Payments made by a channel operator to secure advertisements: Applicability of TDS provisions under section 194H
- As the Assessee earned income through sale of advertisement time on its various channels, this advertisement time was sold generally through advertisement agencies. These advertisement agencies in turn sales this advertisement time to the advertisers. The Assessee raised invoice on such advertisement agencies after allowing 15% trade discount as per the industry practice. The Assessee also accounted for only 85% of its revenue in its books of account. The Assessee submitted that the Assessee had offered the discount to the advertising agencies and it was not the commission as the Assessee and advertisement agencies act on principal to principal basis.
- The Assessing Officer held that advertisement agencies were agents of the appellant and amount of 15% retained by them was in effect constructive payment of commission liable for deduction of tax at source either under section 194H or under section 194J of the income tax act. Therefore, the Assessing Officer grossed up the amount of the revenue shown by the Assessee in the profit and loss account with the amount retained by those advertisement agents and disallowed Rs. 45.53 crore under section 40(a)(ia) of the income tax act.
- Reliance was placed on the decision of Delhi High Court in the case of CIT v. Living Media India Ltd., wherein it was concluded that the Assessee/ companies who were engaged in the business of running of print and electronic media houses, the main source of revenue was advertisement charges. The advertisers approached classified agents or accredited advertising agencies to advertise. The agents/ agencies upon receipt of advertisement requirement procure the airtime from the media companies at a discount. Advertisers while making payment to accredited agencies duly deduct tax as required under law under section 194C of the Act on the amount paid by the advertiser. This customary practice was consistently followed in this above business and was governed in accordance with guidelines of Indian Newspaper Society for print or Indian Broadcasters Federation for electronic.
- An advertiser engaged an advertising agency and the advertising agency in turn approached print and electronic media for publication/ broadcast of the advertisement. There was no direct link between the print and electronic media and the advertiser. In the normal course when orders were released by the advertising agencies, the name of the client was always disclosed on it, though there was no principal agent relationship between the print and electronic media on one hand and the advertising agencies on the other hand. As per the rules of Indian Newspaper Society, accreditation was awarded by Indian Newspaper Society to the advertising agency which becomes eligible to receive 15 per cent discount from media companies on procuring advertisement space for/ time in publication/ broadcast for advertisers. It was noted that even the discount was not at the will or contractual discretion; it was governed by Indian Newspaper Society regulations. Hence, it was inferred that there could not be any disallowance of commission paid by the Assessee.