Principal Commissioner Of Income Tax, Jaipur-2, Jaipur v. Shri Bhim Sain Garg, Through Legal Heir Shri Shailendra Garg, F

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 101 / 2015 Principal Commissioner Of Income Tax, Jaipur-2, Jaipur ----Appellant Versus Shri Bhim Sain Garg, through Legal Heir Shri Shailendra Garg, F-47, Malviya Nagar Industrial Area, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 70 / 2017 Principal Commissioner Of Income Tax, Jaipur-II, Jaipur ----Appellant Versus Shri Shailendra Garg, C/o M/s Garment Craft India (P) Ltd. F-47 Malviya Industrial Area, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek KedawatFor Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 11/10/2017 1.In both appeals common questions of law and facts areinvolved, hence, they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department. 3.This Court while admitting the matter framed the followingquestion of law:- In DBITA No. 101/2015 “Whether the Tribunal is justified in deletingdisallowance of Rs. 1,31,97,053/- made by theAssessing Authority for non-deduction of tax atsource for the amount of discount/commission tothe advertising agency under Section 194H of theIncome Tax Act, 1961. In DBITA No. 70/2015 “Whether in the facts and circumstances of thecase, the ITAT was justified in upholding theorder of CIT(A) in deleting the addition of Rs.15887514/- made by the Assessing Officer fornon deduction of tax at source from paymentmade to advertising agencies and customerstreating the same as commission u/s 194H ofIncome Tax Act.” 4.Mr. Mathur contended that in the second matter, theTribunal has relied upon the first judgment of Bhimsain Gargtherefore, he has taken us to the original record of the firstmatter. 5.He has taken us the order of AO which reads as under:- “It is observed from the Direct Incomementioned in Schedule No. 6 of the audit reportthat the assessee has shown advertisementrevenue of Rs. 22271252/- & further reducedRs. 13197053/- in the form of discount onadvertisement. In order to examine the natureof alleged discount, the assessee was asked toexplain the nature of such head of allegeddiscount with supporting documents. Theassessee vide written reply dt. 24.12.2009 hastried to explain that discount is allowed to thecustomers whose advertisement has beenpublished in the news paper. Further explainedthat the assessee is raising bill of full amount ofcharges and then credit note is issued fordiscount against advertisement charges andfinally net payment i.e. net of discount is received from customers. The discount is notallowed to any middle man, it is credited or paidto the persons of whom advertisement ispublished in news paper. received from customers. The discount is notallowed to any middle man, it is credited or paidto the persons of whom advertisement ispublished in news paper. The contention putforth by the assessee hasbeen considered carefully but not foundconvincing for the reason that the allegeddiscount claimed to have been allowed to thecustomers are not discount but infact it is acommission allowed to the persons throughwhom advertisement is received for publishing innews paper. It is also appropriate to mentionhere that all persons including laymen know thatin this line of business, only commission is givento the middle men through whomadvertisements are received. In this line ofbusiness, no advertisement can be receivedwithout any middlemen or news agency from theremote as well as various corners of the cityarea. The assessee has also failed to furnish thename & complete address of the persons towhom such alleged discount claimed to havebeen allowed nor filed any copy of credit note insupport of his claim. In view of abovecircumstances, the identity of recipients of thealleged discount as well as contention ofassessee remained completely unverified andnot subject to verification. Further all the newspublishers nominate their news agencies in theirnetwork for receiving advertisement for whichcommission is paid. Being of similar nature ofbusiness, the assessee has adopted the samepractice to avoid litigation of the Income taxprovisions he has changed the nomenclature ofthe expenses and claimed to have been allowedalleged discount as against commission. Becauseon the payment of commission, TDS is requiredto be made as per rates prescribed undersection 194H of I.T. Act and deposit the sameinto the Central Government account withinprescribed time limit otherwise the same shallnot be allowed as expenditures u/s 40(a)(ia) ofthe I.T. Act. Due to change of nomenclature, thenature of expenses can not be changed. Infactthe discount claimed to have been given iscommission & TDS on payment of suchcommission (alleged discount) should have beenmade but the assessee has failed to deduct theTDS & violated the provisions of section 194Hthus the amount of Rs.13197053/- is notallowed as expenditure in view of provisions of section 40(a)(ia) of the I.T. Act and added thesame to the total income of assessee. 6.He contended that the CIT(A) while observing in para 4.1has specifically given finding that the AO could have inquired inthe agency and everything and he remanded back the matter tothe AO. For ready reference the observations of CIT(A) arereproduced as under:- section 40(a)(ia) of the I.T. Act and added thesame to the total income of assessee. 6.He contended that the CIT(A) while observing in para 4.1has specifically given finding that the AO could have inquired inthe agency and everything and he remanded back the matter tothe AO. For ready reference the observations of CIT(A) arereproduced as under:- “I have duly considered the submissions of theappellant. The appellant is engaged in thebusiness of publication of newspaper by thename of Mahaka Bharat. The appellant had paiddiscount of Rs. 1,31,97,053/- to his customersand various advertising agencies. Thenomenclature of “discount paid” was evidentfrom the entries in the books of account, auditedprofit & loss account wherein the expenditurewas duly recorded as discount paid and tax auditreport in Form No. 3CD wherein auditors had notmade any qualification. All these documentscategorically mentioned that discount was paidon advertising revenues. The AO howeverconcluded without making any inquiries orbringing any material on record that the allegeddiscount was in nature of commission. The AOthereafter made a commission was allowed to theagents. The AO held that the assessee hadchanged the nomenclature just to escape fromthe provisions of section 402(a)(ia) of the IT Act.The AO further held that the assessee wasrequired to deduct TDS in light of provisions ofsection 194H of the IT Act and made theimpugned disallowance of Rs. 1,31,97,053/- u/s40(a)(ia) of the IT Act. On careful considerationof the facts, I find that the AO has not made anysort of inquiry from the customers or theadvertising agencies. The books of account of theassessee were duly audited and complete detailsin this regard were available to the AO. The AOhad no basis to hold that the discount of Rs.1,31,97,053/- was allegedly in the nature ofcommission except for making generalobservations. While doing so, the AO also ignoredthe entries in the books of account, the credit notes issued by the assessee to his variouscustomers and advertising agencies.” 7.He contended that the Tribunal while considering thematter has observed as under:- “In the consideration of entirely of facts andcircumstances. We hold that the amount paid byway of discount to the advertisement agencies,springs from a relationship on principal toprincipal basis and does not constitutecommission as contemplated by provisions ofSection 194H of the Act. In view thereof, we seeno infirmity in the order of the learned CIT(A) inholding that the provisions of Section 40(a)(ia) ofthe Act are not applicable and thereby deletingthe disallowances. The order of the learnedCIT(A) is upheld.” 8.It is contended that the Tribunal has gone on entirelydifferent basis therefore, the issue is required to be decided infavour of the department and the assessment made by the AO isrequired to be restored. 8.1. He has also strongly relied upon the decision of Kerala HighCourt in case of Commissioner of Income Tax vs. Director, PrasarBharti reported in [2010] 325 ITR 205 (Ker.) wherein it has beenheld as under:- 8.It is contended that the Tribunal has gone on entirelydifferent basis therefore, the issue is required to be decided infavour of the department and the assessment made by the AO isrequired to be restored. 8.1. He has also strongly relied upon the decision of Kerala HighCourt in case of Commissioner of Income Tax vs. Director, PrasarBharti reported in [2010] 325 ITR 205 (Ker.) wherein it has beenheld as under:- “2. Respondent is a fully owned Government ofIndia undertaking engaged in telecast of news,various sports, entertainments, cinemas andother programmes. Advertisement income is amajor source of revenue for all telecastingcompaniesincludingtherespondent.Advertisements are canvassed through agentsappointed by the respondent under agreementwith them. Advertising agencies recognised bythe respondent are of two types, theunregistered agencies which are not entitled toIndia undertaking engaged in telecast of news,various sports, entertainments, cinemas andother programmes. Advertisement income is amajor source of revenue for all telecastingcompaniesincludingtherespondent.Advertisements are canvassed through agentsappointed by the respondent under agreementwith them. Advertising agencies recognised bythe respondent are of two types, theunregistered agencies which are not entitled to any credit facility and the other type areregisteredagencieswhicharegivenaccreditationandcreditfacilitywithDoordarshan. In other words, while the firstcategory will be able to telecast advertisementprogrammes canvassed from customers only onadvance payment, the other category can havetelecast done before making payments.Advertisement charges are based on air-timeused for telecasting advertisement material.Rates are also varying depending upon the timeof advertisement. However, these matters haveno relevance for the purpose of deciding thiscase because the issue involved is whether thecommission paid @ 15 per cent by therespondent on advertisement charges remittedby the advertising agencies is subject to TDS ascommission under Section 194H of the Act. Foreasy reference, we extract hereunder therelevant portion of Section 194H for the purposeof deciding this case: 194H. Commission or brokerage--Any person,not being an individual or an HUF, who isresponsible for paying, on or after the 1st day ofJune, 2001, to a resident, any income by way ofcommission (not being insurance commissionreferred to in Section 194D) or brokerage, shall,at the time of credit of such income to theaccount of the payee or at the time of paymentof such income in cash or by the issue of acheque or draft or by any other mode, whicheveris earlier, deduct Income Tax thereon @ ten percent: Provided.... Provided.... Provided also that no deduction shall be madeunder this section on any commission orbrokerage payable by Bharat Sanchar NigamLtd. or Mahanagar Telephone Nigam Ltd. to theirpubliccallofficefranchisees. Explanation--For the purposes of this section-- (i) 'commission or brokerage' includes anypayment received or receivable directly orindirectly, by a person acting on behalf ofanother person for services rendered (not beingprofessional services) or for any services in the course of buying or selling of goods or in relationto any transaction relating to any asset, valuablearticle or thing, not being securities. During hearing copies of agreements executedby the respondent with two parties areproduced. The nature of transactions as statedin Annex. B agreement between Doordarshananditsagenciesisasfollows: Whereas, for the better regulation of thepractice of advertising and to secure the bestadvertising service for advertisers, theDoordarshan Commercial Service has agreed toallow commission in respect of advertisementsplaced by any advertising agent and accreditedbyit. course of buying or selling of goods or in relationto any transaction relating to any asset, valuablearticle or thing, not being securities. During hearing copies of agreements executedby the respondent with two parties areproduced. The nature of transactions as statedin Annex. B agreement between Doordarshananditsagenciesisasfollows: Whereas, for the better regulation of thepractice of advertising and to secure the bestadvertising service for advertisers, theDoordarshan Commercial Service has agreed toallow commission in respect of advertisementsplaced by any advertising agent and accreditedbyit. (2) By the agency : In consideration of theaccreditation herein afforded and of thecommission to which the agency will be entitledbyreasonofsuchaccreditation. (c) the remuneration of the agency for placingadvertisements in the commercial service shallbe in the form of standard agency commission of15 (fifteen) per cent to be paid by theDoordarshanCommercialService. From the above it is very clear that parties haveunderstood their relationship as principal andagent and what is paid to the agent byDoordarshan is 15 per cent of advertisementcharges collected and remitted to it by the agentwhich is in the form of commission payable tothe agent by Doordarshan. Counsel for therespondent referred to one of the agreementswhere the commission is referred to as standarddiscount and contended that the arrangementbetween respondent and advertising agency isnot agency but is a principal to principalarrangement of sharing advertisement charges.We are unable to accept this contention becauseadvertisement contract entered into between thecustomer and the agency is for telecastingadvertisement in Doordarshan channels. Theagent canvasses advertisement on behalf ofDoordarshan under agreement between themand the advertisement charges recovered fromthe customers are also in accordance with tariffprescribed by Doordarshan which is incorporatedin the agreement. Further it is specifically stated in the agreement that advertisement materialshould also conform to the discipline introducedby Doordarshan which is nothing but aGovernment agency which cannot telecast allwhat is desired to be telecast by advertisingagencies. In fact, Doordarshan is bound byadvertisement contract canvassed by advertisingagencies and it is their duty under theagreement between them and the advertisingagencies to telecast advertisement material interms of the contract which the agency signswith the customer. In our view, the transaction isa pure agency arrangement between therespondent and the advertising agenciesbecause one acts for the other and the act of theagent binds the respondent in their capacity asprincipal of the agent. It is pertinent to note thatcommission or brokerage defined under Expln.(i) to Section 194H has a wide meaning and itcovers any payment received or receivabledirectly or indirectly by a person acting on behalfof another person for services rendered. In thiscase, no one can doubt that 15 per centcommission paid to advertising agencies by theDoordarshan is for canvassing advertisementson behalf of the respondent. So much so, thepayment of 15 per cent, by whatever namecalled, whether discount or commission, fallswithin the definition of "commission" as definedunder Expln. (i) to Section 194H of the Act. 5. Even though counsel for the respondent hasrelied on the decision of the Gujarat High Courtin Ahmedabad Stamp Vendors Association v.Union of India MANU/GJ/0167/2002 : (2002)176 CTR (Guj) 193 : (2002) 257 ITR 202 (Guj)and a decision of learned Single Judge of thisCourt in M.S. Hameed and Ors. v. Director ofState Lotteries and Ors. MANU/KE/0446/2001 :(2001) 165 CTR (Ker) 481 : (2001) 249 ITR 186(Ker) and contended that commission payablecannot be subjected to deduction, we are unableto accept this argument because the casedecided by the Gujarat High Court pertains tosale of stamp by the Government to stampvendors at a discount and the case decided bythis Court pertains to sale of lottery tickets tothe agents at a discounted price. In both thecases, the purchasers, namely, stamp vendorsand lottery agents purchased stamps and lotterytickets respectively at a discounted price and they run the business at their risk. They will getthe discount retained by the Government only ifstamp paper or lottery ticket is sold anddestruction of the stamp paper or lottery ticketbefore sale in their hands will be a complete lossto them. Therefore the transactions of purchaseat discounted price and sale at face value wererightly treated as not agency transactions by theCourts. On the other hand, in this case, on factsand based on terms of agreements betweenparties, we find that the transaction is pureagency arrangement whereunder respondentallows the agents to canvass advertisement forthem at tariff prescribed by the respondent onpayment of commission of 15 per cent. Wetherefore allow the appeals reversing the ordersof the Tribunal and restore the orders ofassessment confirmed in first appeals. Howeverit is for the respondent to invoke, if permissible,the indemnity clause and recover the levies fromthe agents.” 9.We have heard counsel for the appellant. 10.We have gone through the order and proceedings of thematter. It is not in dispute that the amount which has beenreceived by the assessee was after deducting the commission,stock brokerage or whatever term is awarded and the same hasbeen shown in the books of accounts and as stated by Mr.Mathur, if the details are to be given reads as under:- “The advertisement are to be procured by suchagencies at the rates and terms decided betweenthem and advertiser, assessee has no involvementtherein. In the case of Kerala State StampVendors Association vs. Office of the AccountantGeneral, the Hon’ble Kerala High Court held thatwhat is liable for TDS is commission of brokerageand not the incentives given on the basis ofprincipal to principal relations.” 11.The assessee also furnished that they ought not to havebeen added in the income of the assessee in spite of makingground under Section 194H or 40(a)(ia) of the IT Act. 12.In our considered opinion, the Tribunal while consideringthe matter has rightly come to the conclusion that it is on thebasis of principal to principal and does not constitute commission hence, no other view than the one taken by the Tribunal ispossible. 13.Hence, the issue is answered in favour of the assesseeagainst the department. 14.The appeals stand dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. A.Sharma/