The Director, Prasar Bharati v. Commissioner Of Income Tax, Thiruvanthapuram

[2018] 3 S.C.R. 287 THE DIRECTOR, PRASAR BHARATI COMMISSIONER OF INCOME TAX, THIRUVANTHAPURAM (Civil Appeal Nos. 3496-3497 of 2018) APRIL 03, 2018 [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961: s. 194H Explanation – Payment ofCommission or brokerage – Applicability of s. 194H – Appellant-assessee entering into an agreement with several advertisingagencies – Payment made by appellant to the agencies, towardscommission in terms of agreement – Assessment order by theAssessing Officer that provisions of s. 194H are applicable to thepayments made by the appellant to the Agencies and since theappellant failed to deduct the “tax at source” from the amount paidto the agencies, the appellant committed default thereby attractingthe rigor of s. 201(1) – Said order upheld by CIT(Appeals), however,set aside by the tribunal – In appeal, the High Court upheld theorder of CIT(Appeals) and AO – On appeal, held: Provisions of s.194H are applicable to the appellant because the payments madeby appellant pursuant to the agreement were in the nature of paymentmade by way of “commission” – In view thereof, the appellant wasunder statutory obligation to deduct the income tax at the time ofcredit or/and payment to the advertisement agencies – Non-compliance of s.194H by the assessee attracts the rigor of s. 201which provides for consequences of failure to deduct or pay the taxas provided u/s. 194H – Thus, the provisions of s. 201 rightly invokedagainst the appellant by the assessing authority. Dismissing the appeals, the Court HELD: 1.1 Section 194H of the Income Tax Act, 1961provides that any person other than individual or HUF,responsible for paying any income by way of “commission” (notbeing insurance commission as specified in Section 194D) or“brokerage” to any person shall at the time of credit of suchincome to the account of payee or at the time of payment of suchincome in cash or by cheque or draft or any other mode will deduct 287 Aincome tax thereon at the rate of 5%. The first proviso specifiesthe limit. The second proviso makes the individual or HUF liableto deduct the income tax, if they exceed the limit specified therein.The third proviso exempts payment of commission or brokeragewhen made to BSNL and MTNL to their public call officefranchisees. The Explanation appended to s.194H defines theBexpression “commission or brokerage”. It is an inclusivedefinition and includes therein any payment received orreceivable, directly or indirectly by a person acting on behalf ofanother person for services rendered (not being professionalservices) or for any services in the course of buying or selling ofCgoods or in relation to any transaction relating to assets, valuablearticle or thing not being securities. Clause (ii) definesprofessional services; clause (iii) defines securities; and clause(iv) provides a deeming fiction for treating any income so as toattract the rigor of the Section for ensuring its compliance.[Paras27-28] [295-F-G, H; 296-A-B]D 1.2 The reasoning and the conclusion arrived at by the AO,CIT (Appeals) and the High Court appears to be just and properand does not call for any interference. The High Court was rightin holding that the provisions of Section 194H are applicable tothe appellant because the payments made by the appellantEpursuant to the agreement in question were in the nature ofpayment made by way of “commission” and, therefore, theappellant was under statutory obligation to deduct the incometax at the time of credit or/and payment to the payee. [Paras 29,30] [296-C-D] 287 [ रा34 [ 201 (2012) 345 ITR 288 1.3 The conclusion of the High Court is clear from theundisputed facts emerging from the record of the case becausethe agreement itself has used the expression “commission” inall relevant clauses; Second, there is no ambiguity in any clauseand no complaint was made to this effect by the appellant; Third,Gthe terms of the agreement indicate that both the parties intendedthat the amount paid by the appellant to the agencies should bepaid by way of “commission” and it was for this reason, the partiesused 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 transactionin question did not show that the relationship between theappellant and the accredited agencies was principal to principalrather it was principal and Agent; Sixth, it was also clear thatpayment of 15% was being made by the appellant to the agenciesafter collecting money from them and it was for securing moreadvertisements for them and to earn more business from theadvertisement agencies; Seventh, there was a clause in theagreement that the tax shall be deducted at source on paymentof trade discount; and lastly, the definition of expression“commission” in the Explanation appended to Section 194H beingan inclusive definition giving wide meaning to the expression“commission”, the transaction in question did fall under thedefinition of expression “commission” for the purpose ofattracting rigor of s. 194 H. [Para 31] [296-E-H; 297-A] 1.4 There is no difference in holding that the payment wasin the nature of “commission” paid by the appellant to theadvertisement agencies to secure more business for theappellant. Once it is held that the provisions of Section 194Happly to the transactions in question, it is obligatory upon theappellant to have deducted the income tax while making paymentto the advertisement agencies. The non-compliance of Section194H by the assessee attracts the rigor of Section 201 whichprovides for consequences of failure to deduct or pay the tax asprovided under Section 194H of the Act. Therefore, theprovisions of Section 201 were rightly invoked against theappellant by the assessing authority once having held that theappellant failed to comply with the provisions of Section 194H ofthe Act. [Paras 32, 33, 34] [297-B-D] Jagran Prakashan Ltd v. Deputy Commissioner ofIncome Tax (TDS) (2012) 345 ITR 288 – referred to. Case Law Reference (2012) 345 ITR 288referred toPara 34 CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3496-3497 of 2018. AFrom the Judgment and Order dated 20.11.2009 of the High Courtof Kerala at Ernakulam in Income Tax Appeal No. 27 of 2009 and IncomeTax Appeal No. 62 of 2009. Rajeev Sharma, Adv. for the Appellant. Rupesh Kumar, A. K. Srivastava, Ravi Shankar Kumar, Mrs. AnilBKatiyar, Advs. for the Respondent. The Judgment of the Court was delivered by ABHAY MANOHAR SAPRE, J. 1. Delay condoned. 2. Leave granted. 3. These appeals are directed against the final judgment and orderdated 20.11.2009 passed by the High Court of Kerala at Ernakulam inIncome Tax Appeal No.27 of 2009 and Income Tax Appeal No.62 of2009 whereby the High Court allowed the appeals preferred by therespondent herein and reversed the order dated 28.03.2007 passed byDthe Income Tax Appellate Tribunal, Cochin Bench in Income Tax AppealNos. 926 & 927/COCH/2005 for the Assessment Years 2002-2003 and2003-2004 and restored the order dated 04.03.2005 passed by theCommissioner of Income Tax(Appeals)-II, Thiruvananthapuram and theorder dated 22.09.2003 passed by the Assessing Officer. 4. In order to appreciate the issue involved in these appeals, it isnecessary to set out the facts hereinbelow. 5. The appellant is known as “Prasar Bharati DoordarshanKendra”. It functions under the Ministry of Information and Broadcasting,Government of India. The dispute in this case relates to the appellant’sFRegional Branch at Trivandrum. 6. The appellant, in the course of their business activities, whichinclude the running of the TV channel called “Doordarshan”, has beenregularly telecasting advertisements of several consumer companies. 7. With a view to have a better regulation of the practice ofGadvertising 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 (hereinafterreferred to as “the Agency”) was required to make an application to the appellant to get the “accredited status” for their Agency so as to enablethem to do business with the appellant of telecasting the advertisementsof several consumer products manufactured by several companies onthe appellant’s Doordarshan TV Channel. 9. The agreement, inter alia, provided that the appellant wouldpay 15% by way of commission to the Agency. The Agency was toretain the commission/remuneration earned and not to part the sameeither directly or indirectly with any other person, advertiser orrepresentative of any advertiser for whom it may be acting or has actedas an advertising agency. The agreement also provided the manner, modeand the time within which the payment was to be made by the Agencyto the appellant. The failure to make the payment was to result in losingthe accredited status by the Agency. The Agency was to give minimumannual business of Rs.6 Lakhs to the appellant in a financial year failingwhich their accredited status was liable to be withdrawn. The Agencywas to furnish a bank guarantee for a sum of Rs.3 Lakhs. There areother clauses also in the agreement but they are not relevant for thepurpose 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 to31.03.2003), the appellant paid a sum of Rs.2,56,75,165/- andRs.2,29,65,922/- to various accredited Agencies, with whom they hadentered into the aforementioned agreement for telecasting theadvertisements given by these Agencies relating to products manufacturedby several consumer companies. The amount was paid by the appellantto the Agencies towards the commission in terms of the agreement. 11. The question arose before the Assessing Officer (AO) in theassessment proceedings as to whether the provisions of Section 194Hof the Act, which came into force with effect from 01.06.2001, areapplicable to the payments in question made by the appellant to theAgencies and, if so, whether the appellant deducted “tax at source” asprovided under Section 194H of the Act from the amount paid by theappellant 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 ofthe view that the provisions of Section 194H of the Act are applicable tothe payments made by the appellant to the Agencies because the BCDE Apayments were made in the nature of “commission” as defined inExplanation appended to Section 194H of the Act. The AO held that theappellant, therefore, committed default thereby attracting the rigor ofSection 201(1) of the Act because they failed to deduct the “tax at source”from the amount paid to various advertising agencies during theAssessment Years in question as provided under Section 194A of theBAct. BCDE 13. On quantification, the AO found that during the AssessmentYear 2002-2003, the appellant had paid a sum of Rs.2,56,75,165/- towardsthe commission to the Agencies and on this sum, they were required todeduct tax amount to Rs.16,34,283/- and a sum of Rs.3,80,611/- towardsCinterest for delayed payment under Section 201(1-A) of the Act andduring the Assessment Year 2003-2004, the appellant had paid a sum ofRs.2,29,65,922/- towards the commission to the Agencies and on thissum, they were required to deduct tax amounting to Rs.11,15,944/- anda sum of Rs.1,54,050/- towards interest for delayed payment under SectionD201(1-A) of the Act. 14. The appellant felt aggrieved and filed appeals before theCommissioner of Income Tax (Appeals)-II, Thiruvanathapuram. Byorder dated 04.03.2005, the Commissioner concurred with the reasoningand conclusion arrived at by AO and accordingly dismissed the appeals. 15. The appellant felt aggrieved and filed appeals before theTribunal. By order dated 28.03.2007, the Tribunal following its earlierorder allowed the appeals and set aside the orders passed by AO andCIT (Appeals). 16. The Revenue (Income Tax Department), felt aggrieved byFthe order passed by the Tribunal, filed appeals under Section 260-A ofthe Act in the High Court. By impugned judgment, the High Court allowedthe appeals and while setting aside the Tribunal’s order restored theorder of CIT (Appeals) and AO.