Cowtown Software Design Pvt. Ltd. Vs DCIT (TDS) (ITAT Mumbai)
It is not in dispute that assessee made payment to Ad agency i.e. Social Kinnect. We find from the perusal of the agreement with Social Kinnect and scope of services defined therein, Social Kinnect would engage various professional artists for preparation and execution of the advertisement content and Social Kinnect would provide ultimate advertisement content on behalf of the assessee in digital platform. We find that there is no direct connection or direct agreement between assessee company and the professional artists who had assisted in advertisement content. The agreement with professional artists are only with the advertisement agency i.e. Social Kinnect and not the assessee. Hence, Social Kinnect while making payments to those professional artists, would be liable for TDS @10% u/s.194J of the Act as those professional artists are rendering professional services to Social Kinnect. The assessee had merely taken the services only from Social Kinnect. It is not the look out of the assessee to understand the source from where the Social Kinnect obtains its professional services. Once the advertisement content is provided by Social Kinnect in a digital platform, the assessee is bound to make payments to Social Kinnect for that advertisement content. This would constitute the payment made for carrying out any “work” falling within the ambit of provisions of Section 194C of the Act only. We find from the sample bills issued by Social Kinnect to the assessee, Social Kinnect had raised in its invoice two components of its charges – (i) Seeking reimbursement of professional charges paid by it to various artists with mark up and (ii) its service charges. The assessee had infact deducted tax @10% on the service charges component charged by Social Kinnect. In our considered opinion, even this payment would be liable for tax u/s.194C of the Act as admittedly Social Kinnect is not rendering any professional services to the assessee as detailed supra. The assessee had deducted excess TDS in the instant case in respect of this service charges paid to Social Kinnect. In respect of reimbursement sought by Social Kinnect with mark-up, the same is payable only pursuant to a contract of work entered into by the assessee with Social Kinnect which falls within the ambit of Section 194C of the Act and not u/s.194J of the Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.294/Mum/2022 for A.Y.2017-18 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.CIT(A)-59, Mumbai/10270/2018-19 dated 20/12/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.201/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as Act).
2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in upholding the action of the ld. AO by considering the total transactions entered into by the assessee with Social Kinnect by construing it to be in the nature of professional services u/s.194J of the Act.
3. We have heard rival submissions and perused the materials available on record. The assessee is in the business of providing shared services to group companies which includes man power services and infrastructure services. Survey u/s.133A(2A) of the Act was conducted on 04/10/2018. During the course of survey, it was found that assessee had made certain payments to certain parties which were not in compliance with provisions of Chapter XVIIB of the Act. The survey revealed that certain payments made by the assessee were not subjected to deduction of tax at source or tax was deducted at a lesser rate, as the case may be. Accordingly, an order u/s.201/201(1A) was sought to be passed in the hands of the assessee treating the assessee as “assessee in default” u/s.201 of the Act by raising TDS demand and charging interest thereon u/s.201(1A) of the Act on the assessee.
3.1. The issue in dispute before us is with respect to payments made by the assessee company to Social Kinnect. We find that assessee company had entered into an agreement with Social Kinnect (vendor) whereby vendor would act as digital media agency for the assessee company. The said agreement envisaged provision of various services by Social Kinnect to the assessee such as e-mail services, web management, online media buying and management fees. During the year under consideration, the assessee had received single invoice specifying respective services provided by Social Kinnect. The sample invoices copies were duly produced by the assessee before the ld. AO. The various services rendered by Social Kinnect to the assessee company and the rate at which tax has been deducted at source by the assessee company are detailed hereunder:-
