REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos. 3496-3497  OF 2018 (Arising out of S.L.P.(C) Nos.3320-3321 of 2011)  

The Director, Prasar Bharati  ….Appellant(s)

VERSUS

Commissioner of Income Tax, Thiruvananthapuram        …Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1. Delay condoned.

2. Leave granted.

3. These  appeals  are  directed  against  the  final

judgment  and  order  dated  20.11.2009  passed  by

the High Court of Kerala at Ernakulam in Income

Tax Appeal No.27 of 2009 and Income Tax Appeal

No.62 of 2009 whereby the High Court allowed the

appeals  preferred  by  the  respondent  herein   and

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reversed the order dated 28.03.2007 passed by the

Income  Tax  Appellate  Tribunal,  Cochin  Bench  in

Income Tax Appeal Nos. 926 & 927/COCH/2005 for

the  Assessment  Years  2002-2003  and  2003-2004

and restored the order dated 04.03.2005 passed by

the  Commissioner  of  Income  Tax(Appeals)-II,

Thiruvananthapuram  and  the  order  dated

22.09.2003 passed by the Assessing Officer.

4. In  order  to  appreciate  the  issue  involved  in

these appeals,  it  is  necessary to set out the facts

hereinbelow.

5.  The appellant is known as  "Prasar Bharati

Doordarshan  Kendra".  It  functions  under  the

Ministry  of  Information  and  Broadcasting,

Government  of  India.  The  dispute  in  this  case

relates  to  the  appellant's  Regional  Branch  at

Trivandrum.

6. The appellant, in the course of their business

activities,  which  include  the  running  of  the  TV

channel  called  "Doordarshan",  has  been  regularly

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telecasting  advertisements  of  several  consumer

companies.  

7. With a view to have a better regulation of the

practice  of  advertising  and  to  secure  the  best

advertising  services  for  the  advertisers,  the

appellant  entered  into  an  agreement  with  several

advertising agencies (Annexure-P-12).  

8. In  terms  of  the  agreement,  the  advertising

agency (hereinafter referred to as "the Agency") was

required to make an application to the appellant to

get the  "accredited status" for their Agency so as to

enable  them to do business with the appellant  of

telecasting the advertisements of several consumer

products  manufactured  by  several  companies  on

the appellant's Doordarshan TV Channel.  

9. The  agreement,  inter  alia,  provided  that  the

appellant would pay 15% by way of commission to

the  Agency.  The  Agency  was  to  retain  the

commission/remuneration earned and not  to  part

the same either directly or indirectly with any other

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person,  advertiser  or  representative  of  any

advertiser for whom it may be acting or has acted as

an advertising agency. The agreement also provided

the manner, mode and the time within which the

payment  was  to  be  made  by  the  Agency  to  the

appellant. The failure to make the payment was to

result in losing the accredited status by the Agency.

The Agency was to give minimum annual business

of Rs.6 Lakhs to the appellant in a financial year

failing which their accredited status was liable to be

withdrawn.  The  Agency  was  to  furnish  a  bank

guarantee for a sum of Rs.3 Lakhs. There are other

clauses  also  in  the  agreement  but  they  are  not

relevant  for  the  purpose  of  disposal  of  these

appeals.

10. The appellant is an assessee under the Income

Tax Act (hereinafter referred to as “the Act”). In the

assessment  year  2002-2003(01.06.2001  to

31.03.2002)  and  2003-2004  (01.04.2002  to

31.03.2003),  the  appellant  paid  a  sum  of

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Rs.2,56,75,165/- and  Rs.2,29,65,922/- to various

accredited Agencies,  with whom they had entered

into  the  aforementioned  agreement  for  telecasting

the advertisements given by these Agencies relating

to  products  manufactured  by  several  consumer

companies. The amount was paid by the appellant

to the Agencies towards the commission in terms of

the agreement.

11. The question arose before the Assessing Officer

(AO) in the assessment proceedings as to whether

the  provisions  of  Section  194H of  the  Act,  which

came  into  force  with  effect  from  01.06.2001,  are

applicable to the payments in question made by the

appellant  to  the  Agencies  and,  if  so,  whether  the

appellant  deducted  "tax  at  source"  as  provided

under  Section  194H of  the  Act  from the  amount

paid by the appellant to the Agencies.

12. The  AO made  the  assessment  vide  its  order

dated  22.09.2003.  Insofar  as  the  aforementioned

question  was  concerned,  the  AO was  of  the  view

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that the provisions of Section 194H of the Act are

applicable to the payments made by the appellant to

the Agencies because the payments were made in

the  nature  of  “commission”  as  defined  in

Explanation appended to Section 194H of the Act.

The  AO  held  that  the  appellant,  therefore,

committed  default  thereby  attracting  the  rigor  of

Section  201(1)  of  the  Act  because  they  failed  to

deduct the "tax at source" from the amount paid to

various advertising agencies during the Assessment

Years in question as provided under Section 194A of

the Act.  

13. On quantification,  the  AO found that  during

the Assessment Year 2002-2003, the appellant had

paid  a  sum  of  Rs.2,56,75,165/-  towards  the

commission to the Agencies and on this sum, they

were  required  to  deduct  tax  amount  to

Rs.16,34,283/- and a sum of Rs.3,80,611/- towards

interest for delayed payment under Section 201(1-A)

of  the  Act  and  during  the  Assessment  Year

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2003-2004,   the  appellant  had  paid  a  sum  of

Rs.2,29,65,922/-  towards  the  commission  to  the

Agencies  and on this  sum,  they  were  required to

deduct  tax  amounting  to  Rs.11,15,944/-   and  a

sum of Rs.1,54,050/- towards interest for delayed

payment under Section 201(1-A) of the Act.  

14. The appellant felt aggrieved and filed appeals

before the Commissioner of Income Tax (Appeals)-II,

Thiruvanathapuram.  By  order  dated  04.03.2005,

the  Commissioner  concurred  with  the  reasoning

and conclusion arrived at  by  AO and accordingly

dismissed the appeals.  

15. The appellant felt aggrieved and filed appeals

before the Tribunal. By order dated 28.03.2007, the

Tribunal  following  its  earlier  order  allowed  the

appeals and set aside the orders passed by AO and

CIT (Appeals).  

16. The  Revenue  (Income  Tax  Department),  felt

aggrieved by the order passed by the Tribunal, filed

appeals under Section 260-A of the Act in the High

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Court.  By  impugned  judgment,  the  High  Court

allowed  the  appeals  and  while  setting  aside  the

Tribunal's order restored the order of CIT (Appeals)

and AO.

17. The  High Court  was  of  the  opinion that  the

provisions  of  Section  194H  are  applicable  to  the

payments  made  by  the  appellant  to  the  Agencies

during the period in question because the payments

made were in the nature of “commission” paid to the

Agencies  as  defined  in  Explanation  appended  to

Section  194H of  the  Act  and  since  the  appellant

failed to  deduct  the “tax at  source”  while  making

these  payments  to  the  Agencies  in  terms  of  the

agreement  in  question,  they  committed  default  of

non-compliance  of  Section  194H  resulting  in

attracting the provisions of Section 201 of the Act.  

18. The appellant (assessee) felt aggrieved and filed

these appeals by way of special leave in this Court.

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19. Heard Mr. Rajeev Sharma, learned counsel for

the  appellant  and  Mr.  Rupesh  Kumar,  learned

counsel for the respondent.

20.   Submissions  of  learned  counsel  for  the

appellant (assesse) were two-fold. In the first place,

he argued that the payments made by the appellant

to  the  accredited  agencies  during  the  assessment

years  in  question  were  not  in  the  nature  of

commission.  According  to  learned  counsel,  the

relationship  between  the  appellant  and  the

accredited Agencies was not  that  of  principal  and

the  agent  but  it  was  in  the  nature  of

principal-to-principal.  In  other  words,  the

submission was that the accredited agencies were

not working as agent of the appellant and nor the

appellant was paying them any amount by way of

commission.  

21. Referring  to  the  terms  of  the  agreement,

learned counsel tried to point out that the Agencies,

in terms of the agreement, purchased the air time

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from the appellant and then sold it in the market for

advertisement to their customer after retaining 15%

commission given to them by the appellant. It was,

therefore,  his  submission  that  such  transaction

cannot be regarded as being between the principal

and agent and nor the payment can be regarded as

having been made by way of commission so as to

attract the rigor of Section 194H and Section 201 of

the Act.  

22. Learned  counsel  also  submitted  that  by

mistake  some other  format  of  the  agreement  was

placed by the appellant before the High Court and,

therefore,  the  appellant  suffered  adverse  order  in

question (see averments made in Paras 4 and 5 of

the application seeking permission to file additional

documents at page 134/135). Learned counsel then

took  us  to  the  relevant  provisions  of  the  proper

agreement filed in this Court as Annexure P-12 and

contended that having regard to the nature of the

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agreement  and  its  terms,  the  submission  urged

deserves acceptance.

23. In  reply,  learned  counsel  for  the  respondent

(Revenue)  supported  the  impugned  judgment  and

contended  that  the  order  passed  by  the  AO,  CIT

(Appeals) and the impugned judgment deserve to be

upheld as all the three orders are based on proper

reasoning calling no interference.

24. Having  heard  the  learned  counsel  for  the

parties and on perusal of the record of the case, we

find no merit in these appeals.

25. Section  194H,  which  is  relevant  for  the

disposal of these appeals reads as under:  

“194H. Commission or brokerage-Any person not being an individual or a Hindu undivided family,  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 at the rate of five per cent.

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Provided  that  no  deduction  shall  be made under this section in a case where the amount of such income or, as the case may be,  the  aggregate  of  the  amounts  of  such income  credited  or  paid  or  likely  to  be credited or paid during the financial year to the  account  of,  or  to,  the  payee,  does  not exceed fifteen thousand rupees.

Provided further that an individual or a Hindu  undivided  family,  whose  total  sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause  (b)  of  section  44AB  during  the financial  year  immediately  preceding  the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section.

Provided also that no deduction shall be made under this section on any commission or  brokerage  payable  by  Bharat  Sanchar Nigam  Limited  or  Mahanagar  Telephone Nigam  Limited  to  their  public  all  office franchisees.  

Explanation-  For  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;

(ii) the  expression  “professional  services” means services rendered by a person in the course  of  carrying  on  a  legal,  medical, engineering or architectural profession or the profession  of  accountancy  or  technical consultancy  or  interior  decoration  or  such

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other profession as is notified by the Board for the purposes of section 44AA;

(iii) the  expression  “securities”  shall  have the meaning assigned to  it  in  clause  (h)  of section  2  of  the  Securities  Contracts (Regulation) Act, 1956 (42 of 1956);

(iv) where  any  income  is  credited  to  any account,  whether  called  “suspense  account’ or  by  any  other  name,  in  the  books  of account  of  the  person  liable  to  pay  such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.”

26. The  aforementioned  Section  was  inserted  in

the Act with effect from 01.06.2001 by replacing the

earlier  Section 194H.  This  Section deals  with  the

payment of  "commission or brokerage".  

27. It  provides  that  any  person  other  than

individual  or  HUF,  responsible  for  paying  any

income by way of “commission” (not being insurance

commission  as  specified  in  Section  194D)  or

"brokerage" to any person shall at the time of credit

of  such income to the account of  payee or at the

time  of  payment  of  such  income  in  cash  or  by

cheque  or  draft  or  any  other  mode  will  deduct

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income tax thereon at the rate of five percent. The

first proviso specifies the limit. The second proviso

makes the individual  or  HUF liable to deduct the

income tax, if they exceed the limit specified therein.

The third proviso exempts payment of commission

or brokerage when made to BSNL and MTNL to their

public call office franchisees.  

28. The  Explanation  appended  to  Section  194H

defines the expression "commission or brokerage". It

is an inclusive definition and includes therein 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

assets, valuable article or thing not being securities.

Clause (ii) defines professional services; clause (iii)

defines  securities;  and  clause  (iv)  provides  a

deeming  fiction  for  treating  any  income  so  as  to

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attract  the  rigor  of  the  Section  for  ensuring  its

compliance.

29. Keeping in mind the requirements of  Section

194H when we examine the transaction in question,

we  are  of  the  considered view that  the  reasoning

and  the  conclusion  arrived  at  by  the  AO,  CIT

(Appeals) and the High Court appears to be just and

proper and does not call for any interference.  

30. In  other  words,  in  our  considered  view,  the

High Court was right in holding that the provisions

of  Section  194H  are  applicable  to  the  appellant

because  the  payments  made  by  the  appellant

pursuant to the agreement in question were in the

nature of payment made by way of  "commission"

and,  therefore,  the  appellant  was under  statutory

obligation to deduct the income tax at the time of

credit or/and payment to the payee.  

31. The  aforementioned  conclusion  of  the  High

Court is clear from the undisputed facts emerging

from the record of the case because we notice that

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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; Fifth,

the transaction in question did not show that the

relationship  between  the  appellant  and  the

accredited agencies was principal to principal rather

it was principal and Agent; Sixth, it was also clear

that  payment  of  15%  was  being  made  by  the

appellant  to  the  agencies  after  collecting  money

from  them  and  it  was  for  securing  more

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advertisements for them and to earn more business

from  the  advertisement  agencies;  Seventh,  there

was a clause in the agreement that the tax shall be

deducted at source on payment of trade discount;

and lastly, the definition of expression "commission"

in the Explanation appended to Section 194H being

an inclusive definition giving wide meaning to the

expression  “commission",  the  transaction  in

question did fall under the definition of expression

“commission” for the purpose of attracting rigor of

Section 194H of the Act.

32. For all these reasons, we find no difficulty in

holding  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.

33. Once it is held that the provisions of Section

194H apply  to  the  transactions  in  question,  it  is

obligatory upon the appellant to have deducted the

income  tax  while  making  payment  to  the

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advertisement  agencies.   The  non-compliance  of

Section 194H by the assessee attracts the rigor of

Section  201  which  provides  for  consequences  of

failure to deduct or pay the tax as provided under

Section 194H of the Act.  

34. In our view, the provisions of Section 201 were,

therefore,  rightly  invoked in this  case against  the

appellant  by  the  assessing  authority  once  having

held  that  the  appellant  failed  to  comply  with  the

provisions of Section 194H of the Act.

35. Learned  counsel  for  the  appellant  (assessee)

placed  reliance  on  the  decision  of  the  Allahabad

High Court in  Jagran Prakashan Ltd vs. Deputy

Commissioner of Income Tax(TDS), (2012)345 ITR

288 in support of his submission.  

36. On perusal of the said judgment, we find that

the law laid down by the Allahabad High Court is

not applicable to the facts of the case at hand and

the learned Judges rightly distinguished the case at

hand with the facts involved in the Allahabad case.

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The learned Judges of the Allahabad High Court in

Paras  61  and  62  of  the  judgment  dealt  with  the

impugned judgment with which we are concerned in

these appeals and distinguished it in the following

words:    

“61.  Now we  come to  the  judgment  of  the Kerala  High  Court  in  the  case  of  CIT  vs. Director, Prasar Bharti reported in (2010) 325 ITR  205(ker.)  on  which  much  reliance  has been placed by the assessing authority. The Prasar Bharati is fully owned Government of India  undertaking  engaged  in  telecast  of news,  various  sports,  entertainments, cinemas  and  other  programmes.  The advertisements  were  canvassed  through agents under the agreement with them. The advertising agencies and the Director, Prasar Bharati were principal and agent as per the agreement  and  the  Doordarshan  provided 15% discount on the basis  of  which it  was contended that no deduction at source was required. The Tribunal held that there was no liability for deduction of tax at source under Section 194H which judgment was reversed by the Kerala High Court. From the facts of the  aforesaid  case,  it  is  clear  that Doordarshan  had  appointed  agents  i.e. advertising  agencies  and  there  was agreement  entered  between  them.  In  the aforesaid circumstances, 15% advertisement charges collected and remitted was held to be in  the  form  of  commission  payable  to  the agent  by  Doordarshan.  There  was  explicit agreement  between  the  agency  and  the Doordarshan  where  both  understood  that payment made to the agency was liable to tax deduction. It is useful to quote the following observations of the judgment of Kerala High Court:-

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……………………………………………………………… ………………………………………………………………

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%  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

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capacity  as  Principal  of  the  agent.  It  is pertinent  to  note  that  commission  or brokerage  defined  under  explanation  (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% commission paid to advertising agencies by  the  Doordarshan  is  for  canvassing advertisements on behalf of the respondent. So  much  so,  the  payment  of  15%,  by whatever  name called,  whether  discount  or commission,  falls  within  the  definition  of "commission"  as  defined  under  Explanation (i) to Section 194H of the Act. ……………………………………………………………… ………………………………………………………………

It is very clear from the above provision that  the  advertising  agency  clearly understood  the  agreement  as  an  agency arrangement and the commission payable by the respondent to such agency is subject to tax  deduction  at  source  under  the  Income Tax Act and so much so the provision in the agreement was for the agent after retaining 15% to give cheque or demand draft for TDS amount which was originally 5% until it was enhanced to 10% by Finance Act 2007 with effect from 1.6.2007.

62. In the aforesaid case, the relationship of principal  and  agent  was  fully  established since the advertising  agency was  appointed as agent by written agreement and there was specific clause that tax shall be deductible at source on payment of trade discount. In the said  circumstances,  the  Kerala  High  Court held  that  Section  194H of  the  Income Tax Act was applicable. In the present case, there is no agreement between the petitioner and the  advertising  agency  and  the  advertising agency has never been appointed as agent of the  petitioner.  Thus  the  above  case  of  the Kerala High Court is clearly inapplicable and

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the  reliance  on  the  said  judgment  for fastening the liability of tax and interest on the  petitioner  is  wholly  untenable.  The judgment of the Kerala High Court thus does not  help  the  respondents  in  the  present case.”

37. In our opinion, the Allahabad High Court very

rightly noticed the distinction between the facts in

the case of Jagaran Prakashan Ltd. (supra) and the

case with which we are concerned in these appeals

and held that it depends upon the facts of each case

to decide as to what is the nature of payment made

by  the  party  concerned.  Their  Lordships  rightly

noticed  that  the  case  before  them   (Jagaran

Prakashan Ltd.)  did not  have any agreement like

the   one  in  this  case  wherein  in  terms  of  the

agreement,  it  is  unmistakably  proved  that  the

payment  was  being  made  by  the  appellant

(assessee) to the agencies by way of “commission”.

In our view, therefore, the decision of the Allahabad

High Court is of no help to the case of the appellant

for taking a different view.    

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38. In  the  light  of  the  foregoing  discussion,  we

concur  with  the  reasoning  and  the  conclusion

arrived at by the High Court and find no merit in

these  appeals.   The  appeals  thus  fail  and  are

accordingly dismissed.     

              ………...................................J. [R.K. AGRAWAL]

                              ...……..................................J.          [ABHAY MANOHAR SAPRE]

New Delhi; April 03, 2018  

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