2018 (4) TMI 201 - SC - Income Tax

Appellant's Advertising Payments Ruled Commissions Under Tax Law, Affirmed by Supreme Court

The Director, Prasar Bharati Versus Commissioner of Income Tax, Thiruvananthapuram

The Supreme Court affirmed the High Court's decision that payments made by the appellant to advertising agencies constituted commissions under Section ... TDS u/s 194H - payments made by the appellant to the advertising Agencies - assessee in default - Held that:- High Court was right in holding that the provisions of Section 194H are applicable to the appellant because the payments made by the appellant pursuant to the agreement in question were in the nature of payment made by way of 'commission' and, therefore, the appellant was under statutory obligation to deduct the income tax at the time of credit or/and payment to the payee. The payment in question was in the nature of 'commission' paid by the appellant to the advertisement agencies to secure more business for the appellant. Once it is held that the provisions of Section 194H apply to the transactions in question, it is obligatory upon the appellant to have deducted the income tax while making payment to the advertisement agencies. The non-compliance of Section 194H by the assessee attracts the rigor of Section 201 which provides for consequences of failure to deduct or pay the tax as provided under Section 194H of the Act. Thus the provisions of Section 201 were, therefore, rightly invoked in this case against the appellant by the assessing authority once having held that the appellant failed to comply with the provisions of Section 194H of the Act. - Decided against assessee. Issues Involved:1. Applicability of Section 194H of the Income Tax Act to the payments made by the appellant to advertising agencies.2. Nature of the relationship between the appellant and the advertising agencies.3. Consequences of non-compliance with Section 194H under Section 201 of the Income Tax Act.Issue-wise Detailed Analysis:1. Applicability of Section 194H of the Income Tax Act:The core issue was whether the payments made by the appellant to the advertising agencies were in the nature of 'commission' under Section 194H of the Income Tax Act, which mandates tax deduction at source. The Assessing Officer (AO), Commissioner of Income Tax (Appeals)-II, and the High Court of Kerala concluded that the payments were indeed commissions. The Supreme Court upheld this view, noting that the agreement between the appellant and the agencies explicitly used the term 'commission' and the nature of the transactions fit the inclusive definition of 'commission' in the Explanation to Section 194H. The Court reiterated that the appellant was statutorily obligated to deduct income tax at the time of payment or credit to the agencies.2. Nature of the Relationship Between the Appellant and the Advertising Agencies:The appellant argued that the relationship with the advertising agencies was principal-to-principal rather than principal-agent, which would exclude the payments from being classified as commissions. However, the Supreme Court found that the agreement and the nature of the transactions indicated a principal-agent relationship. The Court noted that the agencies acted on behalf of the appellant, securing more advertisements and business, and the payment of 15% was clearly labeled as commission. The Court dismissed the appellant's argument that a different format of the agreement was mistakenly presented to the High Court, emphasizing that the correct agreement still indicated a commission-based relationship.3. Consequences of Non-Compliance with Section 194H:The non-compliance with the tax deduction requirement under Section 194H attracted the provisions of Section 201 of the Income Tax Act, which deals with the consequences of failure to deduct or pay tax. The Supreme Court agreed with the AO, CIT (Appeals), and the High Court that the appellant's failure to deduct tax at source on the commission payments resulted in the applicability of Section 201. This section mandates the payment of the tax amount that should have been deducted, along with interest for delayed payment under Section 201(1-A).Conclusion:The Supreme Court dismissed the appeals, affirming the High Court's judgment that the payments made by the appellant to the advertising agencies were commissions under Section 194H, requiring tax deduction at source. The Court concluded that the appellant's relationship with the agencies was that of principal and agent, not principal-to-principal, and upheld the consequences of non-compliance under Section 201. The decision emphasized the clear terms of the agreement and the statutory obligations under the Income Tax Act.