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TMI Blog2006 (1) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... no principal-agent relationship between Doordarshan Commercial Service and the advertising agencies. 3. The facts on record show that the relationship between Doordarshan Commercial Service and any advertising agency is between two principals. 4. The decisions of the High Court in CIT v. Heros Publicity Services [2001] 248 ITR 256 (Bom.) and of the ITAT in ACIT v. Samaj [2001] 77 ITD 358 (Cuttack) endorse the stand of the appellant. 5. The Learned Commissioner (Appeals) was not justified in ignoring the appeal filed for the period from 1-4-2002 to 30-9-2002. There is no concept of assessment year as regards proceeding for TDS obligation. 6. There are valid reasons for the bona fide belief of the appellant that there was no requirement for deduction of tax at source under section 194H. Therefore, no demand can be made under section 201(1) or under section 201(1A) with regard to any alleged failure to deduct tax at source." 2. Shri P.K. Sahu, Advocate along with Shri Vijay Gupta, CA appeared for the assessee whereas Shri Purshottam Tirpuri, Sr. DR represented the Revenue. 3. The facts concerning these matters are that DD Commercial Services ("DDCS" in short) which is a unit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any payment on account of commission charges to any advertiser; (ii)Agencies were directly deducting 15 per cent advertising commission from the amount payable to it; (iii)That since no direct payment was made to the agencies, the provisions of TDS were not attracted; (iv)That the assessee was making book adjustment in the Government books for the advertising commission and no payment was made to any advertiser for the commission deducted and adjusted in the account and since no payment was involved, TDS was not liable to be deducted. 3.4 Vide letter dated 22-10-2000 it was further submitted that DDCS had evolved advertising ethics and enters into standard forms of contract for advertisement between DDCS and the members of advertising agency; that commission paid by DDCS to advertising agencies was not the same as commission referred to in section 194H; that the relation between advertising agencies and DDCS was that of principal to principal and not principal to agent because the advertising agencies was actually buying air time space from DDCS to advertise the product of its clients; and thus, the amount paid by DDCS to advertising agency was actually a trade discount and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip between DDCS and ARAA. According to the learned CIT(A), commission was paid to ARAA for rendering services to DDCS and not for functioning on behalf of advertiser. Thus all the pleas, raised before him, were rejected by the learned CIT(A) including the plea of bona fide belief. 3.7 The assessee has filed appeal before the Tribunal for challenging the order of learned CIT(A). 4. Before us Shri P.K. Sahu, Advocate made elaborate submissions. The assessee has also filed written submissions. According to the learned counsel to attract the provisions of section 194H it is necessary to establish the relationship of principal and agent between the payer and the payee and to show that the amount was received as commission or brokerage, by the agent, directly or indirectly, for services rendered. 4.1 The learned counsel pointed out that the commission paid to the advertising agencies was not for rendering services as agent. According to him, the relationship between the DDCS and the assessee was that of principal to principal and as per the contract between the assessee and the agency, the agency was allowed to retain discount out of the revenue brought by the agency. The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso submitted that the percentage of commission was fixed by the assessee and not by the advertisers. So far as advertiser is concerned, he has to make full payment whether he comes directly or through ARAA and it is only when he comes through ARAA, the commission of 15 per cent is paid to the agencies. The learned DR also submitted that the sale of air time cannot be compared with the sale of vehicles etc. and the cases on which reliance has been placed on behalf of the assessee are distinguishable. 6. In reply, the learned counsel for the assessee submitted that even if the advertiser directly approaches the assessee then also he gets discount and therefore it is not correct to say that the discount is paid only when the ARAA is engaged. In support, the learned counsel sought support to his arguments by making reference to the order of CIT(A) dated 5-4-2005 for assessment year 2002-03 wherein it has been held that the advertising agency is agent of the advertiser and not of the assessee. 7. We have carefully considered the entire material on record and the rival submissions. In this case the issue is to be decided on the basis of terms and conditions set out in the agreement be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed telecast material so that telecast of the same is done. The non-accredited agencies/advertisers are required to make payment of telecast charges in advance. In case of accredited agencies, a bill is issued after the concerned sponsored programme/advertisement is aired as they enjoy stipulated credit period from 60 days to 75 days. In the copy of the offer letter of M/s. Reasonable Advertising Pvt. Ltd. which is annexed with assessment order, Mr. Hazoor Singh, Programme Executive has signed the offer letter on behalf of the President of India." 7.1 In view of the above letter it is clear that the formal agreements executed for various transactions between the assessee and the advertiser or the advertising agency were not produced before us, therefore, it is only on the basis of bills sample forms and schedules attached thereto, that we have to decide the issue. 7.2 On going through the relevant material and the rival submissions, the issues to be decided may be framed as below : 1.Whether the advertising agencies are the agents of the assessee and as to whether there is principal/agent relationship between the assessee and the advertising agencies? 2.Whether the amount of 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being reproduced here-under: "The acceptance of this offer shall constitute a contract between the under mentioned and the President of India on the terms and conditions mentioned therein and in Schedule "B" thereto. The said terms and conditions shall form part of the contract. All previous or existing contracts and negotiations in respect of broadcasts for the aforesaid products/service shall stand cancelled on your acceptance of this offer. Dated this.........day of ........200 Seal of Advertiser (Signed).................................................... (Advertiser) Seal of Agency (Signed)................................................... (if booked through them) Status Accredited/(Agency)/Registered/Direct Address : Accepted for and on behalf of the President of India By Sh..................................................Signature.................................................................... . Dated this..........................day of..................200................Designation........................ . When the contract is executed by the Agency on behalf of the Advertiser, they should furnish of legally valid authority of agencies or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge interest at the rate of 18 per cent per annum on all amounts due to it which are not paid within stipulated credit period. The interest shall be charged from the day following the due date of payment and computed on monthly basis. (b) If the Advertiser/non-accredited agency fails to make advance payment as herein above provided Doordarshan, still be entitled to stop all further telecast without in any way becoming liable to the Advertiser/Non-accredited Agency and without prejudice to all other rights and remedies hereunder of Doordarshan; provided further, if any agency fails to remit advertising charges and other related payments collected from the advertiser to Doordarshan before due date of payment or withholds such amounts for unreasonably long period, its agency status will be liable to be withdrawn. (c) The Advertiser/Agency shall abide by the "regulations for advertisement on Akashvani and Doordarshan" and other related rules prescribed by Doordarshan/Government of India/AIR as amended from time to time." 8.3 As per these conditions also the basic liability is that of advertiser which is to be discharged through advertising agency. In Schedule "A", the advertiser w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In such a case, the rates applicable to such substituted times shall be payable. 9. Casual displacement or commission of the material in any telecast shall not affect the validity of the telecast for the purpose of the contract. 10. No claim shall be made by or on behalf of the Advertiser in respect of any error or omission in any telecast made thereunder but if the attention of Doordarshan is called to such error omission it shall, if required, make a correction at the earliest time suitable to Doordarshan." 8.7 As per condition No. 20, if the advertiser fails or makes default in performing any of the terms and conditions of the contract or any other such contract or any damage is suffered by Doordarshan by reason of breach, failure or default on the part of the advertiser in carrying out the terms and conditions of the contract, then the consequences are to be borne by the advertiser and the contract may be terminated. Thus, these conditions also clearly show that the contract is between the assessee and the advertiser. In condition Nos. 22 and 23 also the terms are settled between the assessee and the advertiser. It is mentioned in condition No. 22 that the contract is perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements, the intention of the parties as may be spelt out from the terms of the documents and the surrounding circumstances and having regard to the course of dealings between the parties. While interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the part is clearly intended to treat a buyer as a buyer and not as an agent." 8.10 On facts, the relationship between the assessee and Caltex (India) Ltd. was to be one of buyer and seller and not that of principal and agent. In that case the Hon'ble Supreme Court also observed that a contract of agency differs from contract of sale inasmuch as an agent after taking delivery of the property does not sell it as his own property but sells as the property of the principal and under his instructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect in an agreement of agency. This is a factor which is by no means conclusive, but to a certain extent indicative of the relationship between the said company and the assessee. What is most important is, however, that the supplies were made to the distributor against payment either immediate or deferred as provided in the agreement, and even when the goods were destined directly to the customer, it was the distributor who had to guarantee to arrange the payment. The assessee being the purchaser from the company of the goods in question, the transactions were liable to be included in the turnover of the assessee." 8.12-1 In that case also it was held that, assessee as distributor, was not an agent of the company in respect of transactions in question but was purchaser. 8.13 The issue was also considered in Heros Publicity Services's case (Supra) the Hon'ble Bombay High Court held that the agencies were engaged only to secure payment. It was also observed that the assessee acted on behalf of the advertisers for commission and had obtained letters of authority from the advertisers to enter into contract with Doordarshan. Thus, in that situation the advertising agency was held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed by Doordarshan and therefore the agencies are agents of the Doordarshan, is not acceptable. The registration and accredition of the agencies is done only for the purpose of selecting reputed agencies and to secure payment through them, as held in the case of CIT v. Heros Publicity Services (supra). (ii)Merely because the rate of discount is fixed or regulated by the assessee, it cannot be said that the relationship between principal and agent is established. Similarly, if some facility of payment is given to accredited agency or advertising agency, it cannot be said that it has established the said relationship. The terms of clause 18(a) of the terms and conditions make the accredited agency responsible for all payments relating to advertisement. Loading the agency with such responsibility is itself not consistent with the concept of agency. 8.16 In view of the above, we are unable to concur with the finding of learned CIT(A) that ARAA is an agent of the assessee. 9. Issue No. 2 : As held in the case of Samaj (supra), the word 'commission' is a recompense or allowance for service or labour rendered by the payee for discharging certain functions. It was further observed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when an advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. It was further clarified that when an advertising agency make payments to their models, artists, photographers etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under section 194J of the Act." 11.1 Thus, intention of Legislature is not to impose liability of Doordarshan for deduction of TDS on the amount received by the advertising agencies. 11.2 In view of the above, the provision of section 194H are not applicable to the assessee and the assessee was not liable to deduct tax. This is more so because no payment was made by the assessee to the advertising agency. Thus, the demand raised under section 201 is not legally justified. The demand is to be cancelled. 11.3 Accordingly, ground Nos. 1 to 5 of the grounds of appeal are decided in favour of the assessee. 12. In ground No. 6, the plea of bona fide belief has also been taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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