avoid its TDS liability. Therefore we have no hesitation in upholding the order
of Ld. CIT(A) and the same is hereby upheld. This ground of CO is dismissed
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