2012 (5) TMI 488 - ALLAHABAD HIGH COURT

Assessee in default – Trade discount provided by newspaper publishers to advertising agencies under Rules and regulations of Indian Newspaper Society - Revenue contended that said discount are deemed commission and that the assessee ought to have deducted TDS u/s 194H and was liable as assessee-in-default u/s 201 – demand of taxes and interest - Held that:- Two conditions, which are required to be fulfilled before holding a person liable for deduction at source u/s 194H, are the payment is received by a person as agent of principal and secondly payment is for services rendered (not being professional services). In present case, it is clear that advertising agency has never been appointed as agent of the petitioner. The relationship between the assessee and the advertising agency in accordance with the INS Rules is that of a principal to principal because (a) the assessee has no control over the advertising agency, (b) the advertising agency is responsible for payment even if the advertiser has not paid the advertising agency, (c) the advertising agencies are rendering service to the advertisers/ customers & other terms. Therefore, trade discount provided cannot be termed as Commission.

Deductor who fails to deduct income tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, it flows that there is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly. Even in case of short deduction, tax cannot be realised from the deductor and he is at best liable for interest and penalty only;

Assessing authority has not considered the relevant materials i.e. rules & Regulations of INS, Circular No. 715 dated 8-8-1995 issued by CBDT to determine nature of relationship and applicability of TDS provisions while passing the assessment order, rather placed reliance on the article published in a newspaper, which was an irrelevant material. Hence, said reliance on irrelevant material clearly vitiates the assessment order.

Maintainability of writ petition - Since huge liability running in several crores have been fastened on the petitioner and multiplicity of proceedings will increase the assessee’s sufferings even though s. 194H is clearly not applicable; therefore we are of the view that the petitioner has rightly invoked the jurisdiction of this Court under Article 226 and the petition cannot be thrown out on the ground of alternative remedy.

Principle of natural Justice - It is the duty of the Department to make a correct assessment and not to make an excessive assessment merely on the ground of shortage of time, since it puts citizens to great harassment as exorbitant demands are raised and it breaches the principles of natural justice - Decided in favor of petitioner.