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2007 (9) TMI 448 - AT - Income TaxDeduction of tax at source u/s 194H or 194J - Expenditure incurred by TVAM (subsidiary company) for production of the TV programme Fees for technical services or Agency Sales Commission - HELD THAT - In the present case, TVAM has not rendered any managerial, technical or consultancy services for the payments made by assessee to it. Rather the TV serial was produced by TVAM itself availing the services of various artists etc. The entire cost of production of the TV serial is reimbursed by the assessee. The payments by the assessee is for acquiring right in the FCT which is merely measured on the basis of cost plus 7.5 per cent. Thus, it cannot be said that the amount was paid by the assessee to TVAM in the nature of fees for technical services as defined in Explanation to section 9(1)(vii). Thus, there is no error in the order of learned CIT(A) in this regard. Payments of commission - HELD THAT - It is seen that the assessee has not paid any commission to the advertising agents. Rather the assessee has sold the air time to the advertising agents who in their turn have sold such air time to various other advertisers. The assessee was to receive certain consideration for selling the air time to the advertising agent and the advertising agents had retained part of that commission which is in the nature of agency commission. Thus, the assessee received payment from the advertising agent net of such agency commission. These are in the form of trade discount offered and not in the form of commission paid. On the payment made by advertising agents to the assessee, tax is deducted at source u/s 194C of the Act. Since the assessee has not paid any commission within the meaning of section 194H of the Act to the advertising agents rather have received the amount from such advertising agents, there is no occasion for the assessee to deduct tax at source as no payment is made by the assessee to such advertising agents. The decision of ITAT, Cuttack Benches in the case of Asstt. CIT v. Samaj 2000 (5) TMI 166 - ITAT CUTTACK squarely applies. The facts being identical, the amount deducted by various advertising agents cannot be considered as commission but is also to be treated as discount given and hence, the assessee was not under any obligation to deduct tax u/s 194H of the Act. In the result, both the appeals are dismissed.
Issues Involved:
1. Whether the payments made by the assessee to TVAM for the production of the TV serial 'Subah Savere' should be considered as fees for technical services under section 194J of the Income Tax Act. 2. Whether the assessee should have deducted tax at source on the commission paid to advertising agents under section 194H of the Income Tax Act. Issue-wise Detailed Analysis: 1. Fees for Technical Services under Section 194J: The primary issue was whether the payments made by the assessee to TVAM for the production of the TV serial 'Subah Savere' should be considered as fees for technical services under section 194J of the Income Tax Act. The Assessing Officer held that the amount paid to TVAM is to be considered as fees for technical services, and since no tax was deducted, the assessee was treated as an assessee-in-default under section 201(1) of the Act. The learned CIT(A) held that TVAM was set up as a subsidiary of the assessee company to produce TV Programmes for Doordarshan. TVAM produced the programme and in consideration of supplying the programme, Doordarshan allowed TVAM Free Commercial Time (FCT). TVAM appointed the assessee-company as a sole marketing representative and exclusive holder of the world rights for subsequent resale/re-telecast of the programme as well as the FCT. The programme was produced by TVAM, not by the assessee-company. Therefore, the CIT(A) concluded that the payments made by the assessee to TVAM were not for technical services but for acquiring the right in the programme and the FCT. The Tribunal agreed with the CIT(A) and held that TVAM did not render any managerial, technical, or consultancy services to the assessee. The payments made by the assessee were for acquiring the rights in the FCT, which were measured on the basis of cost plus 7.5%. Thus, the payments could not be considered as fees for technical services under section 194J, and the assessee was not required to deduct tax at source on these payments. 2. Tax Deduction on Commission under Section 194H: The second issue was whether the assessee should have deducted tax at source on the commission paid to advertising agents under section 194H of the Income Tax Act. The Assessing Officer noted that the FCT available to the assessee was sold to various advertising agents, and the advertising agents were given a commission on such FCT sold through them. Since no tax was deducted, the assessee was treated as an assessee-in-default. The learned CIT(A) held that the advertising agency was entitled to retain 15% of the sale proceeds received from the customer, which partakes the character of 'trade discount'. The transaction between the assessee and the advertising agency was of principal to principal, and to earn commission under section 194H, there should be three parties involved in the transaction. In this case, only two parties were involved, and hence the provisions of section 194H were not attracted. The Tribunal agreed with the CIT(A) and held that the assessee did not pay any commission to the advertising agents. Instead, the assessee sold the air time to the advertising agents, who in turn sold it to various advertisers. The advertising agents retained a part of the commission, which was in the nature of a trade discount. The assessee received payment from the advertising agent net of such agency commission. Since the assessee did not pay any commission within the meaning of section 194H, there was no obligation to deduct tax at source. The Tribunal also referred to the decision of ITAT, Cuttack Benches in the case of Asstt. CIT v. Samaj [2001] 77 ITD 358, which supported this view. Conclusion: Both the appeals by the revenue were dismissed. The Tribunal upheld the CIT(A)'s decision that the payments made by the assessee to TVAM were not for technical services and hence not subject to tax deduction under section 194J. Additionally, the Tribunal held that the assessee was not required to deduct tax at source on the commission retained by advertising agents, as it was in the nature of a trade discount and not commission under section 194H.
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