ITO, Jaipur V. SHRI BHIM SEN GARG , THROUGH L/H, Jaipur

ITA 325/JPR/2012

• Counselvise Citation: 32523114 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Keywords: Relationship of principal and agent

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR 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'K Z @ ASSESSMENT YEAR : 2007-08 THE I.T.O. WARD 6(3), JAIPUR. CUKE VS. SHRI BHIM SAIN GARG, THROUGH LEGAL HEIR SHRI SHAILENDRA GARG, F-47, MALVIYA NAGAR INDUSTRIAL AREA, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ 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 CAS E AND IN LAW, THE LEARNED CIT(APPEALS), HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,31,97,053/- MADE BY THE A.O. F OR NON- DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE TO AD VERTISING ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 2 AGENCIES AND CUSTOMERS TREATING THE SAME AS COMMISS ION 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 NEWSPAPE R. THE ASSESSEE RECEIVES ADVERTISEMENT REVENUE BY SELLING THE ADVER TISEMENT SPACE TO ADVERTISEMENT AGENCIES. THE ASSESSEE HAS FIXED RATES , TERMS AND CONDITIONS ABOUT DISCOUNT WITH THE ADVERTISEMENT AGE NCIES ON PRINCIPAL TO PRINCIPAL BASIS. DURING THE YEAR ASSESSEE OFFERE D A DISCOUNT RS. 1,31,97,053/- TO SUCH AGENCIES WHICH WAS CLAIMED AS B USINESS EXPENDITURE. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT OF DISCOUNT WAS IN THE NATURE OF COMMISSION TO THE ADVERTISEMENT AGENC IES, 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 DISALL OWED 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 NATUR E OF COMMISSION BUT IN THE NATURE OF DISCOUNT, FOR WHICH PROVISIONS OF TDS U/S 194H OF THE ACT WERE NOT APPLICABLE. CONSEQUENTLY, THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED BY FOLLOWING OBSERV ATIONS: ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 3 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 BHARA T. 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 & L OSS 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 DI SCOUNT 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 TH E 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 TH E 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 T HE CUSTOMERS OR THE ADVERTISING AGENCIES. THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE DULY AUDITED AND COMPLE TE ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 4 DETAILS IN THIS REGARD WERE AVAILABLE TO THE AO. THE AO HAD NO BASIS TO HOLD THAT THE DISCOUNT OF RS 1,31,9 7,053/- 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 CR EDIT NOTES ISSUED BY THE ASSESSEE TO HIS VARIOUS CUSTOME RS AND ADVERTISING AGENCIES. 4.3 IT IS FURTHER SEEN THAT IN THE PRESENT CASE, T HE 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 AGEN CIES OR NOT. THE BILLS AND CREDIT NOTES OF DISCOUNT HAD A LSO BEEN ISSUED IN THE NAME OF ADVERTISING AGENCIES. THE ADVERTISEMENT AGENCIES HELD LICENSE/ AUTHORIZATION FROM INDIAN NEWS SERVICES AND THE ASSESSEE HAD NO CONTRO L OVER SUCH AGENCIES REGARDING THEIR WORKING AND HAD N O CONTRACT FOR PROCURING CUSTOMERS. THE ADVERTISING AGENCIES WERE CUSTOMERS OF THE ASSESSEE AND NOT HIS ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 5 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 PRINCI PAL TO PRINCIPAL AND NOT THAT OF PRINCIPAL AND AGENT AND T HE 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 HONBLE KERALA HIGH COURT IN THE CASE OF KERALA STA TE STAMP VENDORS ASSOCIATION VS OFFICE OF THE ACCOUNTA NT- GENERAL (282 ITR 007) THAT IT IS CLEAR FROM SECTION 194H OF THE INCOME-TAX ACT THAT WHAT IS SUBJECT TO DEDUCT ION OF INCOME-TAX AT SOURCE IS ONLY 'COMMISSION' OR 'BROKE RAGE'. IT IS CLEAR FROM THE DEFINITION OF COMMISSION OR BROKERAGE' AS CONTAINED IN THE EXPLANATION TO SECTI ON 194H THAT THE COMMISSION OR BROKERAGE THAT ATTRACTS TDS IS THE ONE PAID FOR 'SERVICES RENDERED IN THE COURS E OF SALE' WHICH OBVIOUSLY CAN BE SERVICES RENDERED BY A THIRD PARTY LIKE A BROKER OR AN AGENT AND CANNOT BE BY TH E BUYER AS THE BUYER IS NOT RENDERING ANY SERVICE EXC EPT 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 B UYING 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, TH E LEGISLATURE SPECIFICALLY PROVIDED FOR THE SAME WHICH IS ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 6 CLEAR FROM THE PROVISIONS OF SECTION 194H OF THE AC T WHICH PROVIDES FOR DEDUCTION OF TAX ON DISCOUNT PAID TO T HE LOTTERY DEALERS IN THE FORM OF COMMISSION. THE DECIS ION 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 THERE FORE 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 HONBLE CUTTACK BENCH IN THE CAS E 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 ORDE R OF THE LEARNED ASSESSING OFFICER. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED T HE FACTS, SUBMISSIONS AND CONTENTIONS AS RAISED BEFORE THE LE ARNED CIT(A). IT IS FACT THAT THE ADVERTISER APPROACHED THE ADVERTISEME NT AGENCIES OF THEIR ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 7 CHOICE FOR THEIR REQUIREMENTS, AGENCIES ACCORDINGLY PURCHASE THE SPACE IN NEWS PAPER. THE ASSESSEE AND SUCH ADVERTISEMENT AG ENCIES HAVE BINDING COMMERCIAL AGREEMENTS SETTING UP TERMS AND CONDITIONS, PAYMENTS, BILLING ETC FOR PURCHASE AND BOOKING OF A DVERTISEMENT SPACE; SAME IS ON PRINCIPAL TO PRINCIPAL BASIS. THERE IS NO PRIVACY OF THE CONTRACT BETWEEN THE ASSESSEE AND THE ORIGINAL ADVER TISER QUA THE SPACE SOLD TO AGENCY. THE ASSESSEE DOES NOT HAVE ANY RESPO NSIBILITY OF THE PAYMENT COLLECTED BY THE ADVERTISEMENT AGENCIES, WHI CH IS BOUND TO PAY THE ASSESSEE. THE ADVERTISEMENT AGENCIES ARE GI VEN DISCOUNT AS PER THE TERMS OF AGREEMENT FOR THE SPACE BOOKED. THUS, A S FAR AS THE ASSESSEE AND ADVERTISEMENT AGENCIES ARE CONCERNED, THE AGREEMENT IS ON PRINCIPAL TO PRINCIPAL BASIS AND THEY DO NOT HAV E 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 T HAT 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 SO T 280) WHICH HAVE HELD SIMILAR VIEW. ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 8 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS TH E 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 RESPONSIBIL ITY OF THE RECOVERY OF PAYMENT FROM ADVERTISER IS NOT ON THE ASSESSEE AND IT HAS SOLD THE ADVERTISEMENT SPACE TO THE SAID AGENCIES. THE ADVERT ISEMENTS ARE TO BE PROCURED BY SUCH AGENCIES AT THE RATES AND TERMS DE ICED BETWEEN THEM AND ADVERTISER, ASSESSEE HAS NO INVOLVEMENT THEREIN . IN THE CASE OF KERALA STATE STAMP VENDORS ASSOCIATION VS. OFFICE O F THE ACCOUNTANT GENERAL (SUPRA), THE HONBLE KERALA HIGH COURT HELD THAT WHAT IS LIABLE FOR TDS IS COMMISSION OF BROKERAGE AND NOT THE INCEN TIVES 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 P ROVISIONS OF SECTION 194H OF THE ACT. IN VIEW THEREOF, WE SEE NO I NFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN HOLDING THAT THE PRO VISIONS OF SECTION ITA 325/JP/2012_ ITO VS. BHIM SAIN GARG 9 40(A)(IA) OF THE ACT ARE NOT APPLICABLE AND THEREBY DELETING THE DISALLOWANCES. THE ORDER OF THE LEARNED CIT(A) IS UPH ELD. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/02/2015. SD/- SD/- VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 13 TH FEBRUARY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ 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;QDRVIHY @ 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