REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos. 3496-3497 OF 2018
(Arising out of S.L.P.(C) Nos.3320-3321 of 2011)
The Director, Prasar Bharati ….Appellant(s)
VERSUS
Commissioner of Income Tax,
Thiruvananthapuram …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. Delay condoned.
2. Leave granted.
3. These appeals are directed against the final
judgment and order dated 20.11.2009 passed by
the High Court of Kerala at Ernakulam in Income
Tax Appeal No.27 of 2009 and Income Tax Appeal
No.62 of 2009 whereby the High Court allowed the
appeals preferred by the respondent herein and
1
reversed the order dated 28.03.2007 passed by the
Income Tax Appellate Tribunal, Cochin Bench in
Income Tax Appeal Nos. 926 & 927/COCH/2005 for
the Assessment Years 2002-2003 and 2003-2004
and restored the order dated 04.03.2005 passed by
the Commissioner of Income Tax(Appeals)-II,
Thiruvananthapuram and the order dated
22.09.2003 passed by the Assessing Officer.
4. In order to appreciate the issue involved in
these appeals, it is necessary to set out the facts
hereinbelow.
5. The appellant is known as "Prasar Bharati
Doordarshan Kendra". It functions under the
Ministry of Information and Broadcasting,
Government of India. The dispute in this case
relates to the appellant's Regional Branch at
Trivandrum.
6. The appellant, in the course of their business
activities, which include the running of the TV
channel called "Doordarshan", has been regularly
2
telecasting advertisements of several consumer
companies.
7. With a view to have a better regulation of the
practice of advertising and to secure the best
advertising services for the advertisers, the
appellant entered into an agreement with several
advertising agencies (Annexure-P-12).
8. In terms of the agreement, the advertising
agency (hereinafter referred to as "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.
9. The agreement, inter alia, provided that the
appellant would pay 15% by way of commission to
the Agency. The Agency was to retain the
commission/remuneration earned and not to part
the same either directly or indirectly with any other
3
person, advertiser or representative of any
advertiser for whom it may be acting or has acted as
an advertising agency. The agreement also provided
the manner, mode and the time within which the
payment was to be made by the Agency to the
appellant. The failure to make the payment was to
result in losing the accredited status by the Agency.
The Agency was to give minimum annual business
of Rs.6 Lakhs to the appellant in a financial year
failing which their accredited status was liable to be
withdrawn. The Agency was to furnish a bank
guarantee for a sum of Rs.3 Lakhs. There are other
clauses also in the agreement but they are not
relevant for the purpose of disposal of these
appeals.
10. The appellant is an assessee under the Income
Tax Act (hereinafter referred to as “the Act”). In the
assessment year 2002-2003(01.06.2001 to
31.03.2002) and 2003-2004 (01.04.2002 to
31.03.2003), the appellant paid a sum of
4
Rs.2,56,75,165/- and Rs.2,29,65,922/- to various
accredited Agencies, with whom they had entered
into the aforementioned agreement for telecasting
the advertisements given by these Agencies relating
to products manufactured by several consumer
companies. The amount was paid by the appellant
to the Agencies towards the commission in terms of
the agreement.
11. The question arose before the Assessing Officer
(AO) in the assessment proceedings as to whether
the provisions of Section 194H of the Act, which
came into force with effect from 01.06.2001, are
applicable to the payments in question made by the
appellant to the Agencies and, if so, whether the
appellant deducted "tax at source" as provided
under Section 194H of the Act from the amount
paid by the appellant to the Agencies.
12. The AO made the assessment vide its order
dated 22.09.2003. Insofar as the aforementioned
question was concerned, the AO was of the view
5
that the provisions of Section 194H of the Act are
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, therefore,
committed default thereby attracting the rigor of
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.
13. On quantification, the AO found that during
the Assessment Year 2002-2003, the appellant had
paid a sum of Rs.2,56,75,165/- towards the
commission to the Agencies and on this sum, they
were required to deduct tax amount to
Rs.16,34,283/- and a sum of Rs.3,80,611/- towards
interest for delayed payment under Section 201(1-A)
of the Act and during the Assessment Year
6
2003-2004, the appellant had paid a sum of
Rs.2,29,65,922/- towards the commission to the
Agencies and on this sum, they were required to
deduct tax amounting to Rs.11,15,944/- and a
sum of Rs.1,54,050/- towards interest for delayed
payment under Section 201(1-A) of the Act.
14. The appellant felt aggrieved and filed appeals
before the Commissioner of Income Tax (Appeals)-II,
Thiruvanathapuram. By order dated 04.03.2005,
the Commissioner concurred with the reasoning
and conclusion arrived at by AO and accordingly
dismissed the appeals.
15. The appellant felt aggrieved and filed appeals
before the Tribunal. By order dated 28.03.2007, the
Tribunal following its earlier order allowed the
appeals and set aside the orders passed by AO and
CIT (Appeals).
16. 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
7
Court. By impugned judgment, the High Court
allowed the appeals and while setting aside the
Tribunal's order restored the order of CIT (Appeals)
and AO.
17. The High Court was of the opinion that the
provisions of Section 194H are applicable to the
payments made by the appellant to the Agencies
during the period in question because the payments
made were in the nature of “commission” paid to the
Agencies as defined in Explanation appended to
Section 194H of the Act and since the appellant
failed to deduct the “tax at source” while making
these payments to the Agencies in terms of the
agreement in question, they committed default of
non-compliance of Section 194H resulting in
attracting the provisions of Section 201 of the Act.
18. The appellant (assessee) felt aggrieved and filed
these appeals by way of special leave in this Court.
8
19. Heard Mr. Rajeev Sharma, learned counsel for
the appellant and Mr. Rupesh Kumar, learned
counsel for the respondent.
20. Submissions of learned counsel for the
appellant (assesse) were two-fold. In the first place,
he argued that the payments made by the appellant
to the accredited agencies during the assessment
years in question were not in the nature of
commission. According to learned counsel, the
relationship between the appellant and the
accredited Agencies was not that of principal and
the agent but it was in the nature of
principal-to-principal. In other words, the
submission was that the accredited agencies were
not working as agent of the appellant and nor the
appellant was paying them any amount by way of
commission.
21. Referring to the terms of the agreement,
learned counsel tried to point out that the Agencies,
in terms of the agreement, purchased the air time
9
from the appellant and then sold it in the market for
advertisement to their customer after retaining 15%
commission given to them by the appellant. It was,
therefore, his submission that such transaction
cannot be regarded as being between the principal
and agent and nor the payment can be regarded as
having been made by way of commission so as to
attract the rigor of Section 194H and Section 201 of
the Act.
22. Learned counsel also submitted that by
mistake some other format of the agreement was
placed by the appellant before the High Court and,
therefore, the appellant suffered adverse order in
question (see averments made in Paras 4 and 5 of
the application seeking permission to file additional
documents at page 134/135). Learned counsel then
took us to the relevant provisions of the proper
agreement filed in this Court as Annexure P-12 and
contended that having regard to the nature of the
10
agreement and its terms, the submission urged
deserves acceptance.
23. In reply, learned counsel for the respondent
(Revenue) supported the impugned judgment and
contended that the order passed by the AO, CIT
(Appeals) and the impugned judgment deserve to be
upheld as all the three orders are based on proper
reasoning calling no interference.
24. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
find no merit in these appeals.
25. Section 194H, which is relevant for the
disposal of these appeals reads as under:
“194H. Commission or brokerage-Any person
not being an individual or a Hindu undivided
family, who is responsible for paying, on or
after the 1st day of June, 2001, to a resident,
any income by way of commission (not being
insurance commission referred to in section
194D) or brokerage, shall, at the time of
credit of such income to the account of the
payee or at the time of payment of such
income in cash or by the issue of a cheque or
draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rate
of five per cent.
11
Provided that no deduction shall be
made under this section in a case where the
amount of such income or, as the case may
be, the aggregate of the amounts of such
income credited or paid or likely to be
credited or paid during the financial year to
the account of, or to, the payee, does not
exceed fifteen thousand rupees.
Provided further that an individual or a
Hindu undivided family, whose total sales,
gross receipts or turnover from the business
or profession carried on by him exceed the
monetary limits specified under clause (a) or
clause (b) of section 44AB during the
financial year immediately preceding the
financial year in which such commission or
brokerage is credited or paid, shall be liable
to deduct income-tax under this section.
Provided also that no deduction shall be
made under this section on any commission
or brokerage payable by Bharat Sanchar
Nigam Limited or Mahanagar Telephone
Nigam Limited to their public all office
franchisees.
Explanation- For the purposes of this
section,-
(i) “commission or brokerage” includes
any payment received or receivable, directly
or indirectly, by a person acting on behalf of
another person for services rendered (not
being professional services) or for any
services in the course of buying or selling of
goods or in relation to any transaction
relating to any asset, valuable article or
thing, not being securities;
(ii) the expression “professional services”
means services rendered by a person in the
course of carrying on a legal, medical,
engineering or architectural profession or the
profession of accountancy or technical
consultancy or interior decoration or such
12
other profession as is notified by the Board
for the purposes of section 44AA;
(iii) the expression “securities” shall have
the meaning assigned to it in clause (h) of
section 2 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(iv) where any income is credited to any
account, whether called “suspense account’
or by any other name, in the books of
account of the person liable to pay such
income, such crediting shall be deemed to be
credit of such income to the account of the
payee and the provisions of this section shall
apply accordingly.”
26. The aforementioned Section was inserted in
the Act with effect from 01.06.2001 by replacing the
earlier Section 194H. This Section deals with the
payment of "commission or brokerage".
27. It provides that any person other than
individual or HUF, responsible for paying any
income by way of “commission” (not being insurance
commission as specified in Section 194D) or
"brokerage" to any person shall at the time of credit
of such income to the account of payee or at the
time of payment of such income in cash or by
cheque or draft or any other mode will deduct
13
income tax thereon at the rate of five percent. The
first proviso specifies the limit. The second proviso
makes the individual or HUF liable to deduct the
income tax, if they exceed the limit specified therein.
The third proviso exempts payment of commission
or brokerage when made to BSNL and MTNL to their
public call office franchisees.
28. The Explanation appended to Section 194H
defines the expression "commission or brokerage". It
is an inclusive definition and includes therein any
payment received or receivable, directly or indirectly
by a person acting on behalf of another person for
services rendered (not being professional services) or
for any services in the course of buying or selling of
goods or in relation to any transaction relating to
assets, valuable article or thing not being securities.
Clause (ii) defines professional services; clause (iii)
defines securities; and clause (iv) provides a
deeming fiction for treating any income so as to
14
attract the rigor of the Section for ensuring its
compliance.
29. Keeping in mind the requirements of Section
194H when we examine the transaction in question,
we are of the considered view that the reasoning
and the conclusion arrived at by the AO, CIT
(Appeals) and the High Court appears to be just and
proper and does not call for any interference.
30. In other words, in our considered view, the
High Court was right in holding that the provisions
of Section 194H are 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.
31. The aforementioned conclusion of the High
Court is clear from the undisputed facts emerging
from the record of the case because we notice that
15
the agreement itself has used the expression
"commission" in all relevant clauses; Second, there
is 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 is 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
16
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.
32. For all these reasons, we find no difficulty in
holding 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.
33. Once it is held that the provisions of Section
194H apply to the transactions in question, it is
obligatory upon the appellant to have deducted the
income tax while making payment to the
17
advertisement agencies. The non-compliance of
Section 194H by the assessee attracts the rigor of
Section 201 which provides for consequences of
failure to deduct or pay the tax as provided under
Section 194H of the Act.
34. In our view, the provisions of Section 201 were,
therefore, rightly invoked in this case 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.
35. Learned counsel for the appellant (assessee)
placed reliance on the decision of the Allahabad
High Court in Jagran Prakashan Ltd vs. Deputy
Commissioner of Income Tax(TDS), (2012)345 ITR
288 in support of his submission.
36. On perusal of the said judgment, we find that
the law laid down by the Allahabad High Court is
not applicable to the facts of the case at hand and
the learned Judges rightly distinguished the case at
hand with the facts involved in the Allahabad case.
18
The learned Judges of the Allahabad High Court in
Paras 61 and 62 of the judgment dealt with the
impugned judgment with which we are concerned in
these appeals and distinguished it in the following
words:
“61. Now we come to the judgment of the
Kerala High Court in the case of CIT vs.
Director, Prasar Bharti reported in (2010) 325
ITR 205(ker.) on which much reliance has
been placed by the assessing authority. The
Prasar Bharati is fully owned Government of
India undertaking engaged in telecast of
news, various sports, entertainments,
cinemas and other programmes. The
advertisements were canvassed through
agents under the agreement with them. The
advertising agencies and the Director, Prasar
Bharati were principal and agent as per the
agreement and the Doordarshan provided
15% discount on the basis of which it was
contended that no deduction at source was
required. The Tribunal held that there was no
liability for deduction of tax at source under
Section 194H which judgment was reversed
by the Kerala High Court. From the facts of
the aforesaid case, it is clear that
Doordarshan had appointed agents i.e.
advertising agencies and there was
agreement entered between them. In the
aforesaid circumstances, 15% advertisement
charges collected and remitted was held to be
in the form of commission payable to the
agent by Doordarshan. There was explicit
agreement between the agency and the
Doordarshan where both understood that
payment made to the agency was liable to tax
deduction. It is useful to quote the following
observations of the judgment of Kerala High
Court:-
19
………………………………………………………………
………………………………………………………………
From the above, it is very clear that parties
have understood their relationship as
Principal and Agent and what is paid to the
agent by Doordarshan is 15% of
advertisement charges collected and remitted
to it by the agent which is in the form of
commission payable to the Agent by
Doordarshan. Counsel for the respondent
referred to one of the agreements where the
commission is referred to as standard
discount and contended that the
arrangement between respondent and
advertising agency is not agency but is a
Principal to Principal arrangement of sharing
advertisement charges. We are unable to
accept this contention because
advertisement contract entered into between
the customer and the agency is for
telecasting advertisement in Doordarshan
channels. The agent canvasses advertisement
on behalf of Doordarshan under agreement
between them and the advertisement charges
recovered from the customers are also in
accordance with tariff prescribed by
Doordarshan which is incorporated in the
agreement. Further it is specifically stated in
the agreement that advertisement material
should also conform to the discipline
introduced by Doordarshan which is nothing
but a Government agency which cannot
telecast all what is desired to be telecast by
advertising agencies. In fact, Doordarshan is
bound by advertisement contract canvassed
by advertising agencies and it is their duty
under the agreement between them and the
advertising agencies to telecast
advertisement material in terms of the
contract which the agency signs with the
customer. In our view, the transaction is a
pure agency arrangement between the
respondent and the advertising agencies
because one acts for the other and the act of
the agent binds the respondent in their
20
capacity as Principal of the agent. It is
pertinent to note that commission or
brokerage defined under explanation (i) to
Section 194H has a wide meaning and it
covers any payment received or receivable
directly or indirectly by a person acting on
behalf of another person for services
rendered. In this case, no one can doubt that
15% commission paid to advertising agencies
by the Doordarshan is for canvassing
advertisements on behalf of the respondent.
So much so, the payment of 15%, by
whatever name called, whether discount or
commission, falls within the definition of
"commission" as defined under Explanation
(i) to Section 194H of the Act.
………………………………………………………………
………………………………………………………………
It is very clear from the above provision
that the advertising agency clearly
understood the agreement as an agency
arrangement and the commission payable by
the respondent to such agency is subject to
tax deduction at source under the Income
Tax Act and so much so the provision in the
agreement was for the agent after retaining
15% to give cheque or demand draft for TDS
amount which was originally 5% until it was
enhanced to 10% by Finance Act 2007 with
effect from 1.6.2007.
62. In the aforesaid case, the relationship of
principal and agent was fully established
since the advertising agency was appointed
as agent by written agreement and there was
specific clause that tax shall be deductible at
source on payment of trade discount. In the
said circumstances, the Kerala High Court
held that Section 194H of the Income Tax
Act was applicable. In the present case, there
is no agreement between the petitioner and
the advertising agency and the advertising
agency has never been appointed as agent of
the petitioner. Thus the above case of the
Kerala High Court is clearly inapplicable and
21
the reliance on the said judgment for
fastening the liability of tax and interest on
the petitioner is wholly untenable. The
judgment of the Kerala High Court thus does
not help the respondents in the present
case.”
37. In our opinion, the Allahabad High Court very
rightly noticed the distinction between the facts in
the case of Jagaran Prakashan Ltd. (supra) and the
case with which we are concerned in these appeals
and held that it depends upon the facts of each case
to decide as to what is the nature of payment made
by the party concerned. Their Lordships rightly
noticed that the case before them (Jagaran
Prakashan Ltd.) did not have any agreement like
the one in this case wherein in terms of the
agreement, it is unmistakably proved that the
payment was being made by the appellant
(assessee) to the agencies by way of “commission”.
In our view, therefore, the decision of the Allahabad
High Court is of no help to the case of the appellant
for taking a different view.
22
38. In the light of the foregoing discussion, we
concur with the reasoning and the conclusion
arrived at by the High Court and find no merit in
these appeals. The appeals thus fail and are
accordingly dismissed.
………...................................J.
[R.K. AGRAWAL]
...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
April 03, 2018
23
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos. 3496-3497 OF 2018
(Arising out of S.L.P.(C) Nos.3320-3321 of 2011)
The Director, Prasar Bharati ….Appellant(s)
VERSUS
Commissioner of Income Tax,
Thiruvananthapuram …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. Delay condoned.
2. Leave granted.
3. These appeals are directed against the final
judgment and order dated 20.11.2009 passed by
the High Court of Kerala at Ernakulam in Income
Tax Appeal No.27 of 2009 and Income Tax Appeal
No.62 of 2009 whereby the High Court allowed the
appeals preferred by the respondent herein and
1
reversed the order dated 28.03.2007 passed by the
Income Tax Appellate Tribunal, Cochin Bench in
Income Tax Appeal Nos. 926 & 927/COCH/2005 for
the Assessment Years 2002-2003 and 2003-2004
and restored the order dated 04.03.2005 passed by
the Commissioner of Income Tax(Appeals)-II,
Thiruvananthapuram and the order dated
22.09.2003 passed by the Assessing Officer.
4. In order to appreciate the issue involved in
these appeals, it is necessary to set out the facts
hereinbelow.
5. The appellant is known as "Prasar Bharati
Doordarshan Kendra". It functions under the
Ministry of Information and Broadcasting,
Government of India. The dispute in this case
relates to the appellant's Regional Branch at
Trivandrum.
6. The appellant, in the course of their business
activities, which include the running of the TV
channel called "Doordarshan", has been regularly
2
telecasting advertisements of several consumer
companies.
7. With a view to have a better regulation of the
practice of advertising and to secure the best
advertising services for the advertisers, the
appellant entered into an agreement with several
advertising agencies (Annexure-P-12).
8. In terms of the agreement, the advertising
agency (hereinafter referred to as "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.
9. The agreement, inter alia, provided that the
appellant would pay 15% by way of commission to
the Agency. The Agency was to retain the
commission/remuneration earned and not to part
the same either directly or indirectly with any other
3
person, advertiser or representative of any
advertiser for whom it may be acting or has acted as
an advertising agency. The agreement also provided
the manner, mode and the time within which the
payment was to be made by the Agency to the
appellant. The failure to make the payment was to
result in losing the accredited status by the Agency.
The Agency was to give minimum annual business
of Rs.6 Lakhs to the appellant in a financial year
failing which their accredited status was liable to be
withdrawn. The Agency was to furnish a bank
guarantee for a sum of Rs.3 Lakhs. There are other
clauses also in the agreement but they are not
relevant for the purpose of disposal of these
appeals.
10. The appellant is an assessee under the Income
Tax Act (hereinafter referred to as “the Act”). In the
assessment year 2002-2003(01.06.2001 to
31.03.2002) and 2003-2004 (01.04.2002 to
31.03.2003), the appellant paid a sum of
4
Rs.2,56,75,165/- and Rs.2,29,65,922/- to various
accredited Agencies, with whom they had entered
into the aforementioned agreement for telecasting
the advertisements given by these Agencies relating
to products manufactured by several consumer
companies. The amount was paid by the appellant
to the Agencies towards the commission in terms of
the agreement.
11. The question arose before the Assessing Officer
(AO) in the assessment proceedings as to whether
the provisions of Section 194H of the Act, which
came into force with effect from 01.06.2001, are
applicable to the payments in question made by the
appellant to the Agencies and, if so, whether the
appellant deducted "tax at source" as provided
under Section 194H of the Act from the amount
paid by the appellant to the Agencies.
12. The AO made the assessment vide its order
dated 22.09.2003. Insofar as the aforementioned
question was concerned, the AO was of the view
5
that the provisions of Section 194H of the Act are
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, therefore,
committed default thereby attracting the rigor of
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.
13. On quantification, the AO found that during
the Assessment Year 2002-2003, the appellant had
paid a sum of Rs.2,56,75,165/- towards the
commission to the Agencies and on this sum, they
were required to deduct tax amount to
Rs.16,34,283/- and a sum of Rs.3,80,611/- towards
interest for delayed payment under Section 201(1-A)
of the Act and during the Assessment Year
6
2003-2004, the appellant had paid a sum of
Rs.2,29,65,922/- towards the commission to the
Agencies and on this sum, they were required to
deduct tax amounting to Rs.11,15,944/- and a
sum of Rs.1,54,050/- towards interest for delayed
payment under Section 201(1-A) of the Act.
14. The appellant felt aggrieved and filed appeals
before the Commissioner of Income Tax (Appeals)-II,
Thiruvanathapuram. By order dated 04.03.2005,
the Commissioner concurred with the reasoning
and conclusion arrived at by AO and accordingly
dismissed the appeals.
15. The appellant felt aggrieved and filed appeals
before the Tribunal. By order dated 28.03.2007, the
Tribunal following its earlier order allowed the
appeals and set aside the orders passed by AO and
CIT (Appeals).
16. 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
7
Court. By impugned judgment, the High Court
allowed the appeals and while setting aside the
Tribunal's order restored the order of CIT (Appeals)
and AO.
17. The High Court was of the opinion that the
provisions of Section 194H are applicable to the
payments made by the appellant to the Agencies
during the period in question because the payments
made were in the nature of “commission” paid to the
Agencies as defined in Explanation appended to
Section 194H of the Act and since the appellant
failed to deduct the “tax at source” while making
these payments to the Agencies in terms of the
agreement in question, they committed default of
non-compliance of Section 194H resulting in
attracting the provisions of Section 201 of the Act.
18. The appellant (assessee) felt aggrieved and filed
these appeals by way of special leave in this Court.
8
19. Heard Mr. Rajeev Sharma, learned counsel for
the appellant and Mr. Rupesh Kumar, learned
counsel for the respondent.
20. Submissions of learned counsel for the
appellant (assesse) were two-fold. In the first place,
he argued that the payments made by the appellant
to the accredited agencies during the assessment
years in question were not in the nature of
commission. According to learned counsel, the
relationship between the appellant and the
accredited Agencies was not that of principal and
the agent but it was in the nature of
principal-to-principal. In other words, the
submission was that the accredited agencies were
not working as agent of the appellant and nor the
appellant was paying them any amount by way of
commission.
21. Referring to the terms of the agreement,
learned counsel tried to point out that the Agencies,
in terms of the agreement, purchased the air time
9
from the appellant and then sold it in the market for
advertisement to their customer after retaining 15%
commission given to them by the appellant. It was,
therefore, his submission that such transaction
cannot be regarded as being between the principal
and agent and nor the payment can be regarded as
having been made by way of commission so as to
attract the rigor of Section 194H and Section 201 of
the Act.
22. Learned counsel also submitted that by
mistake some other format of the agreement was
placed by the appellant before the High Court and,
therefore, the appellant suffered adverse order in
question (see averments made in Paras 4 and 5 of
the application seeking permission to file additional
documents at page 134/135). Learned counsel then
took us to the relevant provisions of the proper
agreement filed in this Court as Annexure P-12 and
contended that having regard to the nature of the
10
agreement and its terms, the submission urged
deserves acceptance.
23. In reply, learned counsel for the respondent
(Revenue) supported the impugned judgment and
contended that the order passed by the AO, CIT
(Appeals) and the impugned judgment deserve to be
upheld as all the three orders are based on proper
reasoning calling no interference.
24. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
find no merit in these appeals.
25. Section 194H, which is relevant for the
disposal of these appeals reads as under:
“194H. Commission or brokerage-Any person
not being an individual or a Hindu undivided
family, who is responsible for paying, on or
after the 1st day of June, 2001, to a resident,
any income by way of commission (not being
insurance commission referred to in section
194D) or brokerage, shall, at the time of
credit of such income to the account of the
payee or at the time of payment of such
income in cash or by the issue of a cheque or
draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rate
of five per cent.
11
Provided that no deduction shall be
made under this section in a case where the
amount of such income or, as the case may
be, the aggregate of the amounts of such
income credited or paid or likely to be
credited or paid during the financial year to
the account of, or to, the payee, does not
exceed fifteen thousand rupees.
Provided further that an individual or a
Hindu undivided family, whose total sales,
gross receipts or turnover from the business
or profession carried on by him exceed the
monetary limits specified under clause (a) or
clause (b) of section 44AB during the
financial year immediately preceding the
financial year in which such commission or
brokerage is credited or paid, shall be liable
to deduct income-tax under this section.
Provided also that no deduction shall be
made under this section on any commission
or brokerage payable by Bharat Sanchar
Nigam Limited or Mahanagar Telephone
Nigam Limited to their public all office
franchisees.
Explanation- For the purposes of this
section,-
(i) “commission or brokerage” includes
any payment received or receivable, directly
or indirectly, by a person acting on behalf of
another person for services rendered (not
being professional services) or for any
services in the course of buying or selling of
goods or in relation to any transaction
relating to any asset, valuable article or
thing, not being securities;
(ii) the expression “professional services”
means services rendered by a person in the
course of carrying on a legal, medical,
engineering or architectural profession or the
profession of accountancy or technical
consultancy or interior decoration or such
12
other profession as is notified by the Board
for the purposes of section 44AA;
(iii) the expression “securities” shall have
the meaning assigned to it in clause (h) of
section 2 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(iv) where any income is credited to any
account, whether called “suspense account’
or by any other name, in the books of
account of the person liable to pay such
income, such crediting shall be deemed to be
credit of such income to the account of the
payee and the provisions of this section shall
apply accordingly.”
26. The aforementioned Section was inserted in
the Act with effect from 01.06.2001 by replacing the
earlier Section 194H. This Section deals with the
payment of "commission or brokerage".
27. It provides that any person other than
individual or HUF, responsible for paying any
income by way of “commission” (not being insurance
commission as specified in Section 194D) or
"brokerage" to any person shall at the time of credit
of such income to the account of payee or at the
time of payment of such income in cash or by
cheque or draft or any other mode will deduct
13
income tax thereon at the rate of five percent. The
first proviso specifies the limit. The second proviso
makes the individual or HUF liable to deduct the
income tax, if they exceed the limit specified therein.
The third proviso exempts payment of commission
or brokerage when made to BSNL and MTNL to their
public call office franchisees.
28. The Explanation appended to Section 194H
defines the expression "commission or brokerage". It
is an inclusive definition and includes therein any
payment received or receivable, directly or indirectly
by a person acting on behalf of another person for
services rendered (not being professional services) or
for any services in the course of buying or selling of
goods or in relation to any transaction relating to
assets, valuable article or thing not being securities.
Clause (ii) defines professional services; clause (iii)
defines securities; and clause (iv) provides a
deeming fiction for treating any income so as to
14
attract the rigor of the Section for ensuring its
compliance.
29. Keeping in mind the requirements of Section
194H when we examine the transaction in question,
we are of the considered view that the reasoning
and the conclusion arrived at by the AO, CIT
(Appeals) and the High Court appears to be just and
proper and does not call for any interference.
30. In other words, in our considered view, the
High Court was right in holding that the provisions
of Section 194H are 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.
31. The aforementioned conclusion of the High
Court is clear from the undisputed facts emerging
from the record of the case because we notice that
15
the agreement itself has used the expression
"commission" in all relevant clauses; Second, there
is 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 is 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
16
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.
32. For all these reasons, we find no difficulty in
holding 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.
33. Once it is held that the provisions of Section
194H apply to the transactions in question, it is
obligatory upon the appellant to have deducted the
income tax while making payment to the
17
advertisement agencies. The non-compliance of
Section 194H by the assessee attracts the rigor of
Section 201 which provides for consequences of
failure to deduct or pay the tax as provided under
Section 194H of the Act.
34. In our view, the provisions of Section 201 were,
therefore, rightly invoked in this case 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.
35. Learned counsel for the appellant (assessee)
placed reliance on the decision of the Allahabad
High Court in Jagran Prakashan Ltd vs. Deputy
Commissioner of Income Tax(TDS), (2012)345 ITR
288 in support of his submission.
36. On perusal of the said judgment, we find that
the law laid down by the Allahabad High Court is
not applicable to the facts of the case at hand and
the learned Judges rightly distinguished the case at
hand with the facts involved in the Allahabad case.
18
The learned Judges of the Allahabad High Court in
Paras 61 and 62 of the judgment dealt with the
impugned judgment with which we are concerned in
these appeals and distinguished it in the following
words:
“61. Now we come to the judgment of the
Kerala High Court in the case of CIT vs.
Director, Prasar Bharti reported in (2010) 325
ITR 205(ker.) on which much reliance has
been placed by the assessing authority. The
Prasar Bharati is fully owned Government of
India undertaking engaged in telecast of
news, various sports, entertainments,
cinemas and other programmes. The
advertisements were canvassed through
agents under the agreement with them. The
advertising agencies and the Director, Prasar
Bharati were principal and agent as per the
agreement and the Doordarshan provided
15% discount on the basis of which it was
contended that no deduction at source was
required. The Tribunal held that there was no
liability for deduction of tax at source under
Section 194H which judgment was reversed
by the Kerala High Court. From the facts of
the aforesaid case, it is clear that
Doordarshan had appointed agents i.e.
advertising agencies and there was
agreement entered between them. In the
aforesaid circumstances, 15% advertisement
charges collected and remitted was held to be
in the form of commission payable to the
agent by Doordarshan. There was explicit
agreement between the agency and the
Doordarshan where both understood that
payment made to the agency was liable to tax
deduction. It is useful to quote the following
observations of the judgment of Kerala High
Court:-
19
………………………………………………………………
………………………………………………………………
From the above, it is very clear that parties
have understood their relationship as
Principal and Agent and what is paid to the
agent by Doordarshan is 15% of
advertisement charges collected and remitted
to it by the agent which is in the form of
commission payable to the Agent by
Doordarshan. Counsel for the respondent
referred to one of the agreements where the
commission is referred to as standard
discount and contended that the
arrangement between respondent and
advertising agency is not agency but is a
Principal to Principal arrangement of sharing
advertisement charges. We are unable to
accept this contention because
advertisement contract entered into between
the customer and the agency is for
telecasting advertisement in Doordarshan
channels. The agent canvasses advertisement
on behalf of Doordarshan under agreement
between them and the advertisement charges
recovered from the customers are also in
accordance with tariff prescribed by
Doordarshan which is incorporated in the
agreement. Further it is specifically stated in
the agreement that advertisement material
should also conform to the discipline
introduced by Doordarshan which is nothing
but a Government agency which cannot
telecast all what is desired to be telecast by
advertising agencies. In fact, Doordarshan is
bound by advertisement contract canvassed
by advertising agencies and it is their duty
under the agreement between them and the
advertising agencies to telecast
advertisement material in terms of the
contract which the agency signs with the
customer. In our view, the transaction is a
pure agency arrangement between the
respondent and the advertising agencies
because one acts for the other and the act of
the agent binds the respondent in their
20
capacity as Principal of the agent. It is
pertinent to note that commission or
brokerage defined under explanation (i) to
Section 194H has a wide meaning and it
covers any payment received or receivable
directly or indirectly by a person acting on
behalf of another person for services
rendered. In this case, no one can doubt that
15% commission paid to advertising agencies
by the Doordarshan is for canvassing
advertisements on behalf of the respondent.
So much so, the payment of 15%, by
whatever name called, whether discount or
commission, falls within the definition of
"commission" as defined under Explanation
(i) to Section 194H of the Act.
………………………………………………………………
………………………………………………………………
It is very clear from the above provision
that the advertising agency clearly
understood the agreement as an agency
arrangement and the commission payable by
the respondent to such agency is subject to
tax deduction at source under the Income
Tax Act and so much so the provision in the
agreement was for the agent after retaining
15% to give cheque or demand draft for TDS
amount which was originally 5% until it was
enhanced to 10% by Finance Act 2007 with
effect from 1.6.2007.
62. In the aforesaid case, the relationship of
principal and agent was fully established
since the advertising agency was appointed
as agent by written agreement and there was
specific clause that tax shall be deductible at
source on payment of trade discount. In the
said circumstances, the Kerala High Court
held that Section 194H of the Income Tax
Act was applicable. In the present case, there
is no agreement between the petitioner and
the advertising agency and the advertising
agency has never been appointed as agent of
the petitioner. Thus the above case of the
Kerala High Court is clearly inapplicable and
21
the reliance on the said judgment for
fastening the liability of tax and interest on
the petitioner is wholly untenable. The
judgment of the Kerala High Court thus does
not help the respondents in the present
case.”
37. In our opinion, the Allahabad High Court very
rightly noticed the distinction between the facts in
the case of Jagaran Prakashan Ltd. (supra) and the
case with which we are concerned in these appeals
and held that it depends upon the facts of each case
to decide as to what is the nature of payment made
by the party concerned. Their Lordships rightly
noticed that the case before them (Jagaran
Prakashan Ltd.) did not have any agreement like
the one in this case wherein in terms of the
agreement, it is unmistakably proved that the
payment was being made by the appellant
(assessee) to the agencies by way of “commission”.
In our view, therefore, the decision of the Allahabad
High Court is of no help to the case of the appellant
for taking a different view.
22
38. In the light of the foregoing discussion, we
concur with the reasoning and the conclusion
arrived at by the High Court and find no merit in
these appeals. The appeals thus fail and are
accordingly dismissed.
………...................................J.
[R.K. AGRAWAL]
...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
April 03, 2018
23
