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2017 (10) TMI 1326 - HC - Income TaxTDS u/s 194H - non-deduction of tax at source for the amount of discount/commission to the advertising agency - Held that - It is not in dispute that the amount which has been received by the assessee was after deducting the commission, stock brokerage or whatever term is awarded and the same has been shown in the books of accounts The assessee also furnished that they ought not to have been added in the income of the assessee in spite of making ground under Section 194H or 40(a)(ia) of the IT Act. In our considered opinion, the Tribunal while considering the matter has rightly come to the conclusion that it is on the basis of principal to principal and does not constitute commission hence, no other view than the one taken by the Tribunal is possible. - Decided in favour of assessee.
Issues Involved:
1. Whether the Tribunal is justified in deleting disallowance for non-deduction of tax at source for the amount of discount/commission to the advertising agency under Section 194H of the Income Tax Act, 1961. 2. Whether the ITAT was justified in upholding the order of CIT(A) in deleting the addition made by the Assessing Officer for non-deduction of tax at source from payment made to advertising agencies and customers treating the same as commission under Section 194H of the Income Tax Act. Detailed Analysis: Issue 1: Justification of Tribunal in Deleting Disallowance for Non-Deduction of Tax at Source The appellant challenged the Tribunal's decision which dismissed the department's appeal regarding the disallowance of ?1,31,97,053/- for non-deduction of tax at source. The Assessing Officer (AO) had treated the discount allowed by the assessee as commission, requiring TDS under Section 194H. The AO argued that the discount was essentially a commission to middlemen for procuring advertisements, thus necessitating TDS compliance. The AO's stance was that the nature of the expense, regardless of its nomenclature as discount, was commission, and failure to deduct TDS warranted disallowance under Section 40(a)(ia). The CIT(A) observed that the AO made no inquiries to substantiate the claim that the discount was actually commission. The CIT(A) noted that the books of account were audited, and the discount was properly recorded, with no evidence suggesting it was commission. The Tribunal upheld CIT(A)'s view, concluding that the discount was a principal-to-principal transaction, not commission, and thus Section 194H was not applicable. Issue 2: Justification of ITAT in Upholding CIT(A)'s Order in Deleting Addition In the second appeal, the ITAT upheld the CIT(A)'s order, which deleted the addition of ?1,58,87,514/- made by the AO for non-deduction of tax at source. The AO had similarly treated payments to advertising agencies and customers as commission, requiring TDS under Section 194H. The CIT(A) found that the AO's conclusion lacked basis and was made without proper inquiry. The Tribunal supported this view, emphasizing that the relationship was principal-to-principal, not principal-agent, thus no TDS was required under Section 194H. Arguments and Precedents: The appellant relied on the Kerala High Court's decision in Commissioner of Income Tax vs. Director, Prasar Bharti, where it was held that payments termed as discount but functioning as commission were subject to TDS under Section 194H. The Kerala High Court emphasized that the nature of transactions, whether termed discount or commission, should be examined to determine TDS applicability. Court's Conclusion: The High Court, after reviewing the Tribunal's and CIT(A)'s findings, agreed that the transactions were principal-to-principal and not commission-based. The Court found no reason to deviate from the Tribunal's conclusion that Section 194H did not apply, and thus, the disallowance for non-deduction of tax at source was correctly deleted. Final Judgment: The High Court dismissed the appeals, answering the issues in favor of the assessee and against the department, affirming that the Tribunal's decision was justified and no TDS was required under Section 194H for the discounts allowed.
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