pri No TDS on Agreement for Bulk Sale of Advertisement Space No TDS on Agreement for Bulk Sale of Advertisement Space

Case Law Details

Case Name : Times VPL Limited Vs CIT (Karnataka High Court)
Appeal Number : I.T.A. No. 274 of 2013
Date of Judgement/Order : 17/10/2019
Related Assessment Year : 2007-08

Times VPL Limited Vs CIT (Karnataka High Court)

In the instant case, appellant company had enter into an agreement for bulk sale of advertising space with its’ holding company on a principal to principal basis by transfer of rights therein. The appellant under the agreement makes purchase of advertisement space and exercises control over such space with the right to either sell it to other or retain it for itself. Thus, it is a transfer of advertising space to the assessee who in turn sells it to others. Therefore, aforesaid transaction can not be termed as supply of goods.

It is evident that the Commissioner of  Income Tax as well as the Income Tax Appellate Tribunal has nowhere held that the contract in question is not a contract for sale and is contract for work.

If the order passed by the Commissioner of Income Tax as well as the order passed by the Income Tax Appellate Tribunal are read in  conjunction in the light of the Circular No.13 of 2006 issued by the Central Board of Direct Taxes, it is axiomatic that provisions of Section 194C would apply to a contract for work and not to a contract for sale.

In the result, the order passed by the Income Tax Appellate Tribunal as well as by the Commissioner of Income Tax insofar as it holds that for the assessment year 2007-08, the amount has to be disallowed under Section 40a(ia) of the Act is hereby set aside and it is held that the provisions of Section 194C do not apply to the case of the assessee.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

Sri M.V.Seshachala, learned senior counsel with Mr.Aravind V.Chavan, learned counsel for the assessee Sri Y.V.Raviraj, learned counsel for the Revenue.

2. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’ for short) has been filed by the assessee in which an additional substantial question of law was framed today, which reads as under:

“Whether that Commissioner as well as Tribunal, in the absence of finding that contract in question is a contract for work, erred in law, n holding that Section 194C applies to fact situation of the case?”

3. The facts giving rise to filing of this appeal briefly stated are that, the assessee is a Company registered under the provisions of the Companies Act, 1956. The assessee is engaged  in the businE.’ss of printing and publishing newspapers. The assessee had entered into an agreement for bulk sale of advertising space dated 17.01.2007 with Bennett, Coleman and Co.Ltd. (hereinafter referred to as ‘BCCL’ for short). the ultimate holding company of the assessee, for purchase of bulk advertisement space in the daily newspaper ‘The Times of India’ in Kannada language on a principal-to-principal (P2P) basis by transfer of the rights therein. The assessee had incurred an expenditure of Rs.74,79,452/- for purchase of advertisement space during the year 2006-07. The assessee on 30.10.2007 filed its return of income for the assessment year 2007-08 declaring the total income as ‘nil’.

4. The case was taken up for scrutiny, which was completed by the Assessing Officer accepting the return of income vide order dated 22.12.2009 passed under Section 143(3) of the Act. The Assessing Officer issued a notice on 19.11.2010 to the assessee proposing to rectify the order of assessment dated 22.12.2009 on account of disallowance for an alleged failure by the assessee to deduct tax at the source under Section 194C of the Act on the cost of advertisement space. The assessment for the subsequent year i.e. assessment year 2008-09 was finalized on 06.12.2009, wherein Assessing Officer has taken view contrary to the view taken under consideration that expenditure incurred for purchase of bulk advertisement space ought to be disallowed, since assessee had not deducted at source thereon. Consequently, Assessing Officer submitted a proposal for disallowance on similar payments in the assessment year 2007-08.

5. The assessee filed reply on 21.01.2018 in which inter alia, it was stated that the tax was not deductable on the zaid payment and the proceeding be dropped. On being satisfied the Assessing Officer did not pass any rectification order. Thereafter,  a notice dated 11.10.2011
was issued by the Commissioner of Income Tax, Hubballi under Section 263 of the Act in which inter alia, it was stated that since the tax has not been deducted at source under Section 194C of the Act on the cost of advertisement space, the amount requires to be disallowed under Section 40(a)(ia) of the Act. In the notice, it is further stated that the order of assessment dated 22.12.2009 is erroneous and is prejudicial to the interest of the Revenue.

6. The assessee furnished detailed submissions on 17.11.2011 in which inter alia, it was pointed   out that the contract in question was a contract for sale of spa and was not contract for supply of goods. Therefore, the provisions of Section  194C are not applicable to the facts situation  of the case. The Commissioner of Income Tax vide order dated 29.02.2012 passed under Section 263 of the Act, set aside the order of assessment passed by the Assessing Officer dated 22.12.2009 and held that the contract was a contract for advertising and the provision of Section 194C of the Act applies to the case of the assessee.

7. Being aggrieved, an appeal was preferred by the assessee before the Income Tax Appellate Tribunal, Bengaluru. The Tribunal however vide order dated 31.01.2013 upheld the validity of the order passed by the Commissioner of Income Tax. In the aforesaid factual background, this appeal has been filed.

8. Learned senior counsel for the assessee while inviting the attention of this Court to the order passed by the Commissioner of Income Tax as well as Income Tax Appellate Tribunal submitted that both the authorities have recorded a finding that the contract in question is a contract for sale. Attention of this Court has also been invited to the Circular No.13 of 2006 dated 13.12.2006, which deals with applicability of tax deducted at source under Section 194C on the contract for fabrication of article. Attention of this Court has also been invited to Paragraph 2 of the Circular in which it has been clarified by the Central Board of Direct Taxes that the provision of Section 194C would not apply in the case of contract of sale and shall be applicable only in case of contract for work. It is therefore submitted that despite recording the finding in favour of the assessee that the contract in question is a contract for sale, the Commissioner of Income Tax as well as Tribunal grossly erred in holding that Section 194C applies to the fact situation of the case.

9. In support of the aforesaid submissions, learned senior counsel for the assessee has    placed reliance in the case of Commissioner of Income Tax V/s Glenmark Pharmaceuticals Ltd. (2010) 231 CTR (Born) 105 • (2010) 324 ITR 199 and in the case of Commissioner of Income Tax V/s Karnataka Power   Transmission Corporation Limited, (2012) 208 TAXMAN 73 (Kar) as well as Circular No.13 of 2006 dated 13.12.2006 issued by the Central Board of Direct Taxes.

10. On the other hand, learned counsel for the Revenue has submitted that the Assessing Officer did not examine the issue involved in the instant case while passing the order of assessment. It is . further submitted that the matter war taken up by the Commissioner of Income Tax in exercise of revisional powers under Section 263(1) of the Act and in exercise of aforesaid powers, the Commissioner of Income Tax has directed fresh assessment after giving an opportunity of hearing to the assessee. It is further submitted that therefore in the fact situation of the case the Tribunal ought to have confined its scrutiny to the validity of the order passed by the Commissioner of Income Tax and should not have dealt with the issue on merits.

11. We have considered the respective submissions made on both sides and perused the records. In determining the question whether a contract constitutes one for work or is a contract for sale, intention and object of parties has to borne in mind, which is to he examined in the light of terms of the contract. The Supreme Court dealt with the expression “any work” in Associated Cement Company Ltd. Vs. CIT (1993) 111 CTR(SC) 165: (1993) 201 ATP. 435 (SC), and it was held that “any work” means “any work” and not a works contract which has a special connotation in the tax law. The Supreme Court in Hindustan Shipyard Ltd. Vs. State of Andhra Pradesh (2000) 119 STC 533 (SC) enunciated certain principles and drew a distinction between two concepts namely “contract for sale of goods” and “works contract”. Similarly, in State of Andhra Pradesh vs. KONE Elevators (India) Ltd., (2005)3 SCC 389, the Supreme Court has held that the main object in a contract of sale is the transfer of property and delivery of possession of the property, whereas the main object in a contract for work is not the transfer of the property, but it is one for work and labour. In the instant case, appellant company had enterer into an agreement for bulk sale of advertising space with its’ holding company on a principal to principal basis by transfer of rights therein. The appellant under the agreement makes purchase of advertisement space and exercises control over such space with the right to either sell it to other or retain it for itself. Thus, it is a transfer of advertising space to the assessee who in turn sells it to others. Therefore, aforesaid transaction can not be termed as supply of goods. At this stage, it is opposite to quote relevant extract of the order passed by the Commissioner in exercise of powers under Section 263(1) of the Act, which reads as under:

“It is quite manifest above that the VPL has to payment on monthly basis, the ownership of the space pass on to the assessee from the make the therefore does not company forever. Therefore, the transaction cannot be termed as purchase as contended by the assessee company and the same is nothing but a payment made towards advertisements which clearly falls within the ambit of Section 194C. Moreover, the agreement is entered with the BCCL with the sole intention of advertising.”

12. Similarly the finding recorded by the Tribunal with regard to the nature of contract may be referred to, which reads as under:

“In the present case, however, the assessee is not a routing agency. It makes outright purchase of advertisement space and exercises exclusive control over such space with the right to either sell it to others or retain it for itself. The payments in the present case are also not made by an advertising agency to the print media. Rather, there is a transfer of space from BCCL to the assessee who in turn sells it to others. Therefore, in our view, the decision  in the case of Sands Advertising Communication P. Ltd. (supra) is distinguishable on facts and would not come to the assessee’s rescue.”

13. Thus, it is evident that the Commissioner of  Income Tax as well as the Income Tax Appellate Tribunal has nowhere held that the contract in question is not a contract for sale and is contract for work. The relevant extract of Circular No.13 of 2006 dated 13.12.2006 reads as under:

“The matter has been examined by the Board and it is considered that exclusive reliance on Question/Answer No.15 of Circular No.715, without taking  into account the principles laid down in Circular No.681 not justified. Before taking a decision on the applicability of TDS under section 194C on a contract, it would have to be examined whether the contract in question is a ‘contract for work’ or a ‘contact’ for sale’ and TDS shall be applicable only where it is a ‘contract for work’.”

14. Thus, if the order passed by the Commissioner of Income Tax as well as the order passed by the Income Tax Appellate Tribunal are read in  conjunction in the light of the Circular No.13 of 2006 issued by the Central Board of Direct Taxes, it is axiomatic that provisions of Section 194C would apply to a contract for work and not to a contract for sale. The contention of the learned counsel for the Revenue that the Tribunal ought to have restricted its scrutiny with regard to the validity of the order of remand passed by the Commissioner of Income Tax, appears to be attractive at first blush, however, in peculiar facts of the case, we are not inclined to accept the aforesaid submissions as both the authorities on the basis of the materials available on record has recorded the finding in favour of the assessee that the contract in question is a contract for sale and is not a contract for work. Therefore, such an exercise in the fact of the case would be an exercise in futility.

15. In view of the preceding analysis, we are inclined to answer the additional substantial question of law framed by us today in the affirmative. Learned senior counsel for the assessee fairly submits that the substantial question of law framed by a bench of this Court on 13.07.2015 does not arise for consideration. Therefore, it is not necessary for us to answer the same.

16. In the result, the order passed by the Income Tax Appellate Tribunal as well as by the Commissioner of Income Tax insofar as it holds that for the assessment year 2007-08, the amount has to be disallowed under Section 40a(ia) of the Act is hereby set aside and it is held that the provisions of Section 194C do not apply to the case of the assessee. In the result, the appeal is allowed.

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