2021 (2) TMI 233 - HC - Income Tax

TDS u/s 194C - commission to the newspaper vendors and to advertisement agent - Addition u/s 40(a)(ia) - HELD THAT - In the present case, the Commissioner (Appeals), as well as the ITAT, have recorded concurrent findings of fact that the transactions or the dealings between the Assessee and the newspaper vendors were on a principal-to-principal basis. There was no commission paid by the Assessee to the newspaper vendors, but the Assessee merely extended a trade discount to the newspaper vendors. The newspaper vendors were, thus, not agents of the Assessee in the facts and circumstances of the present case. The circumstance that the Assessee would repurchase the unsold papers, was not sufficient to conclude that there was no concluded sale in the favour of the newspaper vendors, in the first instance. The findings of fact on this aspect, as concurrently recorded, do not suffer from any perversity, to raise any substantial question of law and warrant interference with the same. This is yet another reason as to why the first substantial question of law cannot, in the facts and circumstance of the present case, be decided in favour of the Revenue and against the Assessee Addition towards payments of commission to Advertising Agents where TDS was not deducted under section 40(a)(ia) r.w. s.194C - whether when commission or brokerage is retained by the agents and not remitted to the principal, it amounts to constructive payments of the same to him by principal and TDS needs to be made from such amount? - HELD THAT - CBDT Circular No.5/2016 dated 29/2/2016 takes express cognizance of the rulings of Allahabad High Court in Jagran Prakashan Ltd. 2012 (5) TMI 488 - ALLAHABAD HIGH COURT and proceeds to clarify that no TDS is attracted on payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements. The CBDT circular further clarifies that commission referred to in question No.27 of the Board's Circular No.715 dated 8.8.95, does not refer to payments by media companies to advertising companies for booking of advertisements, but to payments for engagements of models, artists, photographers, sportsperson, etc. and therefore, is not relevant to the issue of TDS referred to in this Circular. The aforesaid means that the Circular No.715 dated 8.8.1995 cannot be interpreted in the manner suggested by Ms. Linhares, any longer. The CBDT itself has clarified the position in its subsequent Circular No.5/2016 dated 29/2/2016 and such clarification is binding upon the Revenue which cannot now take up some contrary position in the matter. Besides, both the Commissioner (Appeals), as well as the ITAT, have concurrently recorded findings of fact that the dealings between the Assessee and the advertising agencies were on a principal-to- principal basis and, therefore, there was no element of commission involved. Since there was no element of commission involved or paid by the Assessee to such agencies there was no question of any deduction of tax at source on such amounts. No perversity was pointed out in such concurrent findings of fact, to warrant any interference with the same in this appeal. Therefore, even the second substantial question of law is required to be answered against the Revenue and in favour of the Assessee

Summary

Issues:
1. Interpretation of Section 40(a)(ia) of the Income Tax Act, 1961 regarding deduction of TDS on commission payments.
2. Applicability of CBDT circulars in the context of TDS on commission payments to advertising agents.

Analysis:

Issue 1:
The Respondent-Assessee, engaged in newspaper business, filed an e-return for AY 2011-12 declaring income. The AO disallowed deductions for commission payments to vendors and agents due to non-deduction of TDS under Section 40(a)(ia). The Commissioner (Appeals) reversed this order, citing a principal-to-principal relationship. The ITAT upheld this decision, leading to the Revenue's appeal. The Revenue argued that the ITAT's decision contradicted Kolkata ITAT and Jaipur ITAT decisions. However, the Assessee pointed out reversals by Rajasthan HC and Karnataka HC, supported by Gujarat HC and SC precedents. The HC noted the factual findings of principal-to-principal transactions, dismissing the appeal against the Assessee.

Issue 2:
The Revenue contended that CBDT circulars mandated TDS on commission payments to advertising agents. However, the Assessee referenced Allahabad HC's ruling and CBDT Circular No.5/2016, clarifying that TDS is not applicable to such payments. The HC found the Commissioner (Appeals) and ITAT's findings consistent with the Allahabad HC ruling and CBDT circular, rejecting the Revenue's appeal. The HC emphasized that the CBDT's clarification in Circular No.5/2016 supersedes previous interpretations, binding the Revenue to the clarified position. The HC upheld the decision against the Revenue, ruling in favor of the Assessee on both substantial questions of law.

In conclusion, the High Court dismissed the appeal, ruling against the Revenue on both issues and in favor of the Assessee.