CASE LAWS DETAILS
DECIDED BY: ITAT, `A’ BENCH : BANGALORE, IN THE CASE OF : Sands Advertising Communications Pvt. Ltd. v. DCIT (TDS) , APPEAL NO: ITA Nos. 790 t0 795/Bang/2009, DECIDED ON: January 22, 2010
8.1.7. Even on a close reading of the Circular makes it very clear that the term “advertising” has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and NOT when an advertising agency makes payment to the media, which includes both print and electronic media. The present assessee was not a client, but, an advertising agency. Considering Trishul as a media, for an argument-sake, whatever payments made by the assessee to Trishul, no tax need to be deducted at source according to the said Circular since neither the assessee (Sands) was a client nor Trishul a media. The word “work” has not been defined in the Act. The Board in its Circulars had repeatedly stressed that when a client makes payment to an advertisement agency, the client was obliged to effect the TDS. In the case on hand, when a client (the advertiser) made the payment to the advertising agency (the assessee), it had effected the TDS, whereas the assessee – being an advertising agency – reimbursed the advertising charges to Trishul which were neither a client nor a media and, thus, the provisions of s.194C have no role to play.
8.1.8. With due respects, we have carefully perused the ruling of the highest judiciary of the land in the case of Associated Cement Company Limited v. CIT and Another reported in (1993) 201 ITR 435 on which rival parties have placed their faith. In consonance with ITA No.790–5/Bang/ 09 the finding of the Hon’ble Apex Court, the Board in its circular No.681 dated 8.3.1994 had indicated that –
“5. The Supreme Court has held that ….there is nothing in the subsection which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to `works contract’…… .” their Lordships have further held that `Any work’ means any work and not a `work contract’, which has a special connotation in the tax law….’Work’ envisaged in the sub-section, therefore, has a wide import and covers `any work’ which one or the other of the organizations specified in the subsection can get carried out through a contractor under a contract and further it includes obtaining by any of such organizations supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the `work’ but for its specific inclusion in the sub-section’ .
7………………the following guidelines in regard to the applicability of the provisions of section 194C:
(i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contract, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and works contracts.
(v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above.
(viii) the provisions are wide enough to cover not only written contracts but also oral contracts.
8.1.9. Even the Board vide its subsequent Circular No.715 dated: 8.8.1995 had made it amply clear that when an advertising agency makes payment to the media, the amended provisions of tax deduction at source would NOT apply. In the present case, the assessee being an `advertising agency’ had NOT made the payments to the media directly, but, the advertisement materials were routed through Trishul for the publication of its advertisements in the newspapers since Trishul was an accredited agency through which the advertisements of the assessee were being released to the media. The role of Trishul was only confined to channelizing the advertisement materials devised and designed by the assessee to the media.
8.1.10. To counter the stand of the Ld. CIT (A) that “8.3…….I am of the opinion that clarification of the Finance Minister on the floor of the House is not applicable in the present case because the payment made by the appellant is to its concern and not to media”, the Ld. Counsel came up with a question, Whether reliance on Finance Minister’s speech can be placed differently while interpreting a statutory provision? and answered that at the introduction of the Finance Bill, known as placing the Budget on the floor of the Parliament, the Hon’ble Finance Minister’sbudget speech among others contains a broader outline of the proposed amendments in direct tax regime. In other words, the Finance Minister outlines the underlying object or intent of the proposed amendment. This was the reason due to which the judiciary in India had recognized the budgetary speech of the Finance Minister as an external aid to interpretation of taxing statute.
8.1.11. The judiciary had occasions to deliberate the issue at length, notably:
(i) The Hon’ble Apex Court in the case of Lok Shikshana Trust v. CIT reported in (1975) 101 ITR 234 had held that the speech made by the Minister or the mover of a Bill can be taken into consideration for ascertaining the object or purpose underlying the Legislation;
(ii) Yet another ruling, the highest judiciary of the land had reiterated the above view in K.P.Vergese v. ITO (1981) 131 ITR 597 stressing the Finance Minister’s speech as compared to the wording in the Statute. It was held that, if the plain and literal construction of a provision leads to manifestly unreasonable and absurd consequences then the object forthcoming from the speech of the Finance Minster has to be resorted to and applied to ascertain the true import of the provision…”
(iii) In the case of R & B Falcon (A) PTY Ltd v. CIT (2008) 301 ITR 309, the Hon’ble Supreme Court was very emphatic in its wisdom that –
“22. The interpretation of the CBDT, being in the realm of executive construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the Courts. The reason for giving effect to such executive construction is not only same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in certain situation, a representation made by an authority like Minister presenting the Bill before the Parliament may also be found bound thereby.
23. Where a representation is made by the maker of Legislation at the time of introduction of the Bill or construction thereupon is put by the Executive upon its coming into force, the same carries a great weight. (iv) The Hon’ble Bombay High Court, in its ruling in the case of CIT v. Ajanta Pharma Ltd. (2009) 318 ITR 252 relying the Apex Court’s verdict in K.P.Vergese v. ITO referred supra, had observed thus –
“Whether speeches made on the floor of the house were admissible in interpreting the provisions. Speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the Legislation and the object and purpose for which the legislation was enacted. The Supreme Court in K.P.Varghese’ s case (supra) said that this is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a Statute being an exercise in the ascertainment of meaning everything which is logically relevant should be admissible. The Finance Minister’s speech, therefore, can be relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause….”
8.1.12. In view of the various judicial pronouncements referred supra, we are of the firm view that the clarifications made by the Hon’ble Finance Minister on the floor of the Parliament cannot brushed aside on the plea that the payment made by the present assessee was to its sister concern and not to media.
8.1.13. The advertisement materials devised and defined by the assessee were being channelled through Trishul – thanks to its accredited agency status – to the media and that no specific “work” was assigned to Trishul to carry out on behalf of the assessee and, thus, in our considered view, the issue doesn’t fall within the ambit of s.194C of the Act.
8.1.14. In an overall consideration of the facts and circumstances of the issue as deliberated in the foregoing paragraphs, we are of the unanimous view that the assessee’s case doesn’t fall within the ambit of s. 194C (1) of the Act and that the authorities bellow were NOT justified in invoking the provisions of the s.201 (1) and s.201 (1A) of the Act for the assessment years under dispute for the reasons that –
(i) By virtue of not an Accredited Advertising Agency (AAA), the
assessee was deprived of availing the credit facility being offered by the Publications (print media);
- Trishul being an AAA; the assessee had tied up with Trishul to channelize its advertising materials through it to the print media;
- No specific work was assigned to Trishul on behalf of the assessee.
Trishul had merely routed the `advertising materials’ devised and designed by the assessee on behalf of its clients;
(ii) Trishul was neither a client nor a media, but a routing agency and, moreover, the payment(s) made by the client(s) to the advertising agency (the assessee), tax has already been deducted at source by the client(s), as conceded by the first appellate authority – “the fundamental rule of law that tax cannot be deducted twice of the same income.”
(iii) Presumably Trishul was roped in by the assessee with a sole purpose of availing the credit facility being enjoyed by Trishul and nothing else; (iv) The role of Trishul in the transaction was confined only to transit the advertisement materials devised by the assessee to the media which does not visualize any product or result. Mere routing through the advertising materials invented by the assessee doesn’t produce any result and as such it cannot be brought within the ambit of s.194C of the Act as ruled by the Hon’ble High Court of
Calcutta referred supra (219 ITR 486);
(v) In fact, 15% of discount, royalty, commission as the case may be –
AAA status enjoyed by Trishul – received from the media was being shared in the ratio of 12: 3 by the assessee and Trishul which in effect, the assessee was not paying even a penny from its coffer to Trishul. Even 85% of amounts paid by the assessee to Trishul were reimbursement of the advertising charges paid by Trishul to media;
(vi) The advertising charges paid by the assessee to the media thro’ Trishul had, in fact, landed in the hands of the print media and in the process Trishul stands to gain a paltry discount of 3% being AAA and nothing-else; – In effect, the Board’s Circular No.715 referred supra comes to the rescue of the assessee. At the cost of repetition, the relevant portion of which are reproduced as under:
Q 1: What would be the scope of an advertising contract for the purpose of section 194C of the Act?
A: The term “advertising” has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when an advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent.
Q 2: Whether the advertising agency would deduct tax at source out of payments made to the media? A : No. The position has been clarified in the answer to question No. 1 above.
9. In the result, the assessee’s appeals for the assessment years 2005-06, 2006-07 and 2007-08 [in ITA Nos: 790 to 795/09] are ALLOWED.