Bhim Sen Garg , Through L/H, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 325/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08

The I.T.O. cuke Shri Bhim Sain Garg, Ward 6(3), Jaipur. Vs. Through Legal Heir Shri Shailendra Garg, F-47, Malviya Nagar Industrial Area, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABDPG 1026 C vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT). fu/kZkfjrh dh vksj ls@ Assessee by : Shri Anil Sharma (CA)

lquokbZ dh rkjh[k@ Date of Hearing : 17/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

This is an appeal filed by the revenue against the order dated

02/01/2012 by the learned CIT(A)-II, Jaipur for A.Y. 2007-08. The Sole

ground of appeal is as under:

"On the facts and in the circumstances of the case and in law, the learned CIT(Appeals), has erred in deleting the disallowance of Rs. 1,31,97,053/- made by the A.O. for non- deduction of tax at source from payments made to advertising

2 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

agencies and customers treating the same as commission U/s 194H of the IT Act, 1961."

2. Brief facts of the case are that the assessee is engaged in the

publication of Mahaka Bharat, a Hindi daily newspaper. The assessee

receives advertisement revenue by selling the advertisement space to

advertisement agencies. The assessee has fixed rates, terms and

conditions about discount with the advertisement agencies on principal

to principal basis. During the year assessee offered a discount Rs.

1,31,97,053/- to such agencies which was claimed as business

expenditure. During the course of assessment proceedings, the

Assessing Officer was of the view that the amount of discount was in

the nature of commission to the advertisement agencies, which was

liable for TDS U/s 194H of the Income Tax Act, 1961 (in short the Act).

Since the TDS was not deducted, this amount was disallowed U/s

40(a)(ia) of the Act.

3. Aggrieved, the assessee preferred first appeal. The learned

CIT(A) held that the amount paid was not in the nature of commission

but in the nature of discount, for which provisions of TDS U/s 194H of

the Act were not applicable. Consequently, the disallowance made by

the Assessing Officer was deleted by following observations:

3 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

4.1 "I have duly considered the submissions of the appellant. The appellant is engaged in the business of publication of newspaper by the name of Mahaka Bharat.

The appellant had paid discount of Rs. 1,31,97,053/- to his customers and various advertising agencies. The nomenclature of "discount paid" was evident from the entries in the books of account, audited profit & loss account wherein the expenditure was duly recorded as discount paid and tax audit report in Form No. 3CD wherein auditors had not made any qualification. All these documents categorically mentioned that discount was paid on advertising revenues. The Assessing Officer however concluded without making any inquiries or bringing any material on record that the alleged discount was in nature of commission. The AO thereafter made a general observation that in this line of business, even the laymen new that only commission was allowed to the agents. The AO held that the assessee had changed the nomenclature just to escape from the provisions of section 40(a)(ia) of the IT Act. The AO further held that the assessee was required to deduct TDS in light of provisions of section 194H of the IT Act and made the impugned disallowance of Rs 1,31,97,053/- U/s 40(a)(ia) of the IT Act. On careful consideration of the facts, I find that the AO has not made any sort of inquiry from the customers or the advertising agencies. The books of account of the assessee were duly audited and complete 4 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

details in this regard were available to the AO. The AO had no basis to hold that the discount of Rs 1,31,97,053/- was allegedly in the nature of commission except for making general observations. While doing so, the AO also ignored the entries in the books of account, the credit notes issued by the assessee to his various customers and advertising agencies.

.................................

4.3 It is further seen that in the present case, the advertising agencies had the sole responsibility of collecting charges from the customers. The assessee was not concerned with the persons who approached the advertising agencies for publication of their advertisement. The bills were issued in the name of advertising agencies and the payments were also made by such advertising agencies to the assessee. The assessee was not concerned with the fact that whether the payment from the person whose advertisement had been published, was received by the advertising agencies or not. The bills and credit notes of discount had also been issued in the name of advertising agencies. The advertisement agencies held license/ authorization from Indian News Services and the assessee had no control over such agencies regarding their working and had no contract for procuring customers. The advertising agencies were customers of the assessee and not his 5 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

agent rendering services for and on his behalf. In view of the facts mentioned above, the relationship of the assessee and advertising agencies was that of principal to principal and not that of principal and agent and the discount given to advertising agencies, was a trade discount and not commission which was covered u/s 194H. In case, the customer defaulted, the assessee was not to bear the loss on that account. It was held by the Hon'ble Kerala High Court in the case of Kerala State Stamp vendors Association vs Office of the Accountant- General (282 ITR 007) that it is clear from section 194H of the Income-tax Act that what is subject to deduction of income-tax at source is only "commission" or "brokerage". It is clear from the definition of "commission or brokerage" as contained in the Explanation to section 194H that the commission or brokerage that attracts TDS is the one paid for "services rendered in the course of sale" which obviously can be services rendered by a third party like a broker or an agent and cannot be by the buyer as the buyer is not rendering any service except buying. A discount given on price by the seller to the purchaser cannot be termed as "commission or brokerage" for services rendered in the course of buying and selling of goods as the act of buying does not constitute rendering of any service. Wherever the Legislature wanted to levy tax on trade discount, the legislature specifically provided for the same which is 6 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

clear from the provisions of section 194H of the Act which provides for deduction of tax on discount paid to the lottery dealers in the form of commission. The decision of Hon'ble Gujarat High court in the case of Ahmedabad Stamp vendors Association vs Union of India (257 ITR

202) also supports the same preposition. In view of above facts, I hold that the amount of Rs. 1,31,97,053/- paid to customers and advertising agencies was in the nature of trade discount and provisions of section l94H could not have been applied on the facts of the case. I therefore direct the AO to delete the addition of Rs. 1,31,97,053/- U/s 40(a)(ia) of the I T Act made by him. This ground of appeal is allowed."

3.1 While arriving at above conclusion, the learned CIT(A) also relied

on the decision of Hon'ble Cuttack Bench in the case of ACIT Vs. Samaj

(77 ITD 358).

4. Aggrieved, the revenue is in appeal before us.

5. The learned Sr.D.R. vehemently supported the order of the

learned Assessing Officer.

6. The learned counsel for the assessee reiterated the facts,

submissions and contentions as raised before the learned CIT(A). It is

fact that the advertiser approached the advertisement agencies of their 7 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

choice for their requirements, agencies accordingly purchase the space

in news paper. The assessee and such advertisement agencies have

binding commercial agreements setting up terms and conditions,

payments, billing etc for purchase and booking of advertisement space;

same is on principal to principal basis. There is no privacy of the

contract between the assessee and the original advertiser qua the space

sold to agency. The assessee does not have any responsibility of the

payment collected by the advertisement agencies, which is bound to

pay the assessee. The advertisement agencies are given discount as per

the terms of agreement for the space booked. Thus, as far as the

assessee and advertisement agencies are concerned, the agreement is

on principal to principal basis and they do not have relationship of

principal and agent.

6.1 In view of the clauses of the agreement and the nature of the

relationship, the learned CIT(A) rightly observed that the amount given

by the assessee to advertisement agencies was trade discount and not

commission. Further reliance is placed on the cases of Mother Dairy

India Ltd. Vs. ITO (28 SOT 42), Delhi Milk Scheme Vs. CIT (173 Taxman

54) and Vodaphone Essar Cellular Ltd. Vs. CIT (32 SOT 280) which

have held similar view.

8 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

7. We have heard the rival contentions of both the parties and

perused the material available on the record. As the facts emerge, the

relationship between the assessee and advertisement agencies is

governed by the contract with the agreed and binding terms and

conditions, payments, billings etc. the responsibility of the recovery of

payment from advertiser is not on the assessee and it has sold the

advertisement space to the said agencies. The advertisements are to be

procured by such agencies at the rates and terms deiced between them

and advertiser, assessee has no involvement therein. In the case of

Kerala State Stamp Vendors Association Vs. Office of the Accountant

General (supra), the Hon'ble Kerala High Court held that what is liable

for TDS is commission of brokerage and not the incentives given on the

basis of principal to principal relations.

7.1 In the consideration of entirety of facts and circumstances, we

hold that the amount paid by way of discount to the advertisement

agencies, springs from a relationship on principal to principal basis and

does not constitute commission as contemplated by provisions of

Section 194H of the Act. In view thereof, we see no infirmity in the

order of the learned CIT(A) in holding that the provisions of Section 9 ITA 325/JP/2012_ ITO Vs. Bhim Sain Garg

40(a)(ia) of the Act are not applicable and thereby deleting the

disallowances. The order of the learned CIT(A) is upheld.

8. In the result, revenue's appeal is dismissed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:

1. vihykFkhZ@The Appellant- The I.T.O., Ward 6(3), Jaipur.

2. izR;FkhZ@ The Respondent- Shri Bhim Sain Garg, Jaipur

3. vk;dj vk;qDr@ CIT-

4. vk;dj vk;qDr¼vihy½@The CIT(A)-

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 325/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar