| COURT: | Supreme Court |
| CORAM: | Abhay Manohar Sapre J, R. K. Agrawal J |
| SECTION(S): | 194-H, 201 |
| GENRE: | Domestic Tax |
| CATCH WORDS: | commission, TDS deduction |
| COUNSEL: | - |
| DATE: | April 3, 2018 (Date of pronouncement) |
| DATE: | April 4, 2018 (Date of publication) |
| AY: | - |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 194-H/201 TDS Liability: Law on whether relationship is that of "principal and agent" and whether payment is of the nature of "commission" explained. Non-compliance of s. 194H attracts the rigor of s. 201 which provides for consequences of failure to deduct or pay the tax. Jagran Prakashan vs. DCIT 345 ITR 288 (All) distinguished on facts | |
(i) Section 194H 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”.
(ii) 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 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.
(iii) 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 attract the rigor of the Section for ensuring its compliance.
(iv) 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.
(v) 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.
(vi) The aforementioned conclusion of the High Court is clear from the undisputed facts emerging from the record of the case because we notice that 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 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.
(vii) 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.
(viii) 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 advertisement agencies.
(ix) 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.
(x) 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.
(xi) 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.
(xii) 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.
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:-
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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 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.
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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 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.”
(xiii) 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.
(xiv) 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.
OFFHAND
As regards the reasoning that in the agreement the term used is ‘commission’, in one’s conviction,that has been overemphasized, unduly so, as to be made a ground of the decision. In saying so, one has in mind several of those instances in which an unfavorable view has been taken by courts by ignoring the purport and import of the terms and conditions as specifically agreed upon and spelt out. For example,cases are not wanting in which a contract agreement clearly entered into as a ‘turn key’ (indivisible and composite) contract has been construed as divisible, and dissected, in order to bring to tax portions thereof.
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