COMMISSIONER OF INCOME TAX Vs. DIRECTOR, PRASAR BHARTI

JUDGEMENT

(1.) THE question raised in the appeals filed by the Revenue is whether the Tribunal was justified in holding that the commission paid by Doordarshan Kendra which is under the control of the respondent to advertising agencies for advertisments canvassed by them does not attract the provisions of Section 194H of the IT Act which provides for deduction of tax at source on payments of commission or brokerage. We have heard standing counsel appearing for the Revenue and Sri Dale P. Kurien, counsel appearing for the respondent.

(2.) RESPONDENT is a fully owned Government of India undertaking engaged in telecast of news, various sports, entertainments, cinemas and other programmes. Advertisement income is a major source of revenue for all telecasting companies including the respondent. Advertisements are canvassed 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 @ 15 per cent by the respondent on advertisement charges remitted by the advertising agencies is subject to TDS as commission under Section 194H of the Act. For easy reference, we extract hereunder the relevant portion of Section 194H for the purpose of deciding this case: 194H. Commission or brokerageAny person, not being an individual or an HUF, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in Section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income -tax thereon @ ten per cent: Provided.... Provided.... Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees. ExplanationFor 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 services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. During hearing copies of agreements executed by the respondent with two parties are produced. The nature of transactions as stated in Annex. B agreement between Doordarshan and its agencies is as follows: Whereas, for the better regulation of the practice of advertising and to secure the best advertising service for advertisers, the Doordarshan Commercial Service has agreed to allow commission in respect of advertisements placed by any advertising agent and accredited by it. (2) By the agency : In consideration of the accredition herein afforded and of the commission to which the agency will be entitled by reason of such accreditation. (c) the remuneration of the agency for placing advertisements in the commercial service shall be in the form of standard agency commission of 15 (fifteen) per cent to be paid by the Doordarshan Commercial Service. 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 per cent 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 in the agreement that advertisement material should also conform to the discipline introduced by Doordarshan which is nothing but a Government agency which cannot telecast all what is desired to be telecast by advertising agencies. In fact, Doordarshan is bound by advertisement contract canvassed by advertising agencies and it is their duty under the agreement between them and the advertising agencies to telecast advertisement material in terms of the contract which the agency signs with the customer. In our view, the transaction is a pure agency arrangement between the respondent and the advertising agencies because one acts for the other and the act of the agent binds the respondent in their capacity as principal of the agent. It is pertinent to note that commission or brokerage defined under Expln. (i) to Section 194H has a wide meaning and it covers any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered. In this case, no one can doubt that 15 per cent commission paid to advertising agencies by the Doordarshan is for canvassing advertisements on behalf of the respondent. So much so, the payment of 15 per cent, by whatever name called, whether discount or commission, falls within the definition of 'commission' as defined under Expln. (i) to Section 194H of the Act.

(3.) ADVERTISEMENT charges collected by agents are for respondent and agents are allowed to retain 15 per cent of the commission by the respondent only to avoid the hassle of deposit of full amount and repayment of 15 per cent thereof towards commission. Since permission given to agents is to withhold 15 per cent out of advertisement charges collected by them from the customers, and payable to Doordarshan, it is nothing but a payment made to agents in advance by Doordarshan before remittance of net advertising charges to them by the agents. We are therefore of the view that permission granted by Doordarshan under the agreement to the agencies to retain 15 per cent of the commission amounts to payment of commission by them to agents which is subject to deduction of tax at source under Section 194H of the Act. It is clear from Section 194H that payment includes credit of such sum to the account of the payee or at the time of payment of such income in cash or by the issue of cheque or draft or by any other mode. When the respondent receives 85 per cent of the advertising charges from the advertising agency concerned, Doordarshan accounts full amount as received from the customer for whom advertisement was undertaken, crediting 85 per cent received in their account and simultaneously crediting 15 per cent in the account of the advertising agency. Irrespective of the pattern of account maintained by the respondent, what happens when the agent pays 85 per cent of the advertisement charges collected from the customer is that the agent simultaneously gets paid commission of 15 per cent which he is free to appropriate as his income. TDS on the commission charges of 15 per cent has to be paid by the respondent to the IT Department with reference to the date on which 85 per cent of the advertisement charges are received from the agent. In fact, it is only to comply with the provision, Clause 2(e) extracted above is incorporated in the agreement wherein it is stated that agent will pay to the Doordarshan through DD or cheque the TDS amount payable on the commission retained by agents which we have already found as payment of commission by the respondent to the agent.