Section 194J TDS not applicable to payment made in kind

Brief facts are, during the assessment proceedings, the Assessing Officer verifying the information / details available on record, found that the assessee has debited an amount of Rs. 52,58,118 towards expenditure on gift. On a query raised by the Assessing Officer it was explained by the assessee that it had given gift of certain items to its business associates who had worked for the film “Billu Barber”. Furnishing the details of gift, it was submitted by the assessee that they are in the nature of perquisites to the concerned persons towards their contribution for the production of the film. Assessee also submitted, it has paid fringe benefit tax on such gift items, hence, it is allowable as expenditure. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed that the major item of gift amounting to Rs. 45 lakh was given to two actors for participating in some song sequences in the movie. He observed, the assessee company being the producer of the movie, the transaction between the assessee and the concerned persons cannot be considered as in the nature of gift as assessee being a company there is no love and affection between the assessee and the concerned persons to term the transaction as “gift”. He was of the view that the so called gift is nothing but revenue paid to the concerned persons towards their services rendered for the film. Therefore, assessee has to deduct tax at source on such professional fees paid to them in terms of section 194J. The Assessing Officer observed, as the assessee has failed to deduct tax on the value of the gift items, the deduction claimed is to be disallowed under section 40(a)(ia) of the Act. Accordingly, he added back the amount of Rs. 52,58,118, to the income of the assessee. Being aggrieved of such disallowance, assessee challenged the same in an appeal preferred before the learned Commissioner (Appeals) who also confirmed the addition by holding that gift is nothing but professional fees paid to the concerned person, hence, attracts the provisions of section 194J.

Learned Authorised Representative reiterating the stand taken before the the Departmental Authorities submitted, instead of making payment in money the assessee has given gifts to the concerned persons towards their services rendered by them in making the films. Drawing a reference to the provisions of section 194J, learned Authorised Representative submitted, it is applicable in case of payment of “any sum” towards fees for professional services. He submitted, the term “any sum”, used in section 194J would denote payment in money terms and not in kind. He, therefore, submitted, provisions of section 194J would not be applicable to the facts of the present case as the assessee has not paid any money. In support of such contention, he relied upon the following decisions:–

i) H. Sri Rama Verma v/s CIT [1990] 187 ITR 308 (SC);

ii) CIT v/s Hindustan Lever Ltd. [2014] 361 ITR 001 (Kar.);

iii) CIT v/s Chief Accounts Officer, Bruhat Bangalore Mahagar Palike, [2015] ITA no.94 of 2015 and 466 of 2015, dated 20^th September 2015 (Kar.).

Without prejudice to the aforesaid contention learned Authorised Representative, submitted, as per second proviso to section 40(a)(ia), no disallowance can be made in case the payee in terms of proviso to section 201(1) has declared such payment as his income and paid tax. Learned Authorised Representative submitted, in the present case, the payees have declared such items of gift as their income in the return of income filed by them, therefore, in terms of second proviso to section 40(a)(ia), which is retrospective in operation no disallowance can be made. For such proposition, he relied upon the following decisions:^–

i) CIT v/s Ansal Land Mark Township P. Ltd. [2015] 377 ITR 635 (Del.);

ii) DCIT v/s UPS Jetair Express Pvt. Ltd. [2015 56 com387 (Mum. Trib.);

iii) Rajiv Kumar Agarwal v/s ACIT, [2014] 165 TTJ 228 (Agra);

iv) DCIT v/s Ananda Marakala, [2014] 150 ITD 323;

v) Brijgopal Madhusudan Bhattad v/s ITO, [2015] 155 ITD 90 (Nag. Trib.); and

vi) Modi Builders v/s JCIT, [2015] 69 SOT 758 (Pune Trib.).

The learned Departmental Representative relied upon the reasoning of the learned Commissioner (Appeals) and the Assessing Officer.

We have considered the submissions of the parties and perused the material available on record and also gone through the decision relied upon. As far as the factual aspect is concerned, there is no dispute that instead of making payment in cash or in money terms to some of the actors / actresses, who acted in the movie “Billu Barber”, the assessee has paid in kind which has been termed as “Gift”, Thus, there is no dispute that this so called gift is actually professional fees paid to the concerned persons for acting in the movie. However, the issue before us is whether provisions of section 194J is applicable to such payments made in kind. On a reference to the provisions contained in section 194J, it is evident that any person not being a individual or HUF responsible for paying to a resident any sum by way of fees for professional services or technical services, etc., is required to deduct tax at source. The expression “any sum” used in section 194J, whether should mean payment made in money terms or also in kind requires to be examined. It is the contention of the assessee that “any sum” as referred to in section 194J, would only relate to payment made in money term. It is observed, in case of Shri H.H. Sri Rama Verma (supra), the Hon’ble Supreme Court while referring to the expression “any sum paid” used in section 80G, held that “any sum” referred to in the provision would only mean cash amount of money. The Hon’ble Karnataka High Court in CIT v/s Hindustan Lever Ltd. (supra), referring to the provisions of section 194B of the Act, held, where the payments are in kind there is no requirement of deduction of tax at source. Further, the Hon’ble Karnataka High Court in CIT v/s Chief Accounts Officer, Bruhat Bangalore Mahanagar Palika, ITA no.94 and 446 of 2015, held as under:^–

“12. The concept of tax deduction at source (TDS) and depositing the same with the Revenue is where payment is made by cash, cheque, demand draft or any other similar mode. When such payment in terms of money is made, the deduction is to be made by the person responsible to pay, and is to deposit the same with the Income Tax Department, which would be adjusted and credited to the account of the person on whose behalf such amount is paid to the Income Tax Department, and in such a case, such person, who would then be an assessee before the Department, would be entitled to adjustment of the amount so deducted as TDS on behalf of the said assessee. When no payment is made by BBMP to the land owner in terms of money, such deduction is neither possible nor is conceived under section 1 94LA.”

14. Thus, applying the principles laid down in the decisions referred to above, we are of the view that since the payment made by the assessee is in kind, the provisions of section 194J are not applicable. Accordingly, allowing assessee’s claim, we delete the addition made by the Assessing Officer. Ground no.3, is allowed.