TMI Blog2008 (1) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... easoned, illegal and based on incorrect and improper appreciation and interpretations of facts and law. (2) Both the ACIT, Circle-57, Kolkata and also the CIT(A)-XI Kolkata erred in holding that the advertising agents are the agents of the Newspaper and are rendering services on behalf of the Newspaper, completely disregarding the fact that actually the relationship between the Newspaper and the advertising agents is on principal-to-principal basis. (3) Both the ACIT, Circle-57, Kolkata and also the CIT(A)-XI, Kolkata erred in holding that the amount retained by the advertising agents at 15 per cent out of the amounts paid by the advertisers to the newspaper is a commission and not the trade discount and hence tax was required to be deducted at source therefrom under the provisions of section 194H of the Act, thereby disregarding of clear provisions of the Rules and Regulations governing accreditation of advertising agencies of the Indian Newspaper Society (INS), the Circulars issued by the Ministry of Finance and also the judgment of ITAT, Cuttack Bench in the case of ACIT v. Samaj 77 ITD 358 . (4) On the facts and in the circumstances of the case, the ACIT, Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advertiser. The assessee has also submitted before the Assessing Officer that when release orders are released by the agencies, the name of the client is always disclosed on it and there is no principal agent relationship between the assessee and the advertising agencies. The assessee has also pointed out that as per the rules of Indian Newspaper Society, i.e., INS, accreditation is awarded by the Society to the advertising agency wherein 15 per cent commission is allowed to them by the print media for bringing the advertisement job for publication. The assessee has also placed before the Assessing Officer that advertising agencies buy space in the newspapers by entering into the transaction on principal-to-principal basis and, therefore, no question arises for deduction of tax by the assessee on account of payment of commission/trade discount to such advertising agencies. 4. The Assessing Officer, however, has not accepted the explanation of the assessee and has observed that the payments by the assessee to the advertising agencies is nothing but payment of commission within the meaning of section 194H of the Act on which the tax was required to be deducted at source in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoices are raised by the newspapers, i.e., the assessee in respect of the advertisement charges on the advertising agencies, however, the same is entered in the books only after deducting 15 per cent of trade discount. He has also placed terms and conditions between the members of Society and the advertising agencies, which are available in the paper book. 8. The ld. counsel for the assessee has rebutted the order of Assessing Officer in holding the advertising agencies as agents of the assessee and thereby observing that the payment of trade discount of 15 per cent from the gross amount by the assessee constituted payment of commission, on which TDS under section 194H is liable to be deducted. The ld. counsel has submitted that since the advertising agencies are independent persons having their own identity and wisdom and were not working exclusively for the assessee, the action of Assessing Officer in treating such advertising agencies as agents of the assessee-company was not correct and has pleaded that tax and surcharge under section 201(1) and interest thereon under section 201(1A) should be deleted. 9. The ld. counsel for the assessee in support of his above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. From the record, we find that the revenue has considered the trade discount of 15 per cent to advertising agencies in the nature of commission, on which TDS is supposed to be deducted under section 194H, against which the assessee has contended that transactions between the assessee and advertising agencies were on principal-to-principal basis and, therefore, no payment of commission exists and, therefore, the assessee was not liable for TDS under section 194H of the Act. 12. Since the revenue has considered 1.5 per cent discount allowed by the assessee to advertising agencies as commission, which falls under section 194H. We feel it convenient to re-produce the relevant extracts of section 194H, which reads as under : "194H. Commission or brokerage. Any person, not being an individual or a Hindu undivided family, who is responsible for paying on or after 1-6-2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal. However, various Courts have held that true nature of a contract of agency has to be seen its terms and conditions and, therefore, the various terms and conditions become decisive factors to determine whether there exists a principal-agent relationship or there exists a principal to business principal relationship in a transaction. 15. Coming to the facts of the present case, we observe that the assessee publishes newspapers and magazines and the main source of its income is from advertising agencies, who in turn gets advertisement from the customer/clients and get discount (as per claim of the assessee)/commission (as per claim of revenue) from the assessee on such advertisement payment. The entire transaction is governed by the Rules and Regulations as prescribed by the Indian Newspapers Society, a copy of which has been placed on record before us. From the plain reading of preamble of Rules and Regulations governing accreditation of advertising agency, it is evident that the Indian Newspaper Society, i.e., INS gives affiliation only to those advertising agencies, which fulfil a specific line/quality/eligibility criteria set up by it we for the sake of convenience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly equipped office, whereas clause (10) clearly lays down that it should be free from control or interference of any business or person, who control any newspaper or other advertisement medium or media or its principal should not be partner or employee of any other advertisers or publishers of newspaper or advertising medium. 16. Apart from the above rules, INS also put restriction on rebate which could be allowed by advertising agencies to its clients, the terms and conditions of payment of bills, state of defaulter and several other clauses form part of rules and regulations, a copy of which is placed in the paper book. 17. A bare reading of various terms and condition along with the rules and regulations governing the accreditation of advertising agency by INS, it is apparent that advertising agencies are basically executing their work strictly in terms of the standard form as laid down by the society, i.e., INS and such advertising agencies are not solely dependent upon the newspaper as in case of a mobile company and its franchisee. Various rules and regulations also point out as to the rights and duties of such advertising agencies and the relationship between the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between the Indian Newspaper Society and the advertising agency referred to above and shall abide by the Rules and Regulations Governing Accreditation of Advertising Agencies referred to above in all respects. The advertising agency will particularly observe the regulations governing credit and regarding the rebating of commission and observance of the advertising agency service standards." "25. The advertising agency shall be under the clear liability to pay all the bills of the Member Newspaper within the credit period fixed in the Regulations and Agreement referred to above irrespective of whether the Advertising Agency has received payment of the bill from the advertiser or not." 19. All the above conditions between the newspapers and the accredited advertising agencies clearly show that the transactions between them are not on the basis of principal and agent basis but rather they work on principal-to-principal basis. 20. Apart from the above fact, the preparation of the advertising material is purely a matter of understanding between the advertiser and the advertising agency. The newspapers have no role to play therein. If the advertising agencies would have p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter they are placing orders on the assessee-company, on which they are getting trade discount. This is also not a case that franchises are appointed by the assessee-company as in the case of Bharti Cellular Ltd. ( supra ) as in the present accredited advertising agency only accredited by the INS only after fulfilling criteria laid down by it and are subject to monitoring by them from time to time and all the conflicts and legal disputes are resolved in terms of rules and regulations framed by the INS, whereas no such third agency exists in the case of Bharti Cellular Ltd. ( supra ). 23. Apart from the above fact as observed above, the preparation of the advertising material is purely a matter of understanding between the advertiser and the advertising agency. There is no control of the assessee s newspaper or magazines on such advertising material. Rather clause (11) of Rules and Regulations as re-produced hereinabove, makes the advertising agency liable in respect of costs, damages or other charges falling upon the newspapers as a result of legal actions or threatened legal actions arising from the publication of the advertisement published in accordance with the copy ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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