ITO (TDS) 2(3), MUMBAI vs. MUSIC BROADCAST P.LTD, MUMBAI

PER RAVISH SOOD, JUDICIAL MEMBER:

The Revenue had assailed the order of the CIT(A) before us by raising the following grounds:

1. i. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that the commission paid in the guise of discount by the assessee on ‘Broadcasting Services’ to its agents does not attract provisions of section 194H of the Act and thereby erred in deleting the short deduction u/s 201(1) and interest u/s 201(1A) of the I.T. Act. ii. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that the amount paid to ‘Radio Jockeys’ does not fall within the ambit of provisions of section 192 of the Act and consequently deleting the demands raised u/s 201(1) and 201(1A) of the Act.

2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of the hearing of the case or thereafter.

3. The order of the CIT(A) being erroneous be set aside and Ld. A.O’s order be restored.

A. COMMISSION TO ADVERTISING AGENCIES:- (i). The AO observed that the assessee had in the invoices so raised on the advertising agencies through whom it was procuring advertisements, was consistently giving a discount @ 15 percent of the bill amount, which aggregated to an amount of Rs. 18,36,07,728/- during the year under consideration. The AO being of the view that the assessee in the garb of ‘discount’ being allowed to the advertising agencies, was as a matter of fact paying/passing of ‘Commission’ for the services so rendered by them, therefore called upon the assessee to show-cause as to why no tax was deducted at source on the said amounts.

(ii). The assessee in compliance to the aforesaid query so raised by the A.O, therein submitted that the discount allowed to the advertising agencies could not be characterized as ‘Commission’, as the relations between the assessee and the advertising agencies was that of principal-to-principal basis, and not that of a (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. principal-agent relationship. The assessee substantiated his aforesaid contention on the basis of the following facts:- a. The assessee did not control the business of the advertising agents. b. The advertising agents were free to appoint sub-agents for their work. c. The advertising agents may or may not work on exclusive basis for the assessee, i.e. the advertising agents after consultation with the client and as per their research mutually decided the broadcasters for the advertisement. d. The advertising agents and not the ultimate advertiser were the debtors of the assessee for the pending payments. e. Receipts to the assessee were not dependent on receipts by the client. f. The advertising agencies were liable to pay to the assessee, irrespective of the fact whether they had received any money from its customer or not. g. That the risk of collection from the client and bad debts of the client were to be borne by the advertising agencies on their own.

The A.O however being of the view that as the commission or brokerage defined under Explanation (i) of section 194H had a wide meaning, which covered any payment received directly or indirectly by a person acting on behalf of another person for services rendered, thus concluded that the 15 percent discount which was consistently allowed by the assessee in the invoices raised on the advertising agencies, was as a matter of fact commission paid/passed over to them in the garb (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. of discount. The A.O thus on the basis of his aforesaid observations rejected the claim of the assessee and held it as being in default u/s 201(1) of the ‘Act’ for failing to deduct tax at source u/s 194H of the ‘Act’, and raised demand on the assessee u/ss. 201(1)/201(1A) of the ‘Act’, as under:-

Description Default u/s 201(1) Interest u/s 201(1A) upto determined (amount) the date of order 35 months Discount/Commission 1,88,82,424 66,08,848 B. PAYMENTS TO THE RADIO JOCKEYS : (i). The A.O further observing that the assessee which had entered into ‘Agreements’ with ‘Radio Jockeys’ for hosting shows on radio, had during the year under consideration paid an amount aggregating to Rs. 4,41,21,870/- to them, after treating the same as payments to professionals thus subjected the same to deduction of tax at source u/s 194J of the ‘Act’. The A.O however being of the view that as an employer-employee relation did exist between the assessee and the Radio Jockeys, therefore the payments were to be looked into as being made to the employees, which therein rendered the assessee liable for deduction of tax at source u/s 192 of the ‘Act’. The assessee on being called upon by the A.O to explain as to why the deduction of tax at source on the payments made to the Radio Jockeys was not carried out u/s 192 of the ‘Act’, therein submitted that no employer-employee relationships existed between the assessee and the Radio (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. Jockeys, and as such the payments made by the assessee to the Radio Jockeys who were free lance professionals, had thus rightly been subjected to deduction of tax at source u/s 194J of the ‘Act’. The assessee fortified its claim on the basis of the following facts :-

(a). The profile of Radio Jockeys clearly indicated that the contract was for service, and not of service.

(b).The Radio Jockeys were not on the payroll of the assessee. They were also not entitled to statutory welfare benefits like Provident Fund, Gratuity and Bonus etc.

(c).The Radio Jockeys were not subjected to any probation period, as was applicable to the employees of the assessee. That as a matter of policy, the employees of the assessee were subjected to three month probation period before they were confirmed on the job.

(d).The employees of the assessee had to strictly abide by the standards of business conduct and the employment guidelines set forth by the assessee. The same were however not applicable to the Radio Jockey’s, as they were not the employees of the assessee. That the employees of the assessee had to abide by specific dress code etc., which however were also not applicable to professionals working for the assessee on contract basis (e). The Radio Jockeys were expected to indemnify the assessee in certain events, while for no such indemnity clause was applicable to the employees of the assessee.

(A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. (ii). The A.O however did not find favor with the claim of the assessee, and being of the view that as the Radio Jockeys were under obligation of rules, regulations, protocols and code of conduct as prescribed by the assessee from time to time, the same thus established beyond any scope of doubt that the employer- employee relations existed between the assessee and the Radio Jockeys. The A.O thus rejected the claim of the assessee that no employer-employee relations did exist between the assessee and the Radio Jockeys, and the payments made to the said persons were in lieu of the professional services so rendered by them, and as such were rightly subjected to deduction of tax at source u/s 194J of the ‘Act’. That interestingly, the A.O after concluding as mentioned hereinabove, however further held that to the extent the payments made by the assessee to the Radio Jockeys during the year, involved an amount of less than Rs. 3 lac, the same were to be treated as payments made by the assessee to the said Radio Jockeys towards professional fees, and the claim of the assessee that the said payments were in lieu of professional services and were liable to be subjected to deduction of tax at source u/s 194J, was not to be dislodged, and was to be accepted as such. The AO thus in the backdrop of his aforesaid observations, being of the view that the assessee had failed to deduct tax at source u/s 192 of the ‘Act’ on the payments made to the Radio Jockeys (which though were to be restricted to those cases where payments during the year were in excess of Rs. 3 lac), held the assessee as (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. being in default u/s 201(1) of the ‘Act’, for short deduction of tax at source, as had emerged on account of wrong deduction of tax at source u/s 194J, as against the statutory obligation of having deducted the same u/s 192 of the ‘Act’. The A.O however after perusing the ‘Returns of income’ of some of the respective payees which were placed on record by the assessee during the course of the assessment proceedings, and thus revealed that the said respective payees after taking credit of the TDS u/s 194J, had deposited the balance tax liability and filed the return of income, therein restricted the liability of the assessee to be treated as being in default for short deduction of tax at source u/s 192, as regards the balance amount of tax of Rs. 6,03,251/-, alongwith interest u/s 201(1A) on the said amount, as well as on the amount of tax which though was deposited by the payees whose returns of income were placed on record, but restricted to the period of delay as had emerged in light of the date of deposit of the tax by the respective payees, and thus on the basis of his said observations, raised demand on the assessee u/ss. 201(1)/201(1A) of the ‘Act’, as under:- Description Default u/s 201(1) for Short Interest U/s 201(1A) Total deduction of tax (due to deduction u/s 194J, as against Sec. 192), after applying Judgment of Hon’ble Supreme Court in the case of : Hindustan Coca Cola. Total payment (above Rs. 3,00,000) of Rs. (i). On ‘Short deduction 2,89,29,903/- paid by the of tax at source’. Rs.2,11,138 /- assessee to the Radio Rs. 6,03,251/- Jockeys. (ii).On account of delay Rs. 1,09,657/- in depositing of taxes (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. by respective payees who had filed their ‘Returns of income’. Total Rs. 3,20,795/- The AO thus on the basis of his aforesaid observations, holding the assessee as being in default u/ss. 201(1)/201(1A) of the ‘Act’ on both of the aforesaid two issues, therein raised a demand aggregating to Rs. 2,64,15,318/-in the hands of the asssessee.

3. The assessee being aggrieved therein carried the matter in appeal before the CIT(A), who adjudicated the issues so assailed by the assessee before him, as under:- A. COMMISSION TO ADVERTISING AGENCIES:- (i). The CIT(A) after appreciating the fact that the assessee was recognizing the revenue from sale of air time, as per the Invoices/bills at which the airtime was sold to the advertising agency, and the amount of discount was not separately treated as an expenditure on account of sale of airtime, and as such was not separately debited to the ‘Profit & Loss account’; the assessee had not appointed the advertising agencies to whom the discounts were allowed, as its agents, directly or indirectly, nor any evidence was brought on record by the A.O which could go to show that the advertising agency was appointed by the assessee for sale of its airtime and was working as per its dictates; discounts given by the assessee to the advertising agencies were as per the prevailing industry practice, (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. and the assessee was giving such discounts to any person who was buying airtime from it, i.e. a direct advertiser or the advertising agencies; the inventory of the airtime was always with the assessee ; the advertising agencies buys the airtime slots as per their desire and requirements of the advertiser, in which the appellant has no say, and if a particular time slot remains vacant, the loss is of the assessee, thus on a conjoint perusal of the aforesaid facts, therein concluded that the ‘discount’ offered by the assessee to the advertising agencies on sale of airtime did not partake the color and character of commission, and could safely be held to be a ‘discount’ allowed in the normal course of the business by the assessee.

B). PAYMENTS TO THE RADIO JOCKEYS : That the CIT(A) further adverted to the issue pertaining to the payments made by the assessee to the Radio Jockeys, which were claimed by the assessee to be in the nature of professional payments, and as such were subjected to deduction of tax at source u/s 194J of the ‘Act’, were however on the contrary held by the A.O as payments in the nature of ‘Salary’, as a result whereof the A.O had held the assessee liable for deduction of tax at source u/s 192 of the ‘Act’. The CIT(A) after duly appreciating the fact that the ‘Agreement’ executed between the assessee and the Radio Jockeys, nowhere revealed that the latter were the employees of the assessee, coupled with the fact that it was a fact borne from the records that the Radio Jockeys were not entitled to benefits which the employees (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. of the assessee were entitled, say entitlement towards provident fund, gratuity, retirement benefits etc., thus in the absence of such conclusive and clinching evidence on record, which could go to prove that Radio Jockey’s were the employees of the assessee, the claim of the assessee could not be dislodged. The CIT(A) further taking cognizance of the fact that the A.O despite re-characterizing the payments made to Radio Jockeys, as being in the nature of payments made by the assessee to its employees, as against the claim of the assessee that the same were payments of professional fees, had however most strangely took an inconsistent stand and held that to the extent such payments were made by the assessee to the Radio Jockeys in an amount not exceeding Rs. 3 Lac, the same would continue to retain the color and character as that professional payments, and as such no adverse inference as regards short deduction of tax by resorting to a wrong statutory provision contemplated under Chapter XVII B, to the extent such payments were concerned, were liable to be drawn. The CIT(A) holding a view that the action of the A.O was incoherent, and not as per law, therefore in light of his aforesaid observations which independently established the absence of any employer-employee relations between the assessee and the Radio Jockey’s, which was further fortified by the arbitrary approach adopted by the assessee, who had taken an inconsistent stand as regards payments made to Radio Jockey’s, by categorizing them into two categories, as observed hereinabove, thus concluded that the payments made by the assessee to the Radio Jockeys could safely be held (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. to be payments made to professionals, and as such had rightly been subjected to deduction of tax at source u/s 194J of the ‘Act’.

4. That before us the Ld. Department Representative (for short ‘D.R’) relied on the order of the A.O and averred that the discount at a fixed rate of 15% which was consistently allowed by the assessee while raising of invoices on the advertising agencies for the advertisements procured through them, was clearly passing of ‘Commission’ by the assessee to the said advertising agencies, in the garb of ‘discounts’ allowed to them. It was submitted by the Ld. D.R that the A.O going by the wide meaning of the term commission or brokerage, as stands defined in Explanation (i) of section 194H, had thus rightly characterized the passing of discounts to the advertising agencies, as being in the nature of ‘Commission’, and consequent thereto held the assessee as being in default u/s 201(1)/201(1A) of the ‘Act’, for failing to deduct tax at source on the said amount. The Ld. D.R further supported the order of the A.O and averred that the payments made by the assessee to the Radio Jockeys, in light of the employer- employee relations as so emerged between the assessee and the Radio Jockeys, had thus rightly been held by the A.O as payments made to employees, and on account of short deduction of tax at source by the assessee, who had wrongly deducted tax at source u/s 194J, as against his statutory obligation of deducting the same u/s 192 of the ‘Act’, had thus rightly held the assessee as being in default u/s 201(1)/201(1A) of the ‘Act’. Thus it was submitted by the Ld. D.R that the order (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. of the CIT(A) be set aside, and the order of the A.O treating the assessee as being in default on both the aforesaid two counts may therein be restored. That on the other hand the Ld. Authorized representative for the assessee (for short ‘A.R’), relied on the order of the CIT(A), and taking us to Page 8 – Para 3.5 of the order of the CIT(A), wherein the latter while allowing the appeal of the assessee had concluded that it was a matter of fact borne from the records that there was no evidence from where it could be held that the advertising agencies were either directly or indirectly the agents of the assessee, and they had received any remuneration from the assessee to sell their airtime. It was submitted by the Ld. A.R that the CIT(A) had further rightly appreciated that the ‘discount’ allowed by the assessee to the advertising agencies was in the normal course of its business, which allowing of discounts was not only restricted to the advertising agencies, but rather as a prevailing industry practice, was uniformly allowed to any person who would buy airtime from the assessee, i.e direct advertisers or the advertising agencies. Thus in the backdrop of the aforesaid findings of the CIT(A), which were on the basis of the facts borne from records, it was submitted by the Ld. A.R that in the absence of any evidence on record, such re-characterization by the A.O of the ‘discounts’ allowed by the assessee in the normal course of its business, as ‘Commission’ to the advertising agents, had thus rightly been set aside by the CIT(A). That on the issue of treating the assessee as being in default u/ss. 201(1)/201(1A) of the ‘Act’, as regards the payments made to Radio Jockeys, the (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. Ld. A.R supported the order of the CIT(A) and drew our attention to the observations recorded by the CIT(A) at Page 10 – Para 4.3 of his order. The Ld. A.R submitted that the CIT(A) duly appreciating that the A.O had not only failed to corroborate on the basis of any evidence that the Radio Jockeys were the employees of the assessee, but rather had taken an inconsistent view and by categorizing the Radio jockeys on the basis of payments made to them, had thus resorted to an incoherent action, which as such, could not be sustained in the eyes of law.

(A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd.

(A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. C.O NO. 138/MUM/2016 :

 The Advertising Companies are not agents of the Respondent and no tax is required to be deducted at source on discounts provided to Advertising Company.

 The Respondent has rightly deducted tax under section 194J of the Act as the payments made to Radio Jockeys are in the nature of professional fees and not salary.

Further to the aforesaid grounds and without prejudice to the aforesaid contention, the grounds stated hereunder are independent of, and without prejudice to one another:

2. The TDS Officer had erred in holding that the Respondent is liable to pay tax under section 201(1) of the Act disregarding the details provided by the Company with respect to the payees and without (A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. verifying the payment of tax on such sum by the payees in their respective returns / assessments.

The Respondent craves leave to add, amend, delete, rectify, substitute and modify any of the aforesaid grounds of appeal or add a new ground of appeal at any time before or at the time of hearing the appeal.

(A.Y. 2011-12) M/s. Music Broadcast Pvt. Ltd. Order pronounced in the open court on 07/12/2016.