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

ITA 5157/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8190 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UDAY BHASKAR JAKKE
• Assessee Lawyers: S SRIRAM
• Keywords: Non-deduction of tax
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANJAY GARG,J.M. ./ITA NO.5157/MUM/2014 , / ASSESSMENT YEAR: 2011-12 DCIT (TDS)-2(1) ROOM NO.702, 7TH FLOOR, SMT. K.G. MITTAL AYIRVEDIC HOSPITAL BUILDING, CHARNI RD. MUMBAI-400 002. VS. M/S. LAQSHYA MEDIA PVT. LTD. LAQSHYA HOUSE , NEXT TO RAMESHWAR TEMPLE, SARASWATI BAUG SOCIETY RD.,JOGESHWARI (E) MUMBAI-400 060. PAN: AAACL 5004 C ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI UDAY BHASKAR JAKKE ASSESSEE BY: SHRI S. SRIRAM / DATE OF HEARING: 23.01.2017 / DATE OF PRONOUNCEMENT: 15.02.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , -PER RAJENDRA,AM: CHALLENGING THE ORDER DATED 10/06/2014, OF THE CIT (A)-14,MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN THE BUSINESS OF PROVIDING OUTDOOR MEDIA ADVERTISING SERVICES,FILED ITS RETURN OF INCO ME ON 30/09/2011.THE AO ISSUED NOTICES U/S. 133 (6) OF THE ACT AND DIRECTED THE ASSESSEE FOR FI LING INFORMATION ABOUT TAX DEDUCTED AT SOURCE. WHILE PASSING THE ORDER U/S.201(1)/201(1A) OF THE A CT,ON 21/03/2013,THE AO DEALT WITH TWO PAYMENTS MADE UNDER THE HEADS I.)PROCESSING FEES AN D GUARANTEE COMMISSION II.)HOLDING/ DISPLAY RIGHTS. 2. WITH REGARD TO PROCESSING FEES (RS. 9.85 LAKHS) AND GUARANTEE COMMISSION PAID THE BANKS (RS.14.48 LAKHS),THE AO HELD THAT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE,THAT IT SHOULD HAVE DEDUCTED TAX AS PER THE PROVISIONS OF SECTION 194H OF THE ACT.IT WAS BROUGHT OVER NOTICE THAT IDENTICAL ISSUE HAD ARISEN IN ASSESSEES OWN CASE I N ITA NO.1297/MUM/2014 FOR THE AY.2010- 11,THAT VIDE ITS ORDER DATED 27/05/2016, THE TRIBUN AL HAD DEALT THE ISSUE AT LENGTH AND HAD DECIDED THE SAME AS UNDER: 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING OUTDOOR MEDIA ADVE RTISING SERVICES TO LEADING INDIAN AND MULTINATIONAL BRANDS. THE AO ISS UED NOTICE UNDER SECTION 133(6) TO THE ASSESSEE CAL LING FOR INFORMATION ON VARIOUS EXPENSES INCURRED BY IT AND THE TAX AT SOURCE DEDUCTED THEREON. FROM THE DETAIL S FURNISHED BY THE ASSESSEE THE AO NOTED THAT, THE TDS HAS NOT BEEN DE DUCTED ON CERTAIN PAYMENTS. HE TREATED THE ASSESSEE AS ASSESSEE-IN- 5157/M/14(11-12) LAQSHYA MEDIA 2 DEFAULT FOR ALLEGED FAILURE TO DEDUCT TAXES ON THE PAYMENT OF, PROCESSING FEE PAID TO NATIONALIZED BANKS FOR OBTAINING LOANS; E-GUARANTEE FEE PAID TO NATIONALIZED BANK F OR OBTAINING GUARANTEE; AND PAYMENT FOR PUTTING UP ADVERTISING HOARDINGS. THE RELEVANT DETAILS TDS AMOUNT AND INT EREST 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 NATIONALIZED BANK FOR OBTAINING LOANS (DEFAULT U/S.194J) 40,18,998 4,55,352 1,63,927 2. GUARANTEE FEE PAID TO NATIONALIZED 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 ADVERTISEMENT ) (DEFAULT U/S.194C) 6,65,73,383 1,50,85,529 54,30,790 3. THE LD. CIT(A) AGREED WITH 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 SECTION 194J ON SUCH PROCESSING CHARGES; THIR DLY, THE GUARANTEE FEES DO NOT FALL WITHIN THE AM BIT OF COMMISSION OR BROKERAGE AS TO ENTAIL TDS; AND LASTLY, ON THE PAYMENT FOR ADVERTISING AND HOARDINGS THE ASSESSEE HAD DEDUCTED TDS ON SOME OF THE ITEMS BUT MOST OF THE ITEMS HAVE BEE N CAPITALIZED THEREFORE, THERE IS NO REQUIREMENT FO R 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 ASSES SEE AND FOR THE LAST HE DIRECTED THE AO TO DELETE T HE PAYMENT ON ITEMS OF EXPENDITURE WHICH ARE CAPITALIZED AND FOR THE BALAN CE PAYMENT AO SHOULD VERIFY THE DEDUCTION OF TDS A ND RECOMPUTE THE DEMAND ACCORDINGLY. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE F IRST PAYMENT IS ON ACCOUNT OF LOAN PROCESSING FEES PAID TO THE NATIO NALIZED BANK. THIS FEE IS CHARGED BY THE BANK FOR, PROCESSING THE APPLICATION FILED BY THE BORROWER AND FOR ANY INSPE CTION OF TITLE DEEDS AND DOCUMENTS RELATING TO PROP ERTIES 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 SE RVICE FEE ON BORROWED MONEY AND HENCE IT IS COVERED WITHIN THE MEANING AND DEFINITION OF INTEREST AS DEFINED UNDER SECTI ON 2(28) AND CONSEQUENTLY, FALLS WITHIN THE EXCLUSI ON CLAUSE PROVIDED UNDER SECTION 194A(3). FURTHER, AO HAS ALSO TREATED THESE CHARGES AS PAYMENT FOR MANAGERIAL SERVICES RENDERED BY THE BANK AND THEREFORE, TAX WAS REQUIRED TO BE DEDUCTED UNDER SECTION 194J R.W. SECTION 9(1)(VII). THE COU NSELS CASE BEFORE US IS THAT, SUCH A PAYMENT OF PROCESSING FEE CANNOT BE TREATED FOR RENDERING OF MANAGERIAL SERVICES AND IN SUPPORT VARIOUS DECISIONS HAVE BEEN FILED BEFORE US. RATHER IT FALLS WITHIN THE AMBIT OF INTEREST AS DEFINED U NDER SECTION 2(28A), WHICH PROVIDES THAT, INTEREST INCLUDES ANY SERVICE FEES OR OTHER CHARGE IN RESPECT OF ALL MONIES BORRO WED. THUS, THERE WAS NO REQUIREMENT TO DEDUCT THE TDS ON ACCOUNT OF REN DERING OF MANAGERIAL SERVICES. ON THE OTHER HAND, L D. DR SUPPORTED THE ORDER OF THE AO. 5. AS REGARDS THE PAYMENT OF PROCESSING FEE PAID TO NATIONALIZED BANK, WE AGREE WITH THE CONTENTION OF LD. COUNSEL THAT, LOAN PROCESSING FEE IS CHARGED BY THE BANKS FOR PROCESSING THE APPLICATION WHEN A BORROWER APP ROACHED THE BANK FOR A LOAN. SUCH A SERVICE FEE OR CHARGE IT HAS BEE N INCLUDED IN THE DEFINITION OF INTEREST, AS GIVE N IN SECTION 2(28A) WHICH READS AS UNDER:- INTEREST MEANS INTEREST PAYABLE IN ANY MANNER I N RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMIL AR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEY S BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. FROM THE ABOVE, IT IS QUITE APPARENT THAT THE DEFIN ITION OF INTEREST WILL INCLUDE ANY SERVICE FEE OR A NY OTHER CHARGE IN RESPECT OF MONEY BORROWED. HERE, PROCESSING FEE DEF INITELY 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 B EEN REITERATED BY THE ITAT PUNE BENCH IN THE FOLLOWING CASES: I) CHINTAMANI 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) DESPITE SUCH A PAYMENT TO THE NATIONALIZED BANK FAL LS WITHIN THE AMBIT OF INTEREST UNDER SECTION 2(2 8) BUT THE TDS PROVISIONS UNDER SECTION 194A ARE NOT APPLICABLE, B ECAUSE IT FALLS WITHIN THE EXCLUSIONARY PROVISIONS AS LAID DOWN IN SUB- SECTION (3) OF SECTION 194A, SPECIFICALLY SUBCLAUSE (III)(A) WHICH ENVISAGES THAT, THE INCOME CREDITED OR PAID TO ANY BANKING COMPANY TO WHICH BANKING REGULATION ACT, 19 49 APPLIES, THE PROVISION OF SECTION 194A(1) WILL N OT APPLY. IN OTHER WORDS, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS ON SUCH PAYMENT OF INCOME PAID TO ANY BANKING COMPANY. 5157/M/14(11-12) LAQSHYA MEDIA 3 ACCORDINGLY, THE FINDING OF THE CIT(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 FEES PAID WHICH HAS BEEN HELD 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 BANKS LIKE HDFC BANK, D ENA 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 AND SCOPE OF SECTION 194H, THE PAYMENT HAS TO BE IN THE NATURE OF COMMISSION OR BROKERAGE. THE EXPLANATION TO SECTION 194H DEFINES THE PHRASE COMMISSION AND BRO KERAGE IN THE FOLLOWING MANNER:- COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT REC EIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A P ERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RE NDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN R ELATION TO ANY TRANSACTION RELATING TO ANY ASSET, V ALUABLE ARTICLE OR THING, NOT BEING SECURITIES. THUS, IT IS SINE QUA NON THAT THERE HAS TO BE A PR INCIPAL AGENT RELATIONSHIP FOR A PAYMENT TO BE TR EATED AS COMMISSION OR BROKERAGE. THE RECIPIENT OF THE INCOME MUST ACT ON BEHALF OF THE PRINCIPAL. HERE THE BANKER DOES NOT A CT ON BEHALF OF THE ASSESSEE FOR RENDERING ANY KIND OF SERVICE. THE CON TRACT OF GUARANTEE DOES NOT GIVE ANY RISE TO PRINCI PAL - 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 COMMISSI ON AS CONTEMPLATED UNDER SECTION 194H AND ACCORDING LY, THERE WAS NO REQUIREMENT TO DEDUCT TDS ON THIS PAYMENT. T HUS, 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 WI LL NOT BE SUBJECT TO WITHHOLDING TAX. THUS IN VIEW OF THE CDBT CIRCULAR ALSO THE GROUND RAISED BY THE REVENUE CANNOT BE SUS TAINED AND ACCORDINGLY, THE SAME IS DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER, WE DECIDE F IRST TWO GROUNDS OF APPEAL AGAINST THE AO. 3. NEXT EFFECTIVE GROUND OF APPEAL [GOA III)& IV)] ARE ABOUT DELETING THE ADDITION WITH REGARD TO PAYMENTS MADE BY THE ASSESSEE FOR HOLDING/DISPLAY R IGHTS. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 27/05/2016(SUPRA) HAD DEALT THE ISSUE AS UNDE R: 7. LASTLY, COMING TO THE ISSUE OF PAYMENT ON HOAR DING AND DISPLAY EXPENSES, FIRST OF ALL, FROM THE IMPUGNED ORDER IT IS SEEN THAT THE LD. CIT(A) HAS D IRECTED THE AO TO REMOVE THE EXPENDITURE WHICH HAS BEEN CAPITALIZED BY THE ASSESSEE IN ITS BOOKS OF AC COUNTS. ONCE AN ITEM OF EXPENDITURE HAS BEEN CAPITALIZED THEN THERE IS NO REQUIREMENT FOR DEDUCT ING THE TDS. THUS, TO THIS EXTENT, THERE CANNOT BE ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME I S AFFIRMED. FOR THE BALANCE AMOUNT THE LD. COUNSEL SUBMITTED THAT, ASSESSEE HAS FILED A BREAKUP OF EXP ENDITURE BEFORE THE AO AND IT WAS EXPLAINED THAT TH ESE PAYMENTS WERE IN THE NATURE OF:- (A) GROUND LEVEL AND BEATIFICATION; (B) MATERIAL PURCHASED AND INSTALLATION CHARGES; AN D (C) PURCHASE OF WALL LAMINATED UNITS. ONCE THAT IS SO, THEN DEFINITELY THERE IS NO REQUIR EMENT OF DEDUCTING TDS UNDER SECTION 194I ON SUCH PAYMENT, BECAUSE IT DOES NOT FALL WITHIN RENT. SI NCE CIT(A) HAS ALREADY DIRECTED THE AO TO VERIFY, THEREFORE, WE ALSO REITERATE THE SAME DIRECTION THA T 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 THER E WOULD BE NO REQUIREMENT OF DEDUCTING TAX UNDER SECT ION 194I. WITH THIS DIRECTION, THIS GROUND OF THE REVENUE IS TREATED AS DISMISSED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE WE DECIDE BOTH THE GROUNDS AGAINST THE AO. 4. LAST GROUND OF APPEAL IS ABOUT DELETING THE INTERES T LEVIED U/S. 201 (1A) OF THE ACT.WE HAVE ALREADY HELD THAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE FOR THE PAYMENT MADE ON ACCOUNT OF PROCESSING FEES AND GUARANTEE COMMISSION, THAT T HERE WAS NO SHORT DEDUCTION OF TAX WITH REGARD TO PAYMENTS MADE FOR HOLDING/DISPLAY RIGHTS BY THE ASSESSEE.SO, THE ISSUE OF LEVYING INTEREST WOULD NOT SURVIVE. LAST GROUND IS ALSO DEC IDED AGAINST THE AO. 5157/M/14(11-12) LAQSHYA MEDIA 4 AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2017. 15 , 2017 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 15.02.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.