ORDER
P.N. Parashar, J.M.
These are three appeals by the assessee against three different orders of learned Commissioner (Appeals) for financial year 2001-02. Since identical grounds are involved in all these appeals, the same were heard together and are being disposed of by a common order for the sake of convenience. Common grounds raised by the assessee in all the three appeals are as under:
“1. The appellant had not paid any commission to the advertising agencies and there was no requirement of any deduction of tax at source under section 194H.
2. The advertising agencies never rendered any service of agency to Doordarshan Commercial Service. The use of the expressions, ‘agency’ and ‘commission’ is not decisive, when there was no principal-agent relationship between Doordarshan Commercial Service and the advertising agencies.
3. The facts on record show that the relationship between Doordarshan Commercial Service and any advertising agency is between twoprincipals.
4. The decisions of the High Court in CIT v. Heros Publicity Services (2001) 248 ITR 256 (Bom.) and of the ITAT in ACIT v. Samai (2001) 77 ITD 358 (Cuttack) endorse the stand of the appellant.
5. The learned Commissioner (Appeals) was not justified in ignoring the appeal filed for the period from 1-4-2002 to 30-9-2002. There is no concept of assessment year as regards proceeding for TDS obligation.
6. There are valid reasons for the bona fide belief of the appellant that there was no requirement for deduction of tax at source under section 194H. Therefore, no demand can be made under section 201(1) or under section 201(1A) with regard to any alleged failure to deduct tax at source.”
2. Shri P.K. Sahu, Advocate along with Shri Vijay Gupta, CA appeared for the assessee whereas Shri Purshottam Tirpuri, Sr. DR represented the Revenue.
3. The facts concerning these matters are that DD Commercial Services (“DDCS” in short) which is a unit of Prasar Bharti and functions as autonomous body under the Ministry of Information & Broadcasting, filed return of its income for financial year 2001-02. During the course of verification of the return it was noticed by the assessing officer that DDCS was paying commission at the rate of 15 per cent to the advertising agencies but was not deducting tax at source within the meaning of section 194H on the payment of the said commission. The assessing officer, therefore, required the assessee to furnish following informations :
“(i) Complete details of revenue earned from advertisement on which commission was payable/paid between during the period 1-6-2001 to 31-3-2002.
(ii) Complete details of revenue earned from advertisement on which commission was payable/paid between during the period 1-4-2002 to 31-8-2002.
(iii) Complete details of TDS deducted on the above commission payments along with reasons for non-deduction if any.
(iv) Complete details of returns of TDS in Form 26-1 filed by you.”
3.1 In the reply it was informed that no TDS under section 194 was being deducted on the commission paid to advertising agency by the DDCS.
3.2 Thereafter survey was conducted at the premises of DDCS on 17-9-2002. During survey proceedings it was found that no TDS under section 194H was being deducted on the commission paid by the assessee to the advertising agency. Later on, the assessee was required to quantify the amount of advertisement revenue earned through advertising agencies and commission paid by it since 1-6-2001. Details were filed on 30-10-2002 indicating amount of commission paid. The assessing officer issued a show-cause notice dated 13-11-2002. In this notice, after making reference to the survey proceedings conducted under section 133A of the Income Tax Act and the fact that advertising agencies were being paid commission at the rate of 15 per cent and as such entered into contract with the said advertising agencies, the assessing officer mentioned that as per the contract between DDCS and the advertising agencies, the amount of commission retained by the agencies on a particular advertisement was determined by the DDCS. In the show-cause notice reference was also made to the contract dated 20-7-2002 between DDCS and one M/s. Jeasonable Advertisement Services (P) Ltd.
3.3 The assessee in reply submitted the following arguments :
(i) That it had not made any payment on account of commission charges to any advertiser;
(ii) Agencies were directly deducting 15 per cent advertising commission from the amount payable to it;
(iii) That since no direct payment was made to the agencies, the provisions of TDS were not attracted;
(iv) That the assessee was making book adjustment in the Government books for the advertising commission and no payment was made to any advertiser for the commission deducted and adjusted in the account and since no payment was involved, TDS was not liable to be deducted.
3.4 Vide letter dated 22-10-2000 it was further submitted that DDCS had evolved advertising ethics and enters into standard forms of contract for advertisement between DDCS and the members of advertising agency; that commission paid by DDCS to advertising agencies was not the same as commission referred to in section 194H; that the relation between advertising agencies and DDCS was that of principal to principal and not principal to agent because the advertising agencies was actually buying air time space from DDCS to advertise the product of its clients; and thus, the amount paid by DDCS to advertising agency was actually a trade discount and not a commission in its true meaning or definitely in the meaning enshrined in section 194H.
3.5 The assessing officer considered the above referred reply of the assessee in the light of provisions of section 194H and after making reference to various cases held that the commission paid by the assessee to advertising agencies, appointed by the DDCS to manage sales of its products falls within the parameters of section 194H and is therefore liable for tax deduction at source at the rate of 10 per cent plus surtax with effect from 1-6-2001 to 31-5-2002. The assessing officer, thus, held the assessee to be in default within the meaning of section 201/201A for not having deducted the tax on the monies paid to the advertising agencies. The short deduction of TDS and interest under section 201(1A) was worked out at Rs. 42,31,226 in the following manner :
“TDS 10.2% on Rs. 32,40,21,577 being Commission paid to Advertising Agencies.
Rs. 3,30,50,200
Add.-Interest u/s 201(1A) @ 15% on 3,30,50,200 from 1-6-2002 to 31-12-2002.
Rs. 28,91,890
Rs. 3,59,42,090
Financial year 2002-03 (Up to 30-9-2002) TDS @0 10.5% on 2,42,41,955 being commission paid to Advertising Agencies Only from 1-4-2002 to 31-5-2002
Rs. 25,45,405
Add.- Interest u/s 201 (1A) @ 15% on 25,45,405 from 1-6-2002 to
Rs. 2,22,723
Rs. 27,68,128
TDS 5.5% on Rs. 7,41,10,169 being Commission paid to Advertising Agencies From 1-6-2002 to 30-9-2002.
Rs. 38,90,783
Add: Interest u/s 201(1A) @ 15% from 1-7-2002 to 31-12-2002
Rs. 3,40,443
Rs. 42,31,226″
3.6 The assessee preferred appeal before the learned Commissioner (Appeals). The stand of the assessee before the learned first appellate authority was that provisions of section 194H were not applicable in regard to the payment received by the advertising agency. In this regard detailed submissions were made by the assessee before the learned Commissioner (Appeals) who confirmed the action of the assessing officer by dismissing the appeal of the assessee by holding that the payment made by DDCS to ARAA indirectly by allowing retention of part of consideration paid by the advertisers, who were buyers of the air time, was “commission or brokerage” in terms of the definition of section 194H of the Income Tax Act. It was further held that there was no principal to principal relationship between DDCS and ARAA. According to the learned Commissioner (Appeals), commission was paid to ARAA for rendering services to DDCS and not for functioning on behalf of advertiser. Thus all the pleas, raised before him, were rejected by the learned Commissioner (Appeals) including the plea of bona fide belief.
3.7 The assessee has filed appeal before the Tribunal for challenging the order of learned Commissioner (Appeals).
4. Before us Shri P.K. Sahu, Advocate made elaborate submissions. The assessee has also filed written submissions. According to the learned counsel to attract the provisions of section 194H it is necessary to establish the relationship of principal and agent between the payer and the payee and to show that the amount was received as commission or brokerage, by the agent, directly or indirectly, for services rendered.
4.1 The learned counsel pointed out that the commission paid to the advertising agencies was not for rendering services as agent. According to him, the relationship between the DDCS and the assessee was that of principal to principal and as per the contract between the assessee and the agency, the agency was allowed to retain discount out of the revenue brought by the agency. The learned counsel pointed out that the relationship of principal to agent was between the advertiser and the agency and not between the assessee and the agency. It was pointed out by him that neither in the contract nor in the invoice name of any advertiser is mentioned which further shows that the contract entered into by the assessee was with the advertising agency who acted on behalf of the advertiser as its agent. The learned counsel also submitted that the agency cannot act as agent for the advertiser as well as for the assessee i.e., it cannot act as agent for and on behalf of two persons at the same time and in the same contract. The learned counsel also pointed out that in second year i.e., financial year 2002-03 the Commissioner (Appeals) has decided the issue in favour of the assessee by holding that the payment to the agency was not payment of commission to the agent within the meaning of section 194H. In support of his arguments the learned counsel also made reference to Circular No. 714 reported in 215 ITR and Circular No. 715 reported in 215 ITR (Stat.) 12. According to him, as per these circulars also, the provision of section 194H are not attracted in the case of the assessee. The counsel also placed reliance on the following decisions:
(a) Bhopal Sugar Industries Ltd. v. STO (1977) 3 SCC 147;
(b) Moped India Ltd v. Asstt. CCE (1986) 1 SCC 125;
(c) Alwaye Agencies v. Dy. Commissioner of Agricultural Income Tax & Sales Tax 1988 (Supp) SCC 394;
(d) Seksaria Cotton Mills Ltd. v. State of Bombay AIR 1953 SC 278;
(e) CIT v. Heros Publicity Services (2001) 248 ITR 2561 (Bom.);
(f) Assistant Commissioner v. Samaj (2001) 77 ITD 358 (Cuttack);
(g) CIT v. Nestle India Ltd. (2000) 243 ITR 435 (Delhi);
(h) CIT v. Air France Ltd. (2000) 241 ITR 656 (Delhi);
(i) Vijay Traders v. Bajaj Auto Ltd. (1995) 6 SCC 566; and
(j) Singapore Airlines Ltd. v. Assistant Commissioner 2005 TIOL 93 ITAT – Delhi.
5. On the other hand, the learned Departmental Representative supported the order of learned Commissioner (Appeals) and submitted that ARAA was acting as agent of the assessee. He pointed out that in the case of ARAA the air time limit was also fixed by the assessee, whereas in the case of advertiser without involvement of ARAA, no such facility was given. According to learned Departmental Representative, the conditions set out in the contract also indicate that ARAA was appointed as agent by the assessee and the assessee was controlling the activities of the ARAA. He also submitted that the percentage of commission was fixed by the assessee and not by the advertisers. So far as advertiser is concerned, he has to make full payment whether he comes directly or through ARAA and it is only when he comes through ARAA, the commission of 15 per cent is paid to the agencies. The learned Departmental Representative also submitted that the sale of air time cannot be compared with the sale of vehicles etc. and the cases on which reliance has been placed on behalf of the assessee are distinguishable.
6. In reply, the learned counsel for the assessee submitted that even if the advertiser directly approaches the assessee then also he gets discount and therefore it is not correct to say that the discount is paid only when the ARAA is engaged. In support, the learned counsel sought support to his arguments by making reference to the order of Commissioner (Appeals) dated 5-4-2005 for assessment year 2002-03 wherein it has been held that the advertising agency is agent of the advertiser and not of the assessee.
7. We have carefully considered the entire material on record and the rival submissions. In this case the issue is to be decided on the basis of terms and conditions set out in the agreement between the assessee and the advertiser/ advertising agency. In the paper book the assessee has filed sample agreement which is available at page 16 of the paper book. The assessee has also filed a sample letter having Schedule “A” which is available at pages 19 and 20 of the paper book. Schedule “B” which contains certain terms and conditions has also been filed which is available at pages 21 to 24 of the paper book. Other documents which were filed by the assessee are also available on record. As the terms and conditions of relevant agreement were to be examined, at the time of hearing of the appeal on 12-8-2005, the learned counsel for the assessee as well as the learned Departmental Representative were directed to produce the agreement executed by the assessee with the advertiser or with the advertising agencies (ARAA) covering the transactions involved in these appeals. However, despite this direction no copy of agreement was filed and therefore we have to adjudicate the issue on the basis of the sample agreements which have been filed on record. Vide letter dated 16-8-2005 the assessee has submitted that for booking the advertisement following procedure is adopted :
‘The Hon’ble Tribunal has directed the appellants to produce the agreement between the appellants and advertiser/agency. in this respect, the appellants state that the procedure adopted by the commercial wing of Doordarshan is that the concerned advertiser/agency is required to file an offer letter giving details of the sponsored programme and/or advertisement as well as the details of payment for the same. This offer, letter refers to Schedule “A” and Schedule “B”. Schedule “A” has the details of sponsored programme and/or advertisement and price payable for the same. Schedule “B” refers to the standard terms and conditions. Schedule “B” has been drawn up with several terms and conditions so that all the clauses may not apply to various situations. It may so happen that some of the clauses may not be applicable to agreements in some situations. The practice in Doordarshan has been that the concerned advertiser/agency files a letter in prescribed format in duplicate. One copy is signed and returned to advertiser/agency. This becomes a binding agreement for telecast. The other copy is kept in the file for billing and record purposes. the advertiser/agency gets in touch with our telecasting wing and supplies the concerned telecast material so that telecast of the same is done. The non-accredited agencies/advertisers are required to make payment of telecast charges in advance. in case of accredited agencies, a bill is issued after the concerned sponsored programme/ advertisement is aired as they enjoy stipulated credit period from 60 days to 75 days.
In the copy of the offer letter of M/s. Reasonable Advertising Pvt. Ltd. which is annexed with assessment order, Mr. Hazoor Singh, Programme Executive has signed the offer letter on behalf of the President of India.”
7.1 In view of the above letter it is clear that the formal agreements executed for various transactions between the assessee and the advertiser or the advertising agency were not produced before us, therefore, it is only on the basis of bills sample forms and schedules attached thereto, that we have to decide the issue.
7.2 On going through the relevant material and the rival submissions, the issues to be decided may be framed as below :
1. Whether the advertising agencies are the agents of the assessee and as to whether there is principal/agent relationship between the assessee and the advertising agencies?
2. Whether the amount of 15 per cent retained by the advertising agency constituted commission within the meaning of section 194H?
3. Whether the assessee was liable to deduct TDS on the amount deducted by the ARAA while making payment to the assessee ?
7.3 Issue No. I: For deciding the first issue we have to examine the nature of contract in this matter in the light of relevant provisions of Contract Act and Sales of Goods Act.
7.4 The duty of agent in conducting principal’s business is defined in section 211 of the Contract Act. This provision is as under :
“An agent is bound to conduct the business of his principal, according to the directions given by the principal, or in the absence of any such directions according to the customs which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts other-wise, if any loss be sustained, he must make it good to his principal and if any profit accrues, he must account for it.
7.5 As per section 212 of the Contract Act, the agent is required to exercise due diligence while doing the work on behalf of his principal. Sections 216, 217, 218 and 219 of the Contract Act define rights of the agent and that of the principal. Under section 222 the agent is to be indemnified against consequences of his lawful acts. The words ‘commission and brokerage’ have been defined under section 194H as under :
“‘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, relation to any asset, valuable article or thing, not being securities.”
8. Adverting to the facts of the present case, it is to be pointed out that no formal agreement between the advertising agency and the assessee has been brought on record. Schedule “A”, a copy of which is available at page 25 of the paper book, is a contract between the advertiser and the President of India. The form Letter is to be signed by the advertiser and also by the advertising agency. In the last sentence it is written that when the contract is executed by the agency on behalf of the advertiser they should furnish the legally valid authority or agreement or the relevant extract. The following portion of this letter is being reproduced hereunder :
‘The acceptance of this offer shall constitute a contract between the under mentioned and the President of India on the terms and conditions mentioned therein and in Schedule “B” thereto. The said terms and conditions shall form part of the contract. All previous or existing contracts and negotiations in respect of broadcasts for the aforesaid products/service shall stand cancelled on your acceptance of this offer.
Dated this……………day of …………..200
Seal of Advertiser
(Signed)………………………………
(Advertiser)
Seal of Agency
(Signed)
(if booked through them)
Status
Accredited/(Agency)/ Registered/ Direct
Address:
Accepted for and on behalf of the President of India
By Sh ………………………………… Signature……………………………………………………………….
Dated this………………………day of…………….200…………….Designation………………………..
When the contract is executed by the Agency on behalf of the Advertiser, they should furnish of legally valid authority of agencies or relevant extract from them.”
8.1 Several conditions are attached to this letter and condition No. 5 provides that in the event of advertiser not supplying within the time specified in clause 4, the finally approved tape of advertisement or the material to be telecast, All India Ratio may telecast any previous programme which All India Radio may deem suitable and such telecast shall be deemed for all purposes of the contract to be due performance on the part of All India Radio. This condition indicates that the contract is between advertiser and the assessee. There is no mention of any liability of the advertising agency.
8.2 So far as conditions of payment are concerned, the same are given in condition Nos. 17 and 18, as reproduced below :
“17. Doordarshan shall submit monthly bills and the advertiser shall pay all the bills promptly in accordance with the terms stated herein and in any cas’e, not later than fifteen days before the telecast is due to commence. In case where the advertiser operates through an accredited agency, bills will be sent to the agency concerned after the month of telecast-payable within 45 days from the rest of the month following the date of telecast. Where the operation is through a non-accredited agency, the bills will be issued to the agency concerned and the payment shall be made of all the bills promptly on receipt of the bills and in any case, not later than fifteen days before the telecast is due to commence. All payments should be made by Demand Drafts on a bank of Delhi in favour of “State bank of India A/c Doordarshan’. The agency shall be responsible for the payment of advertising and relating bills severally as well as jointly with the advertiser.
18. (a) In the event of any Accredited Agency making default in payment of any amount due by it under this contract, Doordarshan may by notice in writing delivered to the Accredited Agency as its last known address changes terms of payment either by reducing the number of days to be allowed after telecast for payment or by requiring cash in advance in respect of all telecasts which are to be made after the date of such notice. If the Accredited Agency fails to make payment of monthly bills by the due date on more than three occasions in a year, or within 45 days after the prescribed credit period, it shall automatically loose its accredition. Doordarshan shall be entitled to charge interest at the rate of 18 per cent per annum an all amounts due to it which are not paid within stipulated credit period. The interest shall be charged from the day following the due date of payment and computed on monthly basis.
(b) If the Advertiser/non-accredited agency fails to make advance payment as herein above provided Doordarshan, still be entitled to stop all further telecast without in any way becoming liable to the Advertiser/Non accredited Agency and without prejudice to all other rights and remedies hereunder of Doordarshan; provided further, if any agency fails to remit advertising charges and other related payments collected from the advertiser to Doordarshan before due date of payment or withholds such amounts for unreasonably long period, its agency status will be liable to be withdrawn.
(c) The Advertiser/Agency shall abide by the “regulations for advertisement on Akashvani and Doordarshan” and other related rules prescribed by Doordarshan/Government of India/AIR as amended from time to time.”
8.3 As per these conditions also the basic liability is that of advertiser which is to be discharged through advertising agency. In Schedule “A”, the advertiser while making offer undertakes the following condition :
“The total cost of telecasting shown above is based on the present telecasting rates for Doordarshan. Commercials at the Centres already mentioned in para 1. You shall be at liberty to revise the said rates on giving sixty days notice to us and we shall be deemed to have agreed to such revised rates and the total cost of telecasting shall be revised accordingly unless we intimate to you in writing within thirty days that we are not agreeable to the revised rates in which case the contract would stand terminated as from the date of the expiry of the said period of thirty days. The acceptance of this offer shall constitute a contract between the under-mentioned and the President of India on the terms and conditions mentioned herein and the Schedule “B” enclosed. The said terms and conditions shall form part of the contract. All previous or existing contracts and negotiations in respect of telecasts for the aforesaid products/ services shall stand cancelled on your acceptance of this offer.”
8.4 This also shows the contract between the advertiser and the assessee and not between the assessee and the agency.
8.5 The learned Departmental Representative has made reference to certain conditions stipulated in Schedule “B” but on going through these conditions also it cannot be said that the agency act as agent of DDCS.
8.6 Condition Nos. 6,7,8,9 and 10 are being reproduced here to show that the liability is fixed on the advertiser or on behalf of the advertiser in respect of any error or omission in the telecast and no claim can be made by the advertiser. These conditions are as under :
“6. Doordarshan will handle with reasonable care all materials received from the advertiser but shall not be liable for any damage that may cause to the material unless it is proved that the change was caused maliciously. The material will be the property of the advertiser and will be returned after the contract is fulfilled.
7. In the event of material being damaged, Doordarshan will notify the advertiser so that the advertiser can replace them at his cost.
8. If no telecast takes place due to material being damaged or for any technical or operational reasons, Doordarshan will incur no liability thereof but will provide alternative time for the telecasting of such advertising material after prior information to the advertiser wherever possible. In such a case, the rates applicable to such substituted times shall be payable.
9. Casual displacement or commission of the material in any telecast shall not affect the validity of the telecast for the purpose of the contract.
10. No claim shall be made by or on behalf of the Advertiser in respect of any error or omission in any telecast made there under but if the attention of Doordarshan is called to such error omission it shall, if required, make a correction at the earliest time suitable to Doordarshan.”
8.7 As per condition No. 20, if the advertiser fails or makes default in performing any of the terms and conditions of the contract or any other such contract or any damage is suffered by Doordarshan by reason of breach, failure or default on the part of the advertiser in carrying out the terms and conditions of the contract, then the consequences are to be borne by the advertiser and the contract may be terminated. Thus, these abnditions also clearly show that the contract is between the assessee and the advertiser. In condition Nos. 22 and 23 also the terms are settled between the assessee and the advertiser. It is mentioned in condition No. 22 that the contract is personal to the advertiser and shall not be assigned, sub-let or used in any other way than in advertising the product. These conditions may also be reproduced herein below:
“22. The contract is personal to the advertiser and shall not be assigned, sub-let or used in any other way than in advertising the products and/or services mentioned in the contract except with the written consent of the Doordarshan.
23. Doordarshan may on its absolute discretion agree to the transfer of this contract by the advertiser to another approved advertiser if the advertiser has observed all the terms and conditions of the contract, paid all amount payable for the time consumed whether the credit period has expired or not and the proposal transferee agrees to enter into a fresh contract with Doordarshan for the remaining period of the contract and agree to discharge all liabilities, if any, pending the advertiser.”
8.8 In view of the above terms and conditions it is clear that the contract is between the assessee and the advertiser. The agency, of course, makes payment on behalf of the advertiser and also deducts a percentage of commission but it cannot be said that the agency is acting as agent of the Doordarshan. Likewise, although DDCS appoints penal of accredited agencies, allow them to make payment on behalf of the advertiser, but it cannot be said that the powers of principal are assigned or delegated to the agency as its agent. The agent has not been made liable for the acts of the principal.
8.9 In the case of Bhopal Sugar Industries Ltd. (supra), the issue to be determined was, whether contract between the assessee and Caltex (India) was one of agency or sale. In that case, the assessee carried on business of manufacturing sugar and also the business of selling high speed diesel oil petrol and lubricants from the petrol pump installed by the assessee in the factory premises. The assessee entered into an agreement with Caltex (India) Ltd., for supply of petrol and petroleum products to it on certain conditions. In the course of its business, the assessee sold petrol to various trucks and other car owners and also consumed part of the petrol for its own purposes. The issue was as to whether the assessee was agent of Caltex (India) Ltd., or not. The Hon’ble court observed as under :
“The question will have to be determined having regard to the terms and recitals of the agreements, the intention of the parties as may be spelt out from the terms of the documents and the surrounding circumstances and having regard to the course of dealings between the parties. While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word ‘agent’ or ‘agency’ is used or the words ‘buyer’ and ‘seller’ are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the part is clearly intended to treat a buyer as a buyer and not as an agent.”
8.10 On facts, the relationship between the assessee and Caltex (India) Ltd. was to be one of buyer and seller and not that of principal and agent. In that case the Hon’ble Supreme Court also observed that a contract of agency differs from contract of sale inasmuch as an agent after taking delivery of the property does not sell it as his own property but sells as the property of the principal and under his instrtictions and directions and furthermore since the agent is not owner of the goods, if any loss is suffered by the agent he is to be indemnified by the principal. This principle was also laid down in earlier decision in the case of Gordon Woodroffe & Co. v. Sheikh M.A. Majid & Co. AIR 1967 SC 181, wherein the following observations were made:
“The essence of sale is the transfer of the title to the goods for price paid or to be paid. The transferee in such case become liable to the transferor of the goods as a debtor for the price to be paid and not as agent for the proceeds of the sale. On the other hand, the essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and who is therefore liable to account for the proceeds.”
8.11 In the case of Moped India Ltd. (supra) a similar issue came before the Hon’ble Court. The dealers of moped were allowed commission of Rs. 110 for a particular moped and Rs. 145 for other type of mopeds on the sale of the same. After considering the terms and conditions of the agreement it was held that the mopeds were sold by the dealers and the dealers did not act as agent of the assessee for the purposes of effecting sales on behalf of the assessee. It was also held that the relationship between the manufacturer of the mopeds and the dealers was clearly on principal to principal basis. So far as the present matter is concerned, on the basis of the arrangement between the assessee and the advertiser it can be said that the agency was acting on behalf of the advertiser as an agent of the advertiser.
8.12 In the case of Alwaye Agencies (Supra) the Hon’ble court after referring to the commentary of Pollack & Mulla’s on the Sale of Goods and Partnership, has observed as under:
“While interpreting the terms of the agreement, the court has to look to the ubstance rather than the form of it. The use of the word ‘agent’ or ‘agency’ by itself if not decisive. However, the assessee had been described in the agreement as ‘distributor’ and not as ‘agent’. The mere fact that the manufacturer fixes the sale price, by itself, cannot lead to the conclusion that the distributor is merely an agent. Under the agreement what the distributor got is described as a ‘rebate’ and not as ‘commission’, as one would normally expect in an agreement of agency. This is a factor which is by no means conclusive, but to a certain extent indicative of the relationship between the said company and the assessee. What is most important is, however, that the supplies were made to the distributor against payment either immediate or deferred as provided in the agreement, and even when the goods were destined directly to the customer, it was the distributor who had to guarantee to arrange the payment. The assessee being the purchaser from the company of the goods in question, the transactions were liable to be included in the turnover of the assessee.-
8.12-1 In that case also it was held that, assessee as distributor, was not an agent of the company in respect of transactions in question but was purchaser.
8.13 The issue was also considered in Heros Publicity Services’s case (Supra) the Hon’ble Bombay High Court held that the agencies were engaged only to secure payment. It was also observed that the assessee acted on behalf of the advertisers for commission and had obtained letters of authority from the advertisers to enter into contract with Doordarshan. Thus, in that situation the advertising agency was held to be agent of the advertiser and not of the Doordarshan.
8.14 In the case of Samaj (Supra) also it was held that the assessee sold space through advertising agencies in its newspaper for placing advertisements and raised bills. Agencies, after deducting their charges, made payments of bills. The assessee did not effect any TDS from the discount given to the newspaper agents. Revenue treated the commission retained by the advertising agent as commission under section 194H and held the assessee in default for liability of payment of tax. The issue was whether commission paid to circulation agents was in nature of trade discount. In that case it was also held that the true nature of contract of agency had to be gathered from its terms and conditions. It was held that the agreement was for sale and there was no element of agency. Following observations of the Bench are reproduced hereunder :
“The commission paid to the agents by way of deduction from the gross amount in the relevant periodic bills was in the nature of trade discount. The fact that the agent had to make payment for the entire quantity of newspaper lifted irrespective of the papers actually sold, abundantly disproved the assessing officer’s contention that the sale proceeds were collected by the agents through the howkers from the customers and then passed on to the publisher. The arrangement so made between the assessee and the agents would be governed by the provisions of Sales of Goods Act and not by the laws of ‘agency’.”
8.15 On the basis of above discussion, we conclude that there is no relationship of principal and agent between the assessee and the ARAA. This conclusion is mainly based on following reasons :
(i) In the agreement, copy of which has been filed before us, advertising agency has signed the agreement. The contract has not been signed by advertisers. This shows that contract has been signed between the advertising agency and the Doordarshan as principals. There is no mention in the contract to the effect that if the advertiser does not pay to the advertising agency, the loss would be to the account of Doordarshan. The basis of receipt of discount of commission is the payment made by the advertiser and it is out of the payment so made that the discount is deducted. DDCS, as such, does not make any payment directly or indirectly. The argument that the accredited agencies are appointed by Doordarshan and therefore the agencies are agents of the Doordarshan, is not acceptable. The registration and accredition of the agencies is done only for the purpose of selecting reputed agencies and to secure payment through them, as held in the case of CIT v. Heros Publicity Services (supra).
(ii) Merely because the rate of discount is fixed or regulated by the assessee, it cannot be said that the relationship between principal and agent is established. Similarly, if some facility of payment is given to accredited agency or advertising agency, it cannot be said that it has established the said relationship. The terms of clause 18(a) of the terms and conditions make the accredited agency responsible for all payments relating to advertisement. Loading the agency with such responsibility is itself not consistent with the concept of agency.
8.16 In view of the above, we are unable to concur with the finding of learned Commissioner (Appeals) that ARAA is an agent of the assessee.
9. Issue No. 2: As held in the case of Samaj (supra), the word ‘commission’ is a recompense or allowance for service or labour rendered by the payee for discharging certain functions. It was further observed in that case that mere use of word ‘commission’ in the contract does not convert the relationship of vendor and purchaser into one of agency.
9.1 Thus, for deciding the nature of the transaction and also the nature of payment received by the assessee we have to consider the entire relevant material including the terms and conditions of such payment.
9.2 In the case of Ahmedabad Stamp Vendors Association v. UOI (2002) 257 ITR 202 (Guj), the stamp vendors were required to purchase the stamp papers from Government on payment of priceless discount on ‘principal to principal’ basis and it was held that there was no contract of agency at any point of time. The Hon’ble court has clarified that the liability of the stamp vendor to pay the priceless discount was not dependent or contingent upon sale of stamp paper by the vendor. The court has also held that neither of the two activities i.e., buying from the Government and selling to the customers can be termed as ‘services in the course of buying or selling of goods’ contemplated by Explanation (i) to section 194H. So it was held that the provisions of section 194H shall not attract.
9.3 Thus the amount deducted by the agency out of amount paid to it by the advertiser, cannot be treated to be payment of commission by the assessee. On the other hand, at the most it can be treated to be the commission paid by the Advertiser for services rendered by the advertising agency to the Advertiser. Hence, this issue is also to be decided in favour of the assessee.
10. Issue No. 3: In view of our finding on issue Nos. I and 2, the advertising agency is not the agent of the assessee and the amount deducted out of the gross payment received by the agency from the advertiser cannot be treated the payment of commission by the assessee to agency. In view of these findings the assessee shall not be liable to deduct TDS on the payment received by the agency.
11. There is another aspect of the matter. In the context of section 194C, CBDT Circular No. 715 reported in 215 ITR (Stat.) 12, the following clarification has been given :
“Question 1 : What would be the scope of an advertising contract for the purpose of section 194C of the Act ?
Answer: The term “advertising” has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and notwhen an advertising agencyrnakes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. It was further clarified that when an advertising agency make payments to their models, artists, photographers etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under section 194J of the Act.”
11.1 Thus, intention of Legislature is not to impose liability of Doordarshan for deduction of TDS’ on the amount received by the advertising agencies.
11.2 In view of the above, the provision of section 194H are not applicable to the assessee and the assessee was not liable to deduct tax. This is more so because no payment was made by the assessee to the advertising agency. Thus, the demand raised under section 201 is not legally justified. The demand is to be cancelled.
11.3 Accordingly, ground Nos. 1 to 5 of the grounds of appeal are decided in favour of the assessee.
12. In ground No. 6, the plea of bona fide belief has also been taken by the assessee. The assessee has not deducted tax because it never treated the agency as its agent nor the amount received by such agency was taken by the assessee as payment of commission by it. The assessee has also placed reliance on the Circulars of CBDT referred to above. Thus, the assessee had a good and sufficient reason for not deducting tax at source. The belief of the assessee is founded on the fact that the amount was not directly paid by it. In the written submissions made vide letter dated 14-10-2003, it has been clearly stated that assessee had sufficient basis for forming a bona fide belief that tax is not required to be deducted at source wider section 194H. In this regard reliance was also placed on several authorities including the decision in the case of Nestle India Ltd. (supra).
12.1 In this regard specific ground was taken before the first appellate authority but the learned Commissioner (Appeals) has rejected the plea of the assessee by observing as under :
“23. As the argument regarding bona fide belief, I do not agree with the appellant that it could in a bona fide manner form an opinion that it was not required to deduct tax at source under section 194C of the Act. It was paying commission and more than one interpretation of the nature of payment was not reasonably possible. Further, the concept of reasonable cause of bona fide belief has not been incorporated in the language of section 201(1) of the Act. It is relevant to mention that proviso to section 201(1) of the Act refers to the concept of good and sufficient reasons for charging penalty under section 221 of the Act but similar requirement is missing from section 201(1) of the Act which uses the term “shall” indicating mandatory nature of consequences of failure to deduct tax. Delhi ITAT Bench ‘E’ in its order dated 31-8-1999 in the case of Oriental Carbon and Chemical Ltd. v. Income Tax Officer, Ghaziabad in ITA Nos. 2142 to 2145/Delhi/1998 affirmed that provisions of section 201(1) were such that there was no scope for considering the plea of bona fide belief in the manner. The case of Nestle India Ltd. (supra) cited by the applicant is distinguishable as the issue involved therein pertained to estimation of salary income while in the present case the amount of commission is not disputed and is not subject to estimation and therefore argument of bona fide estimation is not available to the appellant. Similarly, the language of section 201(1A), uses the term ‘shall’. Interest under section 201(1A) of the Act is mandatory and automatic and is compensatory in nature as held by Delhi High Court in the case of Commissioner of Income-tax v. Prem Nath Motors (P) Ltd. reported in 253 ITR 705 (Del).”
12.2 In our considered opinion the learned Commissioner (Appeals) is not justified. In the circumstances of the present matter the bona fide belief on the part of the assessee is fully established and thus, this plea is also acceptable and on the basis of this plea, no demand can be raised against the assessee under section 201(1A). The ground which is taken as alternative ground is allowed in favour of the assessee.
13. In the result the orders of the learned Commissioner (Appeals) are set aside in all the three appeals and the appeals of the assessee stand allowed.