2011 (10) TMI 341 - AT - Income Tax

TDS u/s 194C - sponsorship versus contract - Assessee carried various summits seminar conference in field of management - Payments made towards printing/ purchase of stationery and advertisement expenses - Assessee replied that under 194C individuals are not covered - AO treated him as contractor and relied on 194C(2) - CIT(A) further disallowed auditorium hire charges & stage erection charges on account of non deduction - Held That - Payments associated with organization of conference cannot be said to be towards sub contract work. Since events have conceptualized first and then came sponsorships 194C(2) is not attracted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for failure to deduct tax at source under Section 194C on payments for printing/purchase of stationery and advertisement expenses.
2. Enhancement of income by disallowing auditorium hire charges and stage erection charges under Section 40(a)(ia) due to failure to deduct tax at source under Section 194C.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for failure to deduct tax at source under Section 194C on payments for printing/purchase of stationery and advertisement expenses:

The appellant challenged the correctness of the CIT(A)'s order, which upheld the Assessing Officer's disallowance of Rs. 14,74,932 under Section 40(a)(ia) due to non-deduction of tax at source under Section 194C on payments made towards printing/purchase of stationery and advertisement expenses. The appellant argued that as an individual, he was not covered by Section 194C(1) at the material time, and Section 194C(2) did not apply as no payments were made to sub-contractors. The Assessing Officer, however, contended that the appellant should be treated as a 'subcontractor' since the sponsors deducted taxes under Section 194C(1) from payments made to the appellant, and thus, the appellant was required to deduct taxes from payments made by him. The Tribunal found that Section 194C(1) did not apply to individuals at the material time and that the appellant did not undertake any work as a subcontractor. Therefore, the provisions of Section 194C(2) were not applicable, and the disallowance under Section 40(a)(ia) was unwarranted.

2. Enhancement of income by disallowing auditorium hire charges and stage erection charges under Section 40(a)(ia) due to failure to deduct tax at source under Section 194C:

The CIT(A) enhanced the appellant's income by Rs. 39,26,528, disallowing Rs. 32,61,994 out of auditorium hire charges and Rs. 6,64,534 out of stage erection charges under Section 40(a)(ia) on the grounds that the appellant failed to deduct tax at source under Section 194C. The Tribunal examined whether the payments made by the appellant could be considered as payments to sub-contractors under Section 194C(2). It was found that the appellant received sponsorship money for organizing events and conferences, and the sponsors derived benefits from such association. The Tribunal concluded that the appellant did not undertake to carry out the work of organizing conferences at the instance of sponsors but conceptualized and organized the events independently, finding sponsorships later. Thus, the payments made by the appellant were not towards subcontract work, and Section 194C(2) did not apply. Consequently, the disallowance under Section 40(a)(ia) was deemed unwarranted.

Conclusion:

The Tribunal held that Section 194C(2) was not applicable to the appellant's case, as the payments made were not for subcontract work. Therefore, the disallowances under Section 40(a)(ia) were unwarranted, and the Assessing Officer was directed to delete the same. The appeal was allowed in favor of the appellant.