Payments by Prasar Bharati to advertising agency liable to TDS as commission u/s 194H-Supreme Court

Payments by Prasar Bharati to advertising agency liable to TDS as commission u/s 194H. Section 201 rightly invoked for failure to deduct Tax-Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2269 (2018) (04) SC

Important Case Laws Cited/relied upon by the parties
Jagran Prakashan Ltd vs. Deputy Commissioner of Income Tax(TDS), (2012)345 ITR (Allahabad High Court)

The appellant (Prasar Bharati Doordarshan Kendra) functions under the Ministry of Information and Broadcasting, Government of India. The appellant in the course of running of the TV channel namely “Doordarshan”, had been regularly telecasting advertisements of several consumer companies.

To secure best advertising services for the advertisers, the appellant entered into an agreement with several advertising agencies. In terms of the agreement, the advertising agency (“the Agency”) was required to make an application to the appellant to get the “accredited status” for their Agency so as to enable them to do business with the appellant of telecasting the advertisements of several consumer products manufactured by several companies on the appellant’s Doordarshan TV Channel. As per the agreement appellant was required to pay 15% by way of commission to the Agency.

The Assessing Officer (AO) was of the view that that the provisions of Section 194H were applicable to the payments made by the appellant to the Agencies because the payments were made in the nature of “commission” as defined in Explanation appended to Section 194H of the Act. The AO held that the appellant had committed default attracting Section 201(1) of the Act because they failed to deduct the tax at source from the amount paid to various advertising agencies during the Assessment Years in question as provided under Section 194A of the Act.

The appellant filed appeals before the Commissioner of Income Tax (Appeals). However, the CIT(A) concurred with the reasoning and conclusion arrived at by AO and accordingly dismissed the appeals.

However, the Tribunal following its earlier order allowed the appeals and set aside the orders passed by AO and CIT (Appeals).

The Revenue (Income Tax Department), felt aggrieved by the order passed by the Tribunal, filed appeals under Section 260-A of the Act in the High Court which by impugned judgment, allowed the appeals and while setting aside the Tribunal’s order restored the order of CIT (Appeals) and AO.

 The Hon’ble Supreme Court opined that the reasoning and the conclusion arrived at by the AO, CIT (Appeals) and the High Court was just and proper. The High Court was right in holding that the provisions of Section 194H were applicable to the appellant because the payments made by the appellant pursuant to the agreement in question were in the nature of payment made by way of “commission” and, therefore, the appellant was under statutory obligation to deduct the income tax at the time of credit or/and payment to the payee.

The Hon’ble Supreme Court observed that:

firstly, agreement itself has used the expression “commission” in all relevant clauses;

Second, there was no ambiguity in any clause and no complaint was made to this effect by the appellant;

Third, the terms of the agreement indicate that both the parties intended that the amount paid by the appellant to the agencies should be paid by way of “commission” and it was for this reason, the parties used the expression “commission” in the agreement;

Fourth, keeping in view the tenure and the nature of transaction, it was clear that the appellant was paying 15% to the agencies by way of “commission” but not under any other head;

Fifth, the transaction in question did not show that the relationship between the appellant and the accredited agencies was principal to principal rather it was principal and Agent;

Sixth, it was also clear that payment of 15% was being made by the appellant to the agencies after collecting money from them and it was for securing more advertisements for them and to earn more business from the advertisement agencies;

Seventh, there was a clause in the agreement that the tax shall be deducted at source on payment of trade discount;

and

lastly, the definition of expression “commission” in the Explanation appended to Section 194H being an inclusive definition giving wide meaning to the expression “commission”, the transaction in question did fall under the definition of expression “commission” for the purpose of attracting rigor of Section 194H of the Act

Thus, the Hon’ble Supreme Court held that that the payment in question was in the nature of “commission” paid by the appellant to the advertisement agencies to secure more business for the appellant. The Hon’ble Court opined that the provisions of Section 201 were rightly invoked against the appellant by the assessing authority once having held that the appellant failed to comply with the provisions of Section 194H of the Act.