HIGHLIGHT PICTURES (I) P. LTD, MUMBAI V. ASST CIT 11(1), MUMBAI

ITA 5826/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70892 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 28-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 17-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G N MAKWANA
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation
• Section: 194C; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M PAVALAN, JUDICIAL MEMBER ITA NO. 5826/MUM/2011 ASSESSMENT YEAR : 2008-09 HIGHLIGHT PICTURES (INDIA) PVT. LTD. MAHALAXMI SILK MILLS PREMISES MATHURDAS MILL COMPOUND N.M. JOSHI MARG LOWER PAREL MUMBAI-400 013. PAN NO.AAACB 6674 L VS. ACIT - 11(1)(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI F.V. IRANI REVENUE BY : SHRI G.N. MAKWANA DATE OF HEARING : 27/08/2013 DATE OF PRONOUNCEMENT : 30 / 0 8 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF C IT(A)-3, MUMBAI DATED 30.6.2011 . THE ASSESSEE RAISED SIX GROUNDS A ND ONE ADDITIONAL GROUND ON VARIOUS ISSUES. WE HAVE HEARD THE LD. COU NSEL AND THE LD. DR IN DETAIL. 2. GROUND NOS.1 TO 4 AND ADDITIONAL GROUND PERTAIN TO THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA). THE AO NOTIC ED THAT THE ASSESSEE HAS DEDUCTED TDS U/S 194 C IN RESPECT OF PAYMENTS W HICH ARE IN NATURE OF FEES FOR TECHNICAL AND PROFESSION SERVICES OR RE NT ON WHICH TDS SHOULD ITA NO.5826/M/11 A.Y.08-09 2 HAVE BEEN DEDUCTED AS PER PROVISIONS OF SECTION 194 I OR 194 H. AO WAS OF THE VIEW THAT WHERE SPECIFIC PROVISIONS FOR DEDU CTION OF TAX AT SOURCE ARE PROVIDED UNDER SECTION 194I, 194H, THEN THE PRO VISIONS OF RESIDUARY SECTION 194C WOULD NOT APPLY. THE AO OBSERVED THAT THE ASSESSEE HAS DEDUCTED TDS @ 2.06% U/S 194 C ON THE PAYMENT MADE ON ART DESIGNING AND FILM POST PRODUCTION WHEREAS THE TDS SHOULD HAVE BEEN DEDUCTED @5.61% U/S 194J OF THE ACT AS THE SERVICES RENDERED BY PRIME FOCUS ARE IN THE NATURE OF EDITING OF FILMS, HENCE THESE ARE IN THE NATURE OF FEES FOR PROFESSIONAL/TECHNICAL SERVICES AS DEFI NED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT; HENCE PROVISION O F SECTION 194J WOULD APPLY FOR TDS ON SUCH PAYMENTS. ACCORDINGLY THE AO DISALLOWED THE SAME U/S 40(A) (IA) OF THE ACT. THE TDS IN THE PAYM ENTS UNDER LOCATION HIRE CHARGES DEDUCTED U/S 194C @ 2.06% WHEREAS THE PAYMENT SHOULD HAVE BEEN MADE @ 22.44% U/S 194I, AS THE LOCATION H IRE CHARGES ARE THE EXPENSES ON EQUIPMENT/ LOCATION HIRED THE PRODUCTIO N HOUSES ARE DEDUCTING TAX U/S 194I WITH APPLICABLE RATE OF 15 T O 20%. AO DISALLOWED THE SHORT DEDUCTION ON ACCOUNT PAYMENT MADE UNDER L OCATION HIRE CHARGES. THE AO HAS SUPPORTED HIS VIEW BY CASE LAW IN THE CASE OF CIT VS. PRASAR BHARTI (2007) 292 ITR 580 (DEL), CHAMBER S OF COMMERCE OF INCOME-TAX CONSULTANT V CBDT 75 TAXMAN 669 (BOM) AN D ALL GUJARAT FEDERATION V CBDT 214 ITR 2. 3. IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSEE HAS CORRECTLY DEDUCTED TAX UNDER SECTION 194C AND PROVI SIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE FOR SHORT DEDUCTION OF TAX. THE LD. CIT(A) HOWEVER, DID NOT AGREE AND CONFIRMED THE DISALLOWAN CE MADE BY THE AO. 3.1 IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) CAN ONLY BE INVOKED IF THERE IS NO DEDUCTION OF TAX BUT NOT IN A CASE WHERE THERE WAS SHORT DEDUCTION. THE LD. COUNSEL RELIED ON THE DECI SION OF HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT-KOLKATA-XI VS. M/S. S.K. TEKRIWAL ITAT ITA NO.5826/M/11 A.Y.08-09 3 NO.183 OF 2012, DATED 03/12/2012 IN SUPPORT. THE OTHER CONTENTIONS RAISED BY THE LD. COUNSEL ARE THAT PROVISIONS OF SE CTION 40(A)(IA) CANNOT BE INVOKED AS THE AMOUNT WAS NOT PAYABLE AT THE END OF THE YEAR AS HELD BY THE SPECIAL BENCH OF THE ITAT, VIZAG IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS ADDL. CIT, RANGE-1[136 ITD 23(SB]). FURTHER, ON MERITS IT WAS CONTENDED THAT THE ASSESSEE HAS CORRECTLY DEDUC TED TAX UNDER SECTION 194C AND NO PROCEEDINGS UNDER SECTION 201 W ERE INITIATED FOR ANY SHORT DEDUCTION OF TAX. 4. THE LD. DR HOWEVER RELIED ON THE ORDERS OF THE A UTHORITIES. 5. WE HAVE CONSIDERED THE ISSUE. WITHOUT GOING INTO THE MERITS WHETHER THE PROVISIONS OF SECTION 194C WILL APPLY O R 194I OR 194J WILL APPLY, THE ISSUE CAN BE DECIDED UNDER THE PROVISION S OF SECTION 40(A)(IA) WHICH WAS INVOKED BY THE AO. THE SAID PROVISION IS AS UNDER :- 40. AMOUNTS NOT DEDUCTIBLE.--NOTWITHSTANDING ANYTH ING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUN TS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION',-- (A) IN THE CASE OF ANY ASSESSEE-- . . . (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDU CTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 . (EMPHASIS SUPPLIED.) 5.1 AS CAN BE SEEN FROM THE ABOVE PROVISION, THIS C AN BE INVOKED ONLY WHEN TAX HAS NOT BEEN DEDUCTED OR HAS NOT BEEN PAID AS PER THE PROVISIONS. IN THIS CASE THE ASSESSEE HAS ALREADY D EDUCTED TAX IF NOT ITA NO.5826/M/11 A.Y.08-09 4 UNDER SECTION 194I OR 194J BUT UNDER 194C. IT IS NO T A CASE OF NON- DEDUCTION OF TAX OR NO-DEDUCTION OF TAX AS PER THE IMPORT OF SECTION 40(A)(IA) OF THE ACT. WE ARE OF THE OPINION THAT WH EN TAX WAS DEDUCTED BY THE ASSESSEE, EVEN UNDER BONAFIDE IMPRESSION UNDER WRONG PROVISIONS OF TDS, THE PROVISIONS OF SECTION 40(A)(IA) CAN NOT BE INVOKED. THIS PRINCIPLE IS BEING FOLLOWED UNIFORMLY BY VARIOUS CO-ORDINATE BENCHES AND HAS THE APPROVAL OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S. S.K. TEKRIWAL (SUPRA) RELIED ON BY THE ASSESSEE. THEREFORE, WE AR E OF THE OPINION THAT DISALLOWANCE UNDER SECTION 40(A)(IA) DOES NOT ARISE IN THIS CASE. THE OTHER CONTENTIONS RAISED BY THE LD. COUNSEL NEED NOT BE A DJUDICATED AS PROVISIONS OF SECTION 40(A)(IA) CAN NOT BE INVOKED IN A CASE OF SHORTFALL OF TDS. MOREOVER, THE REVENUE HAS ALSO NOT TAKEN ANY STEPS U/S. 201 WHEREIN THE ISSUE WHETHER THE DEDUCTION HAS TO BE M ADE U/S. 194I OR 194J OR 194C CAN BE CONSIDERED/ EXAMINED. THE GROUN D 1 TO 4 AND ADDITIONAL GROUND RAISED ARE CONSIDERED AS ALLOWED. 6. GROUND NO.5 PERTAIN TO DISALLOWANCE OF DEPRECIAT ION ON PAINTINGS WHICH WERE PART OF FURNITURE AND FIXTURES. THE ASSE SSEE IS IN THE BUSINESS OF PRODUCTION AND DISTRIBUTION OF ADVERTISING FILMS AND OVER AND ABOVE IT ALSO PROVIDES ASSISTANCE LIKE MAKING AVAILABILITY O F LOCATIONS, EQUIPMENTS, MODELS AND CREW TO THE FOREIGN AS WELL AS DOMESTIC COMPANIES. THE ASSESSEE CLAIMED DEPRECIATION ON CER TAIN PAINTINGS PURCHASED BY IT ON THE REASON THAT THESE ARE UTILIZ ED IN THE SAID PREPARATION/ADVERTISING FILMS ETC. AO HOWEVER WAS O F THE OPINION THAT DEPRECIATION CAN NOT BE ALLOWED ON THE PAINTINGS AS HE WAS OF THE OPINION THAT PRESENCE OF PAINTINGS IS IMMATERIAL FOR THE CO NDUCT OF BUSINESS. THE LD. CIT(A) CONFIRMED THE OPINION OF ASSESSING OFFIC ER ON THE REASON THAT NO LIVE EVIDENCE WAS PRODUCED FOR USING THE PAINTIN GS IN ADVERTISING OF FILMS. HE FURTHER CONSIDERED THAT THESE ARE MORE OF THE NATURE OF PERSONAL EFFECTS. ITA NO.5826/M/11 A.Y.08-09 5 7. AFTER CONSIDERING THE RIVAL CONTENTIONS WE AGREE WITH THE CLAIM OF ASSESSEE. OBVIOUSLY ASSESSEE IS IN THE BUSINESS OF PRODUCING AD-FILMS OR ASSISTING IN LOCATIONS, SETTINGS ETC., WHICH IS ITS NATURE OF BUSINESS. IT WAS SUBMITTED THAT HIRING OF THE PAINTINGS FOR ORIG INAL SHOOTS WAS UNAFFORDABLE. THEREFORE, THEY HAVE PURCHASED AND UT ILIZED THE PAINTINGS WHICH WERE EITHER HUNG IN THE OFFICE OR GIVEN TO TH E PRODUCER FOR THE ORIGINAL SHOOTS, OR USED IN VARIOUS SETTING. THEREF ORE, THE CLAIM WAS THAT PAINTINGS ARE ALSO PART OF FURNITURE. THIS OPINION IS SUPPORTED BY THE DECISION OF CO-ORDINATE BENCH AT CHENNAI IN THE CAS E OF BURNSIDE INVESTMENTS & HOLDINGS LTD. VS. DY. CIT (61 ITD 601), WHEREIN SIMILAR ISSUE WAS CONSIDERED AND DEPRECIATION ON PAINTINGS WAS ALLOWED. IT WAS HELD THAT : FACTS THE ASSESSEE-COMPANY WAS DENIED DEPRECIATION ON PA INTINGS WHICH, ACCORDING TO THE ASSESSEE, CONSTITUTED PART OF INTERIOR DECORATION AND PART OF THE FURNITURE AND FITTINGS U SED IN THE COURSE OF BUSINESS. THE ASSESSING OFFICER WAS OF THE OPINION THAT SUCH PAINTINGS COULD NOT BE TAKEN TO CONSTITUTE ITEMS O F FURNITURE AND FITTINGS. ON APPEAL, THE COMMISSIONER (APPEALS), UP HELD THE ASSESSING OFFICERS ORDER. HELD FROM THE DICTIONARY MEANING OF THE WORD FURNITURE , IT IS CLEAR THAT ALL ARTICLES OF CONVENIENCE OR DECORATION USED FOR THE PURPOSE OF FURNISHING A PLACE OF BUSINESS OR AN OFFICE ARE ART ICLES OF FURNITURE. IN THE INSTANT CASE, THERE WAS NO DISPUTE THAT THES E PAINTINGS WERE USED AS DECORATIONS IN THE OFFICE AND THE OFFICE WA S USED FOR THE PURPOSE OF BUSINESS. THEREFORE, THESE PAINTINGS CON STITUTE INTERIOR DECORATION TO GIVE A GOOD LOOK TO THE PLACE OF BUSI NESS. THEREFORE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON THESE PAIN TINGS. 7.1 RESPECTFULLY FOLLOWING THE SAME WE DIRECT AO TO ALLOW DEPRECIATION AS CLAIMED UNDER THE HEAD FURNITURE AND FIXTURES. G ROUND IS ALLOWED. 8. GROUND NO.6 PERTAINS TO DISALLOWANCE OF 25% OF E XPENDITURE PAID IN CASH ON ADHOC BASIS FOR THE REASON OF NON VERIFI ABILITY OF EXPENDITURE ITA NO.5826/M/11 A.Y.08-09 6 BY AO AND CONFIRMED BY LD. CIT(A). IT WAS POINTED O UT THAT THE ASSESSEE PAID RS.20,15,703/- IN CASH OUT OF THE TOTAL EXPEND ITURE OF RS.3,74,21,577/- WHICH IS ABOUT 5% AND MOSTLY FOR A RT DESIGNING, LOCATION HIRE, PRODUCTION SHOOT EXPENSES AND TRAVEL LING AND WARDROBE EXPENSES. IT WAS FURTHER SUBMITTED THAT OUT OF THE ADMINISTRATIVE EXPENSES OF RS.56,69,514/- THE CASH EXPENSES ARE ON LY RS.3,54,887/- WHICH IS ABOUT 6% OF THE TOTAL EXPENDITURE. IT WAS THE SUBMISSION THAT IN THE NATURE OF BUSINESS OF THE ASSESSEE SOME PAYMENT S ARE TO BE MADE IN CASH AND SAME CANNOT BE DISALLOWED ON THE REASON OF NON-VERIFIABLE NATURE. EVEN OTHERWISE, IT WAS SUBMITTED THAT THE D ISALLOWANCE AT 25% IS VERY HIGH. THE LD. DR SUPPORTED THE ORDERS OF ASSES SING OFFICER. 8.1 WE HAVE CONSIDERED THE ISSUE. THERE IS NO DISPU TE WITH REFERENCE TO THE FACT THAT ASSESSEES BUSINESS REQUIRES ON SITE EXPENDITURE FOR VARIOUS PRODUCTION SHOOTINGS, WARDROBE EXPENSES ETC. AS SEE N FROM THE CLAIMS 95% OF THE EXPENDITURE WAS BY WAY OF CHEQUES AND AO ALLOWED THE ENTIRE AMOUNT AS SUCH. THEREFORE, WE ARE OF OPINION THAT D ISALLOWANCE OF 25% OF THE CASH EXPENSES IS NOT WARRANTED. HOWEVER, SINCE EXPENDITURE IS UN VERIFIABLE IN NATURE, WE ARE OF THE OPINION THAT DI SALLOWANCE CAN BE RESTRICTED TO 5% OF THE CASH EXPENSES WHICH SHOULD MEET ENDS OF JUSTICE. AO IS DIRECTED TO REDUCE THE DISALLOWANCE ACCORDING LY. THE GROUND IS PARTLY ALLOWED. 9. IN THE RESULT, ASSESSEE APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- (DR. S.T.M PAVALAN ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 30/08/2013. JV. ITA NO.5826/M/11 A.Y.08-09 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.