N.V. Vasudevan, Judicial Member.
TDS No. I /Del./04 is an appeal by the revenue, while TDS No. 209/Del./03 is an appeal by the person responsible for deduction of tax at source while making payment, hereinafter called "the appellant" and both these appeals are directed against the order dated 7-10-2003 of Commissioner (Appeals)-IX, New Delhi relating to the financial year 2001-02. These appeals arise out of the order passed under section 201 and 201(IA) of the Income Tax Act.
The appellant is a partnership firm. It is an accredited media agency engaged in the business of production of audio/video serials, films, compaign materials or works. For the financial year 1999-2000 the appellant filed return of Tax Deducted at Source (TDS) in Form Nos. 26C and 26K. On examination of such return of TDS filed by the appellant, the assessing officer noticed that the appellant had paid a sum of Rs. 47,94,842 to M/s. Teletrack Advertising Bombay (TAB) Pvt. Ltd. and it had deducted TDS on such payment at 2 per cent plus surcharge under the provisions of section 194C of the Act. The assessing officer was of the view that the payment made by the appellant was for the purpose of obtaining a professional and technical service and, therefore, the provisions of section 194J would apply and the rate at which the tax ought to have been deducted by the appellant was 5.1 per cent. When confronted the appellant replied that the payment made to TAB was for performing the work of dubbing in various languages and for making beta copies. The appellant submitted that the work was in the nature of production of programmes and fell within the ambit of section 94C(1) Explanation 3(b) of the Act. The appellant also relied on Circular No. 714, dated 3-8-1995 wherein it has been clarified that in the case of work of broadcasting and telecasting including production of programme for such broadcasting and telecasting tax has to be deducted at I per cent if the programme was in the nature of advertisement and at 2 per cent if it was not in the nature of advertisement. The appellant, therefore, submitted that it had correctly deducted tax at source.
The assessing officer however held that the payments made fell within the category of section 194J. The assessing officer held that dubbing is a kind of service which are rendered by voice artists and, therefore, fell within the meaning of professional services rendered by an artist. The assessing officer accordingly worked out tax short deducted and also levied interest on such tax short deducted, under the provisions of sections 201 and 201A of the Act.
On appeal by the appellant apart from the other submissions, the submissions of the appellant was that TAB had already submitted their return of income and had paid full tax on the amount received from the assessee. Since the payee had already paid the tax, the payer could not be treated as an "assessee in default" and CBDT has admitted this position in Circular No. F. No. 275/201/95-IT(B), dated 29-1-1997. It was submitted that the plea is supported by the decision of the ITAT, Madras Bench in the case of Crescent Housing (P) Ltd. v. Income Tax Officer (2002) 80 ITD 317 (Mad-Trib) and of the Mumbai Bench of ITAT decision in the case of Income Tax Officer v. Manav Greys Exim (P.) Ltd. (2002) 75 TTJ (Mum.) 115.
On the question whether the payment fell within the ambit of section 194C or 194J the Commissioner (Appeals) held that in the case of the appellant on identical issue for financial year 1999-2000, concluded as follows :
"The dispute in this case is to be resolved by deciding whether the payment for dubbing charges constituted 'work' for production of programme in terms of section 194C of the Act or it represented fee for 'professional services'. I am of view that dubbing was not carrying out of any work for production of programme. Dubbing is in the nature of professional services rendered by voice artists and since these services were rendered through the medium of a corporate entity who is a payee in terms of section 194(J) of the Act and who is also a person referred to in Explanation (a) to section 194(J) read with section 2(31)(iii) of the Act, tax was to be deducted at the rate of 5 per cent. The position has been well clarified in CBDT Circular No. 714, dated 3-8-1995 wherein in para 4 it is stated that it is also clarified that the tax would be deducted at source under section 194J from payments made for professional services. Thus when an advertising agency makes payments for professional services to a film artist such an extra, cameraman, a director etc. tax will be deducted at the rate of 5 per cent. Dubbing artists are also film artists using their voice skills for dubbing and in the present case, the job description as admitted by the appellant being dubbing, the payments were to be subjected to tax as professional services under section 194J of the Act. Provisions of section 194C are confined to work contract and professional services have been specifically covered under section 194J of the Act. In view of this position, I find no force in the contention of the appellant that it could have a bona fide belief that such payments were covered under section 194C of the Act as it was not possible to have more than one opinion on the issue and the cases of KLM Royal Touch and Hero Honda Motors (supra) cited by the appellant could only apply, if more than one interpretation was reasonably possible."
On the plea regarding the payment of tax by TAB, the payee and consequent discharge from liability on the part of the appellant as an "assessee in default", the Commissioner (Appeals) held that the claim of the appellant of served to be accepted and in this regard the Commissioner (Appeals) also referred to the CBDT Instruction No. 275/Ban/201/95-IT(B), dated 29-1-1997. The Commissioner (Appeals) however directed the assessing officer to verify the actual payment and give credit for such payment before calculating short deduction of tax.
On the aspect of payment of interest under section 201(lA) of the Act the Commissioner (Appeals) held that charging of interest was mandatory and automatic. He, therefore, directed that interest has to be charged for the period commencing from the date of payment by the appellant to TAB till the date of payment of tax by the payee ie., TAB.
Aggrieved by the direction of the assessing officer to charge interest under section 201(1A) of the Act from the date of payment by the appellant to TAB till the date of payment of tax by deductee i.e., TAB, the revenue has preferred the present appeal. According to the revenue, the period for which interest was to be levied on the appellant would be from the date on which the appellant made payment to TAB and the date on which the appellant paid the tax deducted at source to the account of the Central Government. The grounds of appeal of the revenue in this regard reads as follows :
"On the facts and in the circumstances of the case as well as in law, the learned Commissioner (Appeals) has erred in directing the assessing officer to charge interest under section 201(1A) from the date of deductibility of tax till the payment by the deductee as Explanation to section 191 inserted by Finance Act, 2003 with effect from 1-6-2003 is not applicable to the default committee by the assessee for earlier years."
Aggrieved by the order of the Commissioner (Appeals) holding the appellant to be an "assessee in default" under section 201(1) of the Act and upholding charging of interest from the date on which tax ought to have been deducted till the payment of tax by the deductee, the appellant has preferred the present appeal.
None appeared on behalf of the appellant ie., the person responsible for deducting tax at source. We have heard the submissions of the learned Departmental Representative. We are of the view that the present appeals can be decided on the question as to whether in the case where the recipient of the payment from the person responsible for deducting tax at source had filed a return of income and paid tax on the amount received whether the person responsible for deducting tax at source can be treated as an appellant in default. In this regard it may be worthwhile to refer to the provisions of Explanation to section 191. Section 191 in its Explanation reads as follows :
Section 191 : In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct.
Explanation : For the removal of doubts, it is hereby declared that if any person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax and such tax has not been paid by the assessee direct, then, such person, the principal officer and the company shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default as referred to in subsection (1) of section 201 in respect of such tax.
The Explanation to section 191 was inserted by the Finance Act of 2003 with effect from 1-6-2003. A plain reading of the aforesaid Explanation would show that it is clarificatory in nature and, therefore, would apply for the financial year involved in these appeal also. In the case of Crescent Housing (P.) Ltd. v. Income Tax Officer (2002) 80 ITD 317 (Mad.), the Hon'ble Madras Bench of the ITAT, it has been held that in the event of payment of tax by the recipient (i.e., the payee from the appellant) no further demand could be raised on the person responsible for deducting tax at source. The aforesaid decision related to the financial years 1996-97 and 1997-98. In the said decision even in respect of interest under section 201(1A) it was held that it could be levied only till the date of payment of tax by the payee from the appellant. Even prior to inserting of Explanation to section 191 Courts have taken a view that in a case where the payee pays the tax the payer i.e., the person responsible for deduction of tax at source cannot be held to be an "assessee in default" under section 201. The Hon'ble Gujarat High Court in the case of CIT v. Rashikesh Apartments Co-operative Housing Society Ltd. (2002) 253 ITR 310 (Guj) and the Hon'ble M.P. High Court in the case of CIT v. M.P. Agro Morarji Feriilizers Ltd (1989) 176 ITR 282 (MP) have taken a similar view. The appellant cannot, therefore, be treated as an appellant in default, if it is found that the payee has made payment on tax of the amounts received from the appellant. Consequently the appellant cannot be considered as an "assessee in default". As far as charge of interest is concerned it cannot be from the date of deductibility of tax till the payment by the appellant. On the other hand it could be only put to the date of payment of tax by the payee i.e., M/s. TAB. This is because interest is compensatory in nature and the revenue cannot claim payment of interest for the period when the payee has already paid the taxes to the exchequer. This issue will be academic if it is found that the payee had paid the taxes on due date. For the reasons stated above the appeal of the revenue is dismissed. Ground No. 1 of the grounds of appeal of the appellant is allowed to the extent indicated above.
Ground No. 2 of the grounds of appeal of the appellant is allowed to the extent indicated above. Ground No. 3 is general in nature and calls for no specific adjudication, while ground No. 4 is dismissed as not appealable. We also make it clear that we have not decided the issue as to whether the payment in question would fall within the provisions of section 194C or section 194J. This question is left open.
In the result TDS No. 1/Del./04 is dismissed, while TDS 209/Del./03 is partly allowed.
TDS 208/Del./03 is an appeal by the person responsible for deducting tax at source for the financial year 1999-2000. The grounds of appeal of the appellant in this appeal is identical to the grounds of appeal in TDS 202/Del./03 for the financial year 2001-02. For the reasons stated while deriding the appeals for the financial year 2001-02 the first and second grounds of appeal of the appellant are allowed to the extent indicated while the third ground of appeal is general in nature calling for no adjudication and the 4th ground of appeal is dismissed as not appealable. 15. In the result appeal TDS 208/Del./03 is partly allowed.