TMI Blog2012 (5) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... ising 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has been giving 15% trade discount to accredited advertising agency and trade discount of 10% to 15% to non-accredited advertising agency as per Rules and Regulations of INS for last several years. On 15.3.2012, the respondent conducted a survey under section 133A of the Act at the premises of the petitioner at Kanpur Nagar and recorded statement of General Manager Taxation and Legal. The notice dated 19.3.2012 for the financial year 2009-2010 was issued to the petitioner stating that during the course of survey on 15.3.2012, it has been gathered that the petitioner has failed to deduct tax at source under section 194 H of the Act on the payment received from advertising agencies after allowing 15% trade discount, which is as well a deemed commission. Details of monthwise amount of payment of discount were required to be submitted. The petitioner was asked to show cause as to why order under section 201 (1) and 201(1) A of the Act be not passed declaring the petitioner as an assessee in default in respect of such taxes and interest thereon. The petitioner was asked to appear on 22.3.2012. Another notice dated 21.3.2012 for the financial year 2008-09 was issued requiring details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no lack of jurisdiction in the authority to proceed. He further submits that at this state, the writ petition be not entertained. Learned counsel for the petitioner further placed reliance on the decision of Supreme Court passed in the case of Siemens Ltd. Vs. State of Maharashtra and others reported in (2006)12 Supreme Court Cases 33. Be that as it may, in view of the fact that the assessment order is to be passed on or before 31.3.2012 as indicated in the notice, we are of the view that the petitioner may appear and submit necessary information as required and respondent may proceed to pass appropriate orders in accordance with law. It shall be open for the parties to bring on record the order passed by the respondent. Respondent is allowed three weeks' time to file counter affidavit. List thereafter. 3. On 26.3.2012, the petitioner again submitted a letter to the Department stating therein that information sought for is not readily available and it needs a herculean manual exercise of compilation of more than 1,80,000 bills. On 28.3.2012, the petitioner again submitted a letter stating therein that relationship of the petitioner with the advertising agency is principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.03.2012 issued by the respondent (Annexures-4 and 5 to this writ petition). ii) a suitable writ, order or direction in the nature of Certiorari calling for the records of the case and to quash the impugned order dated 28.03.2012 along with the notice of demand dated 28.03.2012 (Annexure-6 to this writ petition) and the impugned order dated 29.3.2012 along with the notice of demand dated 29.03.2012 (Annexure-7 to this writ petition). 5. We have heard Sri V.K. Upadhyay learned senior Advocate, assisted by Sri Ritvik Upadhyay, for the petitioner, Sri Govind Krishna for the respondent Income Tax Department and have perused the record. 6. Learned Counsel for the petitioner challenging the notices dated 19.3.2012 and 21.3.2012 contended that there were no foundational facts on the basis of which the respondent could have assumed jurisdiction under sections 201 and 201(1A) for initiating the proceedings. He submits that the petitioner allowed trade discount to advertising agencies on the advertisements received in accordance with the established trade practice and allowing of trade discount cannot be termed as commission paid by the petitioner to the advertising agency for any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said that the advertising agency is agent of the petitioner. It is submitted that the Rules of INS, as well as terms and conditions as mentioned above, clearly prove that advertising agency is not an agent of the petitioner and the jurisdictional facts as required under section 194H being not present, the entire proceedings are without jurisdiction. Learned Counsel for the petitioner further submits that the question as to whether 15% trade discount allowed to the news agency invites deduction of tax at source was raised by Income Tax Department with regard to news paper publication namely; M/s Living Media Ltd. Which publishes the magazines India Today, Business today etc. An order against M/s Living Media Ltd. under sections 201 and 201 (1A) was passed by the assessing authority on the ground that advertising agencies are agent of the news agencies and 15% trade discount is commission with regard to which tax at source is required to be deducted by the news agency. The matter was taken before the Income Tax Appellate Tribunal by the Department and Income Tax Appellate Tribunal held that there was no liability of the news agency to deduct tax at source with regard to 15% t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be initiated are proceedings for realisation of interest and penalty and the liability to pay tax cannot be fastened on deductor. As per Section 191 read with Section 4 of the Act, such tax has to be directly paid by the assessee i.e. advertising agency and the assessment orders dated 28.3.2012 and 29.3.2012 demanding payment of tax are wholly without jurisdiction. The petitioner could not have been treated to be an assessee in default with regard to tax which according to the respondents was required to be deducted unless a finding is returned that assessee has not paid the tax. In the entire assessment order, there is no finding that assessee has not paid the tax on the aforesaid trade discount (alleged commission) hence, the entire order is without jurisdiction. 9. Learned Counsel for the petitioner further submits that there is no agreement between the petitioner and the advertising agency on the basis of which the assessing officer can conclude that advertising agency was an agent of the petitioner. It is further submitted that rules of INS have not been adverted to by the assessing authority which were relevant to find out the nature of transaction between the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order has already been passed and the petitioner be relegated to avail the alternative remedy of statutory appeal as provided under the Act. He submits that the judgment of the Kerala High Court in Prasar Bharti's case is fully applicable and there is no lack of the jurisdiction in the authorities in initiating the proceedings under sections 201 and 201 (1A) of the Act. He submits that the payment which is being made by the petitioner to the advertising agency in the name of 15% trade discount is nothing but payment of commission to advertising agency in lieu of services which are being rendered by the advertising agency to the petitioner in bringing business to the petitioner i.e. advertisements. It is submitted that the assessing officer has rightly recorded finding in paragraph 30 of the order that jurisdictional facts as required for applicability of Section 194H, are fully present and neither the initiation of the proceedings were without jurisdiction nor the assessment order can be held to be without jurisdiction. The petitioner, inspite of giving opportunity could not provide details of monthwise trade discount allowed by it to different advertising agencies hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings under section 201/201(1A), the notice initiating the proceeding can very well be challenged through writ proceedings. It is further submitted that by the order impugned huge liability has been imposed on the petitioner and apart from assessment order, proceedings under section 147 of the Act have also been initiated. The notice under section 147 has been issued for several assessment years. It is further submitted that assessment order directing for realisation of tax, which according to the respondent was not deducted at source by the petitioner is without jurisdiction since under section 201/201 (1A) at best proceeding could have been initiated only for recovery of interest and penalty. He submits that when the order of assessing authority directing for recovery of tax is without jurisdiction, the writ petition be not thrown out on the ground of alternative remedy. Apart from above reason, huge illegal demand would have a cascading effect on the petitioner company. Penalty proceedings have also been initiated including proceedings for reopening of all completed assessment and total tax liability may be more than 100 crores, which may adversely and irreparably effect the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability is of deductor for payment of tax which could not be deducted? 9. Whether according to Section 191 read with Section 201, a deductor, who fails to deduct tax at source can be deemed to be an assessee in default without adverting to the issue and recording a finding that assessee who is liable to pay tax directly had not paid tax? 10.Whether the assessing authority has taken into consideration all relevant materials for taking the decision and has not taken into consideration any irrelevant material ? 11.Whether the assessing authority has violated the principle of natural justice in the proceeding under section 201 and 201 (1A)? 12.To what relief, if any the petitioner is entitled in the present writ petition? 16. The first issue, which is to be answered, is as to whether the petitioner can be permitted to invoke the jurisdiction of this Court under Article 226 of the Constitution of India for challenging the notices dated 19th March, 2012 and 21st March, 2012 and the subsequent assessment order dated 28th/29th March, 2012 on the principal ground that there were no foundational facts to assume jurisdiction by the Income Tax authorities to proceed under Section 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees. Provided further that an individual or Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limit specified under Clause (a) or Clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income tax under this Section. Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahangar Telephone Nigam Limited to the public call office franchisees. Explanation : For the purposes of this section, - (i) "Commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore proceeding further to examine the facts of the present case. 22. The Apex Court in the case of Calcutta Discount Co. Ltd. vs. Income Tax Officer reported in 1961(41) ITR 191 had occasion to consider the aforesaid issue in context of the provisions of Income Tax Act, 1922. It is useful to note the facts of the said case in some detail. The appellant in the aforesaid case was assessed to income tax for the assessment year 1942-43, 1943-44 and 1944-45 by three separate orders. Three notices purporting to be under Section 34 of the Income Tax Act, 1922 for re-assessment was issued. Notices were replied by the appellant and it challenged the proceedings by means of writ petition under Article 226 of the Constitution of India on the ground - The said pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 aforementioned, whether before or after the amendment in 1948 . Learned Single Judge held that the above ground was not made out but being of the opinion that Amending Act, 1948 was not retrospective,held the notices without jurisdiction and issued a writ of prohibition to the Income Tax Officer from co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought not to have entertained the writ petition. Repelling the said submission, following was laid down by the Apex Court:- Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz., whether the Income-tax Officer had reason to believe that under assessment had resulted from nondisclosure of material facts, before the Incometax Officer himself in the assessment proceedings and, if unsuccessful there, before the appellate officer or the appellate tribunal or in the High Court under section 66(2) of the Indian Income-tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. 25. The next case to be considered is the judgment of the Apex Court in the case of Raza Textiles Ltd. vs. Income Tax Officer, Rampur reported in (1973)87 ITR 539. In the said case Income Tax Officer, Rampur directed the appellant to pay tax on a sum of Rs.2,00,000/- remitted by it as a selling commission to M/s. Nathirmal and Sons, Djakarta (Indonesia) during the year ending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on a citizen. In our opinion the Appellate Bench is wholly wrong in opining that the Income-tax Officer can "decide either way". 26. The Apex Court in the said case held that it is incomprehensible that a quasi-judicial authority like the Income Tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose levy on a citizen. 27. The Apex Court in the case of Shrisht Dhawan (Smt.) vs. M/s Shaw Brothers reported in (1992)1 SCC 534 had again laid down that jurisdictional fact is one on existence or non-existence of which depends assumption or refusal to assume jurisdiction by an authority. Following was laid down in paragraph 9 of the said judgment:- 9. ..... A jurisdictional fact is one on existence or non-existence of which depends assumption or refusal to assume jurisdiction by a Court, tribunal or an authority. In Black's Legal Dictionary it is explained as a fact which must exist before a court can properly assume jurisdiction of a particular case. Mistake of fact in relation to jurisdiction is an error of jurisdictional fact. No statutory authority or tribunal can assume jurisdiction in respect of subject matter which the statute does not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d notice order passed by the respondent was in question in the said writ petition. 9. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v. Brahm Datt Sharma and Anr. AIR 1987 SC 943, Special Director and Another v. Mohd. Ghulam Ghouse and Another, (2004) 3 SCC 440 and Union of India and Another v. Kunisetty Satyanarayana, 2006 (12) SCALE 262], but the question herein has to be considered from a different angle, viz, when a notice is issued with premeditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose [See K.I. Shephard and Others v. Union of India and Others (1987) 4 SCC 431 : AIR 1988 SC 686]. It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its purported show cause notice. 29. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action inter alia contending that the land was mainly used for ploughing and for raising crops and was not 'waste land', unfit for cultivation or habitation. It was urged that since the jurisdiction of the authority depended upon a preliminary finding of fact that the land was 'waste land', the High Court was entitled in a proceeding for a certiorari to determine whether or not the finding of fact was correct. 78. Upholding the contention and declaring the direction of the State Government ultra vires, this Court stated; "In our opinion, the condition imposed by s. 17(1) is a condition upon which the jurisdiction of the State Government depends and it is obvious that by wrongly deciding the question as to the character of the land the State Government cannot give itself jurisdiction to give a direction to the Collector to take possession of the land under s. 17(1) of the Act. It is well-established that where the jurisdiction of an administrative authority depends upon a preliminary finding of fact the High Court is entitled, in a proceeding of writ of certiorari to determine, upon its independent judgment, whether or not that finding of fact is correct". (emphasis supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact as to existence of jurisdiction is present. 85. In our opinion, the submission of Mr. Salve is well founded and deserves to be accepted that "concession" under clause (ii) of sub-section (2) of Section 17 of the Act is a 'jurisdictional fact'. It is only when there is a 'concession' in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. In other words, concession is a 'jurisdictional fact'; method of fixation of amount is 'fact in issue' or 'adjudicatory fact'. If the assessee contends that there is no 'concession', the authority has to decide the said question and record a finding as to whether there is 'concession' and the case is covered by Section 17 (2) (ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. In our considered opinion, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under Section 17 (2) (ii) of the Act, it is still open to the assessee to contend that there is no 'concession' in the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch one of the parties confides to the other, the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and renders an account of it. A Division Bench of this Court had occasion to consider Section 182 of the Indian Contract Act in the case of Loon Karan Sohan Lal vs. Firm John and Co. and others reported in A.I.R. 1967 Alld. 308. Following was laid down in paragraphs 5 and 6:- 6. ..... The court must examine the true nature of the agreement and the subsequent dealings between the parties, and then decide whether it established a relationship of agency under the law. It is common experience that the word 'agent' is frequently used to describe a relationship which is not an agency in law. In several cases, a person described as an agent in the agreement or his letter of appointment was held to be not an agent according to law. Some of these cases are cited in Halsbury's Laws of England, 3rd edition, Vol. 1 p. 146, in a foot-note to the following observation: "351. Agency Depends on True Nature of Relationship In order to ascertain whether the relation of agency exists, the true nature of the agreement or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C-1. Before analysing this agreement, it is necessary to state the essential characteristic of an agency in law. Section 182 of the Contract Act defines an agent as "a person employed to do any act for another or to represent another in dealings with third person." The section defines a principal as "the person for whom such act is done or who is so represented." According to this definition, an agent never acts on his own behalf but always on behalf of another. He either represents his principal in any transaction or dealing with a third person, or performs any act for the principal. In either case, the act of the agent will be deemed in law to be not own but of the principal. The crucial test of the status of an agent is that his acts bind the plaintiff. A Division Bench of Madras High Court in the case of P. Krishna Bhatta and others vs. Mundila Ganapathi Bhatta and others, AIR 1955 Madras 648 laid down following in paragraph 36:- 36. ..... Looked at from this point of view, an agency is a contract of employment for the purpose of bringing another-in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng tests to be applied for finding out as to whether particular relationship is of a principal and agent or not, we proceed to look into the relevant facts and materials which have been brought on the record to examine the above question. 38. As noted above, the assessment order has already been passed by the assessing authority holding that relationship between the petitioner and advertising agency is that of principal and agent and the relevant materials and facts, which have been relied for coming to the said conclusion, have been expressly referred to in the assessment order and have been reiterated in the counter affidavit filed by the department. The entire case of the department having come on the record, it is useful to refer to and rely on the said materials for determining the above jurisdictional question. 39. The assessment order itself noticed the three conditions, which were required to be satisfied for principal and agent relationship, and finding has been returned that all the said three conditions are fulfilled. The relevant findings and observation are contained in paragraphs 21, 27, 30 and 31, which are to the following effect:- 21. The gist of the above p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professional services) or (b) For any services in the course of buying or selling of goods or (c) In relation to any transaction relating to any asset, valuable articles or thing not being securities. All these three conditions are fulfilled in the instant case:- 1. In the Jagran Prakashan Ltd. case the advertising agent is receiving payment indirectly under the name of discount . This discount is nothing but an amount deducted from the gross amount receivable by the principal i.e. Jagran Prakashan Ltd. If the advertising agent would have not rendered services to the Jagran Prakashan Ltd. it would have not received any discount or payment. 2. This discount or payment was received by the advertising agent for procuring/providing advertisements to Jagran Prakashan Ltd. The advertisements were given as per the space available in the Jagran Newspaper. Therefore, the publication of the advertisement is strictly subject to the availability of space in the newspaper. The advertising agency is providing advertisements on the basis of requirement of the newspaper. The newspaper also decides what type of advertisements it will publish. For example, newspapers don t publish the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. visa- vis INS and AAAI have devised a cosmetic and artificial methodology to circumvent the clear provisions of section 194H. 41. The petitioner is member of Indian Newspapers Society (INS) by whom the advertising agencies are granted accreditation. According to the Rules of INS the advertising agencies while being granted accreditation are required to enter into an agreement. The department submits that since the petitioner is bound by Rules of INS by whom the accreditation was granted to advertising agencies after entering into an agreement, there is implicit contract between the petitioner and the advertising agencies and the relationship of principal-agent exists between them. 42. The petitioner has brought on the record Rules governing accreditation of advertising agencies and the proforma of the agreement which is entered between the advertising agencies and the INS. The aforesaid rules have also been referred to in the assessment order. On the basis of Rules of INS of which petitioner is also a member and with whom the advertising agency enters into an agreement, the department has concluded that there is implicit contract between the petitioner and the advertisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson who owns or controls newspaper, the newspaper agency cannot be treated to be principal and advertising agency as agent. 44. Rule 32, which provides for payment of trade discount has been referred by the department, is to the followign effect:- 32. Payment of Trade Discount. As and from the date of accreditation as above, the accredited advertising agency shall be entitled to receive from the members of the Society the maximum and minimum Trade Discount of 15% in respect of advertisement business placed by it with such members. In the case of the provisionally accredited advertising agency, the maximum and minimum Trade Discount shall be 10% of the advertisement business. 45. Rule 45 prohibits the members of the society from appointing advertising agency as their representatives. Rule 45 is quoted below:- 45. Member s Representation by Advertising Agency. Members of the Society are free to appoint whomsoever they like as their representative provided the said representatives are not classified as advertising agents and do not function as advertising agencies. 46. An agency is a contract of employment for the purpose of bringing another in legal relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er agency and advertising agency, in fact, is running its advertising business and while conducting the said business it acts on behalf of their client i.e. advertiser. The first paragraph of the agreement is as follows:- (1) BY THE SOCIETY: That the Society accredits the Agency and includes its name in the list of accredited agents published from time to time. 49. Clause 2 of the agreement clearly indicates that advertising agency works in the interest of consumer and advertisers. Clause 2(a), (b), (c) and (d) are quoted below:- (2) BY THE AGENCY: In consideration of the accreditation herein afforded and of the trade discount to which the Agency is entitled by reasons of such accreditation. (a) The Advertising Agency shall maintain a properly equipped office and shall fully abide by the Standards of Service by Advertising Agencies in the interest of consumers and Advertisers set out in the Society s Rules and Regulations on Accreditation of Advertising Agencies. (b) The Advertising Agency shall ensure that all advertisements placed by it are legal, clean, honest and truthful and it shall render the best possible advertising service to the advertiser and encourage t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id a service fee for its services provided that the amount of the service fee so received shall not be less than 15%, such service fee being levied on the gross and not on the net amount. 55. Column 26 of the application form, as quoted above, which require the advertising agencies to submit the list of names and addresses of clients whose advertisement is handled by them with the letters of appointment issued by the clients (advertisers) clearly mean that advertising agencies act for the advertisers who are their client and they cannot be treated to be an agent of the newspaper agency. The format of agreement in Appendix-III Clause (2) subclause (d), as quoted above, which provides that advertising agency shall retain full trade discount earned as an advertising agency from member publications and it will at no time pay or otherwise allow any part of such trade discount to any advertiser or representative of any advertiser for whom it may be acting, or has acted as an advertising agency. Thus the said clause clearly indicates that advertising agencies act for the advertisers who are their client and they are not the agent of the News Agency. In paragraph 21 of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f survey and are part of the assessment order, mention the total amount paid to advertising agency and the discount provided for and the net bill amount. The petitioner s case is that trade discount has been provided by the petitioner throughout as a part of trade practice. The trade discount is claimed to be given in normal business practice which has been recognised in several cases. Reliance has been placed on the judgment of the Apex Court in the case of Moped India Ltd. vs. Assistant Collector of Central Excise, Nellore and others reported in (1986)1 SCC 125. In the said case the appellant, manufacturer of moped, allowed commission to its dealer. The central excise duty was paid on the price list after deducting the so called commission to the dealer. The Central Excise Department took the view that they were not entitled for deduction of the aforesaid amount and demand of central excise was issued. The Apex Court held in the said judgment that the said amount was trade discount. Following was laid down in paragraph 7 of the said judgment:- 7. That takes us to the second question, namely, whether the Division Bench was right in taking the view that the Commission of Rs. 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. The appellants charged to the dealer the price of the mopeds sold to them less the amount of Rs. 110, Rs. 145 and Rs. 165 in respect of different varieties of mopeds. These amounts allowed to the dealers were clearly trade discount liable to be deducted from the price charged to the dealers for the mopeds. purpose of arriving at the exciseable value of the moped. 58. Another judgment relied by the petitioner is in the case of Commissioner of Central Excise, New Delhi vs. DCM Textiles reported in (2006)9 SCC 349 where the amount paid to dealer was treated to be trade discount. In the aforesaid case under the agreement with the dealer a payment of commission was contemplated. The Apex Court rejected the argument that dealer was agent of the appellant and further the amount to be paid to the dealer was trade discount. Followings were laid down in paragraphs 8 to 12:- 8. Respondent has entered into different but similar agreements with its dealers in connection with the sale of cotton yarn manufactured by it and one of the agreement was produced during the course of proceedings before the original authority for the purposes of ascertaining the terms and conditions at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal to principal basis' and it was an absolute sale made by the respondent in favour of the dealers. The dealer is required to make full payment of the cotton yarn purchased by him forthwith and he is given half percent cash discount if the payment is made within one day, 0.25 per cent if the payment is made within four days and if the payment is not made within seven days then from 8th day onwards the dealer becomes liable to pay interest on the delayed payment. This indicates that there was an absolute sale made by the respondent to its dealers and the sale was on 'principal to principal basis'. 10. This Court in Union of India Others v. Bombay Tyres International Pvt. Ltd. reported in 1984 (17) ELT 329 (SC) on further arguments held trade discount to mean: 1. Trade Discounts - Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the following Court orders in the case of Living Media Ltd vs Asstt. Commissioner of Income Tax Circle 50(1), New Delhi. 1. Order No.I.T.A.No.3807/Del/2005 by the Appellate Tribunal Delhi Bench H, New Delhi, which held that the advertising agency was not an agent of the assessee and the amount deducted out of the gross payment received by the agency from the advertiser cannot be treated as payment of commission by the assessee to agency. Thus it was held that the assessee was not liable to deduct TDS on payment received by the agency. 2. Order No. ITA No. 1264 of 2007 by the High Court of Delhi, New Delhi upholding the judgment passed by the Appellate Tribunal Delhi Bench H, New Delhi. These orders may be of use in dealing with such notices. 60. M/s Living Media Limited is a publisher, which is publishing various magazines like India Today, Business Today, Cosmopolitan etc. The company had been generating income through space selling (advertisement) in its magazines which was done through advertising agency or directly through advertiser. The Company used to pay 15% discount as per Rule 32 of the INS Rules. Similar notices were issued to Living Media Ltd. asking for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that commission was not paid by the Assessee to the advertising agency and therefore, the provisions of Section 194H of the Act could not be invoked by the Revenue. 61. It is relevant to note that the Income Tax Department filed Special Leave to Appeal (Civil) No.3433 of 2009 against the judgment of the Delhi High Court dated 6th May, 2008 which special leave to appeal was dismissed by the Apex Court vide its order dated 11th December, 2009. The petitioner has relied on the aforesaid judgment extensively and the assessing authority has distinguished the judgment of the Delhi High Court stating that Kerala High Court has delivered a judgment in the case of CIT Thiruvanathapuram vs. Director, Prasar Bharati reported in 325 ITR 205, which is more recent judgment, hence the recent judgment is to be preferred. The aforesaid reasoning by assessing authority is wholly erroneous. The judgment of the Delhi High Court was fully applicable on the facts of the present case and the department was obliged to take into consideration the said judgment specially when the special leave to appeal filed by the department was dismissed by the Supreme Court. 62. Now we come to the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent on advertisement charges remitted by the advertising agencies is subject to tax deduction at source as commission under Section 194H of the Act. From the above it is very clear that parties have understood their relationship as Principal and Agent and what is paid to the agent by Doordarshan is 15% of advertisement charges collected and remitted to it by the agent which is in the form of commission payable to the Agent by Doordarshan. Counsel for the respondent referred to one of the agreements where the commission is referred to as standard discount and contended that the arrangement between respondent and advertising agency is not agency but is a Principal to Principal arrangement of sharing advertisement charges. We are unable to accept this contention because advertisement contract entered into between the customer and the agency is for telecasting advertisement in Doordarshan channels. The agent canvasses advertisement on behalf of Doordarshan under agreement between them and the advertisement charges recovered from the customers are also in accordance with tariff prescribed by Doordarshan which is incorporated in the agreement. Further it is specifically stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand draft for the TDS on 15% discount retained by them. This cheque/demand draft will be drawn separately and should not be included in the telecast fee/advertisement charges. It is very clear from the above provision that the advertising agency clearly understood the agreement as an agency arrangement and the commission payable by the respondent to such agency is subject to tax deduction at source under the Income Tax Act and so much so the provision in the agreement was for the agent after retaining 15% to give cheque or demand draft for TDS amount which was originally 5% until it was enhanced to 10% by Finance Act 2007 with effect from 1.6.2007... 63. In the aforesaid case, the relationship of principal and agent was fully established since the advertising agency was appointed as agent by written agreement and there was specific clause that tax shall be deductible at source on payment of trade discount. In the said circumstances the Kerala High Court held that Section 194H of the Income Tax Act was applicable. In the present case, there is no agreement between the petitioner and the advertising agency and the advertising agency has never been appointed as agent of the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the similar provisions of the Income Tax Act, 1922, the Federal Court in 15 ITR 302 Chatturam Vs. Commissioner of Income Tax held that section imposes income tax upon a person in respect of his income. While interpreting Sections 3,4 and 22 of Income Tax Act, 1922 following was laid down by the Federal Court: The liability to pay tax is founded on Sections 3 and 4 of the Income Tax Act, which are the charging sections. Section 22 etc. are the machinery sections to determine the amount of tax. Lord Dunedin in Whitney Vs. Commissioners of Inland Revenue stated as follows:- Now, there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment, that ex hypothesi has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay. In W.H. Cockerline Co. V. Commissioners of Inland Revenue, Lord Hanworth, M.R., after accepting the passage from Lord Dunedin's judgment quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Commissioner of Income Tax, Bombay City MANU/ SC/0043/1952 : [1952]22ITR484(SC) and it was emphasised that the expression, 'from whatever source derived' widened the net. But exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the Act and latter on computation in accordance with the provisions in the Act and the rules. 68. Chapter XVII of the Act deals with collection and recovery of tax. Section 190 provides for deduction at source and advance payment. Section 190 is quoted below: 190 (1) Notwithstanding that the regular assessment in respect of any income is to be made in later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of Section 192, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4. 69. Section 190 thus, provides mode of collection and recovery of tax and under sub-section (1) of Section 190, the tax is payable by deduction or collection at source. 70. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). (3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions i.e. (i) in the case of income in respect of which provision is not made under chapter XVII for deducting income tax at the time of payment and (ii) in case where income tax has not been deducted in accordance with the provisions of Chapter XVII, the Income tax is payable by the assessee direct. Section 191 thus re-enforces that primarily the liability of payment of income tax is on the person, whose income is to be taxed as delineated under sub-section (1) of section 4 and sub-section (2) of section 190. The explanation to Section 191 provides that where a deductor who was required to deduct income tax at source does not deduct or after deduction does not pay and where the assessee has also failed to pay such tax directly then such person shall without prejudice to any other consequence be deemed to be an assessee in default within the meaning of subsection (1) of Section 201 in respect of such tax. The explanation to section 191 thus has to be read into section 201 (1). 75. Sub-section (1) of Section 201 provides that where deductor does not deduct or does not pay after deduction such person shall without prejudice to any other consequences which he may incur, be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would mean obliteration of the expression sum chargeable under the provisions of the Act from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that Act dehors the machinery Sections. The Act is to be read as an integrated code. 17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T. Vs. Eli Lilly Co. (India) (P.) Ltd. [312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T. Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are chargeable to tax under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income chargeable under the head salaries . Similarly, Section 195 imposes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apex Court in GE India Technology Centre Private Limited Vs. Commissioner of Income Tax (supra). Sri Govind Krishna further relied on the judgment of the apex Court in Civil Appeal No. 1507 of 2007 of 2007 M/s Sharma Transports Vs. The State of Maharashtra decided on 2.8.2011 for the proposition that if a particular method is prescribed for doing a certain thing by the Statute, it rules out any other method. For the same proposition reliance has been placed on the judgment of the apex Court in Dr. Ram Deen Maurya Vs. State of U.P. others Civil Appeal No. of 2009 (arising out of Special Leave Petition (C) No. 22330 of 2007), decided on 17.4.2009, wherein same proposition was laid down i.e. when rules prescribed a particular procedure to be followed, the same requires to be followed and any deviation would disentitle the applicant to claim relief. There cannot be any dispute to the proposition laid down by the apex Court in the aforesaid two cases. However, the present is not a case of non compliance of any procedural requirement. 79. The apex Court had occasion to consider provisions of Section 201 in (2007) 8 SCC 463 Hindustan Coca Cola Beverage (P) Ltd. Vs. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The High Court further held that the Income-tax Appellate Tribunal's order dated 12.7.2002 got itself merged into the order passed by it on 21.5.2004 dismissing the appeal of the appellant herein. The High Court came to the conclusion that the Tribunal could not have reopened the matter for any further hearing. 8. We have already noticed that the order passed by the Tribunal to reopen the matter for further hearing as regards ground No. 7 has attained its finality. In the circumstances, the High Court could not have interfered with the final order passed by the Income-tax Appellate Tribunal. 9. Be that as it may, the circular No. 275/201/95- IT(B) dated 29.1.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section 201 (1) of the Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under Section 201 (1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here any person who is required to deduct tax at source does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, then such person, shall without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax. 83. Section 201 (1A) contains a specific provision for payment of simple interest by any such person who does not deduct whole or any part of the tax or after deducting fails to pay the tax. Subsection (2) of Section 201 provides that where tax has not been paid after it is deducted the amount of tax together with simple interest shall be a charge upon all the assets of the person or the company as may be, referred to under sub-section (1). Sub-section (2) thus, although enact a provision that in case where tax after deduction has not been paid by the deductor, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the deductor, whereas nothing has been said in sub-section (2) with regard to such charge on a deductor, who fails to deduct the tax. The reason is obvious, in a case where deductor fails to deduct the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee directly. xxxxx Section 201 of the Act provides the consequences of failure to deduct the tax at source or failure to pay the tax deducted to the Government. If the person responsible to deduct the tax at source fails to deduct the whole or any part of the tax or after deducting fails to pay the tax as required under the Act, the person responsible would be treated as an Assessee in default in respect of the tax. Section 201(1A) of the Act provides that without prejudice to the provision of Sub-section (1), if such person does not deduct the tax or having deducted, failed to pay the tax, he or it shall be liable to pay simple interest @ 15 % per annum on the amount of such tax from the date on which it was deductible to the date on which it was actually paid. Under Section 204 of the Act, the expression "the person responsible for paying" in the case of payment of income chargeable under the head "Salaries" means, the employer. xxxxxxxxx Thus, from a combined reading of Section 190, 191, 192, 198, 200, 201, 203 and 204 of the Act, it is clear that as soon as tax is deducted at source by the person responsible to make the payment, the liability of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor is to pay interest. 86. The similar view was been taken by the Gujrat High Court in (1999) 235 ITR 433 Commissioner of Income Tax Vs. Ranoli Investment P. Ltd. And others, while considering the provisions of Sections 201, 190,191 and other provisions of the Act. Following was laid down in the aforesaid judgment: The consequences of failure to deduct the tax at source or failure to pay the tax deducted to the Government, are provided for in s. 201 of the Act as per which, if no deduction is made or if the deducted amount is not paid as required by the Act, the person whose duty it was to deduct the tax at source and to pay, is to be treated as an assessee-in-default in respect of the tax, but no penalty is to be charged under s. 221 from such person, if the ITO is satisfied that the failure to deduct and pay the tax had occurred due to good and sufficient reasons. As provided by sub-s. (1)A of s. 201, without prejudice to the provisions of sub-s. (1), if such person did not deduct the tax or having deducted, fails to pay the tax, he or it shall be liable to pay simple interest at 12 per cent. per annum on the amount of such tax from the date on which it was deductible to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the considered opinion that in a case where tax has not been deducted at source, the short deducted tax cannot be realised from the deductor and the liability to pay such tax shall continue to be with the assessee direct, whose income is to be charged and a person who fails to deduct the tax at source, at best is liable for interest and penalty only. The above issues thus, are decided in favour of the petitioner. 90. Now comes issue no. 10 which is in two parts; (i) whether the assessing authority has taken into consideration all relevant materials, while passing the assessment order ? (ii) whether the assessing authority has taken into consideration any irrelevant material, while passing the assessment order. The petitioner in the writ petition has specifically referred to and relied on the Circular issued by the Central Board of Direct Taxes being Circular No. 715 dated 8.8.1995. The said circular was clarified vide letter dated 12.9.1995 of Central Board of Direct Taxes. Copy of the said Circulars along with letter dated 12.9.1995 have been filed as Annexure-10 to the writ petition. The clarification was issued on the subject Circular No. 715 dated 8-8-1995 regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit does not deny the issuance of the Circular dated 8.8.1995 and the clarification issued by the Central Board of Direct Taxes on 12.9.1995 but nothing has been said as to why the said clarification be not be applicable. The assessing authority in its assessment order has not adverted to the aforesaid circular dated 8.8.1995 and its clarification dated 12.9.1995, which was the most relevant material while deciding the issues. Thus, the assessing authority has not applied its mind to a relevant material i.e. the clarification issued by the CBDT dated 12.9.1995, which clinches the issues. 93. While considering issues No. 2 to 6, we have already observed that the assessing authority has not adverted to the relevant Rules of INS, which were required to be adverted for finding out the relationship of principal and agent. We thus, conclude that assessing authority has not considered the relevant materials while passing the assessment order which clearly vitiates the assessment order. 94. Learned Counsel for the petitioner has submitted that assessing authority has placed reliance on a wholly irrelevant material i.e. an article published in newspaper 'Business Standard' on 31.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency informs the newspapers about the advertisement and then the paper slots the advertisement. Hence, once again, the agency is merely being paid for the services it renders, which is why such payment is liable to TDS, the official added. 95. Learned Counsel for the petitioner is right in his submission that reliance on the said article published in a newspaper was an irrelevant material. The assessing authority from the aforesaid article has relied on the opinion of CBDT as disclosed in the said article to the effect that members of the society are liable to deduct tax at source on payments made by them to advertising agency. In paragraph 40 of the counter affidavit as quoted above, the said stand of the CBDT has also been relied. We are of the view that the said article was an irrelevant material, which was not required to be relied by the assessing authority, while passing the assessment order. 96. After having considered and answered the issues No. 2 to 10, now we revert on the first submission of learned counsel for the Department that the writ petition be not entertained and the petitioner be asked to avail the statutory remedy of appeal provided under the Act. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute to the proposition as laid down by the apex Court in the aforesaid case. In the aforesaid case, the rights were already adjudicated in the suit which was decreed. In the said circumstances, the apex court observed that petition under article 227 ought not to have been entertained and the guarantor should have been relegated to take recourse to the appeal. The present is a case where the proceedings have been challenged on the ground that there was no jurisdictional facts on the basis of which the income tax authorities could have assumed jurisdiction under section 201 and further there was no jurisdiction to direct for recovery of tax which according to the respondent was short deducted by the deductor. Thus, the present case is clearly distinguishable. It is further relevant to note that in the present case, the assessing authority has relied on an article published in the newspaper namely; 'Business Standard' which article quoted the opinion of CBDT that the news agency is liable to deduct tax at source while making payment to advertising agency for advertisement. Although there are no material brought on the record by the Department to indicate as to when and in what circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000. The petitioner submits that there are various centres spread throughout the country which have separate offices and the petitioner having not maintained any detail of the TDS discount account, which is being given to the advertising agencies, the informations were required to be compiled and it was a herculean task requiring atleast one month's time. In 2004 (266) ITR 283 V.K. Packaging Industries Vs. Tax Recovery Officer and others, a Division Bench has made following observation: Before parting with the case we would like to state that we cannot appreciate this practice of the Income-tax Department of hurriedly passing assessment orders shortly before the limitation period is about to expire and justifying this practice by saying that there was shortage of time and hence it was impossible to verify the facts properly, and hence the additions were being made. It is common knowledge that when the limitation for making an assessment is about to expire (usually on 31st March) there is a sudden rush and scramble to complete the assessments. If this practice is countenanced the citizens of the country will be put to great harassment as exorbitant demands can be made against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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