The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the payments made for advertisement without a written contract would attract TDS under section 194C of the Income Tax Act, 1961 since an implied contract shall be sufficient to apply the said provision.
The Assessing Officer, while concluding the proceedings against the assessee-Company, was of the view that because there is no contract between the assessee and the advertising agency in this case and therefore, payments made for advertisement expenses have to be treated as payments by way of fee for professional services.
The Tribunal bench comprising Judicial Member K Narasimha Chari and Accountant Member R K Panda noted that a reading of section 194C with Explanation (iv) thereof makes it clear that any person responsible for paying any sum to any resident for carrying out the work of advertising, broadcasting and telecasting shall deduct an amount equivalent to 1% where the payment is being made to an individual and at 2% in other cases.
The bench observed that the relevant Circular of the CBDT 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 bench said.
The bench, while deleting the addition, concluded that a contract need not always be in writing and could be implied also.
“In the circumstances, we find that the payment made by the assessee for advertisement in connection with their business falls within the ambit of section 194C and not section 194J,” the bench said.
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