REPORTABLE IN 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) Director, Prasar Bharati .Appellant(s) VERSUS Commissioner of Income Tax, Thiruvananthapuram Respondent(s) JUDGMENT Abhay Manohar Sapre, J. 1. Delay condoned. 2. Leave granted. 3. These appeals are directed against final judgment and order dated 20.11.2009 passed by High Court of Kerala at Ernakulam in Income Tax Appeal No.27 of 2009 and Income Tax Appeal Signature Not Verified Digitally signed by No.62 of 2009 whereby High Court allowed ASHA SUNDRIYAL Date: 2018.04.03 16:57:10 IST appeals preferred by respondent herein and Reason: 1 reversed order dated 28.03.2007 passed by Income Tax Appellate Tribunal, Cochin Bench in Income Tax Appeal Nos. 926 & 927/COCH/2005 for Assessment Years 2002-2003 and 2003-2004 and restored order dated 04.03.2005 passed by Commissioner of Income Tax(Appeals)-II, Thiruvananthapuram and order dated 22.09.2003 passed by Assessing Officer. 4. In order to appreciate issue involved in these appeals, it is necessary to set out facts hereinbelow. 5. appellant is known as "Prasar Bharati Doordarshan Kendra". It functions under Ministry of Information and Broadcasting, Government of India. dispute in this case relates to appellant's Regional Branch at Trivandrum. 6. appellant, in course of their business activities, which include running of TV channel called "Doordarshan", has been regularly 2 telecasting advertisements of several consumer companies. 7. With view to have better regulation of practice of advertising and to secure best advertising services for advertisers, appellant entered into agreement with several advertising agencies (Annexure-P-12). 8. In terms of agreement, advertising agency (hereinafter referred to as "the Agency") was required to make application to appellant to get "accredited status" for their Agency so as to enable them to do business with appellant of telecasting advertisements of several consumer products manufactured by several companies on appellant's Doordarshan TV Channel. 9. agreement, inter alia, provided that appellant would pay 15% by way of commission to Agency. Agency was to retain commission/remuneration earned and not to part 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 advertising agency. agreement also provided manner, mode and time within which payment was to be made by Agency to appellant. failure to make payment was to result in losing accredited status by Agency. Agency was to give minimum annual business of Rs.6 Lakhs to appellant in financial year failing which their accredited status was liable to be withdrawn. Agency was to furnish bank guarantee for sum of Rs.3 Lakhs. There are other clauses also in agreement but they are not relevant for purpose of disposal of these appeals. 10. appellant is assessee under Income Tax Act (hereinafter referred to as Act ). In assessment year 2002-2003(01.06.2001 to 31.03.2002) and 2003-2004 (01.04.2002 to 31.03.2003), appellant paid sum of 4 Rs.2,56,75,165/- and Rs.2,29,65,922/- to various accredited Agencies, with whom they had entered into aforementioned agreement for telecasting advertisements given by these Agencies relating to products manufactured by several consumer companies. amount was paid by appellant to Agencies towards commission in terms of agreement. 11. question arose before Assessing Officer (AO) in assessment proceedings as to whether provisions of Section 194H of Act, which came into force with effect from 01.06.2001, are applicable to payments in question made by appellant to Agencies and, if so, whether appellant deducted "tax at source" as provided under Section 194H of Act from amount paid by appellant to Agencies. 12. AO made assessment vide its order dated 22.09.2003. Insofar as aforementioned question was concerned, AO was of view 5 that provisions of Section 194H of Act are applicable to payments made by appellant to Agencies because payments were made in nature of commission as defined in Explanation appended to Section 194H of Act. AO held that appellant, therefore, committed default thereby attracting rigor of Section 201(1) of Act because they failed to deduct "tax at source" from amount paid to various advertising agencies during Assessment Years in question as provided under Section 194A of Act. 13. On quantification, AO found that during Assessment Year 2002-2003, appellant had paid sum of Rs.2,56,75,165/- towards commission to Agencies and on this sum, they were required to deduct tax amount to Rs.16,34,283/- and sum of Rs.3,80,611/- towards interest for delayed payment under Section 201(1-A) of Act and during Assessment Year 6 2003-2004, appellant had paid sum of Rs.2,29,65,922/- towards commission to Agencies and on this sum, they were required to deduct tax amounting to Rs.11,15,944/- and sum of Rs.1,54,050/- towards interest for delayed payment under Section 201(1-A) of Act. 14. appellant felt aggrieved and filed appeals before Commissioner of Income Tax (Appeals)-II, Thiruvanathapuram. By order dated 04.03.2005, Commissioner concurred with reasoning and conclusion arrived at by AO and accordingly dismissed appeals. 15. appellant felt aggrieved and filed appeals before Tribunal. By order dated 28.03.2007, Tribunal following its earlier order allowed appeals and set aside orders passed by AO and CIT (Appeals). 16. Revenue (Income Tax Department), felt aggrieved by order passed by Tribunal, filed appeals under Section 260-A of Act in High 7 Court. By impugned judgment, High Court allowed appeals and while setting aside Tribunal's order restored order of CIT (Appeals) and AO. 17. High Court was of opinion that provisions of Section 194H are applicable to payments made by appellant to Agencies during period in question because payments made were in nature of commission paid to Agencies as defined in Explanation appended to Section 194H of Act and since appellant failed to deduct tax at source while making these payments to Agencies in terms of agreement in question, they committed default of non-compliance of Section 194H resulting in attracting provisions of Section 201 of Act. 18. 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 appellant and Mr. Rupesh Kumar, learned counsel for respondent. 20. Submissions of learned counsel for appellant (assesse) were two-fold. In first place, he argued that payments made by appellant to accredited agencies during assessment years in question were not in nature of commission. According to learned counsel, relationship between appellant and accredited Agencies was not that of principal and agent but it was in nature of principal-to-principal. In other words, submission was that accredited agencies were not working as agent of appellant and nor appellant was paying them any amount by way of commission. 21. Referring to terms of agreement, learned counsel tried to point out that Agencies, in terms of agreement, purchased air time 9 from appellant and then sold it in market for advertisement to their customer after retaining 15% commission given to them by appellant. It was, therefore, his submission that such transaction cannot be regarded as being between principal and agent and nor payment can be regarded as having been made by way of commission so as to attract rigor of Section 194H and Section 201 of Act. 22. Learned counsel also submitted that by mistake some other format of agreement was placed by appellant before High Court and, therefore, appellant suffered adverse order in question (see averments made in Paras 4 and 5 of application seeking permission to file additional documents at page 134/135). Learned counsel then took us to relevant provisions of proper agreement filed in this Court as Annexure P-12 and contended that having regard to nature of 10 agreement and its terms, submission urged deserves acceptance. 23. In reply, learned counsel for respondent (Revenue) supported impugned judgment and contended that order passed by AO, CIT (Appeals) and impugned judgment deserve to be upheld as all three orders are based on proper reasoning calling no interference. 24. Having heard learned counsel for parties and on perusal of record of case, we find no merit in these appeals. 25. Section 194H, which is relevant for disposal of these appeals reads as under: 194H. Commission or brokerage-Any person not being individual or Hindu undivided family, who is responsible for paying, on or after 1st day of June, 2001, to resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at time of credit of such income to account of payee or at time of payment of such income in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rate of five per cent. 11 Provided that no deduction shall be made under this section in case where amount of such income or, as case may be, aggregate of amounts of such income credited or paid or likely to be credited or paid during financial year to account of, or to, payee, does not exceed fifteen thousand rupees. Provided further that individual or Hindu undivided family, whose total sales, gross receipts or turnover from business or profession carried on by him exceed monetary limits specified under clause (a) or clause (b) of section 44AB during financial year immediately preceding 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 purposes of this section,- (i) commission or brokerage includes any payment received or receivable, directly or indirectly, by person acting on behalf of another person for services rendered (not being professional services) or for any services in 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) expression professional services means services rendered by person in course of carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or such 12 other profession as is notified by Board for purposes of section 44AA; (iii) expression securities shall have meaning assigned to it in clause (h) of section 2 of 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 books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. 26. aforementioned Section was inserted in Act with effect from 01.06.2001 by replacing earlier Section 194H. This Section deals with 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 time of credit of such income to account of payee or at time of payment of such income in cash or by cheque or draft or any other mode will deduct 13 income tax thereon at rate of five percent. first proviso specifies limit. second proviso makes individual or HUF liable to deduct income tax, if they exceed limit specified therein. third proviso exempts payment of commission or brokerage when made to BSNL and MTNL to their public call office franchisees. 28. Explanation appended to Section 194H defines expression "commission or brokerage". It is inclusive definition and includes therein any payment received or receivable, directly or indirectly by person acting on behalf of another person for services rendered (not being professional services) or for any services in 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 deeming fiction for treating any income so as to 14 attract rigor of Section for ensuring its compliance. 29. Keeping in mind requirements of Section 194H when we examine transaction in question, we are of considered view that reasoning and conclusion arrived at by AO, CIT (Appeals) and High Court appears to be just and proper and does not call for any interference. 30. In other words, in our considered view, High Court was right in holding that provisions of Section 194H are applicable to appellant because payments made by appellant pursuant to agreement in question were in nature of payment made by way of "commission" and, therefore, appellant was under statutory obligation to deduct income tax at time of credit or/and payment to payee. 31. aforementioned conclusion of High Court is clear from undisputed facts emerging from record of case because we notice that 15 agreement itself has used expression "commission" in all relevant clauses; Second, there is no ambiguity in any clause and no complaint was made to this effect by appellant; Third, terms of agreement indicate that both parties intended that amount paid by appellant to agencies should be paid by way of commission and it was for this reason, parties used expression "commission" in agreement; Fourth, keeping in view tenure and nature of transaction, it is clear that appellant was paying 15% to agencies by way of commission but not under any other head; Fifth, transaction in question did not show that relationship between appellant and 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 appellant to agencies after collecting money from them and it was for securing more 16 advertisements for them and to earn more business from advertisement agencies; Seventh, there was clause in agreement that tax shall be deducted at source on payment of trade discount; and lastly, definition of expression "commission" in Explanation appended to Section 194H being inclusive definition giving wide meaning to expression commission", transaction in question did fall under definition of expression commission for purpose of attracting rigor of Section 194H of Act. 32. For all these reasons, we find no difficulty in holding that payment in question was in nature of "commission" paid by appellant to advertisement agencies to secure more business for appellant. 33. Once it is held that provisions of Section 194H apply to transactions in question, it is obligatory upon appellant to have deducted income tax while making payment to 17 advertisement agencies. non-compliance of Section 194H by assessee attracts rigor of Section 201 which provides for consequences of failure to deduct or pay tax as provided under Section 194H of Act. 34. In our view, provisions of Section 201 were, therefore, rightly invoked in this case against appellant by assessing authority once having held that appellant failed to comply with provisions of Section 194H of Act. 35. Learned counsel for appellant (assessee) placed reliance on decision of 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 said judgment, we find that law laid down by Allahabad High Court is not applicable to facts of case at hand and learned Judges rightly distinguished case at hand with facts involved in Allahabad case. 18 learned Judges of Allahabad High Court in Paras 61 and 62 of judgment dealt with impugned judgment with which we are concerned in these appeals and distinguished it in following words: 61. Now we come to judgment of Kerala High Court in case of CIT vs. Director, Prasar Bharti reported in (2010) 325 ITR 205(ker.) on which much reliance has been placed by assessing authority. Prasar Bharati is fully owned Government of India undertaking engaged in telecast of news, various sports, entertainments, cinemas and other programmes. advertisements were canvassed through agents under agreement with them. advertising agencies and Director, Prasar Bharati were principal and agent as per agreement and Doordarshan provided 15% discount on basis of which it was contended that no deduction at source was required. Tribunal held that there was no liability for deduction of tax at source under Section 194H which judgment was reversed by Kerala High Court. From facts of aforesaid case, it is clear that Doordarshan had appointed agents i.e. advertising agencies and there was agreement entered between them. In aforesaid circumstances, 15% advertisement charges collected and remitted was held to be in form of commission payable to agent by Doordarshan. There was explicit agreement between agency and Doordarshan where both understood that payment made to agency was liable to tax deduction. It is useful to quote following observations of judgment of Kerala High Court:- 19 From above, it is very clear that parties have understood their relationship as Principal and Agent and what is paid to agent by Doordarshan is 15% of advertisement charges collected and remitted to it by agent which is in form of commission payable to Agent by Doordarshan. Counsel for respondent referred to one of agreements where commission is referred to as standard discount and contended that arrangement between respondent and advertising agency is not agency but is Principal to Principal arrangement of sharing advertisement charges. We are unable to accept this contention because advertisement contract entered into between customer and agency is for telecasting advertisement in Doordarshan channels. agent canvasses advertisement on behalf of Doordarshan under agreement between them and advertisement charges recovered from customers are also in accordance with tariff prescribed by Doordarshan which is incorporated in agreement. Further it is specifically stated in agreement that advertisement material should also conform to discipline introduced by Doordarshan which is nothing but 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 agreement between them and advertising agencies to telecast advertisement material in terms of contract which agency signs with customer. In our view, transaction is pure agency arrangement between respondent and advertising agencies because one acts for other and act of agent binds respondent in their 20 capacity as Principal of agent. It is pertinent to note that commission or brokerage defined under explanation (i) to Section 194H has wide meaning and it covers any payment received or receivable directly or indirectly by 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 Doordarshan is for canvassing advertisements on behalf of respondent. So much so, payment of 15%, by whatever name called, whether discount or commission, falls within definition of "commission" as defined under Explanation (i) to Section 194H of Act. It is very clear from above provision that advertising agency clearly understood agreement as agency arrangement and commission payable by respondent to such agency is subject to tax deduction at source under Income Tax Act and so much so provision in agreement was for 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 aforesaid case, relationship of principal and agent was fully established since 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 said circumstances, Kerala High Court held that Section 194H of Income Tax Act was applicable. In present case, there is no agreement between petitioner and advertising agency and advertising agency has never been appointed as agent of petitioner. Thus above case of Kerala High Court is clearly inapplicable and 21 reliance on said judgment for fastening liability of tax and interest on petitioner is wholly untenable. judgment of Kerala High Court thus does not help respondents in present case. 37. In our opinion, Allahabad High Court very rightly noticed distinction between facts in case of Jagaran Prakashan Ltd. (supra) and case with which we are concerned in these appeals and held that it depends upon facts of each case to decide as to what is nature of payment made by party concerned. Their Lordships rightly noticed that case before them (Jagaran Prakashan Ltd.) did not have any agreement like one in this case wherein in terms of agreement, it is unmistakably proved that payment was being made by appellant (assessee) to agencies by way of commission . In our view, therefore, decision of Allahabad High Court is of no help to case of appellant for taking different view. 22 38. In light of foregoing discussion, we concur with reasoning and conclusion arrived at by High Court and find no merit in these appeals. appeals thus fail and are accordingly dismissed. J. [R.K. AGRAWAL] J. [ABHAY MANOHAR SAPRE] New Delhi; April 03, 2018 23 Director, Prasar Bharati v. Commissioner of Income-tax, Thiruvananthapuram