These three bunches of appeals pertaining to assessment years 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 are filed against the orders of the ld. CIT(A) passed in appeals filed against the orders passed by the Assessing Officer under section 201(1); 201(1A) and 271C of the Incometax Act, 1961 (hereinafter called in short “the Act") on common grounds. We, however, prefer to adjudicate these appeals one after the other, but for the sake of convenience they are being disposed of through this consolidated order as they were heard together.
2. First of all we take up the bunch of appeals bearing Nos. 488, 489, 490, 491 and 492/LKW/2009 emanating from the order passed under section 201(1) of the Act. In these appeals, the order of the ld. CIT (A) is, inter alia, challenged on common grounds. For the sake of reference, we extract the grounds raised in appeal No.488/LKW/2009 as under:-
1. Under the fact in and circumstances of the case Ld CIT (A) has erred on fact and in law while deciding appeal and holding that demand raised u/s 201 should be deleted.
2. Under the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting demand created u/s 201 relying upon the version of assessee that assessee has paid subsidy for display logo of Sahara India Commercial Corpn. on ticket and on aircraft etc.
3. Under the facts and in circumstances of case the CIT(A) failed to appreciate the fact that putting up a logo on aircraft is also a type of hoarding which is advertising contract and provision of section 194-C is applicable as explained in Board's Circular No.715 dated 8th Aug. 1995.
4. Under the facts and in circumstances of the case the Ld. CIT(A) failed to appreciate the fact of case that subsidy has been defined by Calcutta High Court in (1991) 191 ITR 518(Cal). The payment made by assessee to M/s Sahara Air Line for display a logo on aircraft, ticket etc is not covered under head subsidy but is a contractual payment.
5. Under the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate the fact that section 194-C is constitutionally valid and it does not violate article 31 of constitution. The deductor is liable to deduct tax even though tax is to be paid by deductee as held by Patna High Court reported in 120 ITR 444(Pat).
6. Under the fact and in circumstances of case the Ld. CIT(A) erred in allowing the relief to assessee
3. The brief facts borne out from the record with regard to the impugned issue are that the appellant is engaged in the business of real estate development, construction and media activities etc. and it entered into a business arrangement with M/s Sahara Airlines Ltd. (now known as M/s Jetlite (India) Ltd.) vide agreement dated 30.3.1995 for giving publicity to promote the business and area of operation of the appellant. As per agreement dated 30.3.1995, M/s Sahara Airlines Ltd. was required to display the logo of M/s Sahara India Commercial Corporation Ltd., the appellant on both sides of the aircraft, tickets, boarding passes, baggage tags, newspapers, hoardings, etc. and that the brochures of the appellant provided by them would be distributed by M/s Sahara Airlines Ltd. with its tickets. Under the said agreement since 2002-03 an amount of Rs. 1,727.80 crores have been paid to M/s Sahara Airlines Ltd. by the appellant. Since the said payment was considered by the Assessing Officer to be in pursuance of publicity (advertisement agreement), the appellant was statutorily required to deduct tax at source under section 194C of the Act on the entire payments made to M/s Sahara Airlines Ltd. When the fact regarding deduction of TDS on the aforesaid payment was enquired into, it was found that no tax was deducted on the above payments. Accordingly the appellant was required to explain the reasons for non-deduction of TDS on the aforesaid payments along with relevant evidence. In response thereto the appellant has filed detailed reply stating therein that the nature of agreement entered into between the appellant-company and M/s Sahara Airlines Ltd. was not for giving any publicity or promotion of business of the appellant-company. The appellant had entered into an agreement with M/s Sahara Airlines Ltd. in which the appellant-company gave a subsidy to M/s Sahara Airlines Ltd. against their passenger’s ticket sale and in return of the subsidy, which was provided to the airlines, they were entrusted with the job of printing of logo, colour scheme, etc. of the appellant-company on boarding card, ticket, baggage tag on board their aircraft so that the passengers travelling could know about the company.
4. It was further stated that M/s Sahara Airlines Ltd. has not undertaken any advertisement activity for and on behalf of the appellantcompany which could have a contractor-contractee relationship and as such provisions of section 194C of the Act in respect of tax deducted at source against advertisement are not applicable as the arrangement does not tantamount to advertisement contract within the meaning thereof. Reliance was placed upon the provisions of section 194C of the Act in support of his contention that provisions of section 194C of the Act does not include arrangement which had been entered into between the appellant-company and M/s Sahara Airlines Ltd. in which M/s Sahara Airlines Ltd. has only given the boarding cards, baggage tag, aboard the aircraft and they are not entrusted with the job of any advertising in newspaper, periodicals, radio, T.V. or production of programmes for broadcasting or telecasting, etc. It was further contended that the payment of subsidy towards passenger fare to M/s Sahara Airlines Ltd. is only in the nature of facilitation arrangement with them for branding the realty projects undertaken by the appellant-company and cannot be treated as advertising and this fact will also find support from the accounting entry made in the books of the appellant-company as well as the books of M/s Sahara Airlines Ltd. The appellant-company has debited this amount directly to “work-in-progress” in its books of account while in the books of account of M/s Sahara Airlines Ltd. the amount due from the appellant-company has been credited under the head “passenger revenue” and not “advertisement”. Therefore, subsidy against passenger’s fare of the airlines does not tantamount to payment made for any advertising or publicity and, therefore, there was no liability for deduction of tax at source.
5. The Assessing Officer carefully examined the original agreement dated 30.3.1995, pursuant to which payments were made by the dedeuctor company i.e. the appellant and details of payment and revised agreement dated 10.3.2000. The appellant was asked to produce the copy of resolutions of M/s Sahara Airlines Ltd. in this regard, but it was not filed. He, however, placed reliance upon the C.B.D.T. Circular No.714 dated 3.8.1995. Having examined the agreement and details of payments in the light of various judicial pronouncements, the Assessing Officer concluded that the agreement entered into by the deductor-company irrespective of its nomenclature is purely a contract for advertisement and publicity within the meaning of section 194C of the Act for which the deductor-company i.e. the appellant has violated the statutory provisions of section 194C of the Act for which the deductor-company is hereby treated as an assessee in default under section 201(1) of the Act for the amount of TDS on the entire payments made by the appellant-company to M/s Sahara Airlines Ltd. from financial year 2002-03 to financial year 2006-07. Accordingly short deduction of TDS was computed and demand was issued. The relevant observations of the Assessing Officer is extracted hereunder for the sake of reference:-
“Before arriving at any decision as to whether the agreement entered into by M/S Sahara India Commercial Corporation Ltd. with M/s Sahara Airlines Ltd. [Now known as M/s Jetlite (India) Ltd,] attracts TDS provisions u/s 194C of the Income tax Act 1961 or not, it is relevant to peruse the agreement and documents submitted by the assessee company on various opportunities. The very agreement dated.30.03.1995 is reproduced below for judging the nature of payment.
No.SIHL/MARC/DIR/95/ DATED: 30.03.1995
M/s Sahara India Airlines Limited.
Sahara India Bhawan,
1, Kapoorthala Complex, Lucknow.
Dear Sirs,
Sub : Our Publicity through your Airlines.
We refer to the discussions of the undersigned had with your Director, Shri Subrata Roy Sahara, on the above matter in several meetings. What we want you Airlines to do, is to give extensive publicity to our activities in order to promote our business and area of operations. We confirm that the following arrangements have been arrived at with you by us.
(1) All your Aircrafts will have exactly the same logo and in the same colour as used by us and the same will be prominently displayed outside of both sides of each and every aircraft in the manner that the same is clearly visible to General public at least from the distance of 200 meters.
(2) You will use our loop and its colour scheme on all your tickets, boarding Passes, Baggage tags, publicity materials and advertisements in newspapers, hoardings, etc.
(3) Our brouchers (to be supplied by us) will have to be distributed with each ticket issued by you.
(4) You have agreed to make other arrangements required from our side to popularize our business as may be intimated by us to you after mutual consent.
(5) Since the publicity is, mainly, directly linked with the tickets issued by you and/or passengers to be carried by in your aircrafts, we shall pay you Rs. 1075/-per passenger on long sector and Rs. 400/- per passenger on short sector carried by you.
(6) It is also further agreed that to popularize our scheme and business activities and for that purposes to increase exposure to the general public, you mil allow on trunk routes a minimum discount of Rs. 5000/- to passenger on every trip till such time arrangements as above remain in force.
(7) That the above arrangements shall remain in force for a period of one year with effect from 1st April, 1995 or renewed further.
(8) You will allow at all reasonable time our representatives to verify that you are complying with the above arrangements on board of the Aircraft as well as station offices and accounts department(s). You shall allow our representatives complimentary tickets free of charge to enable them to make such verifications (s). Please return a copy of this letter duly signed by you as a token of your acceptance of the above arrangements and all terms and conditions together with a certified copy of resolution of Board of Directors of your Company approving such arrangements, terms and conditions.
We look forward to have association with your Company for mutual benefit Thanking You,
Yours faithfully,
For Sahara India Housing Limited.
FORSAHARA INDIA AIRLINES LTD.
(Vandana Bhargava) DIRECTOR
A simple perusal of clauses 1 to 6 of the above agreement clearly proves that it is a contract for Advertisement. The deductor company has demanded very specific design and nature of publicity in above clauses 1 to 6. The essence of the agreement was to popularize the business of the assessee company through M/s Sahara Airlines Limited. Mere stating that it was an arrangement for publicity and not a contract for advertisement would not change the very nature of payment and the intentional spirit of the agreement. Further, determination and terms of payment will also not change the object of the advertising agreement.
Secondly vide letter dated 30.06.2008 the assessee company annexed photocopies of renewed/amended agreement (A-1 to A-5 of the annexure-A which is a part of this order) where correspondences were made for revision of Advertisement-tariff between the deductor and deductee company. This again proves that the payment made pursuant to the agreement (by whatever name called) was actually payment for advertisement that is why the subject matter of these amended/renewed agreements were "Revision of Advertisement Tariff.
Thirdly if copies of General Ledger filed by the assessee company is perused as narrated year-wise above, it would prove that it was an Advertisement expenses on the basis of narration of the general entries. Therefore, the reasoning furnished by the company with regard to its posting in the books of account whether as “workin- progress” or otherwise is again not acceptable as the nomenclature of posting entry would not change the nature of payment.
Now it has become important to focus on literal meaning of advertisement and publicity.
The idea conveyed by the words "advertisement & publicity" are the idea of inducing the public to buy the commodity or the article in question. Accordingly, the word "advertisement" conveys the idea of propaganda and similarly the meaning of the word "publicity" should comprise an act of persuading the public to buy the commodity or a manufactured article. Thus the advertisement & publicity or sales promotion should be confined to the act of media propaganda and a direct approach to the consumers by publishing the product through newspaper advertisements, posters or some other similar methods. The question raised herein necessarily gives rise to another question as to what is an advertisement.
In Black's Law Dictionary, sixth edition, 1992, the word "advertise" has been stated, inter alia, to mean to give notice of, make known, publish or to call a matter to the public attention by any means whatsoever. The" word "advertisement" has been stated to mean a notice given in a manner designed to attract public attention. In L. B. Curzon Dictionary of Law, fourth edition 1993,
"advertisement" has been stated to mean public announcement or notice.
In Mozley and Whiteley's Law Dictionary, eleventh edition, 1993, the word "advertisement" was stated to include any notice, circular, label, wrapper, invoice or other document and any public announcement made orally or by any means of producing or transmitting light or sound.
Similar meaning has been assigned in the dictionary of English Law, Earl Jowitt, (1959) edition. ,
In the Concise Oxford Dictionary, seventh edition, 1982, the word “advertise" is stated to mean to make generally or publicly known; (esp.) describe (goods) publicly with a view to increasing sales. The word "advertisement" is stated to mean public announcement (esp. In newspapers, on posters, by television, etc.).
In Wharton's Law Lexicon, the word "advertisement" has been held to mean a public notice or announcement of a thing.
The definition of "advertisement" in section 65(2) of the finance Act 1994 is an inclusive definition. Advertisement means to make something known to the public or a segment of the public, to announce publicly by a printed by a printed notice or broadcast to call public attention to, especially, by emphasizing, desirable qualities so as to arouse a desire to buy and patronize. To this meaning of the term the definition adds notices, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas. An advertisement is generally of goods and services and is information intended for potential customers
(2006)280 ITR 211(AAR)
BEFORE THE AUTHORITY FOR ADVANCE RULINGS
GOOGLE ONLINE INDIA P. LTD., In re
"Section 65. Definitions.-In this Chapter, unless the context otherwise requires……
(2) 'advertisement' includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas;
Recently, the Supreme Court in ICICI Bank v. Municipal Corporation of Greater Bombay [2005] 6 Scale 110 held that whether a particular action is an advertisement or not would depend on whether the person wants to promote his product or service. If by any communication, the communicator tries to influence people to buy his product or service or attract towards his product or service then it would be a guiding factor to identify whether a particular communication of the communicator is tantamount to an advertisement.
Now focus is being given to definition of word "Publicity". The definition of the word publicity has been defined in different dictionary as below.
1. activity stimulating public interest: activity, especially advertising and the dissemination of Information, designed to increase public interest in or awareness of something or somebody (often used before a noun)
2. Interest created by publicity: public or media interest gained as a result of publicizing something
3. attention-getting Information: Information, material, or other means used to publicize. 4. something or somebody condition of being public: the condition of being known or available to the public (formal)
As per Microsoft® Encarta® 2006.
Publicity:- Openness to general observation, notoriety, the business of advertising goods persons.
As per Oxford Dictionary:
Publicity:- State of being open to the knowledge of all.
As per The Law Lexicon:
Thus, after thorough perusal of above mentioned definitions of advertisement and publicity and clauses 1 to 6 of the agreement, it is well established that it is purely an advertisement contract/agreement. Finally let us peruse once again the contention of the assessee given in Para 3 of the reply dated 28/05/2008 which is reproduced as below:
The assessee company had entered into an arrangement with M/s Sahara Airlines Limited [Now known as M/s Jetlite (India) Limited] in which the assessee company gave a subsidy to M/s Sahara Airlines Limited [Now known as M/s Jetlite (India) Limited] against their passenger's ticket sale. In return of the subsidy which was provided to the Airlines they were entrusted with the job of printing of logo, colour scheme etc. on boarding card, ticket, baggage tag of the assessee company on board their so that the passengers traveling could know about the company. Hence it will be appreciated that M/s Sahara Airlines Ltd. [now known as M/s Jetlite (India) Ltd] has not undertaken any advertisement activity for and on behalf of the assessee company which could have a contractor-contractee relationship and as such the provisions of section I94C in respect of tax deducted at source against advertisement are not applicable as the arrangement does not tantamount to advertisement contract within the meaning thereof.
Here we find another attempt of the deductor company to defeat the spirit of TDS provision by way of colouring the advertisement agreement as a agreement in return of subsidy. Thus once again, it has equally, been important to glance at the literal meaning of the word "subsidy" which are given as below.
In Kesoram Industries' case [1991 ] 191 ITR 518 (Cal), the meaning of the word "subsidy" had been considered in great detail which is to the following effect:
"Webster's New World Dictionary, 1962: 'a grant of money, specifically
(a)... (b) a government grant to a private enterprise considered of benefit to the public.
Shorter Oxford English Dictionary: "Help, aid, assistance... Financial aid furnished by a State or a public corporation in furtherance of an undertaking or the upkeep of a thing….’
Chambers' Twentieth Century Dictionary, revised edition: 'assistance, aid in money... a grant of public money in aid of some enterprise, industry; etc., or to keep down the price of a commodity………’ The Reader's Digest Great Encyclopaedic Dictionary Vol. II (M-Z) 2. Financial aid given by government towards expenses of an undertaking or institution held to be of public utility, money paid by government to producers of a commodity so that it can be sold to consumers at a low price...'
In addition, our attention has been drawn to the definition given in Words and Phrases permanent edition, vol. 40, where subsidy is described as follows:
'A subsidy is a grant of funds or property from a government as of the state or municipal corporation to a private person or company to assist the establishment or support of an enterprise deemed advantageous to the public; a subvention.'
Reference is made to 60 Corpus Juris, Corpus Juris Secundum, vol. 83, page 760, gives the following under the heading of subsidy:
'Something, usually money, donated or given or appropriated by the Government through its power agencies, a grant of funds or property from a Government, as of the state or a municipal corporation, to a private person or company to assist in the establishment or support of an enterprise deemed advantageous to the public ; a subvention. Pecuniary premiums offered by the Government to persons enlisting in the public service, or engaging in particular industries, or performing specified services for the public benefit are treated in Bounties'." Thus considering the above definitions and meanings of subsidy and the income tax status of both the limited company i.e M/s Sahara India commercial Corporation Limited and M/s Sahara Airlines Limited, it is well established that so called arrangement entered into by the deductor company with the deductee company cannot be held as an arrangement for publicity in return of subsidy and is purely an agreement for advertisement & publicity. This fact gets proved from the perusal of the original agreement dated 30/03/1995 where no such reference far publicity in return of subsidy has been pointed out. Thus, considering the entire submissions made by the deductor company (M/s Sahara Commercial Corporation Ltd.) on various opportunities, it is proved that the agreement entered into by the deductor company irrespective its nomenclature, is purely a contract for advertisement and publicity within the provisions of section 194C of the Income Tax Act, 1961, The version of the deductor company by way of changing the nomenclature of the agreement and terms & conditions of payment for publicity and the method of posting entries in the books of accounts are nothing but an attempt to defeat the spirit of provisions of section 194C of the I.T. Act, 1961.
In view of the above, it is established that the deductor company (M/s Sahara India Commercial Corporation Ltd.) has violated the statutory provisions of section 194C of the I.T. Act, 1961 for which the deductor company M/s Sahara India commercial corporation Limited is here by treated as assessee in default under section 201 of the I.T. Act, 1961 for the amount of TDS on entire payment made by M/s Sanara India Commercial Corporation Limited to M/s Sahara Airlines Limited (Now M/s Jetlite (India) Limited) from the financial year 2002-03 to financial year 2006-07. Thus the amount of short charge of TDS for which the assessee M/s Sahara India Commercial Corporation Limited, is in default is being calculated as under:-
CALCULATION OF SHORT CHARGE OF TDS FROM THE F.T. 2002-03 TO FY. 2006-07.
Thus the assessee in default i.e. M/s Sahara India Commercial Corporation Ltd. is directed to deposit Rs. 18,70,71,317/- as short charge of TDS u/s 201 of the I.T. Act, 1961 within the time stipulated in the notice of demand. Issue notice of demand and challan under section 156 of the I.T. Act, 1961 for the above calculated amount of short charge of TDS separately for every financial year. Sd/- ITO(TDS).”
6. Aggrieved, the assessee preferred appeals before the ld. CIT(A) and reiterated its contentions as raised before the Assessing Officer. Besides, it was contended that subsidy which was being received by M/s Sahara Airlines Ltd. on the passenger’s fare from the appellant-company was duly credited by them under the head “passenger’s revenue” in their account and was not shown as any advertisement income and the payment of the said subsidy was debited by the appellant-company to its work-in-progress account. Therefore, accounting entries support the fact that the expenditures incurred by the appellant-company by way of provision of subsidy to M/s Sahara Airlines Ltd. did not tantamount to any advertisement expenditure. It was also pointed out before the ld. CIT(A) that clause No.3 of the agreement relating to distribution of broucher at various airports was withdrawn w.e.f. 1.4.2000 vide revised agreement dated 10.3.2000. The assessee has also clarified the narration on vouchers as per general ledger with the submission that amount mentioned on monthly basis are with narration “advertisement” whereas in financial years 2005-06 and 2006-07 narration “advertisement” has not been mentioned but only word “amounts” has been mentioned and in the year 2006-07 narration mentioned is “entry of brand promotion made”. It was also contended before the ld. CIT(A) that advertisement means any act of persuading public to buy a commodity or a manufactured article or a notice to attract public attention. The object of advertisement is to attract customers, but in the instant case none of the act which has been mentioned in the agreement tantamount to an act of advertisement as envisaged by the provisions of section 194C of the Act.
7. He has also explained the meaning of “advertisement” and “publicity” with the submission that the agreement was executed for publicity of logo of the appellant-company and not for its advertisement. A reference of section 37 (3B) of the Act which was brought on the statute w.e.f. 1.4.1984 and was omitted w.e.f. 1.4.1986 was also made to submit that the word “advertisement”; “publicity” and “sale promotion” has been separately used by the Act which categorically demonstrates that all the three are different categories and nature and it is only the word of advertisement which is included in the definition of section 194C of the Act. Reliance was also placed upon various judicial pronouncements with the submission that in earlier years no action was initiated under section 201(1) of the Act by the Revenue. It was also contended before the ld. CIT(A) that the receipts were duly credited to the account of the recipient and no tax liability has ever accrued against the recipient. In support of his contention it was stated that M/s Sahara Airlines Ltd. who is the recipient of the subsidy paid by the appellant-company is also an income-tax assessee which has duly filed return of income for different financial years and taxes which were due on the returned income have been duly paid by the payee company. It was also stated that the recipient company has filed return of income showing loss. Therefore, no tax liability has ever accrued against them.
8. The ld. CIT(A) re-examined the issue in the light of various Circulars, relevant provisions, judgments referred to by the assessee and formed a view that “advertisement” and “publicity” are not the same and the payments made are not for the advertisement. Therefore, the assessee is not in default in respect of short/non-deduction of tax. He has also observed in his order that deductees have also paid taxes, therefore, the deductor assessee cannot be held to be in default in the light of the judgment of the Hon'ble Apex Court in the case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT, 293 ITR 226 (SC). While adjudicating the appeal, the ld. CIT(A) has also given a conclusive finding pertaining to assessment years 2003-04 and 2004-05 that the order passed under section 201(1) of the Act are not justified as it is barred by limitation as it has been passed after more than four years, having relied upon the judgment of Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corporation vs. DCIT, 101 TTJ 292 (Delhi) in which time limit of four years was held to be reasonable for initiating action under section 201(1) of the Act.
9. Being aggrieved with the order of the ld. CIT(A), the Revenue has preferred appeals before the Tribunal. Besides placing heavy reliance upon the order of the Assessing Officer, the ld. D.R. has invited our attention to the agreement, revised agreement, C.B.D.T. Circular No.714 dated 3.8.1995 and definitions of “advertisement” and “publicity” from various dictionaries and also the narration on the vouchers as per general ledger, with the submission that from a careful perusal of the agreement and revised agreement and the narration on the vouchers as per general ledger, the intention of the parties of the agreement can be gathered. The agreement was executed to give extensive publicity to the activities of the appellant-company in order to promote their business and the area of operation. With these words the intention of the assessee is very clear that the agreement was executed to promote its business and to have profit. From the revised agreement, it is also abundantly clear that it was executed to revise the advertisement tariff for publicity. In the vouchers also the assessee has used narration against the payment as “advertisement expenses” debited for different months. This narration continued to be the same till financial year 2003-04. The ld. D.R. further invited our attention to the fact that the assessee claimed to have given subsidy to M/s Sahara Airlines Ltd. without realizing that subsidy never involves reciprocity arrangement. It is generally being given by the State authorities to promote Industries. But in the instant case subsidy was given with reciprocity arrangement with an intention to avoid incident of TDS.
10. He further contended that definition of “advertisement” in CBDT Circular No.714 is providing an inclusive clarification that advertisement may be in print or electronic media i.e. newspaper, periodicals, radio, T.V., etc. This “etc” and “may be” gives clear proof that this clarification is inclusive definition at best. The ld. D.R. has quoted an example that the “hoarding” do not find place in the definition of advertisement given through Circular; Does it mean that the hoarding which dot the city skylines are not “advertisement” at all? Therefore the definition given in the Act and also as per Circular is an inclusive definition.
11. It was further contended that the assessee has used the words such as “facilitation arrangement” and “work-in-progress” etc. to mislead the Revenue from real issue at hand. The ld. D.R. has also invited our attention to CBDT Circular No.715 dated 8.8.1995 with the submission that the Board has clarified question No.18 raised with regard to the nature of sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc put up by the organizers, that the agreement for sponsorship is in essence, an agreement for carrying out a work of advertisement. The ld. D.R. further submitted that sponsorship on debates, seminars and other functions with a view to earn publicity through display of banners though does not find place within the definition of advertisement given in the Act or in Circular No.714, but provisions of section 194C of the Act shall apply in view of the Circular No.715 of CBDT. Therefore the definition given in Circular No.714 is an inclusive definition and other activities of publicity falls within the definition of advertisement.
12. Similarly through question No.5 of Circular No.715, the Board has also clarified that contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C of the Act would be applicable. In response to the finding of the ld. CIT(A) that the assessee cannot be held to be in default if the tax liability has been paid by the deductee/recipient, the ld. D.R. has contended that in the instant case M/s Sahara Airlines Ltd. during the relevant period was running in huge loss, so obviously no payment was made and a camouflage was created and ultimately nobody paid any tax. In support thereof, he has placed reliance on the order of the ld. CIT(A) pertaining to assessment year 2003-04. It was further contended by the ld. D.R. that the device adopted by the appellantcompany is quite clear as the money is paid out of profit generated to a loss making sister concern which is running an airline to give publicity/advertisement. As a result, its tax liability can be reduced to the extent of actual expenditure and by calling it as facilitation arrangement, it was to avoid liability of tax. The ld. D.R. has also made an attempt to prove the arrangement or transaction as bogus to defraud the Revenue by contending that profit making assessee diverted money to the sister concern by booking expenditures in order to reduce liability and the sister concern in any case does not have to pay any tax on the receipts as it is running in huge losses. The ld. D.R. accordingly prayed that in the light of totality of facts, the assessee be declared as an assessee in default under section 201(1) and liability of interest under section 201(1A) of the Act, be fastened on it.
13. In oppugnation, the ld. counsel for the assessee, besides reiterating its contentions as raised before the ld. CIT(A), has contended that “advertisement” and “publicity” are different words having different meanings. Shri. Perci Pardiwala, Senior Advocate have placed reliance upon the provisions of section 37(3B) of the Act which was brought on the statute w.e.f. 1.4.1984 and was omitted w.e.f. 1.4.1986 with the submission that the words “advertisement”, “publicity” and “sales promotion” have been separately used by the Act which categorically demonstrate that all the three are different categories and the nature and it is only word “advertisement” which is included in the definition of section 194C of the Act. Therefore, the expenditure incurred for publicity cannot be termed to be the expenditure incurred for advertisement. Therefore, provisions of section 194C of the Act cannot be invoked. He has also invited our attention to the judgment of the Hon'ble Supreme Court in the case of ICICI Bank Ltd. and Another vs. Municipal Corporation of Greater Bombay and Others, 2005(006) SCC-0404- SC with the submission that the nature of allowance can be decided on the basis of fact of each case. In that case putting up illuminated board was not considered for advertisement by the Apex Court and the matter was remanded back to the Corporation to re-adjudicate the issue in the light of their observation in the judgment. Similar is the position in the instant case where an agreement was entered into with M/s Sahara Airlines Ltd. to display logo with colour scheme on both sides of the aircraft.
14. The ld. counsel for the assessee, Shri. Perci Pardiwala further placed reliance upon the judgment of the Hon'ble Apex Court in the case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT( TDS) (2012) 345 ITR 288 (All) with the submission that once the payee has already paid taxes due on the payment received by it from the assessee, tax could not be recovered once again from the deductor-assessee and the assessee cannot be held to be an assessee in default. Undisputedly the deductee i.e. M/s Sahara Airlines Ltd. has credited receipts of subsidy/publicity charges and has paid tax thereon. Therefore, the assessee cannot be held to be an assessee in default for the purpose of section 201(1) of the Act. It was further contended that the tax deductor cannot be treated as assessee in default till it is found that the deductee has also failed to pay such tax directly. Therefore, the finding about non-payment of tax by the recipient is held to be a condition precedent to invoke the provisions of section 201(1) of the Act and onus is on the Assessing Officer to demonstrate that condition is satisfied. In the instant case, there was no tax liability on the recipient/deductee, M/s Sahara Airlines Ltd., as it has filed return in loss during the relevant assessment years. Our attention was also invited to the order of the Tribunal in the case of Thomas Muthoot vs. DCIT, 55 SOT 390 in which it has been held that where deductee has no tax liability, the assessee-deductor would not be liable to pay any penalty under section 201(1) of the Act or interest under section 201(1A) of the Act. The ld. counsel for the assessee further contended that in the light of these facts even if it is held that payment is made for advertisement purpose and the assessee is required to deduct TDS, the assessee cannot be held to be an assessee in default under section 201(1) of the Act as there is no tax liability on the deductee on receipt of these payments which were credited in the books of account of the deductee.
15. The ld. counsel for the assessee, Shri. Perci Pardiwala has also invited our attention that for assessment years 2003-04 and 2004-05 the ld. CIT(A) has given a specific finding that action under section 201(1) of the Act is barred by limitation as it was initiated after four years, but the Revenue has not challenged this order of the ld. CIT(A) on this ground as the Revenue has raised the grounds of appeal on merit. Therefore, the appeals for assessment years 2003-04 and 2004-05 are not sustainable in the eyes of law. The ld. counsel for the assessee has also invited our attention to the judgment of Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corporation vs. DCIT (supra) and the judgment of Hon'ble Himachal Pradesh High Court in the case of CIT vs. Satluj Jal Vidyut Nigam Ltd. [2012] 345 ITR 552 (HP) in support of his contention that action under section 201(1) of the Act cannot be initiated after four years from the end of the relevant financial year.
16. Having heard the rival submissions and from a careful perusal of record and the judgments referred to by the parties, we find that the sole controversy raised in these appeals revolves around the nature of payment and the impact of non-deduction of tax thereon. According to the assessee the payment made by the appellant to M/s Sahara Airlines Ltd. was in the form of subsidy against passenger’s ticket sale and in return thereof M/s Sahara Airlines Ltd. was entrusted with the job of printing of logo and colour scheme, etc of the appellant-company on the boarding card, ticket, baggage tag on board on their aircraft so that the passengers travelling could know about the company. But the Revenue has treated this payment to be an expenditure of payment for doing job of advertisement for the appellantcompany by printing of logo, colour scheme, etc on boarding card, tickets, baggage tags of the appellant-company. Therefore, question raised before us is with regard to the exact nature of work done by M/s Sahara Airlines Ltd. in order to decide the nature of payment, we have to carefully examine the agreement executed between the parties and the treatment given by the respective parties to the payments. Undeniably the agreement was executed between the parties on 30.3.1995, through which M/s Sahara Airlines Ltd. has agreed to give extensive publicity of the activities of the appellant-company in order to promote their business and area of operation. Through various clauses of this agreement the appellant-company required M/s Sahara Airlines Ltd. to display the logo of the appellant-company on both sides of the aircraft, tickets, boarding passes, baggage tag, publicity materials and advertisement in newspaper, hoardings, etc. In lieu thereof the appellant-company has agreed either to make some payment or to allow some discount to passengers on every ticket till such time arrangement remained in force. The conditions envisaged in the agreement are quite relevant in order to adjudicate the nature of job executed by M/s Sahara Airlines Ltd. We, therefore, prefer to extract the agreement even for the sake of reproduction as under:-
“NO.SIHL/MARC/DIR/95/ DATED : 30.03.1995
M/s. Sahara India Airlines-Limited.
Sahara India Bhawan,
1, Kapoorthala Complex, Lucknow.
Dear Sirs,
Sub t Our Publicity through your Airline.
We refer to the discussions of the undersigned had with your Director, Shri Subrata Roy Sahara, on the above matter in several meetings. What we want your AirLines to do, is to give extensive publicity to our activities in order to promote our business and area of operations. We confirm that the following arrangements have been arrived at with you by us.
(1) All your Aircrafts will have exactly the same logo and in the same colour as used by us and the same will be prominently displayed outside of both sides of each and every aircraft in the manner that the same is clearly visible to general public at least from the distance of 200 metres.
(2) You will use our logo and its colour scheme on all your tickets. Boarding Passes, Baggage tags, publicity materials and advertisements in newspapers, hoardings, etc.
(3) Our brouchers (to be supplied by us) will have to be distributed with each ticket issued by you.
(4) You have agreed to make other arrangements required from our side to popularise our business as may be intimated by us to you after mutual consent.
(5) Since the publicity is, mainly, directly linked with the tickets issued by you and / or passengers to be carried by in your aircrafts, we shall pay you Rs. 1075/- per passenger on long sector and Rs. 400/- per passenger on short sector carried by
(6) you. It is also further agreed that to popularize our schemes and business activities and for that purposes to increase exposure to the general public, you will allow on trunk routes a minimum discount of Rs. 500/- to passenger on every trip till such time arrangements as above remain in force.
(7) That the above arrangements shall remain in force for a period of one year with effect from 1st April, 1995, or renewed further.
(8) You will allow at all reasonable time our representatives to verify that you are complying with the above arrangements, on board of the Aircraft as well as station offices and accounts department(s). You shall allow our representatives complimentary tickets free of charge to enable them to make such verification(s).
Please return a copy of this letter duly signed by you as a token of your acceptance of the above arrangement and all terms and conditions together with a certified copy of resolution of Board of Directors of your Company approving such arrangements, terms and conditions.
We look forward to have association with your Company for mutual benefit.
Thanking you,
Yours faithfully,
For Sahara India Housing Limited.
Sd/- FOR SAHARA INDIA AIRLINES LTD.
(Vandana Bhargava) Sd/-
Director Director”
17. In this agreement, no word like “subsidy” was ever used by both the parties. The word “subsidy” was used by the assessee during the course of assessment proceedings whereas it has made certain payments or granted certain discounts in lieu of work done by M/s Sahara Airlines Ltd. In this agreement, the assessee has made its intention very clear that it wanted publicity of its activities in order to promote their business and area of operation. In clause (2) of the agreement, the assessee has also made it clear that logo should also be used in publicity materials and advertisement in newspapers, hoardings, etc. Besides, we have also examined the summary of copies of accounts along with the exact narration of accounting entries with regard to the impugned payments and we find that the assessee itself has treated these expenses to be advertisement expenses till the end of financial year 2003-04. Thereafter it passed general entries. We have also examined the revised agreement dated 10.3.2000 in which the parties to the agreement has used the terminology as “revision of advertisement – Tariff for publicity”. If all these documents are read together, we would find that at the time of agreement, the appellant had no intention to execute this agreement only for publicity of its logo as it has used the word “advertisement” in the agreement itself. The appellant is now making its efforts to distinguish the terminology “advertisement” and “publicity” and tried to demonstrate that this agreement was executed for the publicity of logo for which the assessee would not get any business benefit; it was simply for its publicity. We are unable to digest this argument as no businessman will enter into a contract for publicity of its brand or logo without foreseeing any business benefit out of it. On account of publicity, there may not be a direct business benefit, but hidden benefit is always there. The ld. counsel for the assessee has tried to demonstrate that wherever contract for publicity is given the assessee would not be liable to deduct TDS, as the appellant is only required to deduct TDS under section 194C of the Act when it enter into a contract for advertisement. While dwelling on this argument, we have carefully examined the meanings of the words “publicity” and “advertisement” as both the words overlap each other.
18. In the case of Google Online India P. Ltd. reported in 280 ITR 211, the Authority for Advance Rulings has defined the word “advertisement” used in section 65(2) of the Finance Act, 1994 by holding that it has an inclusive definition that the advertisement means to make something known to the public or a segment of the public, to announce publicly by a printed notice or broadcast to call public attention to, especially by emphasizing, desirable qualities so as to arouse a desire to buy and patronize and it includes notices, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas. An advertisement is generally of goods and services and is information intended for potential customers.
19. In the Chambers Dictionary, the word “advertisement” was defined as commercial publicity, promotion, marketing, jingle, display, blurb, announcement, notice, poster, bill, placard, leaflet, handbill, circular, handout, propaganda, trailer and bulletin. Similarly, the word “publicity” is defined as advertising, promotion, marketing, puff, propaganda, build-up, boost, attention, limelight, splash, air, notoriety and reclaim. The word “advertisement” as defined in Black’s Law Dictionary is the action of drawing public attention to something to promote its sale, the business of producing and circulating advertisement. Therefore, without publicity advertisement is not possible, but as per definition “publicity” given in Chambers Dictionary, publicity includes advertisement also. Therefore, publicity and advertisement are almost synonyms and overlap each other. The term “advertisement” was also clarified through CBDT Circular No.714 dated 3.8.1995 that the advertising may be in print or electronic media i.e. in newspapers, periodicals, radio, T.V. etc.
20. In order to resolve the controversy as to whether definition of “advertisement” given through CBDT Circular No.714 is inclusive or exclusive, another Circular No.715 dated 8.8.1995 was issued clarifying the doubts raised through various questions. In response to question No.5 i.e. whether a contract for putting up hoardings would be covered under section 194C or 194-I of the Act, it was clarified that the contract for putting up hoardings is in the nature of advertising contract and provisions of section 194C of the Act would be applicable. Similarly question No.18 i.e. whether deduction of tax is required to be made under section 194C of the Act for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc., put up by the organizers was clarified by the Board by saying that the agreement for sponsorship is in essence, an agreement for carrying out a work of “advertisement”. Therefore, provisions of section 194C of the Act shall be applied. We have also examined the judgment of the Hon'ble Apex Court in the case of ICICI Bank Ltd. and Another vs. Municipal Corporation of Greater Bombay and Others (supra) and we find that while adjudicating the interpretation of word “advertisement”, their Lordships have examined the meaning of “advertisement” given in different dictionaries and concluded that it cannot be held that the sign boards indicating ATM Centres cannot have commercial interest but would only tell about the location of the ATM Centres to the existing account holders only. Whether signboards of ATM Centre tantamount to be an advertisement or not would depend upon the facts of each case, depending on the number of ATM Centres established by a particular bank in a particular locality or place or even city, to have the flavor of commercial or business interest of the service provider. Their Lordships accordingly restored the matter to Corporation to re-adjudicate the issue in the light of the guidelines laid down in the judgment after setting aside the judgment of the Hon'ble High Court.
21. From a careful perusal of the aforesaid judgments and the interpretation given in various dictionaries, we are of the opinion that the “advertisement” includes publicity, but vice-versa may not be possible. But whenever publicity of a brand or logo brings commercial benefit either apparent or hidden, it will assume the character of “advertisement”. It is very hard to believe that a businessman would publicize his logo or brand without visualizing any commercial benefit out of it. In the instant case, if the agreement is read carefully, we would find in the opening Para of the agreement that the parties to the agreement have agreed that it was executed to give extensive publicity to the activities of the appellant in order to promote their business and area of operation and for doing so M/s Sahara Airlines Ltd. was required to display the logo of the appellant-company on both sides of the aircraft, tickets, boarding passes, baggage tags, newspapers, hoardings etc. Therefore, the only inference can be drawn from the agreement and the revised agreement that it was executed for the purpose of “advertisement” of the logo of the appellant-company. This inference is also fortified by the treatment given by the assessee in its books of account. Therefore, we are of the considered view that the assessee has agreed for advertisement of its logo for which it is required to deduct TDS under section 194C of the Act.
22. Now the question arises whether provisions of section 201(1) of the Act can be invoked in the light of the fact that the deductee/recipient i.e. M/s Sahara Airlines Ltd. has already paid taxes or it did not have any tax liability on account of continuous business loss returned by it. In this regard, our attention was invited to the judgment of the Apex Court in the case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and the Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT (TDS) (supra), in which it has been categorically held that recovery provisions under section 201(1) of the Act can be invoked only when loss to the Revenue is established and that can only be established when it is demonstrated that recipient of income has not paid taxes on the income. This issue was examined by us in the case of ICICI Bank Ltd. vs. DCIT in ITA No. 668/LKW/2011 in the light of the judgment of the Apex Court in the case of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and Jagran Prakashan Ltd. vs. DCIT (TDS) (supra) and we have concluded that recovery provision under section 201(1) of the Act can only be invoked when loss to the Revenue is established and the onus is upon the Revenue to demonstrate that the recipient of income has not paid due taxes thereon. The relevant observations of the Tribunal in the aforesaid case are extracted hereunder for the sake of reference:-
“6. We find that it is a settled legal position now that once recipients have paid tax on income embedded in these payments, and in the light of Hon’ble Supreme Court’s decision in the case of Hindustan Coca Cola Beverages Pvt Ltd Vs CIT ( supra), the taxes cannot once again be recovered from the tax deductor. Hon’b le jurisdictional High Court, in the case of Jagran Prakashan Ltd Vs DCIT [ (2012) 21 taxmann.com 489 All ] also has, inter alia, observed as follows:
………..it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax…..
7. It is thus clear that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it t is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has al l the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. As a result of the judgment of Hon’ble Allahabad High Court in Jagran Prakashan’s case (supra), there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be invoked and the “t ax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay y such t a x directly” . Once this finding about the non payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submit ted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law la id down by Hon’ble Allahabad High Court.
8. It is also important to bear in mind that the lapse on account of non deduction of tax at source is to be visited with three different consequences – penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the re venue ’s ca se be f ore u s t hat, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that’s how Hon’bl e High Court has visualized the scheme of Act and that’s how, therefore, it meets the end of justice.
9. As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon’ble Bombay High Court, in the case of Bennett Coleman & Co Ltd. Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault. However, since it t is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.”
23. In the instant case, this aspect was not examined by the ld. CIT(A) as he was not required to do so in the light of the fact that he has concluded that the impugned payment was made for publicity and not for advertisement, for which the assessee was not required to deduct TDS. But now as we have concluded that the payments were made for advertisement, this aspect of the issue requires a proper examination. During the course of hearing of the appeal, the ld. counsel for the assessee has pointed out specifically that the recipient/deductee, M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years. Therefore, there was no tax liability even on the receipt of payments on account of advertisement charges. In that situation, these facts require a proper verification by the Assessing Officer. If it is established that the recipient, M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years, provisions of section 201(1) of the Act cannot be invoked and the appellant cannot be held to be an assessee in default. Accordingly this issue is restored to the file of the Assessing Officer for verification and adjudication in terms indicated above after affording opportunity of being heard to the assessee.
24. With regard to ITA Nos.488 and 489/LKW/2009 pertaining to assessment years 2003-04 and 2004-05, it was urged on behalf of the assessee that these appeals were dismissed by the ld. CIT(A) for the reason that proceedings under section 201(1) of the Act were initiated after four years, following the judgment of the Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corporation vs. DCIT (supra) and the Himachal Pradesh High Court in the case of CIT vs. Satluj Jal Vidyut Nigam Ltd. (supra) and the Revenue has not challenged this finding of the ld. CIT(A) by raising any ground in these appeals. The Revenue has assailed the order of the ld. CIT(A) on merit whereas the ld. CIT(A) has not given any finding on merit in these two appeals. Since the Revenue has not assailed the order of the ld. CIT(A) dismissing the appeals on the point of limitation, the order of the ld. CIT(A) attained finality. Therefore, the order of the ld. CIT(A) deserves to be confirmed. Accordingly we confirm the order of the ld. CIT(A) in this regard and dismiss the appeals of the Revenue. The grounds raised on merit cannot be entertained as the ld. CIT(A) has not given any finding in these assessment years on merit.
25. In the other bunch of appeals bearing Nos.517, 518, 519, 520 and 521/LKW/2009 the issue raised by the Revenue is with regard to the chargeability of interest under section 201(1A) of the Act on account of nondeduction and non-payment of tax.
26. In this regard, the ld. D.R. has submitted that when the assessee is held to be an assessee in default and the recipient/deductee had not paid taxes in time, the assessee is liable to pay interest under section 201(1A) of the Act for every month or part of month on the amount of such taxes from the date on which such tax was deductible to a date on which such tax is deducted or actually paid. Undisputedly in the instant case tax was not deducted at all by the assessee. If it is paid by the recipient subsequently, the assessee is fastened with the liability of interest as per provisions of section 201(1A) of the Act. It makes no difference whether the recipient has filed return in loss. The interest is to be computed from the date on which such tax was deductible to the date on which such tax was paid. Therefore, the Assessing Officer has rightly charged tax under section 201(1A) of the Act.
27. The ld. counsel for the assessee, Shri. Perci Pardiwala has emphatically argued that since the recipient/deductee has filed return in loss, there was no tax liability on such receipts on the deductee/recipient i.e. M/s Sahara Airlines Ltd. at any point of time. Therefore, no interest can be charged under section 201(1A) of the Act. He has also invited our attention to the judgment of the jurisdictional High Court in the case of Jagran Prakashan Ltd. vs. DCIT( TDS) (supra) in which it has been held that the assessee cannot be held to be an assessee in default under the provisions of section 201(1) of the Act till it is found that the deductee has also failed to pay such tax directly. Once this finding about non-payment of tax by the recipient is held to be a condition precedent to invoke provisions of section 201(1) of the Act, the onus is on the Assessing Officer to demonstrate that the condition is satisfied. Undeniably the recipient has filed return in loss and was also assessed at loss. Therefore, at no point of time there was any tax liability on the recipient with regard to the impugned payments. In the light of these facts where no tax liability has ever arisen against the recipient on account of its business loss, interest under section 201(1A) of the Act cannot be levied against the payer i.e. the assessee/appellant.
28. Having heard the rival submissions and from a careful perusal of the relevant provisions and the judgments referred to by the parties, we find that it has been categorically held by the Apex Court and the jurisdictional High Court through their judgments in the cases of Hindustan Coca Cola Breweries P. Ltd. vs. CIT (supra) and Jagran Prakashan Ltd. vs. DCIT( TDS) (supra) respectively that the deductor cannot be treated as an assessee in default till it is found that the recipient has also failed to pay such tax liability. Therefore, before invoking the provisions of section 201(1) of the Act, the onus is on the Assessing Officer to demonstrate that the condition of nonpayment of tax by the recipient is satisfied. If the recipient has paid taxes, the payer though would not be held to be an assessee in default for the purpose of section 201(1) of the Act, but interest liability under section 201(1A) of the Act can be fastened upon it and accordingly it can be computed from the date when the tax is due to be deducted till the date it is paid by the recipient. But in a case where the recipient is always in loss and has filed return in loss, would there be any tax liability on the receipts upon it at any point of time? In the case of ICICI Bank Limited (supra), we have also examined this aspect and we were of the view that interest under section 201(1A) of the Act is admittedly compensatory in nature and it seeks to compensate the Revenue for delay in realization of tax. While holding so, reliance was placed upon the judgment of the Hon’ble Bombay High Court, in the case of Bennett Coleman & Co Ltd. vs. ITO, 157 ITR 812. Accordingly we held that levy of interest under section 201(1A) of the Act is applicable whether or not the assessee was at fault. While dealing with the impugned issue we have also observed that in a case in which the recipient of income had no tax liability embedded in such payment, there will obviously no question of delay in realization of tax and provisions of section 201(1A) of the Act will not come into play at all. This type of situation may arise (1) when the assessee is exempted from tax or the recipients are not assessable to tax and (2) where the recipient is always in loss and filed its return in loss. Meaning thereby, for levying interest under section 201(1A) of the Act, it is to be established that there was a loss to the Revenue on account of nonpayment of tax due on the receipts.
29. We have come across the recent order of the Tribunal in this regard in the case of Thomas Muthoot vs. DCIT (TDS) [2013] 55 SOT 390 in which an identical issue came up for adjudication before the Tribunal and the Tribunal while dealing with the issue has categorically held that if any interest is liable to be charged under the Act, the same can be charged only if the Government is deprived of its funds or any loss is caused to the Government, since interest is compensatory in nature. Therefore, where the firm after including the receipt suffers loss, it would not have any tax liability. Therefore, the assessee-deductor would not be liable to penalty under section 201(1) of the Act or interest under section 201(1A) of the Act. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-
“18. However, we find force in the second point. The question that requires consideration is about the nature of interest charged under the Income tax Act, i.e., whether interest is penal or compensatory in nature?. This question came to the consideration of Hon'ble Supreme Court in the context of interest chargeable under sec. 215/139(8) that were in force at the relevant point of time in the Act, which are akin to interest chargeable u/s 234B/234A under the present provisions. The Hon'ble Supreme Court considered the nature of levy of interest u/s 215/139(8) in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961/27 Taxman 275(SC) and observed as under:-
"it is not correct to refer to the levy of such interest as a penalty. The expression "penal interest" has acquired usage, but is, in fact, an inaccurate description of the levy. Having regard to the reason for the levy and the circumstances in which it is imposed, it is clear that interest is levied by way of compensation and not by way of penalty. The income-tax Act makes a clear distinction between the levy of a penalty and other levies under that statute. Interest is levied under Sub Section (8) of Section 139 and under Section 215 because, by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid."
Similar view was expressed by Hon'ble Supreme Court in the case of Ganesh Das Sreeram v. ITO [1988] 169 ITR 221/[1987] 35 Taxman 36A. The said view was again reiterated by the Hon'ble Supreme Court in the case of CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009]312 ITR 225/178 Taxman 505at Page 251 in the context of interest chargeable u/s 201(1A) of the Act. The Hon'ble Supreme Court further clarified that interest u/s 201(1A) is mandatory even if there is no tax liability u/s 201(1) of the Act, i.e., the view expressed in the case of Hindustan Cocacola Beverage (P.) Ltd. (supra), by the Apex court is again reiterated here.
19. The Hon'ble High Court of Delhi also considered an identical question in the case of CIT v. Anand Prakash [2009]316 ITR 141/179 Taxman 44and the relevant observations made by the Hon'ble Delhi High Court are extracted below:-
"11. We have examined the decisions cited by the counsel on both sides and after considering the submissions made by them, we agree with the learned counsel for the Revenue that the levy under Section 234B of the said Act is compensatory in nature and is not in the nature of penalty. We may also note the decision of the Bombay High Court in the case of CIT v. Kotak Mahendra Finance Ltd.265 ITR 119(Bom.), wherein the Bombay High Court observed that it was well settled that interest under Section 234B was compensatory in character and that it was not penal in nature. Another decision which would be relevant is of a Division Bench of this Court in the case of Dr Prannov Roy v. Commissioner of Income-tax and Another :254 ITR 755(Del.). In that case, the provisions of Section 234A were in issue. The question before the court was whether interest could be charged under Section 234A when, though the return had not been filed in time, the tax had been paid. The argument raised on behalf of the Revenue that such payment of tax did not strictly comply with the meaning of advance tax and would therefore, have to be disregarded for the purposes of charging interest under Section 234A, was rejected. The Court also held that interest under section 234A was compensatory in nature and unless any loss was caused to the Revenue, the same could not be charged from the assessee. It may be relevant to point out that the matter was taken up in appeal before the Supreme Court and by its decision dated 17.09.2008 in CIT v. Prannov Roy /Civil 'Appeal No. 448/2003L the Supreme Court noted that**:
"the High Court, while accepting the writ petition and setting aside the interest charged under section 234A of the Act, has come to the conclusion that interest is not a penalty and that the interest is levied by way of compensation to compensate the revenue in order to avoid it from being deprived of the payment of tax on the due date. Having heard counsel on both the sides we entirely agree with the finding recorded by the High Court as also the interpretation of Section 234A of the Act as it stood at the relevant time."
"12. Coming back to the present appeals, we are of the view that Section 234A, Section 234B and Section 234C are of the same class. On going through these provisions, it is clear that interest' is sought to be charged on account of the fact that the Government is deprived of its revenue. Under Section 234A, interest is charged if tax whichever to be paid at the time of filing of the return is not paid at that point of time, Section 234B provides for levy of interest for default in payment of advance tax and Section 234C stipulates the charging of interest for default in the payments of advance tax on the appointed dates of payment. It is clear that under the said Act tax is payable at different dates and, through different modes. Where specific dates of payment of tax are not adhered to, it can be said that the Government is deprived of tax on those dates. Interest is chargeable under the provisions of the Act such a Sections 234A, 234B and 234C in order to compensate the Government for such deprivation. It is clear from the scheme of the Act and the nature of these provisions that they are compensatory and not penal. We, therefore, conclude that the levy of interest under Section 234B of the Income Tax Act is compensatory in nature. The Tribunal, having taken a contrary view has clearly erred.
20. In the case of Dr. Pronnoy Roy v. CIT [2002]121 Taxman 314, referred to by Hon'ble Delhi High Court, the assessee therein paid the tax due on his income for the assessment year 1995-96 before the due date for filing return of income, i.e., before 31-10-1995, but after 31.3.1995. However, he filed his return of income belatedly, i.e., there was a delay of 11 months. The question that arose before the Hon'ble Delhi Court was whether interest u/s 234A is leviable or not in the said facts. Under section 234A, interest is chargeable if the return is not filed within the prescribed due date. The Hon'ble Delhi High Court held that interest is not leviable in the facts and circumstances of that case, mainly on the reason that interest is compensatory in nature and unless any loss is caused to revenue, the same could not be charged from the assessee. The said view was also accepted by the Hon'ble Supreme Court CIT v. Pranoy Roy [2009]309 ITR 231/179 Taxman 53, which was referred to by the Hon'ble Delhi High Court in the case of Anand Prakash (supra). Hence, it is well established principle now that the if any interest is liable to be charged under the Act, the same can be charged only if the Government is deprived of its funds or any loss is caused to the Government, since interest is compensatory in nature. It is pertinent to note that the ratio of the decision rendered in the case of Dr. Prannoy Roy (supra) was followed by the Mumbai J bench of the Tribunal in the case of Mrs. Sheela Jaisingh v. Asstt. CIT [2007]13 SOT 617and the Visakhapatnam bench of the Tribunal in the case of Sudha Agro Oil & Chemical Industries Ltd v. ACIT [ITA No.288/Vizag/2007, dated 29-3-2010].
21. Now we shall turn to the facts of the instant cases before us, wherein interest u/s 201(1A) was levied upon the assessees. It may be noted that interest u/s 201(1A) is levied if there is any failure on the part of any assessee to deduct tax at source (TDS)/remit the same at the right point of time on the income paid by him. The TDS amount to be so deducted/remitted belongs to the revenue/Government. Hence, interest u/s 201(1A) is charged; since the assessee is considered to be enjoying the TDS amount, which belongs to the Government, till the time he deducts and remits the same to the account of the Government. It is pertinent to note that the Tax so deducted at source is given credit in the account of deductee- assessee. If the assessment of the deductee assessee results in refund of TDS amount, the Government shall refund the amount along with interest u/s 244A of the Act. The reason for paying interest u/s 244A is that the Government is considered to have enjoyed the amount, which it is not entitled to. Thus the interest is charged/paid as compensation for withholding/enjoying funds not belonging to the assessee/revenue.
22. Let us consider about exigibility of interest u/s 201(1A) of the Act under the peculiar conditions prevailing in the instant cases, wherein the recipient of interest viz., the partnership firms have declared losses even after accounting for the interest paid by the assessees herein. Even if the assessees herein deduct and remit the TDS amount on the interest paid to the partnership firms, the same is liable to be refunded to the said partnership firms, as there is no tax liability in their respective hands. Under this situation, can it be said that the Government is deprived of the funds due to it or any loss is caused to the Government.”
30. We have also examined another order of the Tribunal in the case of C.U. Inspections (I) (P.) Ltd. vs. DCIT, 142 ITD 761 with reference to provisions of section 195 read with section 40(a)(ia) of the Act and have noticed that the crucial factor to consider the chargeability to tax of amount in the hands of the recipient is that if amount is not chargeable to tax due to one reason or the other in the hands of the recipient, the aforesaid payment to the recipient cannot suffer disallowance in assessment of payer. Therefore, the crux of the issue is that disallowance on a particular demand or chargeability of interest on the due amount depends upon the chargeability of taxation of the amount in the hands of the recipient. If the amount is not chargeable to tax due to one reason or the other, neither the payment can suffer any disallowance nor any interest can be levied for default in payment of tax.
31. Before the lower authorities, except the contentions of the assessee, no evidence was placed to substantiate that the recipient, M/s Sahara Airlines Ltd. has suffered loss in all the impugned assessment years. Though it was specifically claimed before us that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, but no evidence was placed. Therefore, it cannot be conclusively held that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years. and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is established that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, interest under section 201(1A) of the Act cannot be charged against the assessee. It may be that against loss declared by the recipient in its return, ultimately the assessment was completed at a positive income but in that situation also, that demand is on account of difference between the returned income and assessed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the ld. CIT(A) on this issue is set aside and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201 (1A) on the present assessee.
32. In the other bunch of appeals bearing ITA Nos. 540, 541, 542, 543 and 544/LKW/2009, the Revenue has challenged the order of the CIT(A) whereby CIT(A) has deleted the penalty levied u/s 271C of the Act for the reason that the assessee was not liable to deduct the TDS u/s 194C of the Act.
33. The learned D.R., besides reiterating the arguments on the point of obligation for deduction of TDS u/s 194C of the Act, has submitted that once it is held that the assessee was required to deduct TDS as the payment was made for advertisement, the penalty u/s 271C can be fastened upon the assessee for non deduction of TDS. He has also placed heavy reliance upon the penalty order of the Assessing Officer.
34. The learned Counsel for the assessee has contended that since the payments were made for publicity of the logo/brand of the assessee to M/s Sahara Airlines Ltd., which does not fall within the definition of advertisement, the assessee was not required to deduct the TDS u/s 194C of the Act. The learned Sr. Counsel further argued that even if it is held that the payment was made for advertisement of the Logo of the assessee company, the difference between the advertisement and publicity is very thin and it over laps each other. In that situation the assessee has a bonafide belief that on payment of publicity, it was not required to deduct TDS u/s 194C of the Act. The learned Counsel for the assessee further contended that undeniably the recipient was always assessed at loss, therefore, there is no tax liability on the recipients at any point of time. Since there was no loss to the Revenue, the penalty u/s 271C of the Act cannot be levied.
35. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the material available on record, we are of the view that the issue of penalty u/s 271C of the Act should be examined in the light of our finding with regard to liability of deduction of TDS on payment for Publicity or Advertisement to M/s Sahara Airlines Ltd. as per the agreement. In the foregoing appeals, we have categorically held that the assessee has made the payments for advertisement and not for publicity and therefore, it was required to deduct the TDS u/s 194C of the Act. But while adjudicating the issue whether the assessee can be held to be in default and also chargeable to interest u/s 201(1A) of the Act in the light of the fact that the recipient/deductee M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years and there was no loss to the Revenue, we have taken a view having relied upon various judicial pronouncements that once it is held that there was no tax liability upon the recipient/deductee at any point of time with regard to the receipts, the assessee can neither be held to be in default nor chargeable to interest u/s 201(1A) of the Act. Now the question arises; whether in that situation, can the penalty u/s 271C be fastened against the assessee ? In this regard we have examined the totality of the facts of the case and we find that there was serious dispute with regard to the nature of payments made by the assessee to M/s Sahara Airlines Ltd. The assessee claimed the payment to be the payment for publicity and the Revenue contended it to be the payment for advertisement. We have also concluded in the foregoing paras that the difference between the publicity and advertisement is very thin as defined in various dictionaries. In that situation, it may be the possibility that the assessee might be under the impression that he was making payment for publicity for which he was not required to deduct the TDS. But the question arises whether the aforesaid impression would be a reasonable cause for non deduction of TDS. In order to adjudicate the issue of reasonable cause, we have to examine the surrounding circumstances under which the payment was made.
36. It is an undisputed fact (Subject to verification) that the recipient/deductee i.e. M/s Sahara Airlines Ltd. had filed all its returns for these years declaring loss in all the impugned assessment years. and therefore, there was no loss to the Revenue. In that situation neither the assessee can be held to be in default nor the interest u/s 201(1A) can be levied against the assessee. It is also an undisputed fact that the assessee and the recipient i.e. M/s Sahara Airlines Ltd. are the group concern of Sahara group and assessee might be aware of the financial position of the recipient, therefore, the assessee might have a bonafide belief that under any circumstances, he would not be required to deduct the TDS on such payment whether it is payment for publicity or payment for advertisement. Now the moot question is whether the said bonafide belief is reasonable cause for non deduction of TDS. The reasonableness of the bonafide belief can only be examined under the surrounding circumstances under which payment was made.
37. In the case of Income-tax Officer Vs Muthoot Financiers 286 ITR (AT) 71, the Tribunal has held that penalty provisions under section 273B of the Act are not automatically attracted merely upon failure on the part of the assessee to comply with the law. Before levying penalty the concerned officer is required to find out whether the failure referred to in the concerned provision was without any reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause. Thereafter the officer has to consider whether the explanation offered by the assessee as regards the reason for the failure was on account of reasonable cause. Only if the cause shown is found to be frivolous, without substance or foundation, the prescribed consequence would follow.
38. Further in the case of Commissioner of Income-tax Vs NHK Japan Broadcasting Corporation 284 ITR 357 (Del), it was held that the question whether there was any reasonable cause for not making a deduction is a question of fact.
39. In the case of Woodward Governor India P. Ltd. Vs Commissioner of Income-tax [2002] 253 ITR 745 (Del), their Lordships of Hon'ble Delhi High Court have held that section 273B starts with a non obstante clause which means that it has overriding effect over other provisions of law and initial burden is on the assessee to show there existed reasonable cause which was the reason for the failure referred to in section 271C of the Act. Thereafter, the Assessing Officer dealing with the matter has to consider the explanation offered by the assessee and ascertain as to whether the failure was on account of reasonable cause. It was also held that non consideration of the plea raised by the assessee about existence of reasonable cause vitiated the order. The relevant observations of Hon'ble Delhi High Court are extracted here as under:-
“Section 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271C, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with “notwithstanding anything” is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of Act mentioned in the non obstante clause (see Orient Paper and Industries Ltd. v. State of Orissa, AIR 1991 SC 672). A non obstante clause may be used as a legislative device, to modify the ambit of the provision of law mentioned in the non obstante clause, or to override it in specified circumstances. (see T. R. Thandur v. Union of India, AIR 1996 SC 1643). The true effect of the non obstante clause is that in spite of the provision or Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment (see Smt. Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi, AIR 1996 SC 1963). Therefore, in order to bring in application of section 271C in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non.
Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. “Reasonable cause” as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow.”
40. Having carefully examined the facts of the case in the light of the aforesaid judicial pronouncements, we are of the view that the assessee/appellant has not deducted TDS on the impugned payments under the bonafide belief that the payments made by it is in the nature of publicity and not for advertisement for which he was required to deduct tax u/s 194C of the Act. It is also an undisputed fact that the payments were made to the group concern of the assessee i.e. M/s Sahara Airlines Ltd., whose financial position might be known to the assessee. It was emphatically argued that recipient / deductee suffered huge losses, therefore, they had filed all its returns for these years declaring loss in all the impugned assessment years and no tax liability has ever fastened on them on account of these payments and there was no revenue loss on non deduction of TDS. If all these facts are clubbed together, it can safely be held that the assessee had a bonafide belief or reasonable cause for non deduction of TDS for which penalty u/s 271C of the Act cannot be levied. Though in foregoing appeals we have restored the matter to the file of the Assessing Officer for verification of the facts whether the recipients/deductee had filed all its returns for these years declaring loss in all the impugned assessment years and there was no loss to the Revenue, but this direction is not required in this case as we have observed the existence of the reasonable cause for non deduction of TDS. Therefore, under these circumstances, we are of the view that the assessee had a reasonable cause for non deduction of TDS and thus the penalty levied u/s 271C of the Act is not leviable in the eyes of law. Though the CIT(A) has deleted the penalty for different reasons but we have examined the penalty order on merit and we do not find any merit therein. We accordingly confirm the order of CIT(A) who has deleted the penalty.
41. In the result the appeals of the Revenue in ITA Nos.490, 491 and 492/LKW/2009 and ITA Nos.517, 518, 519, 520 and 521/LKW/2009 are partly allowed for statistical purposes and appeals in ITA Nos., 488, 489, 540, 541, 542, 543 and 544/LKW/2009 are dismissed.