DCIT (TDS) 2(1), MUMBAI V. LAQSHYA MEDIA P.LTD, MUMBAI

ITA 1297/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3235 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURLI
• Assessee Lawyers: S SRIRAM
• Keywords: Non-deduction of tax
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI RA J ENDR A , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. : 1 2 97 /MUM/201 4 (ASSESSMENT YEAR: 20 1 0 - 11 ) DCIT(TDS) - 2 (1) , R. NO.702, 7 TH FLOOR, SMT. K G MITTAL AYURVEDIC HOSPITAL BLDG., CHARNI RD., MUMBAI - 400 002 VS LAQSHYA MEDIA PVT LTD , LAQSHYA HOUSE NET TO RAMESHW ER TEMPLE SARASWATI BAUG, SOCIETY ROAD, JOGESHWARI (EAST), MUMBAI - 400 080 . PAN: AAAC L 5004 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M MURLI RESPONDENT BY : SHR I S SRIRAM /DATE OF HEARING : 07 - 0 3 - 201 6 / DATE OF PRONOUNCEMENT : 27 - 05 - 2016 ORDER , : PER AMIT SHUKLA , J M: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 03.12.2013 PASSED BY THE CIT(A) - 14, MUMBAI IN RELATION TO THE ORDER PASSED UNDER SECTION 201(1)/201(1A) FOR THE ASSESSMENT YEAR 2010 - 11. IN THE GROUNDS OF APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED: - 2 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 I) ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE BASIS OF REASONING OF THE PROCESSING FEES AND BANK GUARANTEE COMMISSION ARE NOT IN NATURE OF MANAGERIAL SERVICES BUT UPFRONT INTEREST AND NO TDS WAS REQUIRED TO BE DEDUCTED ON SUCH CHARGES PAID TO BANKS U/S 194J OF THE I.T. ACT, 1961. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TDS IS NOT TO BE DEDUCTED AT ALL UNDER ANY SECTION OF THE I.T. ACT, 1961, ON EXPENDITURE ON THE HOARDINGS/DISPLAY RIGHTS, WHICH HAVE BEEN CAPITALIZED. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE INTEREST U/S 201(1A) OF THE I.T. ACT, 1961, DETERMINED BY THE AO AS THE TAX DETERMINED HAS ALREADY BEEN DELETED BY HER AND INTEREST DELETIONS CONSEQUENTIAL TO THE QUANTUM DELETION FORT WHICH FURTHER APPEAL HAS BEEN RECOMMENDED VIDE GROUND NO.(I) & (II). 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN PRO VIDING OUT DOOR MEDIA ADVERTISING SERVICES TO LEADING INDIAN AND MULTINATIONAL BRANDS. THE AO ISS UED NOTICE UNDER SECTION 133(6) TO THE ASSESSEE CALLING FOR INFORMATION ON VARIOUS EXPENSES INCURRED BY IT AND THE TAX AT SOURCE DEDUCTED THEREON. FROM THE DETA ILS FURNISHED BY THE ASSESSEE T HE AO NOTED THAT, THE TDS HAS NOT BEEN DEDUCTED O N CERTAIN PAYMENTS. HE TREATED THE ASSESSEE AS ASSESSEE - IN - DEFAULT FOR ALLEGED FAILURE TO DEDUCT TAXES ON THE PAYMENT OF , PROCESSING FEE PAID TO NATIONALIZED BANKS FOR OBT AINING 3 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 LOANS; E - GUARANTEE FEE PAID TO NATIONALIZED B ANK FOR OBTAINING GUARANTEE ; AND PAYMENT FOR PUTTING UP ADVERTISING HOARDINGS . T HE RELEVANT DETAILS TDS AMOUNT AND INTEREST LEVIED BY THE AO ARE AS UNDER: - S NO. NATURE OF PAYMENT AMOUNT PAID ALLEGED FAILURE TO DEDUCT TAX INTEREST U/S 201(1A) 1 PROCESSING FEE PAID TO NATIONALI - ZED BANK FOR OBTAINING LOANS (DEFAULT U/S 194J) 40,18,998 4,55,352 1,63,927 2 GUARANTEE FEE PAID TO NATIONALI - ZED BANKS FOR OBTAINING GUARANTEE (DEFAULT U/S 194J) 8,92,665 1,01,139 36,410 3 PAYMENTS FOR PUTTING UP ADVERTISEMENT HOARDINGS (ERRONEOUSLY TREATED AS PAYMENTS FOR OBTAINING RIGHTS TO PUT UP ADVERTISEMENTS) (DEFAULT U/S 194C) 6,65,73,383 1,50,85,529 54,30,790 3 . THE LD. CIT(A) AGREED WI TH THE CONTENTION OF THE ASSESSEE FIRSTLY , THAT THE PROCESSING FEE PAID TO THE SCHEDULE BANK IS IN THE NATURE OF UPFRONT INTEREST AND FALLS WITHIN THE EXCLUSION PROVIDED IN SECTION 194A(3); SECONDLY , NO TAX IS DEDUCTIBLE UNDER SE CTION 194J ON SUCH PROCESSING CHARGES; THIRDLY , THE GUARANTEE FEES DO NOT FALL WITHIN THE AMBIT OF COMMISSION OR BROKERAGE AS TO ENTAIL TDS; AND LASTLY , ON THE PAYMENT FOR ADVERTISING AND HOARDINGS THE ASSESSEE HAD DEDUCTED TDS O N SOME OF THE ITEMS B UT MOST OF THE ITEMS HAVE BEEN CAPITALIZED THEREFORE, THERE IS NO REQUIREMENT FOR TDS TO BE DEDUCTED ON SUCH CAPITALIZED EXPENSES. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION AND MATERIAL ON RECORD DECIDED THE FIRST THREE PAYMENTS IN THE FAVOUR OF THE ASSESSEE AND FOR THE LAST H E DIRECTED THE AO TO DELETE THE PAYMENT ON ITEMS OF EXPENDITURE WHICH ARE CAPITALIZED AND FOR THE BALANCE PAYMENT AO SHOULD VERIFY 4 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 THE DEDUCTION OF TDS AND RECOMPUTE THE DEMAND ACCORDINGLY. 4. WE HAVE HEARD THE RIVAL SUBMISSIO N S AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE FIRST PAYMENT IS ON ACCOUNT OF LOAN PROCESS ING FEES PAID TO THE N ATIONALIZED B ANK. THIS FEE IS CHARGED BY THE BANK FOR , PROCESSING THE APPLICATION FILED BY THE BORROWER AND FOR ANY INSPECTIO N OF T ITLE DEEDS AND DOCUMENTS RELATING TO PROPERTIES AND TO VERIFY AND CREATION OF CHARGE ETC. ON THE PROPERTY. THE LD. COUNSELS CASE BEFORE US IS THAT, SUCH A PAYMENT DOES NOT ENTAIL DEDUCTION OF TAX, BECAUSE IT IS IN THE NATURE OF SERVICE FEE ON BORROW ED MONEY AND HENCE IT IS COVERED WITHIN THE MEANING AND DEFINITION OF INTEREST AS DEFINED UNDER SECTION 2(28) AND CONSEQUENTLY, FALLS WITHIN THE EXCLUSION CLAUSE PROVIDED UNDER SECTION 194A(3). FURTHER, AO HAS ALSO TREATED THESE CHARGES AS PAYMENT FOR M ANAGERIAL SERVICES RENDERED BY THE BANK AND THEREFORE, TAX WAS REQUIRED TO BE DEDUCTED UNDER SECTION 194J R.W. SECTION 9(1)(VII). THE COUNSEL S CASE BEFORE US IS THAT, SUCH A PAYMENT OF PROCESSING FEE CANNOT BE TREATED FOR RENDERING OF MANAGERIAL SERVICE S AND IN SUPPORT VARIOUS DECISIONS HAVE BEEN FILED BEFORE US. R ATHER IT FALLS W I THI N THE AMBIT OF INTEREST AS DEFINED UNDER SECTION 2(28A) , WH I CH PROVIDE S THAT, INTEREST INCLUDES ANY SERVICE FEES OR OTHER CHARGE IN RESPECT OF ALL MONIES BORROWED . THUS, TH ERE WAS NO REQUIREMENT TO DEDUCT THE TDS ON ACCOUNT OF 5 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 RENDERING OF MANAGERIAL SERVICES . ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF THE AO. 5. A S REGARDS THE PAYMENT OF PROCESSING FEE PAID TO N ATIONALIZED B ANK, WE AGREE WITH THE CONTENTION OF LD. COUNSEL THAT , LOAN PROCESSING FEE IS CHARGED BY THE BANK S FOR PROCESSING THE APPLICATION WHEN A BORROWER APPROACHED THE BANK FOR A LOAN. SUCH A SERVICE FEE OR CHARGE I T HAS BEEN INCLUDED IN THE DEFINITION OF INTEREST , AS GIVEN IN SECTION 2(28A) WH ICH READS AS UNDER: - INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. F ROM THE ABOVE, IT IS QUITE APPARENT THAT THE DEFINITION OF INTEREST WILL INCLUDE ANY SERVICE FEE OR ANY OTHER CHARGE IN RESPECT OF MONEY BORROWED. HERE, P ROCESSING FEE DEFINITELY FALLS WITHIN SUCH DEFINITION AND, THEREFORE, IT CANNOT BE RECKONED AS PAYMENT FOR RENDERING OF ANY MANAGERIAL SERVICES BY THE BANK AS HELD BY THE AO. THIS HAS BEEN REITERATED BY THE ITAT PUNE BENCH IN THE FOLLOWING CASES: I ) CHINTAMAN I HATCHERIES (P.) LTD V DCIT, REPORTED IN [2000] 75 ITD 116 (PUNE) (SMC) AND II ) GHATGE PATIL LTD V ACIT, REPORTED IN [2011] 11 TAXMAN.COM 168 (PUNE) 6 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 D ESPITE SUCH A PAYMENT TO THE NATIONALIZED BANK FALLS WITHIN THE AMBIT OF INTEREST UNDER SECTION 2(28) B UT THE TDS PROVISIONS UNDER SECTION 194A ARE NOT APPLICABLE, BECAUSE IT FALLS WITHIN THE EXCLUSIONARY PROVISIONS AS LAID DOWN IN SUB - SECTION (3) OF SECTION 194A , SPECIFICALLY SUB - CLAUSE (III) (A) WHICH ENVISAGES THAT, THE INCOME CREDITED OR PAID TO ANY BANK ING COMPANY TO WHICH B ANKING R EGULATION ACT, 1949 APPLIES, THE PROVISION OF SECTION 194A(1) WILL NOT APPLY. IN OTHER WORDS , THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS O N SUCH PAYMENT OF INCOME PAID TO ANY BANKING COMPANY. ACCORDINGLY, THE FINDING OF THE CI T(A) DECIDING IN FAVOUR THAT THE PAYMENT OF PROCESSING FEE DOES NOT REQUIRE DEDUCTING OF TDS IS UPHELD AND REVENUES GROUND ON THIS SCORE IS DISMISSED. 6. AS REGARDS GUARANTEE FEE S PAID WHICH HAS BEEN H ELD TO BE LIABLE FOR TDS UNDER SECTION 194H BY THE AO, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE AO, BECAUSE THE ASSESSEE HAS SOUGHT ITS BANK S LIKE HDFC BANK, DENA BANK AND YES BANK TO ISSUE GUARANTEE IN ITS FAVOUR FOR WHICH BANK HAS CHARGED CERTAIN AMOUNT AS GUARANTEE FEE. TO FALL WITHIN THE AMBIT A ND SCOPE OF SECTION 194H, THE PAYMENT HAS TO BE IN THE NATURE OF COMMISSION OR BROKERAGE. THE E XPLANATION TO SECTION 194H DEFINES THE PHRASE COMMISSION AND BROKERAGE IN THE FOLLOWING MANNER: - COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF 7 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY AS SET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. THUS, I T IS SINE QUA NON THAT THERE HAS TO BE A PRINCIPAL AGENT RELATIONSHIP FOR A PAYMENT TO BE TREATED AS COMMISSION O R BROKERAGE. THE RECIPIENT OF THE INCOME MUST ACT ON BEHALF OF THE PRINCIPAL. HERE T HE BANKER DOES NOT ACT ON BEHALF OF THE ASSESSEE FOR RENDERING ANY KIND OF SERVICE . THE CONTRACT OF GUARANTEE DOES NOT GIVE ANY RISE TO PRINCIPAL - AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE BANK AND, THEREFORE, THE CONSIDERATION RECEIVED BY THE BANK ON ACCOUNT OF GUARANTEE COMMISSION CANNOT BE RECKONED AS COMMISSION AS CONTEMPLATED UNDER SECTION 194H AND ACCORDINGLY, THERE WAS NO REQUIREMENT TO DEDUCT TDS ON THIS PAYMENT . THUS, ON THIS SCORE ALSO, THE ORDER OF THE LD. CIT(A) IS AFFIRMED. BEFORE US, THE LD. COUNSEL HAD ALSO BROUGHT TO OUR NOTICE A CBDT CIRCULAR NO.56 OF 2012 WHEREIN IT HAS BEEN CLARIFIED THAT GUARANTEE FEE PAID TO A NATIONALIZED BANK W I LL NOT BE SUBJECT TO WITHHOLDING TAX . THUS IN VIEW OF THE CDBT CIRCULAR ALSO THE GROUND RAISED BY THE REVENUE CANNOT BE SUSTAINED AND ACCORDINGLY, THE SAME IS DISMISSED. 7. LASTLY , COMING TO THE ISSUE OF PAYMENT ON HOARDING AND DISPLAY EXPENSES, FIRST OF ALL, FROM THE IMPUGNED ORDER IT IS SEEN THAT THE LD. CIT(A) HAS DIRECTED THE AO TO 8 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 REMOVE THE EXPENDITURE WHICH HAS BEEN CAPITALIZED BY THE ASSESSEE IN I T S BOOKS OF ACCOUNTS . O NCE AN ITEM OF EXPENDITURE HAS BEEN CAPITALIZED THEN THERE IS NO REQUIREMENT FOR DEDUCTING THE TDS. THUS, TO THIS EXTENT, THERE CANNOT BE ANY INFIRMITY IN THE ORDER OF TH E CIT(A) AND THE SAME IS AFFIRMED. FOR THE BALANCE AMOUNT T HE LD. COUNSEL SUBMITTED THAT, ASSESSEE HAS FILED A BREAK - UP OF EXPENDITURE BEFORE THE AO AND IT WAS EXPLAINED THAT THESE PAYMENTS WERE IN THE NATURE OF: - ( A ) GROUND LEVEL AND BEATIFICATION; ( B ) MATER IAL PURCHASED AND INSTALLATION CHARGES; AND ( C ) PURCHASE OF WALL LAMINATED UNITS. ONCE THAT IS SO, THEN DEFINITELY THERE IS NO REQUIREMENT OF DEDUCTING TDS UNDER SECTION 194I ON SUCH PAYMENT, BECAUSE IT DOES NOT FALL WITHIN RENT . SINCE CIT(A) HAS ALREADY D IRECTED THE AO TO VERIFY, THEREFORE, WE ALSO REITERATE THE SAME DIRECTION THAT AO SHOULD LOOK INTO THE NATURE OF EXPENSES AND IF THE CONTENTION OF THE LD. COUNSEL IS CORRECT THAT THESE ARE IN THE NATURE OF AFORESAID PAYMENTS , THEN THERE WOULD B E NO REQUIREMENT OF DEDUCTING TAX UNDER SECTION 194I. WITH THIS DIRECTION, THIS GROUND OF THE REVENUE IS TREATED AS DISMISSED. 9 LAQSHYA MEDIA PVT LTD ITA 1297 /MUM/201 4 8. IN THE RESULT, APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY , 201 6 SD/ - SD/ - ( ) ( ) ( RA J ENDR A ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATE: 27 TH MAY , 201 6 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3 ) THE C IT ( A ) 1 4 , MUMBAI. 4 ) THE C IT (TDS) , MUMBAI. 5 ) , , / THE D.R. A BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS