Case Details:

PCIT vs. Dempo Industries Private Limited

Appeal No.:

Tax Appeal No. 67 of 2016

Order Pronounced by:

Bombay High Court

Date of Order:

14-01-2021

Assessment Year:

2011-12

The assessee (respondent) is engaged in the business of publishing and selling newspapers. During assessment, the A.O. held that the assessee had paid commission to the newspaper vendors & to the advertisement agents and since, the assessee had not deducted TDS from such payments, the A.O. disallowed the expenditure u/s 40(a)(ia) of the Act.

The assessee’s stand was that the relation between the assessee and the newspaper vendors or the advertisement agents was on a principal-to-principal basis, and therefore, there was no requirement of deducting tax a source on the trade discount extended by the assessee to them. The Hon’ble CIT(A) ruled in favour of the assessee and held that the sale of newspapers at discounted price to the newspaper vendors amounts to discount and not commission. The decision of the CIT(A) was upheld by the ITAT.

The material on record clearly established that the relation between the assessee and the newspaper vendors or the advertising agencies was on a principal-to-principal basis. He submitted that the terminology used to describe the parties, is not relevant and the emphasis has to be on the real nature of transactions.

He submitted that the CIT(A) and the ITAT have recorded concurrent findings of the fact that the assessee did not pay any commission to the newspaper vendors or the advertising agencies, but what was extended was only the trade discount, quite consistent with the industry practice in such matters.

Question

Ruling

Whether is it correct to make disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 on account of non-deduction of TDS on payments made by assessee towards the commission paid to newspaper vendors?

• The CIT(A) as well as the ITAT, have recorded concurrent findings of the fact that the transactions or the dealings between the assessee and the newspaper vendors were on a principal-to-principal basis.
• There was no commission paid by the assessee to the newspaper vendors, but the assessee merely extended a trade discount to the newspaper vendors. The newspaper vendors, were, thus, not agents of the assessee in the facts and circumstances of the present case.
• The circumstance that the assessee would repurchase the unsold papers, was not sufficient to conclude that there was no concluded sale in favour of the newspaper vendors, in the first instance.
• That’s why the first substantial question of law cannot be decided in favour of the Revenue and against the assessee.

Conclusion: No TDS is required to be deducted on the trade discount extended to newspaper vendors.  Such trade discount cannot be treated as a payment towards commission. Therefore, disallowance u/s 40(a)(ia) is not attracted on the basis of non-deduction of TDS.

Whether is it correct to make disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 on account of non-deduction of TDS on payments of commission to advertising agents?

• CBDT circular No. 5/2016 dated 29/02/2016 takes express cognizance of rulings of Allahabad High Court in Jagran Prakashan Limited (supra) and Delhi High Court in CIT vs. Living Media India Ltd. ITA No. 1264 of 2007 and proceeds to clarify that no TDS is attracted on payments made by television channels / newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.
• The CBDT circular further clarifies that ‘commission’ referred to in question no. 27 of the Board’s Circular No. 715 dated 08.08.1995, does not refer to payments by media companies to advertising companies for booking of advertisements, but to payments for engagements of models, artists, photographers, sportsperson etc. and therefore is not relevant to the issue of TDS referred to in this Circular.
• The CBDT itself has clarified the position in its subsequent Circular No. 05/2016 dated 29/02/2016 and such clarification is binding upon the Revenue which cannot now take up some contrary position in this matter.
• The dealings between the assessee and the advertising agencies were on a principal-to-principal basis and therefore, there was no element of commission involved. Since, there was no element of commission involved, there was no question of any deduction of tax at source on such amounts.

Conclusion: The transactions between the newspaper company and the advertising agencies are made on a principal-to-principal basis. There is no element of commission involved in this transaction. Therefore, no TDS is required to be deducted on payments made to advertising agencies by the newspaper companies.