THE PRINCIPAL COMMISSIONER OF INCOME TAX, PANAJI., vs. DEMPO INDUSTRIES PVT. LTD.,

PDF · subscribers
TXA/67/2016HC BombayHCBM05000806201614 January 2021Author: HON'BLE SHRI JUSTICE M. S. SONAK,HON'BLE SHRI JUSTICE DAMA SESHADRI NAIDU11 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first substantial question of law should be answered against the Revenue. It noted that the ITAT decision in Hindustan Coca Cola Beverages was reversed by the Rajasthan High Court. Furthermore, this High Court had previously approved the view taken by the Karnataka High Court in Bharti Airtel Ltd. (which differed from the Kolkata ITAT's view in Bharti Cellular Ltd.) in its own decisions in Vodafone Cellular Ltd. and Idea Cellular Ltd. The Court also found concurrent findings of fact by the Commissioner (Appeals) and ITAT that the transactions were on a principal-to-principal basis, involving trade discounts, not commission, and these findings were not perverse. For the second substantial question, the Court found the ITAT's view consistent with the Allahabad High Court's ruling in Jagran Prakashan Ltd., which was acknowledged by CBDT Circular No. 5/2016. This circular clarified that TDS is not attracted on payments by media companies to advertising agencies for booking advertisements, and that 'commission' in Circular No. 715 did not refer to such payments. The Court held that this subsequent clarification binds the Revenue. Concurrent findings of fact that the dealings were principal-to-principal and no commission was paid were also noted, with no perversity pointed out. Therefore, both substantial questions of law were answered against the Revenue and in favour of the Assessee.

What were the facts?

The assessee, M/s. Dempo Industries Pvt. Ltd., engaged in publishing newspapers, filed its return for Assessment Year 2011-12. The Assessing Officer (AO) disallowed a deduction of Rs.4,12,44,957/- (Rs.1,36,43,978/- to newspaper vendors and Rs.2,76,00,979/- to advertising agents) for non-deduction of TDS under Section 40(a)(ia). The Commissioner (Appeals) reversed this, holding the transactions were on a principal-to-principal basis, akin to trade discounts, not commission. The ITAT upheld the Commissioner's order. The Revenue appealed to the High Court, challenging the ITAT's deletion of the addition.

What were the issues?

1. Whether the Hon'ble ITAT was right in completely ignoring the decisions of the ITAT, Kolkata in ACIT vs. Bharati Cellular Ltd. and ITAT, Jaipur in Hindustan Coca Cola Beverages (P) Ltd. vs. ITO while deleting the addition made on account of commission paid to newspaper vendors without deducting TDS under Section 40(a)(ia) of the Income Tax Act, 1961? 2. Whether the Hon'ble ITAT was right in not appreciating CBDT circulars No. 715 and 619 while deleting the addition of Rs.2,76,00,979/- towards commission paid to Advertising Agents where TDS was not deducted under Section 40(a)(ia) read with Section 194C, considering the clarification that commission/brokerage retained by agents amounts to constructive payment requiring TDS? Assessee's arguments: The Rajasthan High Court reversed the Jaipur ITAT decision in Hindustan Coca Cola Beverages. The Karnataka High Court's view in Bharti Airtel Ltd. (contrary to Kolkata ITAT's Bharti Cellular Ltd.) was followed by this High Court in Vodafone Cellular Ltd. and Idea Cellular Ltd. The Gujarat High Court's decision in Ahmedabad Stamp Vendors Association, based on the Supreme Court's ruling in Bhopal Sugar Industries Ltd., supports the assessee's position. Regarding the second issue, the Allahabad High Court's decision in Jagran Prakashan Ltd. (followed by CBDT Circular No. 5/2016) clarifies that TDS is not attracted on payments by media companies to advertising agencies for booking advertisements. The CBDT circulars bind the Revenue. Revenue's arguments: The ITAT ignored relevant decisions of the ITAT, Kolkata (Bharti Cellular Ltd.) and ITAT, Jaipur (Hindustan Coca Cola Beverages), the latter being affirmed by the Calcutta High Court. The ITAT also failed to appreciate CBDT Circulars No. 715 and 619, which clarify that TDS is required on constructive payments of commission.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 TXA NO.67-2016 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 67 OF 2016 The Principal Commissioner of Income Tax Aaykar Bhavan, Patto, Panaji, Goa. …... Appellant Versus M/s. Dempo Industries Pvt. Ltd., Dempo House, D.B. Marg, Campal, Panaji, Goa. ….... Respondent. Ms. Susan Linhares, Standing Counsel for the Appellant. Mr. Mihir Naniwadekar with Ms. Vinita Palyekar, Advocates for the Respondent. Coram:- M. S. SONAK & DAMA SESHADRI NAIDU, JJ. Reserved on:- 7 th Jan uary 2021 Pronounced on:- 14 th January 2021.

JUDGMENT : (Per M. S. Sonak, J.): Heard the learned Counsel for the parties.

2.

This appeal was admitted on 18 th October 2016 on the following substantial questions of law:

2 TXA NO.67-2016 A. Whether the Hon'ble ITAT was right in completely ignoring the decision of the Hon'ble ITAT, Kolkata in ACIT V/s. Bharati Cellular Ltd.(105) ITD 129 and Hindustan Coca Cola Beverages (P) Ltd. V/s. ITO (ITAT, Jp) while deleting addition made on the payment made by the assessee towards the commission paid to news paper vendors without deduction of TDS u/s. 40 (a) (ia) of I.T. Act, 1961? B. Whether the Hon'ble ITAT was right in not appreciating the CBDT circular no.715 dated 08/08/1995 and CBDT circular No.619 dated 04/12/1991 while deleting the addition made to Rs.2,76,00,979/- towards payments of commission to Advertising Agents where TDS was not deducted under section 40(a)(ia) r.w. s.194C, wherein it was clarified that when commission or brokerage is retained by the agents and not remitted to the principal, it amounts to constructive payments of the same to him by principal and TDS needs to be made from such amount?

3.

The Respondent-Assessee is engaged in the business of publishing and selling newspapers. For the Assessment Year 2011-12, the Assessee filed an e-return declaring a total income of Rs.6,96,80,950/-. The case was selected for scrutiny under CASS. The assessment was finalised vide order dated 28/11/2013 in which the Assessing Officer (AO) held that the Assessee had paid commission to the newspaper vendors to the extent of Rs.1,36,43,978/- to advertisement agents to the extent of Rs.2,76,00,979/- aggregating to Rs.4,12,44,957/- and since, the Assessee had not deducted TDS from such payments, the AO disallowed the deduction of the said amount

3 TXA NO.67-2016 relying upon the provisions of Section 40(a)(ia) of the Income Tax Act,

196.4.

The Assessee appealed to the Commissioner of Income-Tax (Appeals) who, by his order dated 17/11/2014 reversed the AO's order holding that the relation between the Assessee and the newspaper vendors or the advertisement agents was on a principal-to-principal (ITAT) which has, by its order dated 7/10/2015, dismissed the Revenue's appeal and upheld the order made by the Commissioner (Appeals). Hence, the present appeal on the aforesaid substantial questions of law.

6.

Ms. Linhares, the learned Counsel for the Revenue submits that the view taken by the Commissioner (Appeals) and the ITAT, is contrary to the law laid down by the Kolkota Bench of the ITAT in 1 (2001) 77 ITD 358 (Cuttack)

4 TXA NO.67-2016 Hindustan Coca Cola Beverages P. Ltd. vs. Commissioner of Income- 4/12/1991 in the context of payment of commission to the advertising agents. She submits that whenever the TDS is not deducted under Section 40(a)(ia), read with Section 194(C) of the Income Tax Act, then such amount cannot be deducted from taxable income of the Assessee. Based on the CBDT circulars, she submits that the second 2 105 ITD 129 (Kolkota) 3 [2018] 402 ITR 539 (Raj). 4 (2011) 12 Taxmann.com 30 (Calcutta)

5 TXA NO.67-2016 substantial question of law is also required to be answered in favour of the Revenue and against the Assessee.

8.

Mr. Naniwadekar, the learned Counsel for the Assessee, at the outset, pointed out that the decision of Jaipur Bench of the ITAT in Hindustan Coca Cola Beverages P. Ltd.(supra) has been reversed by the Rajasthan High Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. Commissioner of Income-Tax

5.

He submits that and followed by this Court in CIT (TDS), Pune vs. M/s. Vodafone Cellular Ltd. 7 and The CIT (TDS) Pune vs. M/s. Idea Cellular Ltd. 8. of the Hon'ble Supreme Court in Bhopal Sugar Industries Ltd. vs. 5 [2018] 402 ITR 539 (Raj). 6 [2015] 372 ITR 33 (Karn). 7 ITA Nos.1152, 1274 & 1995 of 2017 with ITA Nos. 571 & 1266 of 2018 decided on 27/1/2020. 8 ITA No.1129/2017 decided on 13/1/2020. 9 [2002] 257 ITR 202 (Guj HC).

6 TXA NO.67-2016 Revenue, as is evident from the CBDT Circular No.5/2016 dated 29th contrary to the position clarified by the CBDT Circular No.5/2016 on the status of trade discount extended to the advertisement agencies.

10.

Mr. Naniwadekar submits that the material on record very clearly establishes that the relation between the Assessee and the newspaper vendors or the advertising agencies was on a principal-to- 10 (1977) 3 SCC 147 11 [2012] 345 ITR 288 (All) 12 (1981) 131 ITR 597 (SC)

7 TXA NO.67-2016 principal basis. He submits that the terminology employed to describe the parties, is hardly relevant and emphasis has to be on the real nature of transactions. He submits that the Commissioner (Appeals) and the ITAT have recorded concurrent findings of 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. He submits that there is no perversity in the findings of fact recorded concurrently by the two authorities and no substantial question of law has been framed on the aspect of any alleged perversity. He submits that this is yet another reason as to why the present appeal may be dismissed.

11.

The rival contentions now fall for our determination.

12.

Ms. Linhares, in support of her contention that the first substantial question of law is required to be answered in favour of the Revenue and against the Assessee, has relied upon the decisions in Bharti Cellular Ltd. (supra) and Hindustan Coca Cola Beverages P. Ltd. (supra). However, there is no dispute that the decision of the ITAT in Hindustan Coca Cola Beverages P. Ltd. (supra) has expressly been reversed by the Rajasthan High Court in Hindustan Coca Cola Beverages Pvt. Ltd. (supra).

8 TXA NO.67-2016 13. 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 the favour of the 9 TXA NO.67-2016 newspaper vendors, in the first instance. The findings of fact on this aspect, as concurrently recorded, do not suffer from any perversity, to raise any substantial question of law and warrant interference with the same.

15.

This is yet another reason as to why the first substantial question of law cannot, in the facts and circumstance of the present case, be decided in favour of the Revenue and against the Assessee.

16.

In so far as the second substantial question of law is concerned, we find that the view taken by the Commissioner (Appeals) and the ITAT is consistent with the ruling of the Allahabad High Court in Jagran Prakashan Ltd. (supra). The CBDT Circular No.5/2016 dated 29/2/2016 takes express cognizance of the rulings of 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 8.8.95, does not refer to payments by media companies to advertising companies for booking of advertisements, but to payments for engagements of models, artists,

10 TXA NO.67-2016 photographers, sportsperson, etc. and therefore, is not relevant to the issue of TDS referred to in this Circular.

17.

The aforesaid means that the Circular No.715 dated 8.8.1995 cannot be interpreted in the manner suggested by Ms. Linhares, any longer. The CBDT itself has clarified the position in its subsequent Circular No.5/2016 dated 29/2/2016 and such clarification is binding upon the Revenue which cannot now take up some contrary position in the matter.

18.

Besides, both the Commissioner (Appeals), as well as the ITAT, have concurrently recorded findings of fact that 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 or paid by the Assessee to such agencies there was no question of any deduction of tax at source on such amounts. No perversity was pointed out in such concurrent findings of fact, to warrant any interference with the same in this appeal. Therefore, even the second substantial question of law is required to be answered against the Revenue and in favour of the Assessee in this matter.

11 TXA NO.67-2016

19.

Resultantly, both the substantial questions of law are answered against the Revenue and in favour of the Assessee.

20.

The Appeal is, accordingly, dismissed. There shall be no order as to costs. DAMA SESHADRI NAIDU, J. M. S. SONAK, J. SANTOSH S MHAMAL MHAMAL Date: 2021.01.14 16:50:51 +05'30'

More judgments on Section 40(a)(ia)

All 7,300 judgments and leading authorities on Section 40(a)(ia) →

Recent GST High Court judgments

Search GST case law →