Case Law Details

Case Name : Jagran Prakashan Ltd. Vs DCIT (TDS) (Allahabad High Court)
Appeal Number : Writ Tax No. 388 OF 2012
Date of Judgement/Order : 23/05/2012
Related Assessment Year :
Courts : All High Courts (3741) Allahabad High Court (201)

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Allahabad High Court

Jagran Prakashan Ltd.-vs.- DCIT (TDS)

WRIT TAX NO. 388 OF 2012

Date of Decision – 23 May 2012

Judgment

Ashok Bhushan, J. – This writ petition by a public Ltd. Company, publishing a Hindi daily newspaper “Dainik Jagaran” has invoked the jurisdiction of this Court under Article 226 of the Constitution of India challenging the initiation of proceedings under sections 201 and 201(1A) of Income Tax Act, 1961 (hereinafter referred to as ‘Act’) vide notices dated 19.3.2012 and 21.3.2012 on the allegation that although the petitioner had allowed trade discount of 15% to advertising agencies in the assessment years in question but had failed to deduct the tax at source hence, the petitioner may show cause as to why it may not be declared as an assessee in default of such tax. The petitioner replied the notices. During the pendency of the writ petition assessment orders dated 28.3.2012 (Financial Year 2009-10) and 29.3.2012 (Financial Year 2008-09) were passed fastening liability of Rs. 13,15,31,472 and Rs. 3,26,82,953 respectively, which orders were also challenged in this writ petition by means of an amendment application, which was allowed on 18.4.2012.

The brief facts giving rise to this writ petition are; the petitioner is engaged in the business of printing and publishing newspapers ‘Dainik Jagaran’ and ‘I-next’ from different centres across the country. The registered office of the petitioner’s company is situate at Kanpur Nagar. The major source of revenue of the petitioner is generated from advertisements published in the said newspapers. The petitioner is also member of Indian Newspaper Society (hereinafter referred to as INS). The petitioner has been giving 15% trade discount to accredited advertising agency and trade discount of 10% to 15% to non-accredited advertising agency as per Rules and Regulations of INS for last several years. On 15.3.2012, the respondent conducted a survey under section 133A of the Act at the premises of the petitioner at Kanpur Nagar and recorded statement of General Manager Taxation and Legal. The notice dated 19.3.2012 for the financial year 2009-2010 was issued to the petitioner stating that during the course of survey on 15.3.2012, it has been gathered that the petitioner has failed to deduct tax at source under section 194 H of the Act on the payment received from advertising agencies after allowing 15% trade discount, which is as well a deemed commission. Details of monthwise amount of payment of discount were required to be submitted. The petitioner was asked to show cause as to why order under section 201(1) and 201(1) A of the Act be not passed declaring the petitioner as an assessee in default in respect of such taxes and interest thereon. The petitioner was asked to appear on 22.3.2012. Another notice dated 21.3.2012 for the financial year 2008-09 was issued requiring details as mentioned therein including monthwise amount of payment of trade discount by the petitioner along with copy of the bills from January to March 2009. The petitioner filed a reply to the notices dated 19.3.2012 and 21.3.2012 on 22.3.2011. On 22.3.2012, the petitioner was required to submits monthwise bills of the advertisements received and trade discount given thereon by the next date i.e. on 23.3.2012. On 23.3.2012, another notice was issued by the respondent calling the petitioner to submit reply along with documents called for by 12:00 noon on 26.3.2012 positively. The petitioner was also informed by the same notice that Kerala High Court in 325 ITR 205 on the similar issue had decided that advertising agency has acted as an agent of the principal hence trade discount allowed can be considered as commission or brokerage defined under Explanation (i) of Section 194H of the Act. This writ petition was filed in this Court on 23.3.2012 praying for quashing the notice dated 29.3.2012 and 21.3.2012. The writ petition was heard on 19.3.2012 on which date following order was passed.

“Supplementary affidavit filed today is taken on record.

On a mention made by learned counsel for the petitioner, the matter is taken up in the presence of learned counsel appearing for the department.

By means of this petition, the petitioner has prayed for quashing the notice dated 19.3.2012 and 21.3.2012 issued by the respondent ( Annexure No. 4 and 5 to the writ petition) by which the petitioner has been asked to furnish certain informations as required.

Learned counsel for the petitioner challenging the notice contended that notices do not furnish any jurisdiction to the authority to proceed under section 201 of the Income Tax Act. as no TDS. was deductible on 15% trade discount.

He submits that the trade discount can not be treated as commission so as to liable for any deduction. He has placed reliance on the decision of Delhi High Court passed in the case of I.T.A. No. 1264 of 2007,Commissioner of Income Tax Vs. Living Media India Limited filed as Annexure No. 1 to the writ petition at page 33.

He has submitted that there is no material with the respondent to proceed under section 201 of the Income Tax Act.

Shri Govind Krishna, learned counsel appearing for the respondent submits that by notice impugned only informations have been called from the petitioner and there is no lack of jurisdiction in the authority to proceed. He further submits that at this state, the writ petition be not entertained.

Learned counsel for the petitioner further placed reliance on the decision of Supreme Court passed in the case of Siemens Ltd. Vs. State of Maharashtra and others reported in (2006)12 Supreme Court Cases 33.

Be that as it may, in view of the fact that the assessment order is to be passed on or before 31.3.2012 as indicated in the notice, we are of the view that the petitioner may appear and submit necessary information as required and respondent may proceed to pass appropriate orders in accordance with law.

It shall be open for the parties to bring on record the order passed by the respondent.

Respondent is allowed three weeks’ time to file counter affidavit.

List thereafter.”

On 26.3.2012, the petitioner again submitted a letter to the Department stating therein that information sought for is not readily available and it needs a herculean manual exercise of compilation of more than 1,80,000 bills. On 28.3.2012, the petitioner again submitted a letter stating therein that relationship of the petitioner with the advertising agency is principal to principal and not as principal and agent. Reliance was also placed on the order of the Kerala High Court dated 9.12.2005, passed in writ petition No. 26871/2005, The Malayala Manorama Co. Ltd. v. The Income Tax Officer & others, wherein on identical facts, the proceedings of the department initiated under section 201/201 (1A) had been stayed. It was further stated that the judgment of the Kerala High Court reported in 325 ITR 205 was not applicable and points of distinction from the said judgment were specifically pointed out in the reply. It was stated that there is no liability of the petitioner to deduct tax at source.

On 28.3.2012 an assessment order for the financial year 2009-10 has been passed by the Deputy Commissioner of Income Tax holding the petitioner to be an assessee in default for non deduction of tax at source for an amount of Rs. 10,94,60,865 under section 201 (1) of the Act on which interest under section 201 (1A) amounting to Rs. 2,62,70,607/- making the total amount to Rs. 13,57,31,472/-. A demand notice was issued on 29.3.2012. Proposal for initiating penalty proceeding was also sent to Joint Commissioner Income Tax TDS Kanpur separately. Another order dated 29.3.2012 for the Financial Year 2008-09 was passed holding the petitioner to be an assessee in default for non deduction of TDS for an amount of Rs. 2,40,31,583 and on which interest was also to be chargeable making the total amount of Rs. 3,26,82,953/-. Penalty proceeding was to be separately initiated under Section 271C. The demand notice was also issued on 29.3.2012. The petitioner filed an application for amendment of the writ petition praying for adding paragraphs, grounds and reliefs in the writ petition for challenging the assessment orders dated 28.3.2012 and 29.3.2012. The amendment application was allowed by this Court on 18.4.2012 and the petitioner was permitted to challenge the assessment orders in this writ petition. Counter affidavit has also been filed by the Department to the writ petition and amended pleadings to which rejoinder affidavit has also been filed. Following are the reliefs which have been claimed in the writ petition including the reliefs prayed for by means of amendment application :

“(i)  a suitable writ, order or direction in the nature of Certiorari calling for the records of the case and to quash the impugned notices dated 19.03.2012 and 21.03.2012 issued by the respondent (Annexures-4 and 5 to this writ petition).

(ii)  a suitable writ, order or direction in the nature of Certiorari calling for the records of the case and to quash the impugned order dated 28.03.2012 along with the notice of demand dated 28.03.2012 (Annexure-6 to this writ petition) and the impugned order dated 29.3.2012 along with the notice of demand dated 29.03.2012 (Annexure-7 to this writ petition).”

We have heard Sri V.K. Upadhyay learned senior Advocate, assisted by Sri Ritvik Upadhyay, for the petitioner, Sri Govind Krishna for the respondent Income Tax Department and have perused the record.

Learned Counsel for the petitioner challenging the notices dated 19.3.2012 and 21.3.2012 contended that there were no foundational facts on the basis of which the respondent could have assumed jurisdiction under sections 201 and 201(1A) for initiating the proceedings. He submits that the petitioner allowed trade discount to advertising agencies on the advertisements received in accordance with the established trade practice and allowing of trade discount cannot be termed as commission paid by the petitioner to the advertising agency for any service. It is submitted that an advertising agency is not an agent of the petitioner and the transaction between the petitioner and advertising agency is on principal to principal basis. Advertising Agency infact acts as an agent of the advertisers. Section 194H is not attracted on trade discount allowed by the petitioner to advertising agency and the proceeding initiated under section 201/201 (1A) are without jurisdiction. The Income Tax Authorities have wrongly assumed jurisdictional facts although no such jurisdictional facts exist so as to enable the respondent Department to initiate proceedings under section 201/201 (1A) of the Act. The initiation of the proceedings by the Department is wholly without jurisdiction. The jurisdictional facts as required by Section 194H does not exist in the present case. Circular issued by Central Board of Direct Taxes dated 8.8.1995 clarifies that commission received from advertising agency by media would require deduction of tax at source under section 194J of the Act. The above circular was clarified by the CBDT vide subsequent letter dated 12.9.1995, clarifying that where the media raises only a bill for an advertising contract including therein inter-alia commission at the specified percentage to be retained by advertising agency, the media is not required to deduct tax at source since such a payment is subjected to TDS by the advertiser at the time of payment. Further where the media makes a direct payment to the advertising agency in respect of professional or technical services, it shall deduct tax at source @ 5% under section 194J.

Learned Counsel for the petitioner submits that the petitioner being a member of INS is required to pay trade discount of 15% according to the rules of INS. The advertising agency which are accredited by INS are also bound to follow the rules and under the terms of agreement entered with the advertising agency and INS under which it is obligatory for the news agency to give 15% trade discount and as per Rules of INS and terms of agreement entered between INS and advertising agency, the advertising agency acts as agent of the advertiser. The advertising agency carry on business of advertising and is not an agent appointed by the petitioner. No agreement with any advertising agency has been entered into by the petitioner nor there is any other relevant factor on the basis of which it can be said that the advertising agency is agent of the petitioner. It is submitted that the Rules of INS, as well as terms and conditions as mentioned above, clearly prove that advertising agency is not an agent of the petitioner and the jurisdictional facts as required under section 194H being not present, the entire proceedings are without jurisdiction. Learned Counsel for the petitioner further submits that the question as to whether 15% trade discount allowed to the news agency invites deduction of tax at source was raised by Income Tax Department with regard to news paper publication namely; M/s Living Media Ltd. Which publishes the magazines India Today, Business today etc. An order against M/s Living Media Ltd. under sections 201 and 201 (1A) was passed by the assessing authority on the ground that advertising agencies are agent of the news agencies and 15% trade discount is commission with regard to which tax at source is required to be deducted by the news agency. The matter was taken before the Income Tax Appellate Tribunal by the Department and Income Tax Appellate Tribunal held that there was no liability of the news agency to deduct tax at source with regard to 15% trade discount and advertising agency is not the agent of news agency. It was held that news agency was not liable to deduct tax. The Department took up the matter before the Delhi High Court and Delhi High Court vide its judgment and order dated 6.5.2008 has dismissed the writ petition of the Department holding that contract between the news agency and advertising agency was on principal to principal basis and trade discount allowed to advertising agency was as per Rule 32 of the INS Rules and there was no commission paid to advertising agency and the provisions of section 194H was not attracted. Although in the counter affidavit (paragraphs 21 and 41) filed by the Department, it was stated that judgment of the Delhi High Court has not accepted by CBDT and the same has been challenged by the Department by means of Special Leave Petition No. 3433 of 2009 but it was not mentioned that Special Leave Petition had been dismissed. Learned Counsel for the petitioner has produced the order of the apex Court dated 11.12.2009 by which the Special Leave Petition (Civil) 3433 Commissioner of Income Tax v. M/s Living Media India Ltd. has been dismissed. Learned Counsel for the petitioner submits that the issue having already been decided by the Delhi High Court in the aforesaid case, the initiation of the proceedings under section 201/201 (1A) on the same allegations are nothing but harassment of the petitioner and the proceedings so initiated are without jurisdiction. Learned Counsel for the petitioner submitted that the judgment of the Kerala High Court relied by the Department in [2010] 325 ITR 205 Commissioner of Income Tax v. Director Prasar Bharti, is not applicable in the present case and although distinguishing facts were submitted in writing by the petitioner but still the said judgment has been relied and the judgment of the Delhi High Court which was directly applicable has been brushed aside on the flimsy ground that judgment of the Kerala High Court is recent in point of time. Learned Counsel for the petitioner further submitted that the assessment orders dated 28.3.2012 and 29.3.2012 and the demand raised for tax which according to the respondents ought to have been deducted at source is wholly without jurisdiction.

It is further submitted that under sections 201 and 201(1A), in a case where tax is not deducted at source, the only proceedings which can be initiated are proceedings for realisation of interest and penalty and the liability to pay tax cannot be fastened on deductor. As per Section 191 read with Section 4 of the Act, such tax has to be directly paid by the assessee i.e. advertising agency and the assessment orders dated 28.3.2012 and 29.3.2012 demanding payment of tax are wholly without jurisdiction. The petitioner could not have been treated to be an assessee in default with regard to tax which according to the respondents was required to be deducted unless a finding is returned that assessee has not paid the tax. In the entire assessment order, there is no finding that assessee has not paid the tax on the aforesaid trade discount (alleged commission) hence, the entire order is without jurisdiction.

Learned Counsel for the petitioner further submits that there is no agreement between the petitioner and the advertising agency on the basis of which the assessing officer can conclude that advertising agency was an agent of the petitioner. It is further submitted that rules of INS have not been adverted to by the assessing authority which were relevant to find out the nature of transaction between the petitioner and the advertising agency and without adverting to the said Rules in its entirety, an erroneous inference has been drawn by the assessing officer that advertising agency was agent of the petitioner. It is further submitted that instead of reliance on circular of the Board dated 8.8.1995 as clarified on 12.9.1995, the assessing authority has relied on an article published in the newspaper ‘Business Standard’ on 31.10.2006, which article contain some opinion of the Central Board of Direct Taxes that deduction of tax at source is to be made on commission or brokerage given to the advertising agency. It is submitted that the aforesaid article was wholly irrelevant, which vitiates the order of the assessing authority.

Learned counsel for the petitioner lastly contended that the Department has violated the principles of natural justice, while proceeding under sections 201 and 201 (IA). It is submitted that notices were issued on 19.3.2012 and 21.3.2012, requiring submission of details regarding trade discount given to various advertising agencies by 22.3.2012, which was nothing but denial of adequate opportunity since in the accounting practice adopted by the petitioner, only revenue receipts were recorded in its account and there was no separate account maintained for trade discount given to the advertising agencies. The order of authorities asking the petitioner to give the details of trade discount within three days, given to the advertising agencies from its various centres throughout the country, from where the newspapers are published, which could have run in more than 1,80,000 items is nothing but denial of adequate opportunity to the petitioner. The compilation of the said data was a herculean task and the request by the petitioner to grant reasonable time, was denied. Had the petitioner been given adequate opportunity, it would have established that tax on the income of 15% trade discount, has already been paid and there was no occasion to impose liability upon the petitioner but the respondent rushed through the proceedings which was completed within ten days from issue of notice.

Sri Govind Krishna, learned counsel for the Department refuting the submissions of learned Counsel for the petitioner, contended that the petitioner is not entitled to invoke the jurisdiction of this Court under Article 226 of the Constitution of India since the assessment order has already been passed and the petitioner be relegated to avail the alternative remedy of statutory appeal as provided under the Act. He submits that the judgment of the Kerala High Court in Prasar Bharti’s case is fully applicable and there is no lack of the jurisdiction in the authorities in initiating the proceedings under sections 201 and 201 (1A) of the Act. He submits that the payment which is being made by the petitioner to the advertising agency in the name of 15% trade discount is nothing but payment of commission to advertising agency in lieu of services which are being rendered by the advertising agency to the petitioner in bringing business to the petitioner i.e. advertisements. It is submitted that the assessing officer has rightly recorded finding in paragraph 30 of the order that jurisdictional facts as required for applicability of Section 194H, are fully present and neither the initiation of the proceedings were without jurisdiction nor the assessment order can be held to be without jurisdiction. The petitioner, inspite of giving opportunity could not provide details of monthwise trade discount allowed by it to different advertising agencies hence, no error has been committed in assessing the tax liability on 15% of gross receipts of revenue from advertising agency, which amount has been disclosed by the petitioner himself in the survey on 15.3.2012. It is submitted that if the advertising agency could not have rendered services to the petitioner, it could not have received any discount or payment and the advertising agency acts on behalf of the news agency since it is a news agency, which decides as to what type of advertisement it publishes e.g. it does not publish advertisement of alcoholic drinks. There is a contract between the news agency and advertising agency through INS, since the petitioner are members of the INS and INS enters into an agreement with the advertising agency for accrediting the said agency thus, there is a implied contract between the petitioner and advertising agency. It is further submitted that principal and agent relationship can also exist without any written or codified agreement. The assessing order has rightly referred to recent stand of Central Board of Direct Taxes in its judgment as such, the order of the assessing officer was based on recent stand of CBDT. Advertising Agency Institution of India (AAAI) in its rules also provide for payment of 15% commission to the advertising agency. Thus, the payment of commission by the news agencies to advertising agencies is fully proved. The logic and reasons are not relevant, while interpreting a tax statute. Since the petitioner is allowing the discount/commission, the petitioner is payer and liable under section 204 (iii). Under section 201, the deductor, who fails to deduct the tax at source, is an assessee in default and apart from interest and penalty, the tax which was not deducted can very well be recovered from the deductor. He submits that if there is any mistake in the order of the assessment, it is open for the petitioner to invoke section 154 of the Act for correction of mistake, if any.

Learned Counsel for the petitioner replying the objections of learned Counsel for the respondent regarding relegating the petitioner to statutory appeal, submitted that the present is not a case where the petitioner be denied relief under Article 226 of the Constitution of India. It is submitted that when the Income Tax authorities assumed jurisdiction without there being jurisdictional facts available for initiating the proceedings under section 201/201(1A), the notice initiating the proceeding can very well be challenged through writ proceedings. It is further submitted that by the order impugned huge liability has been imposed on the petitioner and apart from assessment order, proceedings under section 147 of the Act have also been initiated. The notice under section 147 has been issued for several assessment years. It is further submitted that assessment order directing for realisation of tax, which according to the respondent was not deducted at source by the petitioner is without jurisdiction since under section 201/201 (1A) at best proceeding could have been initiated only for recovery of interest and penalty. He submits that when the order of assessing authority directing for recovery of tax is without jurisdiction, the writ petition be not thrown out on the ground of alternative remedy. Apart from above reason, huge illegal demand would have a cascading effect on the petitioner company. Penalty proceedings have also been initiated including proceedings for re-opening of all completed assessment and total tax liability may be more than 100 crores, which may adversely and irreparably effect the petitioner business and its shares. The pre-determined and void orders cannot withstand judicial scrutiny of this Court hence, the present is not a fit case in which the petitioner be relegated to alternative remedy.

Learned Counsel for the parties have relied on various judgements of the apex Court, this Court and other High Courts which shall be referred to while considering the submissions in detail.

We have considered the submissions of learned counsel for the parties and have perused the record.

From the submissions of learned counsel for the parties following are the issues which arise for consideration:

 1.  Whether in the facts and circumstances of the present case, the petitioner is entitled to invoke the writ jurisdiction of this Court under Article 226 of the Constitution of India for the reliefs sought or the petitioner be relegated to avail the statutory remedy of appeal in view of the fact that the assessment order has already been passed during the pendency of the writ petition?

 2.  Whether condition precedent as contemplated by Section 194H making liable the petitioner to deduct tax at source for 15% trade discount allowed by it to Advertising Agency is present so as to give jurisdiction to the authorities to initiate proceedings under section 201/201 (1A) of the Income Tax Act, 1961?

 3.  Whether between the petitioner and the advertising agency there is a relationship of principal and agent?

 4.  Whether the advertising agency is rendering services to the petitioner or they are rendering services to advertiser as their agent?

 5.  Whether 15% trade discount allowed by the petitioner to advertising agencies is payment of commission within the meaning of Section 194H Explanation (i).

 6.  Whether the Judgement of the Kerala High Court in 325 ITR 205 was attracted in the present case or the judgment of the Delhi High Court in ITA 1264/07, The Commissioner of Income Tax v. Living Media India Ltd. decided on 6.5.2008 was applicable?

 7.  Whether against a deductor who fails to deduct the tax at source, the liability of payment of tax can also be fastened against the deductor under section 201 apart from liability of interest and penalty?

 8.  Whether with regard to tax which was required to be deducted at source, the liability is of the assessee with regard to whose income the tax was required to be deducted at source or the liability is of deductor for payment of tax which could not be deducted?

 9.  Whether according to Section 191 read with Section 201, a deductor, who fails to deduct tax at source can be deemed to be an assessee in default without adverting to the issue and recording a finding that assessee who is liable to pay tax directly had not paid tax?

10.  Whether the assessing authority has taken into consideration all relevant materials for taking the decision and has not taken into consideration any irrelevant material ?

11.  Whether the assessing authority has violated the principle of natural justice in the proceeding under section 201 and 201 (1A)?

12.  To what relief, if any the petitioner is entitled in the present writ petition?

The first issue, which is to be answered, is as to whether the petitioner can be permitted to invoke the jurisdiction of this Court under Article 226 of the Constitution of India for challenging the notices dated 19th March, 2012 and 21st March, 2012 and the subsequent assessment order dated 28th/29th March, 2012 on the principal ground that there were no foundational facts to assume jurisdiction by the Income Tax authorities to proceed under Section 201/201(1A) of the Act. The next challenge of the petitioner to the assessment order is on the ground that assessment order directing for recovery of tax, which according to the respondents was not deducted by the petitioner at source, is without jurisdiction. The submission is that under Section 201 read with Section 191 of the Act the liability of the tax, which was required to be deducted at source, cannot be fastened on the deductor and in the event the tax has not been deducted the primary liability to pay such tax is on the assessee and the assessment order framing assessment of tax on the petitioner was beyond the jurisdiction and was outside the provisions of Section 201 of the Act.

The question as to whether sufficient grounds have been made out for exercise of writ jurisdiction by this Court under Article 226 of the Constitution of India or the petitioner has to be necessarily relegated to avail the statutory remedy of appeal under the Income tax Act, 1961 is dependent on various issue which have been raised in this writ petition and are to be answered by us. We thus are of the view that first issue be answered after considering the various grounds of attack and submissions of learned counsel for the parties which have arisen in the writ petition.

Issues No.2, 3, 4,5 and 6 are interrelated and are being taken together.

The proceedings under Section 201/201(1A) of the Act have been initiated against the petitioner on the ground that the petitioner, who was required to deduct tax at source with regard to payment of 15% trade discount (alleged commission) given to advertising agency, having failed to deduct the tax on the said payment is liable to pay interest and tax. The proceedings are founded on Section 194H of the Act. Section 194H of the Act is quoted below:-

“194H. Commission or brokerage. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001 to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees.

Provided further that an individual or Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limit specified under Clause (a) or Clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income tax under this Section.

Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahangar Telephone Nigam Limited to the public call office franchisees.

Explanation : For the purposes of this section, –

(i)  “Commission or brokerage” includes 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 any asset, valuable article or thing, not being securities;

(ii)  the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;

(iii)  the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(iv)  Where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.”

The case of the department against the petitioner is that allowing 15% trade discount to advertising agencies by the petitioner during the relevant assessment year is nothing but payment of commission within the meaning of Section 194H Explanation-(i) and the petitioner was liable to deduct tax at source. The commission or brokerage has been defined in explanation. As per definition for payment to be treated as commission, following three conditions are required to be fulfilled:-

(1)  payment received or receivable directly or indirectly;

(2)  by a person acting on behalf of another person;

(3)  for services rendered (not being professional services).

The Condition Nos. (2) and (3), which are interrelated, are being taken first. The Condition Nos.2 and 3 contemplate that person receiving payment should be acting on behalf of another person i.e. he must be agent of the principal and secondly payment should be for the services rendered by the agent. Thus the test is as to whether person receiving commission is agent of the principal and he is receiving commission in lieu of services. The above are jurisdictional facts which have to be found out in the proceeding to be taken under Section 201/201(1A) of the Act. What are the jurisdictional facts and what is the scope of entertaining such challenge in proceeding under Article 226 of the Constitution of India needs to be first examined before proceeding further to examine the facts of the present case.

The Apex Court in the case of Calcutta Discount Co. Ltd. v. Income Tax Officer reported in 1961(41) ITR 191 had occasion to consider the aforesaid issue in context of the provisions of Income Tax Act, 1922. It is useful to note the facts of the said case in some detail. The appellant in the aforesaid case was assessed to income tax for the assessment year 1942-43, 1943-44 and 1944-45 by three separate orders. Three notices purporting to be under Section 34 of the Income Tax Act, 1922 for re-assessment was issued. Notices were replied by the appellant and it challenged the proceedings by means of writ petition under Article 226 of the Constitution of India on the ground – “The said pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 aforementioned, whether before or after the amendment in 1948”. Learned Single Judge held that the above ground was not made out but being of the opinion that Amending Act, 1948 was not retrospective, held the notices without jurisdiction and issued a writ of prohibition to the Income Tax Officer from continuing the assessment proceedings any further. In the Letter Patent Appeal, the Division Bench set-aside the order of learned Single Judge and the writ petition was dismissed. The appeal was filed in the Apex Court. The Apex Court laid down following:-

“To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income- tax have been under-assessed. The second is that he must have also reason to believe that such ” under assessment ” has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years, from the end of the year in question.”

The Apex Court considered the facts of the case including the affidavits filed in the High Court as well as before the Apex Court. The Apex Court took the view that one of the preconditions for initiating proceedings under Section 34 that there had been any material non-disclosure by reason of which under assessment was taken place, was not there before the Income Tax Officer, hence he had no jurisdiction to issue notice. In this context following was held by the Apex Court:-

“It must therefore be held that the Income-tax Officer who issued the notices had not before him any non-disclosure of a material fact and so he could have no material before him for believing that there had been any material non-disclosure by reason of which an under-assessment had taken place.”

It is relevant to note that before the Apex Court also counsel for the department contended that company would have sufficient opportunity to raise the question before the Income Tax Officer and in the event it is unsuccessful there is appellate jurisdiction under Section 66(2) of the Income Tax Act, 1922, hence the High Court ought not to have entertained the writ petition. Repelling the said submission, following was laid down by the Apex Court:-

“Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz., whether the Income-tax Officer had reason to believe that under assessment had resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and, if unsuccessful there, before the appellate officer or the appellate tribunal or in the High Court under section 66(2) of the Indian Income-tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action.”

The next case to be considered is the judgment of the Apex Court in the case of Raza Textiles Ltd. v. Income Tax Officer, Rampur reported in (1973) 87 ITR 539. In the said case Income Tax Officer, Rampur directed the appellant to pay tax on a sum of Rs. 2,00,000/- remitted by it as a selling commission to M/s. Nathirmal and Sons, Djakarta (Indonesia) during the year ending on December 31, 1951 which was a non-resident firm. After being unsuccessful before the appellate authorities, the writ petition under Article 226 of the Constitution of India was filed. The learned Single Judge held that M/s. Nathirmal and Sons is not a non-resident firm and the appellant was not required to act under Section 18(3-B) of the Income Tax Act, 1922. The revenue went in appeal before the High Court. The High Court allowed the appeal against which judgment the appellant filed an appeal before the Apex Court. While reversing the judgment of the Division Bench of the High Court, following was laid down by the Apex Court:-

“….. The single Judge after going into the matter in detail came to the conclusion that M/s. Nathirmal and Sons is not a non-resident firm and that being so the appellant was not required to act under Section 18(3B). He accordingly, set aside the order impugned. The revenue went up in appeal against the order of the learned single Judge to the Appellate Bench. That Bench allowed the appeal with the observations, “In the present case the question before the Income-tax Officer, Rampur, was whether the firm Nathirmal and Sons was non-resident or not. There was material before him on this question. He had jurisdiction to decide the question either way. It cannot be said that the officer assumed jurisdiction by wrong decision on this question of residence”. The Appellate Bench appears to have been under the impression that the Income-tax Officer was the sole judge of the fact whether the firm in question was resident or non-resident. This conclusion, in our opinion, is wholly wrong. No authority, much less a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned single Judge has done in this case, that the Income-tax Officer had clutched at the jurisdiction by deciding a jurisdictional fact erroneously, then the assesses was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen. In our opinion the Appellate Bench is wholly wrong in opining that the Income-tax Officer can “decide either way”.”

The Apex Court in the said case held that it is incomprehensible that a quasi-judicial authority like the Income Tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose levy on a citizen.

The Apex Court in the case of Shrisht Dhawan (Smt.) v. M/s Shaw Brothers reported in (1992) 1 SCC 534 had again laid down that jurisdictional fact is one on existence or non-existence of which depends assumption or refusal to assume jurisdiction by an authority. Following was laid down in paragraph 9 of the said judgment:-

“9. ….. A jurisdictional fact is one on existence or non-existence of which depends assumption or refusal to assume jurisdiction by a Court, tribunal or an authority. In Black’s Legal Dictionary it is explained as a fact which must exist before a court can properly assume jurisdiction of a particular case. Mistake of fact in relation to jurisdiction is an error of jurisdictional fact. No statutory authority or tribunal can assume jurisdiction in respect of subject matter which the statute does not confer on it and if by deciding erroneously the fact on which jurisdiction depends the court or tribunal exercises the jurisdiction then the order is vitiated. Error of jurisdictional fact renders the order ultra vires and Wade Administrative Law; bad. In Raza Textiles Raza Textile v. Income Tax Officer, Rampur it was held that a court or tribunal cannot confer jurisdiction on itself by deciding a jurisdictional fact wrongly. ….. Error in assumption of jurisdiction should not be confused with mistake, legal or factual in exercise of jurisdiction. In the former the order is void whereas in the latter it is final unless set aside by higher or competent court or authority. An order which is void can be challenged at any time in any proceeding….”

The next case to be considered is the judgment of the Apex Court in the case of Siemens Ltd. v. State of Maharashtra and others reported in (2006) 12 SCC 33. In the said case demand of payment of cess was issued to the appellant’s company which was challenged in the High Court on the ground that no jurisdictional fact exists for the levy. By the notice the appellant was directed to make payment of cess with interest. The writ petition was dismissed by the High Court on the ground that the petitioner may file reply to the show cause notice. The Apex Court held that although writ Court may not exercise its discretionary jurisdiction in entertaining a writ petition challenging the notice unless the same appears to have been without jurisdiction, but the question herein has to be considered from a different angle. Following was laid down by the Apex Court in paragraphs 6, 8 and 9:-

“6. A writ petition was filed by the appellant herein questioning the said purported notice. By reason of the impugned order, the High Court refused to exercise its jurisdiction under Article 226 of the Constitution of India stating:

“Challenge is to a show cause notice issued by the Corporation demanding certain payment of cess on the value of goods imported from Aurangabad and Daman. Petitioners may file their reply to the show cause notice and produce the relevant documents within two weeks. In case the order is adverse to the petitioner no recovery shall be made for a period of four weeks from the date of service of the order on the petitioner.”

8. The question as to whether jurisdictional fact existed for issuance of the said notice order passed by the respondent was in question in the said writ petition.

9. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v. Brahm Datt Sharma and Anr. AIR 1987 SC 943, Special Director and Another v. Mohd. Ghulam Ghouse and Another, (2004) 3 SCC 440 and Union of India and Another v. Kunisetty Satyanarayana, 2006 (12) SCALE 262], but the question herein has to be considered from a different angle, viz, when a notice is issued with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose [See K.I. Shephard and Others v. Union of India and Others (1987) 4 SCC 431 : AIR 1988 SC 686]. It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its purported show cause notice.”

The next case to be considered is the judgment of the Apex Court in the case of Arun Kumar and others v. Union of India and others reported in (2007) 1 SCC 732. The question of applicability of Section 17(2)(ii) of the Income Tax Act, 1961 and Rule 3 of the Income Tax Rules, 1962 came for consideration. Rule 3 provided for method of computing valuation of perquisite under Section 17(2). In context of the said challenge, following was laid down by the Apex Court in paragraphs 74, 75, 76, 77, 78, 82, 83, 84 and 85:-

“74. A “jurisdictional fact” is a fact which must exist before a Court, Tribunal or an Authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency’s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not posses.

75. In Halsbury’s Laws of England, it has been stated;

“Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive”.

76. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction.

77. In Raja Anand Brahma Shah v. State of U.P. & Ors., AIR 1967 SC 1081 : [1967] 1 SCR 362, sub-section (1) of Section 17 of the Land Acquisition Act, 1894 enabled the State Government to empower Collector to take possession of ‘any waste or arable land’ needed for public purpose even in absence of award. The possession of the land belonged to the appellant had been taken away in the purported exercise of power under Section 17(1) of the Act. The appellant objected against the action inter alia contending that the land was mainly used for ploughing and for raising crops and was not ‘waste land’, unfit for cultivation or habitation. It was urged that since the jurisdiction of the authority depended upon a preliminary finding of fact that the land was ‘waste land’, the High Court was entitled in a proceeding for a certiorari to determine whether or not the finding of fact was correct.

78. Upholding the contention and declaring the direction of the State Government ultra vires, this Court stated;

“In our opinion, the condition imposed by s. 17(1) is a condition upon which the jurisdiction of the State Government depends and it is obvious that by wrongly deciding the question as to the character of the land the State Government cannot give itself jurisdiction to give a direction to the Collector to take possession of the land under s. 17(1) of the Act. It is well-established that where the jurisdiction of an administrative authority depends upon a preliminary finding of fact the High Court is entitled, in a proceeding of writ of certiorari to determine, upon its independent judgment, whether or not that finding of fact is correct”. (emphasis supplied)

82. A question under the Income Tax Act, 1922 arose in Raza Textiles Ltd. v. Income Tax Officer, Rampur, [1973] 1 SCC 633 : AIR 1973 SC 1362. In that case, the ITO directed X to pay certain amount of tax rejecting the contention of X that he was not a non-resident firm. The Tribunal confirmed the order. A single Judge of the High Court of Allahabad held X as non-resident firm and not liable to deduct tax at source. The Division Bench, however, set aside the order observing that:

“……..ITO had jurisdiction to decide the question either way. It cannot be said that the Officer assumed jurisdiction by a wrong decision on this question of residence”. X approached this Court.

83. Allowing the appeal and setting aside the order of the Division Bench, this Court stated;

“The Appellate Bench appears to have been under the impression that the Income-tax Officer was the sole judge of the fact whether the firm in question was resident or non- resident. This conclusion, in our opinion, is wholly wrong. No authority, much less a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned single Judge has done in this case, that the Income-tax Officer had clutched at the jurisdiction by deciding a jurisdictional fact erroneously, then the assesses was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen.” (emphasis supplied)

84. From the above decisions, it is clear that existence of ‘jurisdictional fact’ is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of ‘jurisdictional fact’, it can decide the ‘fact in issue’ or ‘adjudicatory fact’. A wrong decision on ‘fact in issue’ or on ‘adjudicatory fact’ would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present.

85. In our opinion, the submission of Mr. Salve is well founded and deserves to be accepted that “concession” under clause (ii) of sub-section (2) of Section 17 of the Act is a ‘jurisdictional fact’. It is only when there is a ‘concession’ in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. In other words, concession is a ‘jurisdictional fact’; method of fixation of amount is ‘fact in issue’ or ‘adjudicatory fact’. If the assessee contends that there is no ‘concession’, the authority has to decide the said question and record a finding as to whether there is ‘concession’ and the case is covered by Section 17 (2) (ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. In our considered opinion, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under Section 17 (2) (ii) of the Act, it is still open to the assessee to contend that there is no ‘concession’ in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of Section 17 (2) (ii) of the Act.”

The proposition of law deducible from the aforesaid pronouncement is that unless pre-conditions for exercise of jurisdiction exists in an authority assumption of jurisdiction on assuming wrong fact can always be questioned in a writ Court and the mere fact that income tax authorities have assumed jurisdiction and proceeded to pass an order does not preclude the scrutiny that whether jurisdictional facts to assume jurisdiction were present or not.

Now we again revert to the facts of the present case to find out as to whether preconditions to proceed under Section 201/201(1A) of the Act were present or not.

As noted above, two conditions, which are required to be fulfilled before holding a person liable for deduction at source, are the payment is received by a person as agent of principal and secondly payment is for services rendered (not being professional services). The petitioner’s contention is that relationship between the petitioner i.e. newspaper agency and the advertising agency is not on the basis of principal and agent, rather is on the basis of principal to principal. It has been submitted that there is no agreement between the petitioner and the advertising agency from which any assumption can be inferred nor at any point of time the petitioner has employed the advertising agency as its agent whereas the contention of the department is that advertising agencies are agent of the petitioner since they are bringing advertising business which are services rendered by them to the petitioner and payment of trade discount to the advertising agency is nothing but commission in lieu of services rendered. We now proceed to examine as to what are the tests for finding out relationship of principal and agent.

Section 182 of the Indian Contract Act, 1872, which defines “Agent” and “Principal”, is quoted below:-

“182.”Agent” and “principal” defined.-An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.

The rule as to agency is expressed in maxim “qui facit per alium, facit per se”. It is founded on a contract, express or implied, by which one of the parties confides to the other, the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and renders an account of it. A Division Bench of this Court had occasion to consider Section 182 of the Indian Contract Act in the case of Loon Karan Sohan Lal v. Firm John and Co. and others reported in A.I.R. 1967 Ahd. 308. Following was laid down in paragraphs 5 and 6:-

6. ….. The court must examine the true nature of the agreement and the subsequent dealings between the parties, and then decide whether it established a relationship of agency under the law. It is common experience that the word ‘agent’ is frequently used to describe a relationship which is not an agency in law. In several cases, a person described as an agent in the agreement or his letter of appointment was held to be not an agent according to law. Some of these cases are cited in Halsbury’s Laws of England, 3rd edition, Vol. 1 p. 146, in a foot-note to the following observation:

“351. Agency Depends on True Nature of Relationship In order to ascertain whether the relation of agency exists, the true nature of the agreement or the exact circumstances of the relationship between the alleged principal and agent will be regarded and if it is found that such agreement in substance contemplates the alleged agent acting on his own behalf, and not as an agent in the agreement, the relation of agency will not have arisen.”

The cases cited in the foot-note are: Re Nevill, Ex parte White, [1871] 6 Ch. App. 397; Towle (John) and Co v. White, [1873] 29 LT 78; Livingstone v. Ross. 1901 AC 327; Micheline Tyre Co. v. Macfarlane (Glasgow) Ltd., [1917] 55 Sc L. R. 35; Kitson v. King (P. S.) and Son, Ltd. [1919] 36 T. L. R. 162, Lamb (W T.) & Sons v. Goring Brick Co. [1932] K. B. 710.

6. I have examined these cases except the one reported in 55 Sc. L. R. 35 which is not available. They establish the principle that in determining legal nature of relationship between the alleged principal and agent the use or omission of the word “agent” is not conclusive. American Law is similar:

“the manner in which the parties designate the relationship is not controlling, and if an act done by person on behalf of another is in its essential nature one of agency, the one is the agent of such other notwithstanding he is not so called. Conversely the mere use of the word by agent in the contract cannot have to be held the effect of making one agent, who, in fact is not such.”

American Jurisprudence, IInd edition Vol. 3 page 431. The foot-note on this page refers to a case in which it was held that the use of the words “agency agreement” and “agent” by the parties in a contract does not necessarily establish a relationship of agency in the legal sense. McCarty v. King County Medical Service Corp. 26 Wash 2d 660, 175 P2d 658. The law in India is the same. It has been held in several decisions that the fact that the parties have called their relationship an agency is not conclusive, if the incidence of this relationship, as disclosed by evidence does not justify a finding of agency, and that the court must examine the true nature of the relationship and the functions and responsibilities of the alleged agent: Banaras Bank v. Ram Prasad, AIR 1930 All 573, Phool Chand v. Agarwal B. M. Co., AIR 1938 Lah 814; Suryaprakasaraya v. Matheson’s Coffee Works, [1913] 14 Mad L. T. 249. What is the real nature of the relationship created between the plaintiff and the Government of Assam under the so-called agreement of agency Ex. C-1. Before analysing this agreement, it is necessary to state the essential characteristic of an agency in law. Section 182 of the Contract Act defines an agent as “a person employed to do any act for another or to represent another in dealings with third person.” The section defines a principal as “the person for whom such act is done or who is so represented.” According to this definition, an agent never acts on his own behalf but always on behalf of another. He either represents his principal in any transaction or dealing with a third person, or performs any act for the principal. In either case, the act of the agent will be deemed in law to be not own but of the principal. The crucial test of the status of an agent is that his acts bind the plaintiff.

A Division Bench of Madras High Court in the case of P. Krishna Bhatta and others v. Mundila Ganapathi Bhatta and others, AIR 1955 Madras 648 laid down following in paragraph 36:-

“36. ….. Looked at from this point of view, an agency is a contract of employment for the purpose of bringing another-in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of employment to bring him into legal relation with a third party Or to contract such business as may be going on between him and the third party. An agent is thus a person either actually or by law held to be authorised and employed by any person to bring hint into contractual or other legal relations with a third party. He is a representative vested with authority, real or ostensible, to create voluntary primary obligations for his principal by making promises or representations to third persons calculated induce them to change their legal relations. Representative character and derivative authority may briefly be said to be the distinguishing features of an agent.”

The Apex Court in the case of Chiarman, Life Insurance Corporation v. Rajiv Kumar Bhasker reported in [2005] 6 SCC 188 had occasion to consider various sections of Indian Contract Act including Sections 182, 186 and 187. The Apex Court in the said case held that an agency can be created expressly or by necessary implications. Followings were laid down in paragraphs 26, 27 and 28:-

“26. The definition of ‘agent’ and ‘principal’ is clear. An agent would be a person employed to do any act for another, or to represent other in dealings with third parties and the person for whom such act is done or who is so represented is called the principal. It may not be obligatory on the part of the Corporation to engage an agent in terms of the provisions of the Act and the rules and regulations framed thereunder, but indisputably an agent can be appointed for other purposes. Once an agent is appointed, his authority may be express or implied in terms of Section 186 of the Contract Act.

27. For creating a contract of agency, in view of Section 185 of the Indian Contract Act, even passing of the consideration is not necessary. The consideration, however, so far as the employers are concerned as evidenced by the Scheme, was to project their better image before the employees.

28. It is well-settled that for the purpose of determining the legal nature of the relationship between the alleged principal and agent, the use of or omission of the word “agent” is not conclusive. If the employee had reason to believe that his employer was acting on behalf of the Corporation, a contract of agency may be inferred.”

Now after having taken note of the propositions as laid down in the aforesaid judgments regarding tests to be applied for finding out as to whether particular relationship is of a principal and agent or not, we proceed to look into the relevant facts and materials which have been brought on the record to examine the above question.

As noted above, the assessment order has already been passed by the assessing authority holding that relationship between the petitioner and advertising agency is that of principal and agent and the relevant materials and facts, which have been relied for coming to the said conclusion, have been expressly referred to in the assessment order and have been reiterated in the counter affidavit filed by the department. The entire case of the department having come on the record, it is useful to refer to and rely on the said materials for determining the above jurisdictional question.

The assessment order itself noticed the three conditions, which were required to be satisfied for principal and agent relationship, and finding has been returned that all the said three conditions are fulfilled. The relevant findings and observation are contained in paragraphs 21, 27, 30 and 31, which are to the following effect:-

“21. The gist of the above para is that it is a principal agency relationship because the advertising agents canvass advertisement for the media house at tariff prescribed by the media house. In this connection, it would be relevant to quote para 4 of the Standard of Practice for Advertising Agencies (As approved by the Advertising Agencies Association of India, Bombay) as under:

“No member shall pay or undertake or allow to an advertiser or his agent or representative, the whole or any portion of the standard rate of commission resulting or to result to such member from any advertising medium nor promise or procure or undertake to procure advertising or at a reduced rate nor supply free or partly free to any advertiser, any advertising material, including finished drawings, or other art work, photographs, blocks, stereos, matrices or the like, typesetting or printing nor defray in whole or in part the salary of any employee of an advertiser, nor grant any allowances, discount or the like nor render any service having the effect of rebating the commission allowed by an advertising medium. The sharing of commission with member or overseas agency or with agent by this Association shall, however, be permitted.”

27. It can be said that an agent can conduct the business of his principal according to the custom which prevails in doing business. Therefore, the assessee’s argument that since it has no codified agreement with the advertising agency, the advertising agency cannot be treated as its agent, does not hold good. The principal-agent relationship can also exist without any written or codified agreement. The assessee has himself admitted that the INS as an apex trade body for governing newspaper publishers also govern newspaper relations with advertising agencies. Since, assessee is a part of INS it is implied that it also has a contract/agreement with the advertising agent though it may not be codified agreement between the assessee and the advertising agency.

30. In order to satisfy the requirements of principal-agent relationship, certain condition laid down in explanation (I) to section 194H are required to be fulfilled:

  1.  There should be payment received or receivable directly or indirectly.

  2.  It should be received or receivable by a person acting on or behalf of another person.

  3.  The payment should be received or receivable for:

(a)  Services rendered (not being professional services) or

(b)  For any services in the course of buying or selling of goods or

(c)  In relation to any transaction relating to any asset, valuable articles or thing not being securities.

All these three conditions are fulfilled in the instant case:

 1.  In the Jagran Prakashan Ltd. case the advertising agent is receiving payment indirectly under the name of “discount”. This discount is nothing but an amount deducted from the gross amount receivable by the principal i.e. Jagran Prakashan Ltd. If the advertising agent would have not rendered services to the Jagran Prakashan Ltd. it would have not received any discount or payment.

 2.  This discount or payment was received by the advertising agent for procuring/providing advertisements to Jagran Prakashan Ltd. The advertisements were given as per the space available in the Jagran Newspaper. Therefore, the publication of the advertisement is strictly subject to the availability of space in the newspaper. The advertising agency is providing advertisements on the basis of requirement of the newspaper. The newspaper also decides what type of advertisements it will publish. For example, newspapers don’t publish the advertisement for alcoholic drinks. Thus, it is the newspaper which decides that what type of advertisement it will publish and in how much space. Thus, the advertising agency is acting on behalf of the Jagran Prakashan Ltd. and receiving payment in the name of discount from the gross amount accruing to the Jagran Prakashan Ltd.

 3.  The advertisement agency is rendering a service to Jagran Prakashan Ltd. by procuring and supplying the advertisement to the later and for this service it is receiving its payment from the Jagran Prakashan Ltd. under the name ‘discount’.

31. From the above discussion, it can be appreciated that the advertising agency is acting on behalf of Jagran Prakashan Ltd. and receiving payments for the services it has rendered to the Jagran Prakashan Ltd. Thus, the existence of principal-agent relationship vis-a-vis assessee and advertising agencies is established. The provisions of section 194 H of the I.T. Act, 1961 are applicable in such cases. Accordingly, the commission paid by the assessee to various accredited advertising agencies in the guise of “trade discount” is liable to TDS.”

It is the case of the department, as apparent from the impugned assessment order as well as from the counter affidavit, that there is no inter se contract between the petitioner and any advertising agency, rather the case of the department is that principal-agent relationship can exist even if there is implicit agreement. The conclusions have been recorded in the assessment order in paragraph 34, which is to the following effect:-

“34. In conclusion, the whole discussion of this order is summarised as under:-

 A.  There is a implicit agreement between the Jagran Prakashan Ltd. and the advertising agencies via Indian Newspaper Society (INS) or otherwise.

 B.  There is a principal-agent relationship between the Jagran Prakashan Ltd. and the advertising agencies and the advertising agencies act on behalf and as per the requirement of the Jagran Prakashan Ltd.

 C.  There is payment from the Jagran Prakashan Ltd. to advertising agencies in the name of so called ‘discount’. The source of this discount is nothing but the ad revenue generated by the Jagran Prakash Ltd.

 D.  This payment from Jagran Prakashan Ltd. to the advertising agencies is entirely for the services of advertisement procurement by the advertising agencies.

 E.  That the Jagran Prakashan Ltd. vis-a-vis INS and AAAI have devised a cosmetic and artificial methodology to circumvent the clear provisions of section 194H.”

The petitioner is member of Indian Newspapers Society (INS) by whom the advertising agencies are granted accreditation. According to the Rules of INS the advertising agencies while being granted accreditation are required to enter into an agreement. The department submits that since the petitioner is bound by Rules of INS by whom the accreditation was granted to advertising agencies after entering into an agreement, there is implicit contract between the petitioner and the advertising agencies and the relationship of principal-agent exists between them.

The petitioner has brought on the record Rules governing accreditation of advertising agencies and the proforma of the agreement which is entered between the advertising agencies and the INS. The aforesaid rules have also been referred to in the assessment order. On the basis of Rules of INS of which petitioner is also a member and with whom the advertising agency enters into an agreement, the department has concluded that there is implicit contract between the petitioner and the advertising agencies from which relationship of principal-agent can be found out. The assessment order also refers to Standard of Practice for Advertising Agencies as approved by the Advertising Agencies Association of India, Bombay. Apart from abovesaid two materials, no other material has been referred to in the order impugned. The proposition is well settled that relationship of principal and agent can be founded either expressly or by implication. Even if there is no agreement between the principal and agent, the relationship can exist. To find out the real relationship between the petitioner and the advertising agency, the Rules of INS and the agreement entered between the advertising agencies and the INS has to be carefully looked into. The petitioner has brought on record as Annexure RA-2, copy of the Rules governing accreditation (INS Press Handbook 2010-11). The aforesaid rules delineate the clear picture of relationship between the newspaper agencies and advertising agencies. It is useful to refer to certain rules of INS which clearly negate the relationship of principal and agent between the newspaper agency and the advertising agency. Under the heading “Rules and Regulations Governing Accreditation of Advertising Agencies”, Rule 10 clearly indicates that there is no control of newspapers agency on the advertising agency whereas in a relationship of principal and agent principal retains full control over the activities of agent. Rule 10(1), 10(b) and 10(c) are quoted below:-

“10(a) It is free from control or interference of any business or person who owns or controls any newspaper or other advertising medium or media.

(b) Its principal or principals are not the proprietor/partners/salaried employees of any advertiser or publisher of a newspaper or an advertising medium.

(c) Any of its Directors, Proprietor, Partners or Chief Executives do not hold any share or equity in any publication or any other form of advertising media and have no connection financially or otherwise, with any publication or with any firm of advertising media such as outdoor, hoardings, cinemas, radio, etc. or with any advertiser except as an advertising agent. Such persons can hold a small number of shares in public limited client companies.”

When Rule 10, as quoted above, clearly provides that advertising agency is free from control or interference from any business or person who owns or controls newspaper, the newspaper agency cannot be treated to be principal and advertising agency as agent.

Rule 32, which provides for payment of trade discount has been referred by the department, is to the following effect:-

“32. Payment of Trade Discount. As and from the date of accreditation as above, the accredited advertising agency shall be entitled to receive from the members of the Society the maximum and minimum Trade Discount of 15% in respect of advertisement business placed by it with such members. In the case of the provisionally accredited advertising agency, the maximum and minimum Trade Discount shall be 10% of the advertisement business.”

Rule 45 prohibits the members of the society from appointing advertising agency as their representatives. Rule 45 is quoted below:-

“45. Member’s Representation by Advertising Agency. Members of the Society are free to appoint whomsoever they like as their representative provided the said representatives are not classified as “advertising agents” and do not function as advertising agencies.”

A agency is a contract of employment for the purpose of bringing another in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of employment to bring him into legal relation with a third party or to contract such business as may be going on between him and the third party. In publication of advertisement submitted by advertising agency, the responsibility to make payment of bills of the newspaper is on the advertising agency and there is no responsibility of advertiser to make payment to the newspaper agency and no privity of contract took place between the newspaper agency and the advertiser and had the advertising agency being agent of newspaper agency, the advertiser was to be liable for payment to the newspaper agency. Rule 56(a) of the Rules clearly contemplates that it is the advertising agency which is responsible for payment even if the advertiser has not paid to the advertising agency. Rule 56(a) of the Rules is quoted below:-

“56. Defaulting Clients. (a) where an advertiser fails to pay and in consequence the agency is unable to pay publications, INS upon being authentically informed by the agency and being so satisfied will advise its member publications to suspend the advertisements of the concerned advertiser until payment is realised. This is without prejudice to the agency’s clear liability to pay its dues even if its client has not paid.”

In the form of application, which is provided in Appendix-II to the Rules, advertising agency is required to attach a list of the names and addresses of clients whose advertisement is handled by the advertising agency, which clearly indicates that in fact the advertising agency is working for the advertisers/clients. Column 26 of the form of application is as follows:-

“Attach a list of the names and addresses of clients whose advertisement is handled by you and products/services as advertised along with letters of appointment issued by the clients as also with other documentary evidence.”

The most important material is format of contract between the advertising agency and the INS, which is in Appendix-III to the Rules. The contents of first paragraph of the contract clearly indicates that object is to secure the best advertising service for the advertiser. Thus the accreditation of advertising agency is for the object of providing better service to the advertiser and it is not engaged as agent of the newspaper agency and advertising agency, in fact, is running its advertising business and while conducting the said business it acts on behalf of their client i.e. advertiser. The first paragraph of the agreement is as follows:-

“(1) By the Society: ‘That the Society accredits the Agency and includes its name in the list of accredited agents published from time to time.”

Clause 2 of the agreement clearly indicates that advertising agency works in the interest of consumer and advertisers. Clause 2(a), (b), (c) and (d) are quoted below:-

“(2) By the Agency: In consideration of the accreditation herein afforded and of the trade discount to which the Agency is entitled by reasons of such accreditation.

(a)  The Advertising Agency shall maintain a properly equipped office and shall fully abide by the Standards of Service by Advertising Agencies in the interest of consumers and Advertisers set out in the Society’s Rules and Regulations on Accreditation of Advertising Agencies.

(b)  The Advertising Agency shall ensure that all advertisements placed by it are legal, clean, honest and truthful and it shall render the best possible advertising service to the advertiser and encourage the development of new advertisement accounts and it shall fully adhere in this respect to the advertisement ethics and the Code of Ethics and Standards set out in the Society’s Rules and Regulations on Accreditation of Advertising Agencies.

(c)  The Advertising Agency shall be paid trade discount in accordance with the Society’s Rules and Regulations on Accreditation of the Advertising Agencies.

(d)  That it will retain full trade discount earned as an advertising agency from Member Publications and that it will at no time pay or otherwise allow any part of such trade discount to any advertiser or representative of any advertiser for whom it may be acting, or has acted as an advertising agency.”

In the agreement Clause 2(q) mentions about 15% trade discount which advertising agency is entitled from newspaper agency. Clause 2(q) is quoted below:-

“2(q). As and from the date of accreditation, the Advertising Agency shall be entitled to receive from the Members of the Society the maximum and minimum trade discount of 15% in respect of advertisement business placed by it with such Members. In the case of provisional accreditation the Advertising Agency shall be entitled to receive maximum and minimum trade discount of 10% only.”

According to Clause (3) of the agreement the advertising agencies whose accreditation application is accepted by the society are bound by the contract to be entered in Appendix-III.

The second precondition, which is required to be fulfilled for applicability of Section 194H of the Act is that the person receiving payment has rendered service to the deductor. A perusal of the INS Rules clearly indicates that advertising agencies are rendering service to the advertisers/customers and they are accredited by the society not as an agent of newspaper agency but to provide service to the advertisers/its clients. The aforesaid is clear from the following part of the Rules.

A bare reading of Rule 20 indicates that advertising agencies are rendering service to the advertisers i.e. their clients. Rule 20 of the Rules is quoted below:-

“20. No Rebating. The Trade Discount allowed to the agency by the members shall be retained in full by the agency and shall not be shared or rebated to any other person, firm or company, directly or indirectly except:

When an agency rebates full Trade Discount to its clients and is paid a service fee for its services provided that the amount of the service fee so received shall not be less than 15%, such service fee being levied on the gross and not on the net amount.”

Column 26 of the application form, as quoted above, which require the advertising agencies to submit the list of names and addresses of clients whose advertisement is handled by them with the letters of appointment issued by the clients (advertisers) clearly mean that advertising agencies act for the advertisers who are their client and they cannot be treated to be an agent of the newspaper agency. The format of agreement in Appendix-III Clause (2) sub-clause (d), as quoted above, which provides that advertising agency shall retain full trade discount earned as an advertising agency from member publications and it will at no time pay or otherwise allow any part of such trade discount to any advertiser or representative of any advertiser for whom it may be acting, or has acted as an advertising agency. Thus the said clause clearly indicates that advertising agencies act for the advertisers who are their client and they are not the agent of the News Agency.

In paragraph 21 of the assessment order, paragraph 4 of the Standard of Practice for Advertising Agencies as approved by the Advertising Agencies Association of India, has been relied and referred to. Paragraph 4 of the Standard of Practice for Advertising Agencies, provides a rule that no advertising agency shall pay or undertake to pay any part of its commission received from newspaper agency or promise or procure or undertake to procure advertising at a reduce rate or to provide free or partly free any advertising material to the advertiser. The said clause is with different object and has no relevance in finding out the relationship of newspaper and advertising agency as principal and agent. The observation in the assessment order that advertising agency is providing advertisements on the basis of requirement of newspaper, for example, the newspaper do not publish advertisement for alcoholic drinks and thus it is the newspaper which decides that what type of advertisement it will publish and hence the advertising agency is acting on behalf of the Jagran Prakashan Ltd. and receiving payment in the name of discount from the gross amount accruing to the Jagran Prakashan Ltd. The fact that advertisement for alcoholic drinks is prohibited is in view of the prohibition contained in the executive orders and statutory provisions to which every newspaper is bound to follow and on the aforesaid factor inference of agency which has been drawn by the respondents is wholly misplaced. The observation that advertisement agency is rendering service to Jagran Prakashan Ltd. is also without any basis and foundation.

From the aforesaid , it is clear that no foundational fact exists on the basis of which any inference can be drawn that advertising agencies are agent of the petitioners and further advertising agencies render any service to the newspaper. The above two foundational facts being non existent, the proceedings under Section 201/201(1A) of the Act were clearly not permissible.

Now comes another factor (first factor) which is required to be established for applicability of Section 194H of the Act i.e. as to whether any payment was made to the advertising agency as commission. The case of the petitioner throughout has been that petitioner has been paying a trade discount at the rate of 15% as per Rule 32 of the Rules. The sample bills, which were collected by the department at the time of survey and are part of the assessment order, mention the total amount paid to advertising agency and the discount provided for and the net bill amount. The petitioner’s case is that trade discount has been provided by the petitioner throughout as a part of trade practice. The trade discount is claimed to be given in normal business practice which has been recognised in several cases. Reliance has been placed on the judgment of the Apex Court in the case of Moped India Ltd. v. Assistant Collector of Central Excise, Nellore and others reported in [1986] 1 SCC 125. In the said case the appellant, manufacturer of moped, allowed commission to its dealer. The central excise duty was paid on the price list after deducting the so called commission to the dealer. The Central Excise Department took the view that they were not entitled for deduction of the aforesaid amount and demand of central excise was issued. The Apex Court held in the said judgment that the said amount was trade discount. Following was laid down in paragraph 7 of the said judgment:-

“7. That takes us to the second question, namely, whether the Division Bench was right in taking the view that the Commission of Rs. 110, 145 and 165 per moped in respect of different varieties of mopeds sold to the dealers could not be said to be trade discount. Mr. Nariman, Learned Counsel appearing on behalf of the appellants contended that this Commission allowed to the dealers was clearly trade discount and was, therefore, liable to be deducted in determining the excisable value of the mopeds by reasons of sub-section (b)(ii) of Section 4 of the Act. Now it is true that this amount allowed to the dealers has been referred to in the agreement as commission but the level given by the parties cannot be determinative because it is for the court to decide whether the amount is trade discount or not, whatever be the name given to it. If we look at the terms of the agreement, it is clear that the agreement was between the appellants and the dealers on principal to principal basis. The clauses of the agreement which we have set out above clearly show beyond doubt that under the agreement, the mopeds were sold by the appellants to the dealers and the dealers did not act as agents of the appellants for the purpose of effecting sales on behalf of the appellants. It is clear from clause 5(a) of the agreement that the bills in respect of the mopeds delivered to the dealers were to be sent by the appellants through their bankers and it was the responsibility of the dealers to retire the bills for the purpose of taking delivery of the mopeds. Clause 5(b) of the agreement laid an obligation on the dealers to insure the mopeds against all risks, pilferage, non-delivery and SRCC including breakage from the time the mopeds left the factory or stockyard of the appellants until they arrived at the premises of the dealer and this again would show that the dealers acted as principal to principal in purchasing the mopeds from the appellants. The dealers were also liable under Clause 6 of the agreement to maintain adequate organisation for sale and service of the mopeds including service stations, repair shops, spare parts. salesmen etc. and the mechanics were also to be trained at the cost of the dealers. The relationship between the appellants and the dealers was clearly on principal to principal basis and in the circumstances it is difficult to see how the amount of Rs. 11 , 145 and 165 allowed to the dealers. in respect of different varieties of mopeds could be regarded as anything other than trade discount. The appellants charged to the dealer the price of the mopeds sold to them less the amount of Rs. 110, Rs. 145 and Rs. 165 in respect of different varieties of mopeds. These amounts allowed to the dealers were clearly trade discount liable to be deducted from the price charged to the dealers for the mopeds. purpose of arriving at the exciseable value of the moped.”

Another judgment relied by the petitioner is in the case of Commissioner of Central Excise, New Delhi v. DCM Textiles reported in [2006] 9 SCC 349 where the amount paid to dealer was treated to be trade discount. In the aforesaid case under the agreement with the dealer a payment of commission was contemplated. The Apex Court rejected the argument that dealer was agent of the appellant and further the amount to be paid to the dealer was trade discount. Followings were laid down in paragraphs 8 to 12:-

“8. Respondent has entered into different but similar agreements with its dealers in connection with the sale of cotton yarn manufactured by it and one of the agreement was produced during the course of proceedings before the original authority for the purposes of ascertaining the terms and conditions at which the goods were supplied by the respondent to its dealers. The agreement purports to be a dealership agreement. The relevant clauses of the agreement are reproduced hereunder:

“2. That the Cotton Yarn will be delivered to the dealer on his requisitions placed in company’s office at Delhi, Ex-company’s Delhi Godown subject to availability of the stock with company in their said godown.

3. That the dealer shall be wholly and solely responsible for making full payment to the company of all stocks of Cotton Yarn received from the company.

8. That the company shall pay the dealer commission of 1.5% including brokerage, if any, on the net value of the sale. The commission payable shall be worked out at the end of every quarter and remitted to the dealer ………

9. The dealer shall be paid ½% cash discount if cheque/pay order/draft is issued and handed over to company’s staff by the dealer within one day of date of the sale invoice. The cash discount will be 0.25% if the payment is made by the dealer by cheque/pay order/draft within four days of the date of sale invoice.

10. No interest shall be levied if the payment is made by the dealer by cheque/pay order/draft within seven days of the date of the sale invoice for payment delayed beyond seven days of the date of sale invoice interest will be recoverable from 8th day of the sale invoice till the date of issue of cheque/draft/pay order and handed over to the company’s staff. The interest shall be recovered at the end of every month.

11. That the dealer shall arrange to lift the stocks of cotton yarn purchased by the dealer as per the agreed schedule failing which the company may issue the sale invoice in dealer’s favour. In such event, terms of cash discount/interest free period and interest recoverable shall start from the date of sale invoice itself.

13. That the dealer shall keep with the company a security deposit of Rs.50,000/-as security which shall carry on interest of 15% per annum which will be payable yearly.

16. If at any time this agreement is terminated in accordance with the conditions of this agreement, the accounts shall be finalised and settled within one week from the date of its termination.

9. A bare perusal of the above-noted clauses clearly shows that the agreement entered into between the respondent and dealers was on ‘principal to principal basis’ and it was an absolute sale made by the respondent in favour of the dealers. The dealer is required to make full payment of the cotton yarn purchased by him forthwith and he is given half percent cash discount if the payment is made within one day, 0.25 per cent if the payment is made within four days and if the payment is not made within seven days then from 8th day onwards the dealer becomes liable to pay interest on the delayed payment. This indicates that there was an absolute sale made by the respondent to its dealers and the sale was on ‘principal to principal basis’.

10. This Court in Union of India & Others v. Bombay Tyres International Pvt. Ltd. reported in 1984 (17) ELT 329 (SC) on further arguments held trade discount to mean:

“1. Trade Discounts – Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.”

11. It was held that discount allowed in the trade, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods, then the same shall amount to a trade discount provided the sale is from ‘principal to principal basis’. It was further observed that such trade discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice value.

12. Original authority as well as Commissioner (Appeals) had stressed upon the point that since the trade discount was not paid to the dealer at the time of the preparation of the invoice and was to be paid later based on the net sale value of the sale effected (½ per cent of the net sale value); that the agreement between the parties amounting to be an agency agreement and not the dealership agreement and the sale was not from principal to principal basis. We agree with the Tribunal that this view is not sustainable on the facts of this case.”

Heavy reliance was placed by the learned counsel for the petitioner on the judgment of the Delhi High Court in I.T.A. No.1264 of 2007 (The Commissioner of Income Tax XVII Mvs. Living Media India Ltd.), dated 6th May, 2008. The facts of the aforesaid case need to be noted in detail. The petitioner has already brought on the record copy of the judgment of the Income Tax Appellate Tribunal in Assistant Commissioner of Income Tax v.. Living Media India Limited as well as the judgment of the High Court along with the letter dated 14th August, 2008 of the Indian Newspaper Society as Annexure-1 to the writ petition. The Indian Newspaper Society has issued the letter dated 14th August, 2008 on the reference “TDS on advertising agency trade discounts under Section 194H of the Income Tax Act”. Following was circulated to all the members of the Indian Newspaper Society:-

Re: TDS on advertising agency trade discounts under Section 194H of the Income Tax Act.

Several of our member publications have reported having received a demand for depositing TDS against the trade discounts permitted by them to advertising agencies from whom member publications received advertising releases.

In this connection, we are enclosing copies of the following Court orders in the case of Living Media Ltd. v. Asstt. Commissioner of Income Tax Circle 50(1), New Delhi.

 1.  Order No. I.T.A.No.3807/Del/2005 by the Appellate Tribunal Delhi Bench H, New Delhi, which held that the advertising agency was not an agent of the assessee and the amount deducted out of the gross payment received by the agency from the advertiser cannot be treated as payment of commission by the assessee to agency. Thus it was held that the assessee was not liable to deduct TDS on payment received by the agency.

 2.  Order No. ITA No. 1264 of 2007 by the High Court of Delhi, New Delhi upholding the judgment passed by the Appellate Tribunal Delhi Bench H, New Delhi.

These orders may be of use in dealing with such notices.”

M/s Living Media Limited is a publisher, which is publishing various magazines like India Today, Business Today, Cosmopolitan etc. The company had been generating income through space selling (advertisement) in its magazines which was done through advertising agency or directly through advertiser. The Company used to pay 15% discount as per Rule 32 of the INS Rules. Similar notices were issued to Living Media Ltd. asking for similar details and alleging non deduction of tax at source under Section 194H. Copy of the order of Tribunal has been enclosed at Page 26 of the writ petition which notes these facts in paragraph 4. The Tribunal dismissed the appeal of the department against which a writ petition was filed by the department. The Delhi High Court dismissed the writ petition of the department. The Delhi High Court held that there is no liability of deduction of tax at source under Section 194H with regard to trade discount of 15% given to the advertising agency. Following was laid down in paragraph 6 to 10 of the judgment of Delhi High Court:-

“6. It is contended by learned counsel for the Revenue that the CIT (A) had determined the payment of 15% to the advertising agency by the Assessee as commission and this was not challenged by the Assessee. Consequently, the provisions of Section 194H of the Act would come into play. While this is factually so, we are of the opinion that the conclusion arrived at by the CIT (A) really turns the argument upside down.

7. What is first required to be seen is the nature of the contract between the parties and after that determination, it is necessary to find out what is the nature of the payment. What the CIT(A) has done is to determine the nature of the payment and then to determine the nature of the contract. This, we think, is incorrect.

8. On a reading of the contract as well as the order passed by the CIT (A) and the Tribunal, we find that the two authorities below have held it to be a principal to principal contract. That being so, by its very definition, the payment made by the Assessee to the advertising agency cannot be classified as commission. The payment may be called a trade discount or may be described as a concession but since Rule 32 of the INS Rules described it as a trade discount, we have to proceed on that basis and by merely describing the trade discount as commission, the Revenue cannot seek to invoke the provisions of Section 194H of the Act.

9. There is a concurrent finding of the CIT (A) as well as the Tribunal that the contract was a principal to principal contract and in terms of that contract what was given by the Assessee to the advertising agency was trade discount as per Rule 32 of the INS Rules.

10. Under the circumstances, we are of the view that the Tribunal was not in error in coming to the conclusion that commission was not paid by the Assessee to the advertising agency and therefore, the provisions of Section 194H of the Act could not be invoked by the Revenue.”

It is relevant to note that the Income Tax Department filed Special Leave to Appeal (Civil) No.3433 of 2009 against the judgment of the Delhi High Court dated 6th May, 2008 which special leave to appeal was dismissed by the Apex Court vide its order dated 11th December, 2009. The petitioner has relied on the aforesaid judgment extensively and the assessing authority has distinguished the judgment of the Delhi High Court stating that Kerala High Court has delivered a judgment in the case of CIT Thiruvanathapuram v. Director, Prasar Bharati reported in 325 ITR 205, which is more recent judgment, hence the recent judgment is to be preferred. The aforesaid reasoning by assessing authority is wholly erroneous. The judgment of the Delhi High Court was fully applicable on the facts of the present case and the department was obliged to take into consideration the said judgment specially when the special leave to appeal filed by the department was dismissed by the Supreme Court.

Now we come to the judgment of the Kerala High Court (supra) on which much reliance has been placed by the assessing authority. The Prasar Bharati is fully owned Government of India undertaking engaged in telecast of news, various sports, entertainments, cinemas and other programmes. The advertisements were canvassed through agents under the agreement with them. The advertising agencies and the Director, Prasar Bharati were principal and agent as per the agreement and the Doordarshan provided 15% discount on the basis of which it was contended that no deduction at source was required. The Tribunal held that there was no liability for deduction of tax at source under Section 194H which judgment was reversed by the Kerala High Court. From the facts of the aforesaid case, it is clear that Doordarshan had appointed agents i.e. advertising agencies and there was agreement entered between them. In the aforesaid circumstances 15% advertisement charges collected and remitted was held to be in the form of commission payable to the agent by Doordarshan. There was explicit agreement between the agency and the Doordarshan where both understood that payment made to the agency was liable to tax deduction. It is useful to quote following observations of the judgment of Kerala High Court:

“Respondent is a fully owned Government of India undertaking engaged in telecast of news, various sports, entertainments, cinemas and other programmes. Advertisement income is a major source of revenue for all telecasting companies including the respondent. Advertisements are canvassed through agents appointed by the respondent under agreement with them. Advertising agencies recognised by the respondent are of two types, the unregistered agencies which are not entitled to any credit facility and the other type are registered agencies which are given accredition and credit facility with Doordarshan. In other words, while the first category will be able to telecast advertisment programmes canvassed from customers only on advance payment, the other category can have telecast done before making payments. Advertisement charges are based on air-time used for telecasting advertisement material. Rates are also varying depending upon the time of advertisment. However, these matters have no relevance for the purpose of deciding this case because the issue involved is whether the commission paid at the rate of 15% by the respondent on advertisement charges remitted by the advertising agencies is subject to tax deduction at source as commission under Section 194H of the Act.

From the above it is very clear that parties have understood their relationship as Principal and Agent and what is paid to the agent by Doordarshan is 15% of advertisement charges collected and remitted to it by the agent which is in the form of commission payable to the Agent by Doordarshan. Counsel for the respondent referred to one of the agreements where the commission is referred to as standard discount and contended that the arrangement between respondent and advertising agency is not agency but is a Principal to Principal arrangement of sharing advertisement charges. We are unable to accept this contention because advertisement contract entered into between the customer and the agency is for telecasting advertisement in Doordarshan channels. The agent canvasses advertisement on behalf of Doordarshan under agreement between them and the advertisement charges recovered from the customers are also in accordance with tariff prescribed by Doordarshan which is incorporated in the agreement. Further it is specifically stated in the agreement that advertisement material should also conform to the discipline introduced by Doordarshan which is nothing but a Government agency which cannot telecast all what is desired to be telecast by advertising agencies. In fact, Doordarshan is bound by advertisement contract canvassed by advertising agencies and it is their duty under the agreement between them and the advertising agencies to telecast advertisement material in terms of the contract which the agency signs with the customer. In our view, the transaction is a pure agency arrangement between the respondent and the advertising agencies because one acts for the other and the act of the agent binds the respondent in their capacity as Principal of the agent. It is pertinent to note that commission or brokerage defined under explanation (i) to Section 194H has a wide meaning and it covers any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered. In this case, no one can doubt that 15% commission paid to advertising agencies by the Doordarshan is for canvassing advertisements on behalf of the respondent. So much so, the payment of 15%, by whatever name called, whether discount or commission, falls within the definition of “commission” as defined under Explanation (i) to Section 194H of the Act.

The next question to be considered is whether the provision in the agreement permitting advertising agencies to retain 15% of the advertising charges payable by them to the respondent towards commission from out of the charges received for advertising services from customers will exonerate the respondent from their liability to deduct tax at source under Section 194H of the Act. In this context, it is pertinent to refer to clause 2(e) of Annexure A agreement which is extracted hereunder:

(e) The Agency shall retain in full all discount earned as an advertising agency and that it will at no time pay or otherwise allow directly or indirectly any part of such discount or remuneration to any person, advertiser or representative of any advertiser for whom it may be acting or has acted as an advertising agency.

Agency agrees to pay the TDS/Income Tax liability as applicable under the Income Tax Law on the discount retained by him. For this purpose agency agrees to make payment to Doordarshan Commercial Service by means of cheque/demand draft for the TDS on 15% discount retained by them. This cheque/demand draft will be drawn separately and should not be included in the telecast fee/advertisement charges.

It is very clear from the above provision that the advertising agency clearly understood the agreement as an agency arrangement and the commission payable by the respondent to such agency is subject to tax deduction at source under the Income Tax Act and so much so the provision in the agreement was for the agent after retaining 15% to give cheque or demand draft for TDS amount which was originally 5% until it was enhanced to 10% by Finance Act 2007 with effect from 1.6.2007…”

In the aforesaid case, the relationship of principal and agent was fully established since the advertising agency was appointed as agent by written agreement and there was specific clause that tax shall be deductible at source on payment of trade discount. In the said circumstances the Kerala High Court held that Section 194H of the Income Tax Act was applicable. In the present case, there is no agreement between the petitioner and the advertising agency and the advertising agency has never been appointed as agent of the petitioner. Thus the above case of Kerala High Court is clearly inapplicable and the reliance on the said judgment for fastening the liability of tax and interest on the petitioner is wholly untenable. The judgment of the Kerala High Court thus does not help the respondents in the present case.

Issues No. 7, 8 and 9 are interrelated hence, they are being taken together. The ground of challenge of the petitioner is that under section 201 of the Act, the Income Tax authorities cannot direct for payment of tax from the person, who was obliged to deduct the tax at source and at best only interest and penalty can be recovered on failure of deductor to deduct the tax at source. Elaborating the submission, it is submitted that the orders of the assessing authority directing for payment to the extent of amount which was deductible under section 194H from the petitioner is without jurisdiction and beyond the scope of provisions of section 201. The order being without jurisdiction, the petitioner can very well invoke the jurisdiction of this court praying for quashing of such an order which is void and in excess of the jurisdiction of the authorities. Before answering the aforesaid issues, the scheme of the Act including the scheme of collection and recovery of tax have to be looked into.

Section 4 of the Act is charging section which provides that income tax is chargeable in respect of the total income of the previous year of every person. The charge of the income tax is thus on the income of a person. Person has been defined in Section 2 (31). Section 4 of the Act is quoted as below:

“4 (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.”

Interpreting the similar provisions of the Income Tax Act, 1922, the Federal Court in 15 ITR 302 Chatturam v. Commissioner of Income Tax held that section imposes income tax upon a person in respect of his income. While interpreting Sections 3, 4 and 22 of Income Tax Act, 1922 following was laid down by the Federal Court:

“The liability to pay tax is founded on Sections 3 and 4 of the Income Tax Act, which are the charging sections. Section 22 etc. are the machinery sections to determine the amount of tax. Lord Dunedin in Whitney Vs. Commissioners of Inland Revenue stated as follows:- “Now, there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment, that ex hypothesi has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay.” In W.H. Cockerline & Co. v. Commissioners of Inland Revenue, Lord Hanworth, M.R., after accepting the passage from Lord Dunedin’s judgment quoted above, observed as follows:- “Lord Dunedin, speaking, of course, with accuracy as to these taxes, was not unmindful of the fact that it is the duty of the subject to whom a notice is given to render a return in order to enable the Crown to make an assessment upon him; but the charge is made in consequence of the Act, upon the subject; the assessment is only for the purpose of quantifying it.” He quoted with approval the following passage from the judgment of Sargant, L.J., in the case of Williams:- “I cannot see that the non-assessment prevents the incidence of the liability, through the amount of the deduction is not ascertained until assessment. The liability is imposed by charging section, namely, Section 38 (of the English Act) the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately.” In Attorney-General V. Aramayo and others, it was held by the whole Court that there may be a waiver as to the machinery of taxation which inures against the subject. In India these well-considered pronouncements are accepted without reservation as laying down the true principles of taxation under the Income-tax Act.”

The apex Court had occasion to consider section 4 of the Income Tax Act in (1993) 201 ITR 88 Universal Radiators v. Commissioner of Income Tax. Following was laid down by the apex Court:

“But liability to pay tax under the Act arises on the income accruing to an assessee in a year. The word ‘income’, ordinarily in normal sense, connotes any earning or profit or gain periodically, regularly or even daily in whatever manner and from whatever source. Thus it is a word of very wide import. Clause (24) of Section 2 of the Act is legislative recognition of its elasticity. Its scope has been widened from time to time by extending it to varied nature of income. Even before it was defined as including profits, gains, dividends and contributions received by a trust it was held to be a word, ‘of broadest connotation’ which could not be ‘understood in restricted or technical sense’. The wide meaning of the word was explained by this Court in Raghuvanshi Mills Ltd., Bombay v. Commissioner of Income Tax, Bombay City MANU/ SC/0043/1952 : [1952] 22 ITR 484 (SC) and it was emphasised that the expression, ‘from whatever source derived’ widened the net. But exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the Act and latter on computation in accordance with the provisions in the Act and the rules.”

Chapter XVII of the Act deals with collection and recovery of tax. Section 190 provides for deduction at source and advance payment. Section 190 is quoted below:

“190 (1) Notwithstanding that the regular assessment in respect of any income is to be made in later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of Section 192, as the case may be, in accordance with the provisions of this Chapter.

(2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.”

Section 190 thus, provides mode of collection and recovery of tax and under sub-section (1) of Section 190, the tax is payable by deduction or collection at source.

Section 191 provides that in the case of income in respect of which either provision is not made for deduction at source or where income tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. Section 191 is quoted below:

“191. In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct.

Explanation.—For the removal of doubts, it is hereby declared that if any person including the principal officer of a company,—

 (a)  who is required to deduct any sum in accordance with the provisions of this Act; or

 (b)  referred to in sub-section (1A) of section 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.”

Section 194H provides for payment of commission or brokerage where income tax is to be deducted at source by the person responsible for paying such commission or brokerage. Section 201 provides for consequence of failure to deduct or pay. Section 201 is quoted as below:

“201. (1) Where any person, including the principal officer of a company,—

(a)  who is required to deduct any sum in accordance with the provisions of this Act; or

(b)  referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:

Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.

(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—

 (i)  at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii)  at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid,

and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200.

(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).

(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of—

 (i)  two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;

(ii)  four years from the end of the financial year in which payment is made or credit is given, in any other case :

Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011.

(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).”

The main issue to be answered is as to whether in event, the person who is responsible to deduct tax at source fails to deduct the tax at source, what are the consequences? Whether the tax which was required to be deducted at source by such deductor, can also be recovered from the deductor or recovery can confine only to interest and penalty. The Income Tax Act is an integrated Act delineating a scheme for payment of income tax. For interpreting provisions of Section 201 of the Act, other related provisions have to be looked into to find out the scheme of section 201.

Sections 190 and 191 of Chapter XVII under which chapter Section 201 also falls need a closure scrutiny. Section 190(1) provides that tax on income shall be payable by deduction or collection at source or by advance payment. Sub-section (2) of section 190 starts with a negative injunction i.e. “nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of Section 4.” Sub-section (1) of section 4 as noted above, provides that charge of the income tax shall be on the income of a person. Sub-section (2) of Section 190 clearly mandates that despite of mode and manner of collection and recovery of tax i.e. by deduction or collection at source as envisaged under section 190 (1), the charge of payment of income tax is on a person, whose income is to be taxed.

Section 191 provides that in the case of income in respect of which provision is not made under this Chapter for deducting income tax at source and where income tax has not been deducted in accordance with the provision of this chapter, income tax shall be payable by the assessee direct. Thus, both the conditions i.e. (i) in the case of income in respect of which provision is not made under chapter XVII for deducting income tax at the time of payment and (ii) in case where income tax has not been deducted in accordance with the provisions of Chapter XVII, the Income tax is payable by the assessee direct. Section 191 thus re-enforces that primarily the liability of payment of income tax is on the person, whose income is to be taxed as delineated under sub-section (1) of section 4 and sub-section (2) of section 190. The explanation to Section 191 provides that where a deductor who was required to deduct income tax at source does not deduct or after deduction does not pay and where the assessee has also failed to pay such tax directly then such person shall without prejudice to any other consequence be deemed to be an assessee in default within the meaning of sub-section (1) of Section 201 in respect of such tax. The explanation to section 191 thus has to be read into section 201 (1).

Sub-section (1) of Section 201 provides that where deductor does not deduct or does not pay after deduction such person shall without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax. The language of the explanation to Section 191 and sub-section (1) of Section 201 is almost similar except with one difference. In Explanation to Section 201, the deductor shall be deemed to be an assessee in default where the assessee has also failed to pay such tax directly, whereas in sub-section (1) of Section 201, the above condition is not mentioned. While interpreting the provisions of sections 191 and sub-section (1) of Section 201, a harmonious construction has to be adopted and such interpretation is to be put which gives meaning and purpose to both the provisions. Explanation to section 191 specifically mentions “….be deemed to be an assessee in default within the meaning of sub-section (1) of section 201 in respect of such tax.” The above meaning thus has to be read in sub-section (1) of section 201, which has been specifically provided for. Not repeating the said condition again in section 201 (1) is inconsequential. Thus, deductor who fails to deduct income tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, it flows that there is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly.

The apex Court in (2010) 10 SCC 29 GE India Technology Centre Private Limited v. Commissioner of Income Tax, had occasion to consider Section 195 of the Act, which also provides for deduction of income tax. In the aforesaid case, words “chargeable under the provisions of the Act” contained in Section 195 came for interpretation. In the above context, the apex Court had held that charging provisions of the Act form one single integral inseparable code. It is useful to quote paragraphs 16,17 and 18:

16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression “sum chargeable under the provisions of the Act” from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that Act dehors the machinery Sections. The Act is to be read as an integrated code.

17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T. v. Eli Lilly & Co. (India) (P. ) Ltd. [312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T. Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are “chargeable to tax” under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income “chargeable under the head salaries”. Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum “chargeable under the provisions of the Act”, which expression, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold that the I.T. Act constitutes one single integral inseparable Code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the I.T. Act.

18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words “chargeable under the provisions of the Act” to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the “appropriate proportion of such sum so chargeable” where a proportion of the sum so chargeable is liable to tax.”

Sri Govind Krishna, learned counsel for the Department relied on judgment of the apex Court on statutory interpretation namely; AIR 1972 S.C. 2319 Azam Jha Bahadur v. Expenditure Tax Officer for the proposition that logic or reason cannot be of much avail in interpreting a tax statute. There cannot be any dispute to the proposition as laid down by the apex Court in the aforesaid case.

While interpreting the provisions of charging section of the Income Tax Act and the machinery part both have to be treated as integrated code as held by the apex Court in GE India Technology Centre Private Limited v. Commissioner of Income Tax (supra). Sri Govind Krishna further relied on the judgment of the apex Court in Civil Appeal No. 1507 of 2007 of 2007 M/s Sharma Transports v. The State of Maharashtra decided on 2.8.2011 for the proposition that if a particular method is prescribed for doing a certain thing by the Statute, it rules out any other method. For the same proposition reliance has been placed on the judgment of the apex Court in Dr. Ram Deen Maurya v. State of U.P. & others Civil Appeal No. of 2009 (arising out of Special Leave Petition (C) No. 22330 of 2007), decided on 17.4.2009, wherein same proposition was laid down i.e. when rules prescribed a particular procedure to be followed, the same requires to be followed and any deviation would disentitle the applicant to claim relief. There cannot be any dispute to the proposition laid down by the apex Court in the aforesaid two cases. However, the present is not a case of non compliance of any procedural requirement.

The apex Court had occasion to consider provisions of Section 201 in (2007) 8 SCC 463 Hindustan Coca Cola Beverage (P) Ltd. v. Commissioner of Income Tax. In the aforesaid case, the appellant entered into an agreement with M/s Pradeep Oil Corporation for use of their premises for receipt, storage and dispatch of goods belonging to the appellant-company. Tax was deducted under Section 194C @ 2% in respect of ware housing charges. The Assessing Officer took the view that warehousing charges were in the nature of rent and tax was to be deducted at the rate of 20% under section 194-I. The Assessing Officer accordingly determined the amount of short deduction of tax and also levied interest payable thereon under Section 201 (1A) of the Act. The Tribunal held that there can be no recovery of tax alleged to be in default from the appellant considering the fact that Pradeep Oil Corporation had already paid taxes on the amount received from the appellant. High Court however, interfered with the order of the Tribunal. The view of the Tribunal was affirmed by the apex Court reversing the order of the High Court. It is useful to quote paragraphs 6,7,8,9 and 10:

“6. The Tribunal upon rehearing the appeal held that though the appellant-assessee was rightly held to be an ‘assessee in default’, there could be no recovery of the tax alleged to be in default once again from the appellant considering that Pradeep Oil Corporation had already paid taxes on the amount received from the appellant. It is required to note that the department conceded before the Tribunal that the recovery could not once again be made from the tax deductor where the payee included the income on which tax was alleged to have been short deducted in its taxable income and paid taxes thereon. There is no dispute whatsoever that Pradeep Oil Corporation had already paid the taxes due on its income received from the appellant and had received refund from the tax department. The Tribunal came to the right conclusion that the tax once again could not be recovered from the appellant (deductor-assessee) since the tax has already been paid by the recipient of income.

7. The High Court interfered with the order passed by the Tribunal on the ground that the order dated 12.7.2002 of the Income-Tax Appellate Tribunal has attained its finality since the appeal filed against the same by the appellant was dismissed by the High Court on 21.5.2004; the point based on Ground No. 7 was not taken up in the appeal preferred by the appellant in the High Court. The High Court further held that the Income-tax Appellate Tribunal’s order dated 12.7.2002 got itself merged into the order passed by it on 21.5.2004 dismissing the appeal of the appellant herein. The High Court came to the conclusion that the Tribunal could not have reopened the matter for any further hearing.

8. We have already noticed that the order passed by the Tribunal to reopen the matter for further hearing as regards ground No. 7 has attained its finality. In the circumstances, the High Court could not have interfered with the final order passed by the Income-tax Appellate Tribunal.

9. Be that as it may, the circular No. 275/201/95-IT(B) dated 29.1.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares “no demand visualized under Section 201 (1) of the Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under Section 201 (1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under Section 271C of the Income-tax Act.”

10. In the instant case, the appellant had paid the interest under Section 201 (1A) of the Act and there is no dispute that the tax due had been paid by deductee-assessee (M/s Pradeep Oil Corporation). It is not disputed before us that the circular is applicable to the facts situation on hand.”

From the above, it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax. It is relevant to notice here that Explanation to Section 191 is confined only to the amount of tax which was required to be deducted.

The point next to be considered is as to whether under Section 201, the Income Tax Authorities could have fastened the liability of tax which was not deducted at source by the petitioner and the said tax can be recovered from the petitioner. From the assessment orders which have been brought on the record, it is clear that with regard to assessment year 2009-10, the amount of tax which was required to be deducted at source under section 194H has been determined as Rs. 10,49,60,865 and adding the interest on the said short deductions total amount directed to be recovered has been arrived at Rs. 13,57,31,472 similarly with regard to the financial year 2008-09 total amount on which tax was required to be deducted at source under section 194H has been determined as Rs. 2,40,31,583 and after adding interest recovery has been issued for Rs. 3,26,82,953. The challenge is that there is no liability of deductor to pay the tax not deducted from assessee and it is the assessee, who is liable to pay the said tax on the aforesaid income and liability, if any, of the deductor is of interest and penalty.

Section 201(1) provides that where any person who is required to deduct tax at source does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, then such person, shall without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax.

Section 201 (1A) contains a specific provision for payment of simple interest by any such person who does not deduct whole or any part of the tax or after deducting fails to pay the tax. Sub-section (2) of Section 201 provides that where tax has not been paid after it is deducted the amount of tax together with simple interest shall be a charge upon all the assets of the person or the company as may be, referred to under sub-section (1). Sub-section (2) thus, although enact a provision that in case where tax after deduction has not been paid by the deductor, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the deductor, whereas nothing has been said in sub-section (2) with regard to such charge on a deductor, who fails to deduct the tax. The reason is obvious, in a case where deductor fails to deduct the tax, the consequences are different as compared to in a case where deductor deducts the tax and does not pay to the Government. It is relevant to notice that Section 201(1A) specifically provides for payment of only simple interest when tax has not been deducted or not paid. Sub-section (2) provides for creating a charge on the assets of the deductor, if the tax deducted is not paid. But nothing under section 201 can be read as to mean that when the tax has not been deducted by the deductor, the tax not deducted can be realised from the deductor. No such provision is made under section 201 obviously because the liability to pay income tax is on the assessee direct in whose case, the tax has not been deducted. In the present case, the income tax authorities in proceeding under section 201 apart from directing recovery of interest from the petitioner has also directed for recovery of tax which is alleged to be short deducted, which is beyond the scope of section 201 and is an action of the authorities without jurisdiction.

A Full Bench of Uttarakhand High Court had considered the provisions of Section 190, 191, 201 and other provisions of the Act in (2011) 334 ITR 79 Director of Income Tax v. MAERSK Co. Ltd. The question arose for consideration was as to when no deduction for payment of advance tax has been made by the employer, whether the assessee is liable to pay interest under section 234B of the Act. The Full Bench considering the provisions of the Act had held that under the scheme of the Act provisions relating to payment of tax and payment of interest operate in two different areas. It is useful to quote following relevant extract from the judgment:

“Part A of Chapter XVII of the Act deals with the general provision for the collection and recovery of tax. Section 190(1) of the Act provides that notwithstanding the fact that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment in accordance with the provisions of this Chapter. Section 191 of the Act provides that in the case of income in respect of which a provision is not made under this Chapter for deducting income tax at the time of payment and, in any case, where income tax has not been deducted in accordance with the provisions of this Chapter, income tax shall be payable by the Assessee directly.

Section 201 of the Act provides the consequences of failure to deduct the tax at source or failure to pay the tax deducted to the Government. If the person responsible to deduct the tax at source fails to deduct the whole or any part of the tax or after deducting fails to pay the tax as required under the Act, the person responsible would be treated as an Assessee in default in respect of the tax. Section 201(1A) of the Act provides that without prejudice to the provision of Sub-section (1), if such person does not deduct the tax or having deducted, failed to pay the tax, he or it shall be liable to pay simple interest @ 15 % per annum on the amount of such tax from the date on which it was deductible to the date on which it was actually paid. Under Section 204 of the Act, the expression “the person responsible for paying” in the case of payment of income chargeable under the head “Salaries” means, the employer.

Thus, from a combined reading of Section 190, 191, 192, 198, 200, 201, 203 and 204 of the Act, it is clear that as soon as tax is deducted at source by the person responsible to make the payment, the liability of the Assessee to pay the tax gets discharged. If the tax is not deducted, it remains payable by the Assessee direct as provided under Section 191 of the Act. Further, the liability to pay interest under Section 201(1A) is on the person who fails to deduct the tax at source is absolute and is upon the person responsible for deducting tax at source till the date it was actually paid.

When the tax is not deducted, the Assessee is required to pay the tax directly which would be at the stage of self assessment and not by way of advance tax. The liability to pay the interest will however remain upon the person responsible to deduct the tax at source. The statute has taken care of the liability for the Assessee under Section 191 of the Act to pay the tax deductible at source directly if it has not been deducted by the person responsible for making such deduction. The loss of interest on the amount of tax suffered by the revenue would be compensated by the person responsible for making such deduction, namely, in the present case, by the employer as provided under Section 201(1A) of the Act.

The statute has taken care of the liability to pay tax by the Assessee under Section 191 of the Act directly if the tax has not been deducted at source.

Looking into the scheme of Chapter XVII of the Act, it is clear that the provisions relating to payment of tax and payment of interest operate in two different areas. If the tax has not been deducted at source, the liability is upon the Assessee to pay directly as per Section 191 of the Act and upon failure to deduct the tax at source, the liability is upon the employer to pay interest under Section 201(1A) of the Act. An Assessee whose income is liable to be deducted at source is not liable to pay advance tax under Section 208 of the Act and consequently is not liable to pay interest under Section 234B of the Act. The contention of the Appellant that it is open to the department to proceed against the employer or against the employee for the recovery of interest is patently misconceived and, in any case, would not make the Assessee jointly and severally liable to pay interest on the amount of tax which was not deducted at source on the income by the employer. “

The Full Bench of Uttarakhand High Court had clearly laid down that in event the tax at source is not deducted, the liability of the deductor is to pay interest.

The similar view was been taken by the Gujrat High Court in (1999) 235 ITR 433 Commissioner of Income Tax v. Ranoli Investment P. Ltd. And others, while considering the provisions of Sections 201, 190,191 and other provisions of the Act. Following was laid down in the aforesaid judgment:

“The consequences of failure to deduct the tax at source or failure to pay the tax deducted to the Government, are provided for in s. 201 of the Act as per which, if no deduction is made or if the deducted amount is not paid as required by the Act, the person whose duty it was to deduct the tax at source and to pay, is to be treated as an assessee-in-default in respect of the tax, but no penalty is to be charged under s. 221 from such person, if the ITO is satisfied that the failure to deduct and pay the tax had occurred due to good and sufficient reasons. As provided by sub-s. (1)A of s. 201, without prejudice to the provisions of sub-s. (1), if such person did not deduct the tax or having deducted, fails to pay the tax, he or it shall be liable to pay simple interest at 12 per cent. per annum on the amount of such tax from the date on which it was deductible to the date on which it was actually paid. The liability to pay interest under sub-s. (1A) of s. 201 imposed on the person who fails to deduct the tax at source or does not pay the tax deducted, is absolute and runs throughout the period from the date when the tax was deductible till the date it was actually paid. When the tax is not deducted at source, it is required to be paid by the assessee directly but in such a case the liability to pay interest consequent upon failure to deduct tax at source will nonetheless remain with such person who was duty-bound to deduct, till the date when the tax is actually paid by the assessee or on his behalf. It is only when the tax has not been paid after it is deducted, that the amount of the tax together with the amount of simple interest thereon referred to in sub-s. (1A) of s. 201 shall be a charge upon all the assets of the person who has failed in his duty to pay the tax deducted, as provided by sub-s. (2) of s. 201. The power to levy tax by deduction at source is without prejudice to any other mode of recovery, as stated in s. 202 of the Act. It will thus, be seen that where the tax is not deducted, the liability to pay the tax directly will be on the assessee, but so far as the interest is concerned, the liability has been fastened on the person who had failed to deduct the tax while crediting the interest income to the assessee.”

It is relevant to note that Chapter XVII Part BB, which deals with collection at source contains a provision under section 206C (6) which provide that any person responsible for collecting the tax who fails to collect the tax shall be liable to pay the tax to the credit of the Central Government. Section 206C deals with “profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.” Section 206C (6) is as follows:

“206C (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).”

From the above provision, it is thus, clear that wherever the liability to pay tax was fastened on the person who failed to deduct the tax at source a are specific provision was made for that purpose.

In view of the foregoing discussions, we are of the considered opinion that in a case where tax has not been deducted at source, the short deducted tax cannot be realised from the deductor and the liability to pay such tax shall continue to be with the assessee direct, whose income is to be charged and a person who fails to deduct the tax at source, at best is liable for interest and penalty only. The above issues thus, are decided in favour of the petitioner.

Now comes issue no. 10 which is in two parts; (i) whether the assessing authority has taken into consideration all relevant materials, while passing the assessment order ? (ii) whether the assessing authority has taken into consideration any irrelevant material, while passing the assessment order. The petitioner in the writ petition has specifically referred to and relied on the Circular issued by the Central Board of Direct Taxes being Circular No. 715 dated 8.8.1995. The said circular was clarified vide letter dated 12.9.1995 of Central Board of Direct Taxes. Copy of the said Circulars along with letter dated 12.9.1995 have been filed as Annexure-10 to the writ petition. The clarification was issued on the subject Circular No. 715 dated 8-8-1995 regarding applicability of TDS provisions.“. Paragraph 4 of the letter dated 12.9.1995 has been specifically relied and pleaded in paragraph 32-O of the writ petition, which is quoted below:

“32-O. That TDS is already deducted on the amount paid by the advertiser to the advertising agency under section 194C of the Act and as duly clarified by the Central Board of Direct Taxes in its Circular No. 715 dated 8.8.1995. The CBDT has further clarified the aforesaid circular dated 8.8.1995 in its letter F. No. 133/19/95-tPl-111 dated 12.9.1995 that:

‘4. In a situation where the media raises only a bill for an advertising contract including therein inter-alia commission at the specified percentage to be retained by the advertising agency out of the gross payment received/collected from the advertiser, the media is not required to deduct tax at source @ 1% under section 194C since such payment is subject to TDS by the advertiser at the time of payment as clarified in reply to Question No. 17. Of course, where the media makes a direct payment to the advertising agency in respect of professional or technical services, it shall deduct tax at source @ 5% under section 194J of the Act as clarified in reply to Question No. 27’. True copies of the Circular No. 715 dated 8.8.1995 and of the letter dated 12.9.1995 is being filed herewith and marked collectively as Annexure-10 to this writ petition.

As such the amount of trade discount allowed by the petitioner to the advertising agencies has already been subjected to TDS on the payment of the gross amount by the advertisers to the advertising agencies. The same amount cannot be subjected to TDS again and again by any strained and illegal interpretation of any other provision of the Act by assuming/deeming the existence of the jurisdictional facts necessary for the applicability of the provision.”

Paragraph 32-O has been replied in counter affidavit in paragraph 40, which is quoted below”

“40. That with regard to the contents of para 32 O of the affidavit filed in the amendment application it is submitted that it refers to the CBDT circular dated 08.08.1995. The order dated 28.03.2012 and 29.03.2012 has made reference to the recent stand of the CBDT on page no. 15&16. The remaining allegation has been suitably replied in the above preceding paragraph need not to be repeated here again.”

Paragraph 40 of the counter affidavit does not deny the issuance of the Circular dated 8.8.1995 and the clarification issued by the Central Board of Direct Taxes on 12.9.1995 but nothing has been said as to why the said clarification be not be applicable. The assessing authority in its assessment order has not adverted to the aforesaid circular dated 8.8.1995 and its clarification dated 12.9.1995, which was the most relevant material while deciding the issues. Thus, the assessing authority has not applied its mind to a relevant material i.e. the clarification issued by the CBDT dated 12.9.1995, which clinches the issues.

While considering issues No. 2 to 6, we have already observed that the assessing authority has not adverted to the relevant Rules of INS, which were required to be adverted for finding out the relationship of principal and agent. We thus, conclude that assessing authority has not considered the relevant materials while passing the assessment order which clearly vitiates the assessment order.

Learned Counsel for the petitioner has submitted that assessing authority has placed reliance on a wholly irrelevant material i.e. an article published in newspaper ‘Business Standard’ on 31.10.2006. In Paragraph 32 of the order of assessment, the article has been reproduced. The said article refers to some correspondences of CBDT with INS. It is useful to quote paragraph 32 of the assessment order which contains the article as follows:

“It would not be out of context at this juncture to mention an article published in “Business Standard” on 31st October 2006. The title of the article is “Newspaper’ ad payments liable to be taxed”. The article is reproduced as under:

‘The Central Board of Direct Taxes has informed the Indian Newspaper Society that Tax Deducted at Source (TDS) is liable to be deducted by newspapers on payments made by them to advertising agencies.

The CBDT has written to the INS following a clarification sought by the latter on whether TDS was deductible on payments made by them to advertising agents.

The contention of INS was that such payments are not in the nature of a commission but a discount. Since the payment was actually a discount, no TDS was liable on such payments, it had said.

However, revenue department officials said the CBDT was of the view that such payments were covered by the definition of the term ‘commission or brokerage’ given in Section 194H of the Income Tax Act and hence liable to TDS.

Section 194H defines ‘commission or brokerage’ as any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

“The board examined the contention of the INS that such payment is in the nature of a discount. A discount is given on sale or purchase of an article in which there is no agreement between the seller and the buyer. The board found that the INS granted accreditation to the advertising agencies and usually the newspapers would enter into an agreement with the agencies. Hence, the newspapers and the agencies were not acting independently and the agency was in fact an agent of the newspaper and was being paid a commission for the services rendered,” an official said.

It was also observed by the board that the agency did not book ad space from the newspapers and sell the space, in turn, to the advertisers, the officials said.

“The model used by the newspapers is that the agency informs the newspapers about the advertisement and then the paper slots the advertisement. Hence, once again, the agency is merely being paid for the services it renders, which is why such payment is liable to TDS,” the official added.”

Learned Counsel for the petitioner is right in his submission that reliance on the said article published in a newspaper was an irrelevant material. The assessing authority from the aforesaid article has relied on the opinion of CBDT as disclosed in the said article to the effect that members of the society are liable to deduct tax at source on payments made by them to advertising agency. In paragraph 40 of the counter affidavit as quoted above, the said stand of the CBDT has also been relied. We are of the view that the said article was an irrelevant material, which was not required to be relied by the assessing authority, while passing the assessment order.

After having considered and answered the issues No. 2 to 10, now we revert on the first submission of learned counsel for the Department that the writ petition be not entertained and the petitioner be asked to avail the statutory remedy of appeal provided under the Act. Learned Counsel for the respondent in support of his submission that the petitioner be relegated to avail the alternative remedy, have placed reliance on several judgements which need to be referred to. Learned Counsel for the respondent has relied on judgment of the apex court reported in AIR 2001 S.C. 3208 Punjab National Bank v. O.C. Krishnan and others. In the aforesaid case, a suit was filed by the bank for recovery of money from the principal debtor as well as the guarantors, which was transferred to the Debts Recovery Tribunal and was decreed against the principal debtor and guarantors. The Recovery Officer was directed to proceed to realise the amount. The guarantor filed a petition under Article 227 before the High Court. In said circumstances, the apex Court laid down following in paragraphs 5 and 6:

“5. In our opinion, the order which was passed by the Tribunal directing sale of mortgaged property was appealable under Section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short “the Act”). The High Court ought not to have exercised its jurisdiction under Article 227 in view of the provision for alternative remedy contained in the Act. We do not propose to go into the correctness of the decision of the High Court and whether the order passed by the Tribunal was correct or not has to be decided before an appropriate forum.

6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless when there is an alternative remedy available judicial prudence demands that the court refrains from exercising its jurisdiction under the said constitutional provisions.

This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act.”

There cannot be any dispute to the proposition as laid down by the apex Court in the aforesaid case. In the aforesaid case, the rights were already adjudicated in the suit which was decreed. In the said circumstances, the apex court observed that petition under article 227 ought not to have been entertained and the guarantor should have been relegated to take recourse to the appeal. The present is a case where the proceedings have been challenged on the ground that there was no jurisdictional facts on the basis of which the income tax authorities could have assumed jurisdiction under section 201 and further there was no jurisdiction to direct for recovery of tax which according to the respondent was short deducted by the deductor. Thus, the present case is clearly distinguishable. It is further relevant to note that in the present case, the assessing authority has relied on an article published in the newspaper namely; ‘Business Standard’ which article quoted the opinion of CBDT that the news agency is liable to deduct tax at source while making payment to advertising agency for advertisement. Although there are no material brought on the record by the Department to indicate as to when and in what circumstances, the CBDT has expressed the said opinion. As noted above, Delhi High Court in its judgment in the case of M/s Living Media (supra) has already turned down the stand of the Department that Section 194H is applicable with regard to payment to advertising agency by the news agency and the special leave petition filed by the Department against the Division Bench judgment of Delhi High Court has been dismissed on 11.2.2009. No distinguishing feature could be pointed out by the Department as to why the said view of the Delhi High Court should not be followed by the Department. We are of the view that it is not a fit case in which the petitioner be relegated to remedy of appeal.

Further more, as submitted by learned counsel for the petitioner, huge liability running in several crores have been fastened on the petitioner and on the basis of the assessment order, reassessment notice dated 30.3.2012 has been issued by the Department for reopening the assessment for the years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10, which will again expose the petitioner, which proceedings would be nothing but multiplicity of proceedings to be faced by the petitioner which may prolong years increasing the sufferings of the petitioner, whereas under law section 194 H of the Act is not applicable in the facts of the present case. Taking into consideration over all facts and circumstances of the present case, and the answers given by us, while deciding the issues No. 2 to 10, we are of the view that the petitioner has rightly invoked the jurisdiction of this Court under Article 226 and the petition cannot be thrown out on the ground of alternative remedy.

The issue next to be considered is as to whether there has been violation of principles of natural justice in the proceedings undertaken by the respondents. Learned Counsel for the petitioner submits that the respondent did not provide adequate opportunity to the petitioner to place relevant materials and have denied reasonable time to bring the details, which were asked for from the petitioner. It is submitted that notice was issued on 19.3.2012 and within ten days opportunity, hearing and proceedings were concluded and completed. Whereas, the petitioner was required to give details pertaining to each and every payments made to advertising agencies during the relevant period which were in numbers more than 1,80,000. The petitioner submits that there are various centres spread throughout the country which have separate offices and the petitioner having not maintained any detail of the TDS discount account, which is being given to the advertising agencies, the informations were required to be compiled and it was a herculean task requiring atleast one month’s time. In 2004 (266) ITR 283 V.K. Packaging Industries v. Tax Recovery Officer and others, a Division Bench has made following observation:

“Before parting with the case we would like to state that we cannot appreciate this practice of the Income-tax Department of hurriedly passing assessment orders shortly before the limitation period is about to expire and justifying this practice by saying that there was shortage of time and hence it was impossible to verify the facts properly, and hence the additions were being made. It is common knowledge that when the limitation for making an assessment is about to expire (usually on 31st March) there is a sudden rush and scramble to complete the assessments. If this practice is countenanced the citizens of the country will be put to great harassment as exorbitant demands can be made against them merely by saying that there was shortage of time and hence additions were being made for this reason without verifying the facts correctly. It is the duty of the Department to make a correct assessment and not to make an excessive assessment merely on the ground of shortage of time.

No doubt the Department has to assess and collect the correct tax, but for this purpose it should devise and set up a rational scheme in accordance with law. It should certainly not make assessments hurriedly merely by saying that there is shortage of time (as often happens), thus putting the citizens to great harassment.”

The caution given by the Division Bench in the aforesaid case is fully applicable in the facts of the present case. Suddenly in second quarter of March, the proceedings are started and concluded within ten days. The Department has rushed through the proceedings to complete it before 31.3.2012, which evidences infraction of rules of natural justice. We thus, conclude that the adequate opportunity to which the petitioner was entitled was not provided for by the Department and the Department rushed through the proceedings.

In the result of foregoing discussions, the petitioner is entitled for the reliefs as claimed in the writ petition. The proceedings initiated vide notices dated 193.2012 and 21.3.2012 culminated into assessment orders dated 28.3.2012 and 29.3.2012 are set aside. The writ petition is allowed.

The parties shall bear their own costs.

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Category : Income Tax (25317)
Type : Featured (4127) Judiciary (10093)
Tags : high court judgments (4047) section 195 (140) TDS (906)

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