Ita/27/2009 Of The Commissioner Of Income Tax,Tvm v. The Director,Prasar Bharti,Tvm

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN FRIDAY, THE 20TH NOVEMBER 2009 / 29TH KARTHIKA 1931 ITA.No. 27 of 2009() -------------------- ITA.926/CO/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: RESPONDENT ------------------------------ THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT(S): APPELLANT ------------------------ THE DIRECTOR, PRASARBHARTI, DOORDARSHAN KENDRA, THIRUVANANTHAPURAM. ADV. SRI.DALE P.KURIEN FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20/11/2009, ALONG WITH ITA NO. 62 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -------------------------------------------- I. T. A. No. 27 & 62 OF 2009 -------------------------------------------- Dated this the 20th day of November, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the appeals filed by the Revenue iswhether the Income Tax Appellate Tribunal was justified in holdingthat the commission paid by Doordarshan Kendra which is under thecontrol of the respondent to advertising agencies for advertismentscanvassed by them does not attract the provisions of Section 194H ofthe IT Act which provides for deduction of tax at source on paymentsof commission or brokerage. We have heard standing counselappearing for the revenue and Sri. Dale P. Kurien, counsel appearingfor the respondent. 2. Respondent is a fully owned Government of India undertakingengaged in telecast of news, various sports, entertainments, cinemasand other programmes. Advertisement income is a major source ofrevenue for all telecasting companies including the respondent.Advertisements are canvassed through agents appointed by the respondent under agreement with them. Advertising agenciesrecognised by the respondent are of two types, the unregisteredagencies which are not entitled to any credit facility and the other typeare registered agencies which are given accredition and credit facilitywith Doordarshan. In other words, while the first category will be ableto telecast advertisment programmes canvassed from customers only onadvance payment, the other category can have telecast done beforemaking payments. Advertisement charges are based on air-time usedfor telecasting advertisement material. Rates are also varyingdepending upon the time of advertisment. However, these matters haveno relevance for the purpose of deciding this case because the issueinvolved is whether the commission paid at the rate of 15% by therespondent on advertisement charges remitted by the advertisingagencies is subject to tax deduction at source as commission underSection 194H of the Act. For easy reference, we extract hereunder therelevant portion of Section 194H for the purpose of deciding this case: 194H. Commission or brokerage Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or afterthe 1st day of June, 2001, to a resident, any income by wayof commission (not being insurance commission referred toin Section 194D) or brokerage, shall, at the time of credit ofsuch income to the account of the payee or at the time ofpayment of such income in cash or by the issue of a chequeor draft or by any other mode, whichever is earlier, deductincome tax thereon at the rate of ten per cent: Provided.... Provided..... Provided also that no deduction shall be made underthis section on any commission or brokerage payable byBharat Sanchar Nigam Limited or Mahanagar TelephoenNigam Limited to their public call office franchisees. Explanation.- For the purposes of this section, -- undivided family, who is responsible for paying, on or afterthe 1st day of June, 2001, to a resident, any income by wayof commission (not being insurance commission referred toin Section 194D) or brokerage, shall, at the time of credit ofsuch income to the account of the payee or at the time ofpayment of such income in cash or by the issue of a chequeor draft or by any other mode, whichever is earlier, deductincome tax thereon at the rate of ten per cent: Provided.... Provided..... Provided also that no deduction shall be made underthis section on any commission or brokerage payable byBharat Sanchar Nigam Limited or Mahanagar TelephoenNigam Limited to their public call office franchisees. Explanation.- For the purposes of this section, -- (i) "commission or brokerage" includes any paymentreceived or receivable directly or indirectly, by a personacting on behalf of another person for services rendered(not being professional services) or for any services in thecourse of buying or selling of goods or in relation to anytransaction relating to any asset, valuable article or thing,not being securities. ....................................................... During hearing copies of agreements executed by the respondent with two parties are produced. The nature of transactions as stated inAnnexure B agreement between Doordarshan and its agencies is as follows: WHEREAS, for the better regulation of the practiceof advertising and to secure the best advertising service foradvertisers, the Doordarshan Commercial Service hasagreed to allow commission in respect of advertisementsplaced by any advertising agent and accredited by it. ............................................ (2) By the Agency:- In consideration of theaccredition herein afforded and of the commission to whichthe Agency will be entitled by reason of such accreditation. ................. (c) the renumeration of the Agency for placingadvertisements in the Commercial Service shall be in theform of standard agency commission of 15 (fifteen) percent to be paid by the Doordarshan Commercial Service. From the above it is very clear that parties have understood their relationship as Principal and Agent and what is paid to the agent byDoordarshan is 15% of advertisement charges collected and remittedto it by the agent which is in the form of commission payable to theAgent by Doordarshan. Counsel for the respondent referred to one ofthe agreements where the commission is referred to as standarddiscount and contended that the arrangement between respondent and advertising agency is not agency but is a Principal to Principalarrangement of sharing advertisement charges. We are unable to acceptthis contention because advertisement contract entered into between thecustomer and the agency is for telecasting advertisement inDoordarshan channels. The agent canvasses advertisement on behalfof Doordarshan under agreement between them and the advertisementcharges recovered from the customers are also in accordance with tariffprescribed by Doordarshan which is incorporated in the agreement.Further it is specifically stated in the agreement that advertisementmaterial should also conform to the discipline introduced byDoordarshan which is nothing but a Government agency which cannottelecast all what is desired to be telecast by advertising agencies. Infact, Doordarshan is bound by advertisement contract canvassed byadvertising agencies and it is their duty under the agreement betweenthem and the advertising agencies to telecast advertisement material interms of the contract which the agency signs with the customer. In ourview, the transaction is a pure agency arrangement between therespondent and the advertising agencies because one acts for the otherand the act of the agent binds the respondent in their capacity as Principal of the agent. It is pertinent to note that commission orbrokerage defined under explanation (i) to Section 194H has a widemeaning and it covers any payment received or receivable directly orindirectly by a person acting on behalf of another person for servicesrendered. In this case, no one can doubt that 15% commission paid toadvertising agencies by the Doordarshan is for canvassingadvertisements on behalf of the respondent. So much so, the paymentof 15%, by whatever name called, whether discount or commission,falls within the definition of "commission" as defined underExplanation (i) to Section 194H of the Act. 3. The next question to be considered is whether the provision inthe agreement permitting advertising agencies to retain 15% of theadvertising charges payable by them to the respondent towardscommission from out of the charges received for advertising servicesfrom customers will exonerate the respondent from their liability todeduct tax at source under Section 194H of the Act. In this context, itis pertinent to refer to clause 2(e) of Annexure A agreement which isextracted hereunder: (e) The Agency shall retain in full all discount earned as anadvertising agency and that it will at no time pay orotherwise allow directly or indirectly any part of suchdiscount or remuneration to any person, advertiser orrepresentative of any advertiser for whom it may be actingor has acted as an advertising agency. Agency agrees to pay the TDS/Income Tax liabilityas applicable under the Income Tax Law on the discountretained by him. For this purpose agency agrees to makepayment to Doordarshan Commercial Service by means ofcheque/demand draft for the TDS on 15% discount retainedby them. This cheque/demand draft will be drawnseparately and should not be included in the telecastfee/advertisement charges. It is very clear from the above provision that advertising agency clearlyunderstood the agreement as an agency arrangement and thecommission payable by the respondent to such agency is subject to taxdeduction at source under the Income Tax Act and so much so theprovision in the agreement was for the agent after retaining 15% togive cheque or demand draft for TDS amount which was originally 5%until it was enhanced to 10% by Finance Act 2007 with effect from1.6.2007 and inspite of specific clause providing for recovery of tax atsource and payment of the same, the officers of the respondent who arevirtually officers in the service of the Government have violated the provisions of the Act by taking untenable contention before the incometax authorities that the transaction does not attract provisions of Section194H. In our view, the department should take serious note of theviolation by officers of Central Govt. agency and take up the matterwith the Ministry for taking appropriate action for violation of the Actand for engaging in evasion of tax. 4. Advertisement charges collected by agents are for respondentand agents are allowed to retain 15% of the commission by therespondent only to avoid the hassle of deposit of full amount andrepayment of 15% thereof towards commission. Since permissiongiven to agents is to withhold 15% out of advertisement chargescollected by them from the customers, and payable to Doordarshan, itis nothing but a payment made to agents in advance by Doordarshanbefore remittance of net advertising charges to them by the agents. Weare therefore of the view that permission granted by Doordarshan underthe agreement to the agencies to retain 15% of the commission amountsto payment of commission by them to agents which is subject todeduction of tax at source under Section 194H of the Act. It is clearfrom Section 194H that payment includes credit of such sum to the account of the payee or at the time of payment of such income in cashor by the issue of cheque or draft or by any other mode. When therespondent receives 85% of the advertising charges from theadvertising agency concerned, Doordarshan accounts full amount asreceived from the customer for whom advertisement was undertaken,crediting 85% received in their account and simultaneously crediting15% in the account of the advertising agency. Irrespective of thepattern of account maintained by the respondent, what happens whenthe agent pays 85% of the advertisement charges collected from thecustomer is that the agent simultaneously gets paid commission of15% which he is free to appropriate as his income. TDS on thecommission charges of 15% has to be paid by the respondent to theincome-tax department with reference to the date on which 85% of theadvertisement charges are received from the agent. In fact, it is only tocomply with the provision, clause 2(e) extracted above is incorporatedin the agreement wherein it is stated that agent will pay to theDoordarshan through DD or cheque the TDS amount payable on thecommission retained by agents which we have already found aspayment of commission by the respondent to the agent. 5. Even though counsel for the respondent has relied on thedecision of the Gujarat High Court in AHMEDABAD STAMPVENDORS ASSN. V. UNION OF INDIA, 257 I.T.R. 203 and adecision of learned single Judge of this Court in M.S. HAMEED V.DIRECTOR OF STATE LOTTERIES, 249 I.T.R. 186 and contendedthat commission payable cannot be subjected to deduction, we areunable to accept this argument because the case decided by theGujarath High Court pertains to sale of stamp by the Government tostamp vendors at a discount and the case decided by this Court pertainsto sale of lottery tickets to the agents at a discounted price. In both thecases, the purchasers, namely, stamp vendors and lottery agentspurchased stamps and lottery tickets respectively at a discounted priceand they run the business at their risk. They will get the discountretained by the Government only if stamp paper or lottery ticket is soldand destruction of the stamp paper or lottery ticket before sale in theirhands will be a complete loss to them. Therefore the transactions ofpurchase at discounted price and sale at face value were rightly treatedas not agency transactions by the Courts. On the other hand, in thiscase, on facts and based on terms of agreements between parties, we find that the transaction is pure agency arrangement whereunderrespondent allows the agents to canvass advertisement for them at tariffprescribed by the respondent on payment of commission of 15%. Wetherefore allow the appeals reversing the orders of the Tribunal andrestore the orders of assessment confirmed in first appeals. However itis for the respondent to invoke, if permissible, the indemnity clause andrecover the levies from the agents. (C.N.RAMACHANDRAN NAIR)Judge. (V.K. MOHANAN) Judge. kk