TMI Blog2006 (1) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments : ( i )That it had not made 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, who were buyers of the air time, was "commission or brokerage" in terms of the definition of section 194H of the I.T. Act. It was further held that there was no principal to principal relationship 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, whereas in the case of advertiser without involvement of ARAA, no such facility was given. According to learned DR, the conditions set out in the contract also indicate that ARAA was appointed as agent by the assessee and the assessee was controlling the activities of the ARAA. He also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in prescribed format in duplicate. One copy is signed and returned to advertiser/agency. This becomes a binding agreement for telecast. The other copy is kept in the file for billing and record purposes. The advertiser/agency gets in touch with our telecasting wing and supplies the concerned 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 throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form/letter is to be signed by the advertiser and also by the advertising agency. In the last sentence it is written that when the contract is executed by the agency on behalf of the advertiser they should furnish the legally valid authority or agreement or the relevant extract . The following portion of this letter is 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed after telecast for payment or by requiring cash in advance in respect of all telecasts which are to be made after the date of such notice. If the Accredited Agency fails to make payment of monthly bills by the due date on more than three occasions in a year, or within 45 days after the prescribed credit period, it shall automatically loose its accredition. Doordarshan shall be entitled to charge 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event of material being damaged, Doordarshan will notify the advertiser so that the advertiser can replace them at his cost. 8. If no telecast takes place due to material being damaged or for any technical or operational reasons, Doordarshan will incur no liability thereof but will provide alternative time for the telecasting of such advertising material after prior information to the advertiser wherever possible. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r supply of petrol and petroleum products to it on certain conditions. In the course of its business, the assessee sold petrol to various trucks and other car owners and also consumed part of the petrol for its own purposes. The issue was as to whether the assessee was agent of Caltex (India) Ltd., or not. The Hon ble Court observed as under : "The question will have to be determined having regard to the terms and recitals of the agreements, 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstance rather than the form of it. The use of the word agent or agency by itself if not decisive. However, the assessee had been described in the agreement as distributor and not as agent . The mere fact that the manufacturer fixes the sale price, by itself, cannot lead to the conclusion that the distributor is merely an agent. Under the agreement what the distributor got is described as a rebate and not as commission , as one would normally expect 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertising agency and the Doordarshan as principals. There is no mention in the contract to the effect that if the advertiser does not pay to the advertising agency, the loss would be to the account of Doordarshan. The basis of receipt of discount of commission is the payment made by the advertiser and it is out of the payment so made that the discount is deducted. DDCS, as such, does not make any payment directly or indirectly. The argument that the accredited agencies are appointed 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 age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS on the payment received by the agency. 11. There is another aspect of the matter. In the context of section 194C, CBDT Circular No. 715 reported in 215 ITR (Stat.) 12, the following clarification has been given : "Question 1 : What would be the scope of an advertising contract for the purpose of section 194C of the Act ? Answer : The term "advertising" has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Oriental Carbon and Chemical Ltd. v. ITO, Ghaziabad in ITA Nos. 2142 to 2145/Delhi/1998 affirmed that provisions of section 201(1) were such that there was no scope for considering the plea of bona fide belief in the manner. The case of Nestle India Ltd. ( supra ) cited by the Applicant is distinguishable as the issue involved therein pertained to estimation of salary income while in the present case the amount of commission is not disputed and is not subject to estimation and therefore argument of bona fide estimation is not available to the Appellant. Similarly, the language of section 201(1A), uses the term shall . Interest under section 201(1A) of the Act is mandatory and automatic and is compensatory in nature as held by Delhi High Court in the case of Commissioner of Income-tax v. Prem Nath Motors (P.) Ltd. reported in 253 ITR 705." 12.2 In our considered opinion the learned CIT(A) is not justified. In the circumstances of the present matter the bona fide belief on the part of the assessee is fully established and thus, this plea is also acceptable and on the basis of this plea, no demand can be raised against the assessee under section 201(1A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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