In The Director, Prasar Bharati vs. Commissioner of Income Tax, a two-judge bench of the Supreme Court held that the provisions relating to TDS are applicable to commission paid by TV channels to the advertisement agencies for securing more business.
The appellant, Prasar Bharati, runs a TV Channel called Doordarshan. Advertisements of several consumer companies are telecasted via the channel. To secure a good business and to improve the practice of advertising, the appellant entered into an agreement with several advertising agencies. According to the agreement, the agency can retain the 15% commission/remuneration earned by the agency for offering its services to the appellant.
The appellant had settled the sum payable to various accredited agencies with whom they had entered into the agreement. After making the assessment the Assessing officer (A.O) observed that section 194H of the Income Tax Act, 1961 was applicable to the payments made by the appellant to the agencies as it was in the nature of commission as defined under the Explanation appended to Section 194H. Accordingly, the A.O held that the appellant had committed default and is prosecutable under Section 201(1) of the Act as they had failed to deduct the “tax at source” from the amount paid to the advertising agencies.
Before the Court, the Counsel for the appellant argued that the payments made by the appellant to the agencies were not in the nature of the commission. He also submitted that no principal-agent relationship existed between the appellant and the agencies but the relationship was in the nature of principal-principal. The Counsel for the respondent contended that the orders passed by the A.O, CIT (A) and the judgment of the High Court deserve to be upheld.
On hearing the parties, the two bench of Justice R. K Agrawal and Justice Abhay Manohar Sapre upheld the order of the High Court and observed that 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.
“…we notice that the agreement itself has used the expression “commission” in all relevant clauses; Second, there is no ambiguity in any clause and no complaint was made to this effect by the appellant; Third, the terms of the agreement indicate that both the parties intended that the amount paid by the appellant to the agencies should be paid by way of “commission” and it was for this reason, the parties used the expression “commission” in the agreement; Fourth, keeping in view the tenure and the nature of transaction, it is clear that the appellant was paying 15% to the agencies by way of “commission” but not under any other head;” the bench said.
The bench further held that the provisions of Section 201 were rightly invoked in this case against the appellant by the assessing authority as the appellant failed to comply with the provisions of Section 194H of the Income Tax Act.
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