TDS on payment to advertising agency is covered u/s 194C not 194I. Contract need not always be in writing and could be implied also.
ABCAUS Case Law Citation
ABCAUS 3539 (2021) (08) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) in raising demand u/s 201(1) and 201(1A) of the Income Tax Act, 1961 (the Act) in respect of advertisement expenses for not deducting TDS at 10% u/s 194J of the Act.
The assessee is a private limited company engaged in the business of construction. In respect of advertisement expense, the Assessing Officer was of the opinion that the TDS was to be deducted at 10% u/s 194J and not at 2% u/s 194C inasmuch as there was no contract for providing advertisement services.
On that account, he raised a demand u/s 201(1) and interest for short deduction of TDS on payment of advertisement expenses.
The Tribunal observed that could be seen that the word “advertising” has been clarified by CBDT in Circular No. 714 dated 03/08/1995 while stating that according to the amended provisions, tax has to be deducted @ 1% in case of advertising and at 2% in other cases.
It was further stated in Circular No. 714 that fee for professional or technical services to be formed u/s. 194J would mean the services rendered by a person in the course of carrying on legal, medical, engineering or the profession of accountancy or technical consultancy or interior decoration or advertising or such activity as is notified by the Board for the purpose of section 44AA or section 194J.
The Tribunal opined that the said circular makes it clear that the tax will be deducted at source u/s 194J from the payments made for professional services, when advertising agency makes payment for professional services to a film artist such as an actor, a cameraman, a director etc., in which case the tax will be deducted at 5%.
The Tribunal opined that CBDT Circular clarifies the distinction between the payments by a person to the advertising agency and the payments made by advertising agency to the television channel or newspaper company etc. A reading of Circular No. 714 and 4 makes it amply clear that when a person makes a payment to advertising agency, such payments are covered by section 194C whereas if the advertising agency makes any payment to a film artist such as an actor, a cameraman, a director etc., it would be covered by section 194J. This distinction is based on the fact that when the advertising agency makes such payments to a film artist, the intellectual property in the contents will be acquired by the advertising agency and the services secured are only broadcast and telecast and nothing more.
The Tribunal stated that a contract need not always be in writing and could be implied also.
The Tribunal held that the payment made by the assessee for advertisement in connection with their business fall within the ambit of section 194C and not section 194J.
Accordingly the ground of appeal was allowed in favour of the assessee.
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