S. 194H: TDS Defaulter is liable only for interest & penalty & not the tax
The assessee, a publisher of newspapers, gave 10-15% trade discount to advertising agencies as per rules of the Indian Newspaper Society. The AO held that the said discount constituted “commission” and that the assessee ought to have deducted TDS u/s 194H and was liable as assessee-in-default u/s 201. The assessee filed a Writ Petition to challenge the said order. HELD by the High Court:
(i) Though the assessee has an alternate remedy of appeal against a s. 201 order, a writ is maintainable if the authority has wrongly assumed jurisdiction. Also, a huge demand has been raised and multiplicity of proceedings will increase the assessee’s sufferings even though s. 194H is clearly not applicable;
(ii) To constitute “commission or brokerage” u/s 194H, it is necessary that person receiving payment should be acting as agent and rendering services. The relationship between the assessee and the advertising agency in accordance with the INS Rules is that of a principal to principal because (a) the assessee has no control over the advertising agency, (b) the advertising agency is responsible for payment even if the advertiser has not paid the advertising agency, (c) the advertising agencies are rendering service to the advertisers/ customers & other terms. The “discount” was not “commission”;
(iii) The deductor cannot be treated an assessee in default till it is found that the assessee (recipient) has also failed to pay such tax directly. To declare a deductor who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. However, even then, the short deducted tax cannot be realised from the deductor and he is at best liable for interest and penalty only;
(iv) The Department’s practice of hurriedly passing assessment orders shortly before the limitation period is about to expire and justifying this practice by saying that there was shortage of time and hence facts could not be verified properly is not appreciated because it puts citizens to great harassment as exorbitant demands are raised and it breaches the principles of natural justice.