2009 (11) TMI 400 - HC - Income Tax

Deduction of tax at source- whether the Income-tax Appellate Tribunal was justified in holding that the commission paid by the Doordarshan Kendra which is under the control of the respondent to advertising agencies for advertisements canvassed by them does not attract the provisions of section 194H of the Income-tax Act 1961 which provides for deduction of tax at source on payments of commission or brokerage. Held that- the transaction was a pure agency agreement between Doordarshan and advertising agencies because one act for the other and the act of the agent bind Doordarshan in its capacity as principal. Thus it fell with in the definition of commission. Thus tax deducted at source on the commission charges of 15 percent. had to be paid by Doordarshan to the Income Tax Department with reference to the date on which 85 percent of the advertisement charges were received from the agent.

Summary

Issues:
1. Whether the commission paid by Doordarshan to advertising agencies for advertisements does not attract section 194H of the Income-tax Act, 1961.

Analysis:
1. The main issue in this case is whether the commission paid by Doordarshan to advertising agencies for advertisements attracts the provisions of section 194H of the Income-tax Act, 1961. The court analyzed the nature of the relationship between Doordarshan and the advertising agencies, focusing on the agreements between the parties. It was found that the commission paid by Doordarshan to the agencies is indeed subject to tax deduction at source under the Income-tax Act as it falls within the definition of "commission" as per Explanation (i) to section 194H.

2. The court examined the agreements between Doordarshan and the advertising agencies, which clearly outlined the commission structure and the obligations of the parties. It was noted that the commission paid to the agencies was for services rendered in canvassing advertisements on behalf of Doordarshan. The court emphasized that the transaction between the parties was a pure agency arrangement, where the acts of the agents bound Doordarshan as the principal.

3. Another aspect considered by the court was the provision in the agreements allowing advertising agencies to retain 15% of the advertising charges as commission. The court highlighted that this provision did not exempt Doordarshan from deducting tax at source under section 194H. The court pointed out that the provision for agents to retain 15% of the charges was essentially an advance payment made by Doordarshan to the agents, which constituted payment of commission subject to tax deduction.

4. The court distinguished this case from previous judgments involving discounts on stamp paper and lottery tickets, emphasizing that the present case involved a clear agency arrangement where Doordarshan allowed agents to canvass advertisements on their behalf. The court ultimately allowed the appeals filed by the Revenue, reversing the Tribunal's orders and restoring the assessment orders. However, it was mentioned that the respondent could invoke the indemnity clause to recover the levies from the agents, if permissible.

5. In conclusion, the court held that the commission paid by Doordarshan to advertising agencies for advertisements falls within the purview of section 194H of the Income-tax Act, 1961. The judgment emphasized the importance of complying with tax deduction provisions and upheld the liability of Doordarshan to deduct tax at source on the commission paid to the agencies.