AI Drafter 
TaxTMI 
TaxTMI 
2022 (9) TMI 1519
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....card value was not in the nature of commission and there was no agency relation between appellant and advertising agencies, accordingly, invoking section 40(a)(ia) of the Act was also not in accordance with law. 1.1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not holding that on the given facts, that advertorial space, was finally and exclusively sold by appellant company in metro supplements, published by its holding company wherein under an arrangement, no consideration was to be paid by the appellant company to the holding company for such sale of advertorial space, as such appellant was acting in the capacity of a media house, though not a publisher, accordingly the relevant judgments and board circular are applicable to the appellant. 1.2 That the learned Commissioner of Income Tax (Appeals) has also erred in not holding that figure adopted by the learned Assessing Officer for making as erroneous disallowance included discount of Rs. 5,83,93,313/-given to direct advertiser/ client was included in the total amount in which case the discount offered by appellant company to its customer is direct between the seller....
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....t of Hon'ble Delhi High Court was applicable. The Ld. DR drawing our attention towards relevant paragraphs of the assessment order submitted that the assessee adopted a colourable device to avoid rigour of section 40 (a) (ia) of the Act at the time of preparing invoices wherein agency commission has been deducted from the total amount and the net of agency commission amount has been shown in the P & L account, therefore, impugned first appellate order may kindly be set aside by restoring that of the AO. 6. Replying to the above the Ld. Counsel for the assessee submitted that right from A.Y. 2006-07 to A.Y.2018-19. The AO never ever made disallowances u/s. 40 (a) (ia) of the Act on the 15% discount given by the assessee to its advertising agencies except present A.Y.2009-10 by wrongly appreciating the factual circumstances of the case and by ignoring CBDT Circular No.5/2016 and various pronouncement of Hon'ble Jurisdictional High Court of Delhi including judgment in the case of CIT Vs. Living Media Private Limited (supra). 7. The Ld. Counsel also contended that the facts and circumstances of 15% discount are identical and similar to all assessment years from A.Y.2006-07 to 201....
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....essary to find out what is the nature of the payment. What the Ld. CIT(A) has done is to determine the nature of the payment and then to determine the nature of the contract. This we think is incorrect. 8 On a reading of the contract as well as the order passed by the CIT(A) and the Tribunal, we find that the two authorities below have held it to be a principal to principal contract. That being so, by is very definition, the payment made by the Assessee to the advertising agency cannot be classified as commission. The payment may be called a trade discount or may be described as a concession but since Rule 32 of the INS Rules describes it as a trade discount, we have to proceed on that basis and by merely describing the trade discount as commission, the Revenue cannot seek to invoke the provisions of Section 194 H of the Act. 9. There is a concurrent finding of the CIT(A) as well as the Tribunal that the contract was a principal to principal contract and in terms of that contract what was given by the Assessee to the advertising agency was a trade discount as per Rule 32 of the INS Rules. 10. Under the circumstances we are of the view that the Tribunal wa....
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....nt to the advertising agencies neither from earlier other nor from subsequent assessment year and only made disallowance in A.Y.2009-10. 16. We also observe that the AO has not brought on record any adverse or positive material to show that there was agreement between payer assessee with payee advertising agencies establishing relation of principal to agent. Thus, ratio of the judgment of Hon'ble Supreme Court in the case of Jagran Prakashan (supra) is squarely applicable in favour of the assessee. We also note that the impugned payment may be called a trade discount or may be described as concession but since rule 32 INS rules describes the same as trade discount, then we have to proceed on that basis and by merely describing the trade discount as commission, as attempted by the AO, the AO cannot press into service provision of section 194 H of the Act and to make disallowance u/s 40(a)(ia) of the Act. Under above facts and circumstances we are of the view that the AO was not correct in coming to the conclusion that the impugned amount of trade discount attracts the provision of 194H of the Act. 17. Per contra the CIT(A) was right in drawing the conclusion that issue is cove....
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.... any other factual dissimilarity or legal position, which may lead us to take a different view. Therefore, findings of Ld. CIT(A) on this issue are also confirmed. Accordingly ground No.3 and 4 of department are also dismissed. Cross Objection No. 1/ Del / 2019 of assessee 23. On being asked by the Bench the Ld. Counsel for the assessee submitted that the cross objections of the assessee are only supportive to the findings of the CIT(A). Since by the earlier part of this order we have dismissed appeal of revenue thus, cross objection of the assessee do not require any adjudication. 24. In view of above cross objection of assessee are disposed of and appeal of the revenue is dismissed. Order pronounced in the open court on 30.09.2022. ============= Document 1 1. 2 3. 5. 6. "On the facts and circumstances of the case the CIT(A) erred in deleting the disallowance of Rs.11,20,43,563/- u/s 40 (a) (ia) of the I.T. Act, 1961, for alleged failure of the assessee to deduct tax at source u/s 194H on the Commission of 15% paid to the advertisement agencies without appreciating the detailed reasons given in the assessment order. "On the facts and cir....
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.... chargeable under the head 'profits and gains of business or profession'- (a) in the case of any assessee- (ia) any interest, commission or brokerage, rent,...., on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid or before the due date specified in sub section (1) of section 139. s not been paid Document 3 The question that remains is that only when the expenses are claimed as a deduction, only then the related amount would be disallowed on account of non-compliance of the provisions. 5.1 Per facts of the case, it is seen that the assessee adopted a colorable device to book alleged agency commission and the assessee has indirectly claimed expenses of 'agency commission' as a deduction. The Tax Invoice Cum Challan (sample reproduced hereunder) issued by the assessee to its agents contain the following:- Gross amount Add premium Less Agency commission Les discount Rounding off Invoice value : Rs 1176480 : Rs 0 Rs 176472 : Rs 0 : R$ 0 1000008 5.2 From the invoice raised, as per method of accounting guidance note of ICAI, the as....
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....deducted from the gross receipts, it will have the same meaning as if such sum is 'deducted in computing the income chargeable under the head profits and gains of business' as per the provisions of Section 40. Since TDS has not been deducted as provided under Chapter XVII-B, the provisions of sub section (a)(ia) of Section 40 of the Act are clearly attracted. 5.6 Reliance is placed in the case of CIT Vs L.N.Dalmia, 207 ITR 89, and in the case of CIT Vs Durgadass More 82 ITR 540 (Supreme Court), the hon'ble Apex Court has held that 'a little probing was sufficient in the present case to show that apparent was not real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into surrounding circumstances to find out the reality of recitals made in the documents. If Corporate veil is lifted one can see the real picture and modus operandi of the business activities carried out by the assessee. 0. Document 5 6. Thus, the assessee has recognized the revenue of Rs.63.49,13.524/- which is net of commission paid to the agencies @15%. The assessee vide order she....
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....per ociety as Annexure-I to the writ petition. The Indian Newspaper Society has issued the letter dated 14th August, 2008 on the reference "TDS on advertising agency trade discounts under Section 194H of the Income Tax Act". Following was circulated to all the members of the Indian Newspaper Society:- "Re: TDS on advertising agency trade discounts under Section 194H of the Income Tax Act. Several of our member publications have reported having received a demand for depositing TDS against the trade discounts permitted by them to advertising agencies from whom member publications received advertising releases. In this connection, we are enclosing copies of the following Court orders in the case of Living Media Ltd. v. 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 t....
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....e by the Assessee to the advertising agency cannot be classified as commission. The payment may be called a trade discount or may be described as a concession but since Rule 32 of the INS Rules described it as a trade discount, we have to proceed on that basis and by merely describing the trade discount as commission, the Revenue cannot seek to invoke the provisions of Section 194H of the Act. 9. There is a concurrent finding of the CIT (A) as well as the Tribunal that the contract was a principal to principal contract and in terms of that contract what was given by the Assessee to the advertising agency was trade discount as per Rule 32 of the INS Rules. 10. Under the circumstances, we are of the view that the Tribunal was not in error in coming to the conclusion 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....
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.... Document 8 through agents appointed by the respondent under agreement with them. Advertising agencies recognised by the respondent are of two types, the unregistered agencies which are not entitled to any credit facility and the other type are registered agencies which are given accredition and credit facility with Doordarshan. In other words, while the first category will be able to telecast advertisment programmes canvassed from customers only on advance payment, the other category can have telecast done before making payments. Advertisement charges are based on air-time used for telecasting advertisement material. Rates are also varying depending upon the time of advertisment. However, these matters have no relevance for the purpose of deciding this case because the issue involved is whether the commission paid at the rate of 15% by the 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%....