G.S. Pannu, Accountant Member - The captioned sets of three appeals, pertain to assessment years 2010-11 and 2011-12 and involve commons issues. Since the appeals relate to the same assessee and involve common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of brevity and convenience.
2. First, we may take up the appeal of the assessee in ITA No.6800/Mum/2012 which is directed against the order of CIT(A)-14 Mumbai dated 18.09.2012 pertaining to the assessment year2010-11, which in-turn has arisen from the order of the Assessing Officer dated 14.02.2012 passed under section 201(1)/201(1A) of the Income Tax Act, 1961 ( in short 'the Act').
3. In brief, the relevant facts are that the assessee is a company incorporated under the provisions of Companies Act, 1956 and is, inter alia, engaged in the business of advertising and marketing communication services. In the impugned proceedings, the Assessing Officer examined the tax deducted at source by the assessee in respect of payment made to 'Creative Consultants'. The assessee had deducted tax at source in terms of the provisions of section 194J of the Act considering that the payment made to the Creative Consultants was in the nature of professional fee paid. As per the Assessing Officer the terms of the employment of the consultant showed that it was a case of employer-employee relationship and, therefore, the payments made by the assessee were liable to be subjected to tax deduction at source in terms of section 192 of the Act. For this reason, the Assessing Officer held that assessee was in default within the meaning of section 201(1) of the Act for having short deducted the tax at source and accordingly a demand of Rs. 28,00,792/- was raised in terms of section 201(1) of the Act and interest under section 201(1A) of the Act of Rs. 37,81,069/- was also imposed. The aforesaid stand of the Assessing Officer has also been affirmed by CIT(A) and accordingly, assessee is in appeal before us.
4. Before us, the Ld. Representative for the assessee has pointed out that the assessee had availed the services of professionals as retainers/consultants and the payments made have been rightly subjected to deduction of tax at source under section 194J of the Act. Contending that there was no employer- employee relationship, it was pointed out that so far as the payments made to retainers/consultants are concerned, they do not entail normal benefits and perquisites which are provided to the employees, such as Provident fund, leave encashment, gratuity, etc. A reference has also been made to the sample copies of invoices raised by the consultants, which are placed in the Paper Book, to point out that service tax was charged by the consultants, which clearly established that it is a case where services have been provided to the assesssee and it is not a case of an employer-employee relationship. In the course of hearing, the Ld. Representative for the assessee has also point-wise assailed the analysis of the terms of employment of the consultants discussed by the Assessing Officer in the assessment order to demonstrate that the issue has been improperly appreciated by the lower authorities. It has also been pointed out that in an identical situation involving the case of an advertising/marketing services company, such payments on hiring of consultants have been held to be subjected to tax deduction at source under section 194J of the Act by the Mumbai Tribunal in the case of Dy. CIT v. Madison Communication (P.) Ltd [2015] 152 ITD 759/[2014] 52 taxmann.com 154 a copy of which has also been placed on record.
5. On the other hand, Ld. Departmental Representative has primarily relied upon the discussion made by Assessing Officer in para 9.3 of the assessment order to point out that the peculiar features in the letters of appointment issued to the consultants established that there existed an employer-employee relationship and thus, tax was required to be deducted in terms of section 192 of the Act and not under section 194J of the Act.
6. We have carefully considered the rival submissions. Ostensibly, the terms and conditions of appointment of Creative Consultants by the assessee does establish that it is a case where assessee has hired the services of independent professionals in connection with its activity of rendering advertising/marketing communication services to its clients. Notably the consultants hired by the assessee have charged service tax from the assessee and they are not entitled to any benefits of employment which are normally associated with an employer- employee relationship, namely Provident fund, gratuity, leave encashment, etc. So however, the case set up by the Assessing Officer is that the terms of employment involve rendering of services for fixed period; utilizing the infrastructure facilities and consumables provided by the assessee company in rendering services; restriction on the consultants to work out of the premises of the assessee, etc. On this aspect, Ld. Representative for the assessee has explained that having regard to the nature of business of the assessee, it was functionally and otherwise found desirable that such consultants work out of the premises of the assessee for reasons of confidentiality, etc. It has been pointed out that the consultants are not prohibited from rendering services to other concerns, but the only restriction being that they are not entitled to render services in the similar field as being rendered to the assessee. It has been explained that the aforesaid condition is a mechanism to safeguard the interest of the assessee company to protect its own business from the competitors.
6.1 In our considered opinion, the restrictive covenants which are sought to be interpreted by the Assessing Officer to mean that it establishes an employer-employee relationship between assessee and the consultants have to be understood in the context of the business realities in which the assessee operates. Such restrictions cannot imbibe an employer-employee relationship to the contract with consultants. It is also quite clear that that the benefits of an employer- employee relationship which are normally available, do not apply to the impugned consultants, for instance, provident fund, leave encashment, gratuity benefits, etc. In a similar situation, our Co- ordinate Bench in the case of Madison Communication (P.) Ltd.(supra) has also upheld the stand of the assessee that such payments are subject to deduction of tax at source under section 194J of the Act and not under section 192 of the Act. The following discussion in the order of the Tribunal is relevant:—
"10. We have carefully perused the orders of the authorities below. The appointment letter clearly shows that the persons have been appointed as a consultant. Though there is a restrictive clause that during the pendency of agreement with the assessee, the consultants will not take up any other assignment of temporary or permanent nature with any other person. However, in our considered opinion, such restrictive covenants are provided in contract to safeguard the interest of the company and to make it sure that the consultants do not given services to the rivals in the same line of business. Merely because of his restrictive covenant, no employer-employee relationship could be established. Further, it is an undisputed fact that the consultants have charged service tax to the assessee and service tax so collected have been paid to the government. By any stretch of imagination no employee would charge service tax to its employer. Therefore, we do not find any merit in the views taken by the Revenue authorities. The assessee has correctly deducted the tax. We accordingly set aside the findings of the Ld. CIT(A) and direct the A.O to accept the assessee's contention"
6.2 In conclusion, we therefore, uphold the plea of the assessee and set aside the order of CIT(A) and direct the Assessing Officer to treat the payments made to the Creative Consultants as liable for deduction of tax at source under section 194J of the Act and not under section 192 of the Act. As a consequence, the demand raised on account of shortfall of deduction of tax at source under section 201(1) of the Act and interest under section 201(1A) of the Act qua the aforesaid issue is hereby set aside.
6.3 In the above manner, the appeal of the assessee in ITA No.6800/Mum/2012 for A.Y 2010-11 stands allowed.
7. In the Cross appeal of the Revenue for A.Y 2010-11, vide ITA No.7380/Mum/2012, the only issue raised is with regard to the deduction of tax at source on the payments of hoarding charges made to various parties. The stand of the Assessing Officer is that the payment of hoarding charges is to be understood as 'rent' and, therefore, was liable for deduction of tax at source under section 194I of the Act, whereas the claim of the assessee has been that such payments are liable for deduction of tax at source in terms of section 194C of the Act.
7.1 On this aspect, it was a common point between the parties that similar issue came up before Delhi Bench of the Tribunal for A.Y 2002- 03 in assessee's own case and vide ITA No.5202/Del/2004 and CO No.104/Del/2005 dated 23/09/2005, the Tribunal upheld the stand of the assessee.
7.2 We have carefully perused the decision of the Tribunal dated 23/9/2005(supra) and find that after considering the nature of work and services rendered by the assessee against the impugned payment of hoarding charges, the Tribunal came to conclude that such payments were liable for deduction of tax at source in terms of section 194C of the Act and not under section 194-I of the Act as contended by the Revenue. The following discussion in the order of the Tribunal dated 23/5/2005(supra), is worthy of notice:—
'9. We have carefully considered the entire material on record and find that the Ld. CIT(A) very carefully considered the relevant case law and the circular of the Board. He has undertaken a proper analysis and examination of the nature of work done by the assessee. The ld. CIT(A) has also taken into account the aspect that the work of advertisement includes various services and thus the payment was made by the assessee for composite services and not for hiring any premises or land or building. In the case of National Panasonic India Pvt. Ltd., Delhi Bench "D" of ITAT (supra) has observed as under:
"6. We have carefully considered the rival contentions and the material on record. Section, 194-I of the Act mandates a person, other than an individual or a Hindu undivided family (HUF), paying rent to a resident to deduct tax at source at the time of credit or payment, whichever is earlier. Clause (i) of the Explanation to section 194-I gives the meaning of "rent"to be a payment under any lease, sub-lease, tenancy or any other building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. Thus "rent" for the purpose of section 194I, is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, where the agreement is not predominantly for the use of land or building, but for something else, then payment under that agreement will not constitute rent even if that "something else" involves the use of land or building as an integral part of or incidental to the predominant objective of the agreement. Let us consider the facts of the case before us in the light of this basic concept of rent."
9.2. In the case of Japan Airlines (supra), it has been held that the services provided by the airport authority for landing and parking of its aircraft did not amount to lease of the property and, therefore, the payments are not in the nature of rent as envisaged under section 194I of the Act. The Tribunal while dealing with the definition of rent has observed as under:
9.6 In view of this definition, there has to be either lease, sub-lease, tenancy agreement or arrangement for governing the use of any land. Such land to be specific portion of land and lease etc. of such land has to regulate the manner of use of such land or building and its tenure as well as manner of payment in lieu thereof. After taking into consideration the definition of rent, it apparently appears to be a composite concept. In Black's Law Dictionary, the term 'rent' means- 'consideration paid for use or occupation of property'. In a broader sense, it is the compensation or fee paid, usually periodically for the use of any rented property, land, building, equipment etc.
9.3 On going through the question no.2 to 5 of circular no.715 dated 8.8.1995, it is clear that the Board has clarified the issue by giving the following answer to the question:
Question5: Whether a contract for putting up a hoarding would be covered under section 194C or 194I of the Act.
Answer: The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194I and not under section 194C of the Act.
9.4 From the above, it is clear that the Assessing Officer was not justified in applying the provisions of section 194I in the case of the assessee. On the other hand, the Ld. CIT(A) has adopted a very correct interpretation of the relevant provisions of section 194I and 194C and has applied such construction after property appreciating the facts and circumstances relating to this matter including the relevant aspects of the work done by the persons to whom the payments were made by the assessee. We, therefore, do not find any scope to interfere in the findings of the Ld. CIT(A), which are upheld by us. Consequently, ground nos. 1 to 5 taken in this appeal are rejected. The appeal is, therefore, dismissed.'
7.3 Following the aforesaid precedent, in assessee's own case which has been rendered under identical circumstances, we hereby affirm the action of the CIT(A) in holding that the payment of hoarding charges are liable for deduction of tax at source under section 194C of the Act and not under section 194-I of the Act. Thus, the appeal of the Revenue is dismissed.
8. Similarly, the issue raised in the Cross-appeal by the assessee and Revenue for A.Y 2011-12 are similar to those considered by us in the Cross-appeals for A.Y 2010-11 in the earlier paras. Therefore, our decision in the Cross-appeals for A.Y 2010-11 would apply mutatis- mutandis in the appeals for assessment year 2011-12 also. Thus, for A.Y 2001-12, whereas the appeal of the assessee is allowed, that of the Revenue is dismissed.
9. In so far as the Cross-objections filed by the assessee are concerned, they are merely in support of the order of the CIT(A) on the point raised by the Revenue in its appeals. Since the appeals of the Revenue have already been dismissed, the cross objections raised by the assessee are rendered infructuous and are hereby dismissed.
10. Resultantly, whereas the appeals of the assessee are allowed, the appeals filed by the Revenue and Cross-objection filed by the assessee are dismissed, as above.