corporate laws – income tax “Prasar Bharati Doordarshan Kendra”.- failed to deduct the “tax at source” = 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. = 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.

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

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