Defaulter of TDS not liable to pay the tax but only interest and penalty

The Allahabad High Court in the recent case of Jagran Prakashan Ltd. vs. The Deputy Commissioner of Income Tax (TDS) (Writ Tax NO. 388 of 2012) by a judgment dated 23.5.2012 held that a deductor cannot be treated an assessee in default and he is liable for interest and penalty only but not the shortfall of the deducted tax.

Facts and circumstances of the case:
The writ application was filed by a public Ltd. Company, publishing a Hindi daily newspaper known as “Dainik Jagran”. The petitioner was engaged in the business of printing and publishing newspapers from different centers across the country. The registered office of the petitioner is situated at Kanpur Nagar. The major source of income of the petitioner comes from advertisements published in the newspaper. The petitioner is a member of Indian Newspaper Society (INS).
On 15.3.2012, the respondent conducted a survey as per section 133A of the Act at the office of the petitioner at Kanpur Nagar and recorded statement of the petitioner’s General Manager (Taxation and Legal). Two notices dated 19.3.2012 and 21.3.2012 for the financial year 2009-2010 were served upon to the petitioner stating that during the survey on 15.3.2012, it was discovered that the petitioner has failed to deduct tax at source as per section 194H of the Act on the payment received from the advertising agencies after allowing 15% discount, which is considered as commission.
The petitioner was asked to furnish the detailed amount of payment of discount and to show cause as to why it shall not be considered as an assessee in default in respect of such taxes as per section 201(1) and 201(1)A of the Act. The petitioner was directed to appear on 22.3.2012.
The petitioner sent reply to the said notices. The assessment orders dated 28.3.2012 for the Financial Year 2009-10 and 29.3.2012 for the Financial Year 2008-09 were passed imposing liability upon the petitioner to pay Rs.13,15,31,472/- and Rs.3,26,82,953/- respectively, which were challenged in the aforesaid writ petition by the petitioner which was allowed on 18.4.2012.
The petitioner filed the writ petition before the Hon’ble High Court on 23.3.2012 praying for quashing the notices dated 19.3.2012 and 21.3.2012 which were issued by the respondent. The petition was heard on 19.3.2012.
The petitioner invoked the jurisdiction of the Hon’ble High Court under Article 226 of the Constitution of India and thereby challenged the initiation of proceedings under sections 201 and 201 (1A) of Income Tax Act, 1961 against it through notices dated 19.3.2012 and 21.3.2012 alleging that though the petitioner allowed trade discount at the rate of 15% to advertising agencies in the concerned assessment years according to the Rules and Regulations of INS for many years but it failed to deduct the tax at source, the petitioner is not an assessee in default of the said tax.

Arguments on behalf of the petitioner:
The petitioner’s Counsel Shri Ritvik Upadhay contended that Kerala High Court in 325 ITR 205 passed a judgment on the similar issue that advertising agency has acted as an agent of the principal, as such trade discount allowed is not a commission or brokerage as per Section 194H(i) of the Act.
The learned counsel for the petitioner contended that the notices which were served upon the petitioner did not provide any jurisdiction to the respondent to proceed under section 201 of the Income Tax Act due to the reason that no TDS was deductible on 15% trade discount.
It was further submitted that trade discount cannot be treated as commission; as such it is not liable for any deduction. The learned counsel referred the decision of Delhi High Court in I.T.A. No. 1264 of 2007(Commissioner of Income Tax vs. Living Media India Limited). The Learned counsel further cited the decision of the Apex Court passed in Siemens Ltd. vs. State of Maharashtra and others (2006)12 Supreme Court Cases 33.
It was submitted that there was no issue to proceed under section 201 of the Income Tax Act.

Arguments on behalf of the respondent:
The learned counsel appearing for the respondent, Shri Govind Krishna, submitted that by the impugned notice merely information was sought from the petitioner and there was no lack of jurisdiction in the authority to proceed under section 201 of the Income Tax Act. He further submitted that the writ petition should be not entertained in law.

Issues framed by the Hon’ble Court:
• Whether the petitioner is entitled to invoke the writ jurisdiction of the Hon’ble Court under Article 226 of the Constitution of India?
• Whether the petitioner should have preferred an alternative remedy of appeal as the assessment order has already been passed?
• Whether the petitioner and the advertising agency have a relationship of principal and agent?
• Whether the advertising agency is rendering services to the petitioner?
• Whether the discount allowed by the petitioner to advertising agencies is payment within the purview of Section 194H?
• Whether the judgment of the Kerala High Court in 325 ITR 205 is applicable in the present case?
• Whether a deductor who is a defaulter in respect of deduction of tax at source, is liable to pay tax apart from liability of interest and penalty?
• Whether it is the liability of the assessee with regard to whose income the tax was required to be deducted at source to pay the tax which was not deducted?
• Whether the assessing authority has considered all relevant materials for arriving at a decision?
• Whether the respondent has violated the principle of natural justice in the proceeding against the appellant?
• To what relief the petitioner is entitled?

The judgment:
This writ petition was based on the allegation that although the petitioner had allowed trade discount of 15% to advertising agencies but had failed to deduct the tax at source for which the petitioner may show cause as to why it may not be considered as an assessee in default. The petitioner replied the notices. During the pendency of the writ petition assessment orders were passed which were too challenged by the appellant through an amendment which was allowed on 18.4.2012.
The Hon’ble Court held that the Department has to assess and levy the proper amount of tax, but the department should be rational in doing so. It should not give opinion hurriedly to put the assessees in harassment. It was concluded that the Department rushed through the proceedings; hence the petitioner is entitled for the reliefs as prayed by it in the writ petition. Accordingly the writ petition was allowed.