Income Tax Act, 1961: s. 194H Explanation – Payment of Commission or brokerage – Applicability of s. 194H – Appellantassessee entering into an agreement with several advertising agencies – Payment made by appellant to the agencies, towards commission in terms of agreement – Assessment order by the Assessing Officer that provisions of s. 194H are applicable to the payments made by the appellant to the Agencies and since the appellant failed to deduct the “tax at source” from the amount paid to the agencies, the appellant committed default thereby attracting the rigor of s. 201(1) – Said order upheld by CIT(Appeals), however, set aside by the tribunal – In appeal, the High Court upheld the order of CIT(Appeals) and AO – On appeal, held: Provisions of s. 194H are applicable to the appellant because the payments made by appellant pursuant to the agreement were in the nature of payment made by way of “commission” – In view thereof, the appellant was under statutory obligation to deduct the income tax at the time of credit or/and payment to the advertisement agencies – Noncompliance of s.194H by the assessee attracts the rigor of s. 201 which provides for consequences of failure to deduct or pay the tax as provided u/s. 194H – Thus, the provisions of s. 201 rightly invoked against the appellant by the assessing authority.
Dismissing the appeals, the Court
HELD: 1.1 Section 194H of the Income Tax Act, 1961 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 income tax thereon at the rate of 5%. 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. The Explanation appended to s.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 attract the rigor of the Section for ensuring its compliance.[Paras 27-28] [295-F-G, H; 296-A-B]
1.2 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. 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. [Paras 29, 30] [296-C-D]
1.3 The conclusion of the High Court is clear from the undisputed facts emerging from the record of the case because 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 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 s. 194 H. [Para 31] [296-E-H; 297-A]
1.4 There is no difference in holding that the payment was in the nature of “commission” paid by the appellant to the advertisement agencies to secure more business for the appellant. 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 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. Therefore, the provisions of Section 201 were rightly invoked 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. [Paras 32, 33, 34] [297-B-D]
Jagran Prakashan Ltd v. Deputy Commissioner of Income Tax (TDS) (2012) 345 ITR 288 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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