By TIOL News Service

NEW DELHI, APRIL 03, 2018: THE ISSUE BEFORE THE APEX COURT IS - Whether commission paid by TV channel to the advertisement agencies for securing more business, attracts TDS liability u/s 194H. YES IS THE VERDICT.

Facts of the case:

The Assessee i.e., "Prasar Bharati Doordarshan Kendra", functions under the Ministry of Information and Broadcasting, Government of India. The dispute in the present case was related to assessee's Regional Branch at Trivandrum. The Assessee, in the course of their business activities, which include the running of TV channel called "Doordarshan", was regularly telecasting advertisements of several consumer companies. With a view to have a better regulation of the practice of advertising and to secure the best advertising services for the advertisers, the assessee entered into an agreement with several advertising agencies, in terms of which, the advertising agency was required to make an application to the assessee to get the 'accredited status' for their Agency so as to enable them to do business with the assessee of telecasting the advertisements of several consumer products manufactured by several companies on assessee's Doordarshan TV Channel. The agreement, inter alia, provided that assessee would pay 15% by way of commission to the Agency, the failure of which would result in losing the accredited status by the Agency. During the A.Ys 2002-2003 and 2003-2004, the assessee paid a sum of Rs.2,56,75,165/- and Rs.2,29,65,922/- to various accredited Agencies, with whom they had entered into agreement for telecasting the advertisements given by these Agencies relating to products manufactured by several consumer companies. The amount was paid by the assessee to the Agencies towards the commission in terms of the agreement. The question therefore arose before the AO as to whether the provisions of Section 194H would be applicable to the payments in question. After making neccesary enquiries, the AO held that assessee had committed default thereby attracting the rigor of Section 201(1), because they failed to deduct the 'tax at source' from the amount paid to various advertising agencies as provided u/s 194A.

When the matter reached before High Court, it was held that the provisions of Section 194H were applicable to the payments made by assessee to the Agencies during the period in question because such payments were in the nature of 'commission' paid to the Agencies as defined in Explanation appended to Section 194H and since the assessee failed to deduct the 'tax at source' while making these payments,they committed default of non-compliance of Section 194H resulting in attracting the provisions of Section 201 of the Act.

Apex Court held that,

++ the High Court was right in holding that the provisions of Section 194H are applicable to assessee because the payments made by assessee pursuant to the agreement in question were in the nature of payment made by way of 'commission' and, therefore, the assessee was under statutory obligation to deduct the income tax at the time of credit or/and payment to the payee. This conclusion of the High Court is clear from the undisputed facts emerging from the record of the case, wherein 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 assessee; Third, the terms of the agreement indicate that both the parties intended that the amount paid by assessee 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 assessee 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 assessee 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 assessee 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;

++ therefore, there is no difficulty in holding that the payment in question was in the nature of 'commission' paid by the assessee to the advertisement agencies to secure more business for them. Once it is held that the provisions of Section 194H apply to the transactions in question, it is obligatory upon the assessee to have deducted the income tax while making payment to the 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 u/s 194H of the Act.

(See 2018-TIOL-117-SC-IT)