2023 (3) TMI 1058 - HC - Income Tax

Trade discounts to INS accredited Advertising Agents not subject to TDS under Section 194H, Court rules.

The Court concluded that trade discounts given by the assessee to an INS accredited Advertising Agent should not be considered as commission subject to ... Trade discount versus commission - Tax Deduction at Source under Section 194H - Principal-to-principal relationship - Characterisation of payments to advertising agencies - CBDT Circular No.5 of 2016-clarification on TDS applicability - Distinguishing precedents on factual matrix (Prasar Bharati)Trade discount versus commission - Tax Deduction at Source under Section 194H - Principal-to-principal relationship - Characterisation of payments to advertising agencies - CBDT Circular No.5 of 2016-clarification on TDS applicability - Trade discount allowed by the assessee to INS-accredited advertising agencies is not in the nature of commission and is not subject to TDS under Section 194H. - HELD THAT: - The Tribunal's finding that the relationship between the newspaper company and the advertising agency is not one of principal and agent was affirmed. The Court relied on consistent High Court decisions (including Living Media India Ltd. and Jagran Prakashan Ltd.) and a subsequent decision favouring the assessee in Bombay High Court (Dempo Industries) holding that trade discounts retained by advertising agencies are not commission within the scope of Section 194H. The revenue's reliance on Prasar Bharati was rejected as factually distinguishable; the Supreme Court's treatment of Prasar Bharati likewise recognised factual differences with the advertising-house cases. Further, CBDT Circular No.5 of 2016 clarifies that payments made by television channels/newspaper companies to advertising agencies for booking, procuring or canvassing advertisements do not attract TDS under Section 194H and that the term 'commission' in earlier circulars does not apply to such payments. The Tribunal also examined the INS rules (including clauses relied upon) and on those facts concluded there was no principal-agent relationship; the Court accepted that factual and legal conclusion and held the revenue's appeal unsustainable.The Tribunal's conclusion that the amounts retained by advertising agencies are trade discounts and not commission for the purpose of Section 194H is upheld; no TDS under Section 194H is attracted.Final Conclusion: Revenue's appeal is dismissed; the substantial question of law is answered against the revenue and in favour of the assessee. Issues involved:The judgment involves the interpretation of Section 194H of the Income Tax Act regarding the treatment of trade discounts given by the assessee to an INS accredited Advertising Agent. The main issue is whether the trade discount should be considered as commission and subjected to TDS.Interpretation of Section 194H:The Court considered the applicability of TDS provisions on payments made by television channels or media houses to advertising agencies for procuring advertisements. It examined whether the fees retained by advertising companies from media companies for canvassing advertisements constitute commission or trade discount. The CBDT Circular clarified that no TDS is attracted on such payments, as the relationship between media companies and advertising agencies is on a principal-to-principal basis.Precedents and Decisions:The Court analyzed previous decisions favoring the respondent/assessee, including cases from the High Courts of Delhi, Allahabad, and Bombay. These decisions emphasized that the trade discount given by the assessee to advertising agencies was not in the nature of commission, aligning with the principal-to-principal relationship between media companies and advertising agencies.Distinguishing Case Law:The revenue sought to rely on a decision from the High Court of Kerala, affirmed by the Supreme Court, but the Court found it distinguishable based on the facts of the present case. The CBDT Circular further supported the respondent/assessee's position, stating that no TDS is attracted on payments made for procuring advertisements.Analysis and Conclusion:After examining the Tribunal's order and relevant clauses from the Indian Newspaper Society's rules and regulations, the Court concluded that there was no principal-agent relationship between the newspaper and the advertising agency. Therefore, both factually and legally, the respondent/assessee succeeded, leading to the dismissal of the revenue's appeal and the substantial question of law being answered against the revenue.