1. This appeal by the Revenue is directed against the order of the CIT(A), Cuttack dated 31-10-1994 for the assessment year 1992-93.
2. Learned DR vehemently opposed the order passed by the CIT(A) and submitted that section 194H came into operation from 1-10-1992 and accordingly tax should have been deducted from the payments of commission by the assessee for payments upto 31-3-1992 and for payments for April and May, 1992. It was brought to our notice that the assessee had not effected any such TDS and therefore total tax liability under section 194H was asked to be paid. He further submitted that section 204 clearly indicates the meaning of 'Person responsible for paying' and there is no ambiguity. In view of the same section 194H is clearly applicable in this case. Learned AR of the assessee, on the other hand, entirely relied on the order of the CIT(A) and his candid argument were hovering around the said order.
3. The assessee publishes, inter alia, a newspaper in the name and style of The SAMAJ' which was bequeathed by its founder Pt. Gopanbandhu Dash. The assessee has sold newspapers at a discounted price to its sales agents and also received payment from advertising agencies after deduction of their charges. The Assessing Officer has objected to such transactions on the ground that there had been no deduction of TDS under section 194H, which was on the statute from 1-10-1991 to 30-6-1992. The Assessing Officer further treated the assessee as an assessee in default for the alleged failure in deduction of tax at source and held them liable for payment of tax of Rs. 10,29,064. The assessee for the purpose of sale of his newspapers has engaged several persons who are described as sales agents in accordance with the custom of the trade. The said agents are required to furnish a security deposit at an agreed rate which is refunded when the arrangement between the assessee and agents comes to an end. The said Agents purchased the newspaper from the assessee and sell them through hawkers/vendors. Liability in respect of the unsold newspapers also lies with the agents and this is clearly brought in the agreement with the agents. Since the newspaper has to be sold at the printed price to the readers, the agents are given a discount of 25% more of the sale price which is termed as commission. It is not out of place to mention here that out of the margin of 25% as aforesaid the agent is free to pay whatever amount he thinks expedient to the hawkers/vendors. Thus it is seen that the commission paid to the circulation agents by way of deduction from the gross amount in the relevant periodic bills were in the nature of trade discount.
4. It has been brought to our notice by the learned AR that although the agent settles his accounts of newspapers lifted during a month between 10th and 20th of the next month, he has to make payment for the entire quantity of newspaper lifted irrespective of the papers actually sold. This is in our view abundantly disproves the Assessing Officer's contention that the: sale proceeds are collected by the Agents through the hawkers from the customers and then passed on to the publisher. The arrangement so made between the assessee and the agents would in our view be governed by the provisions of Sales of Goods Act and not by the laws of Agency.
5. An agent has been defined in section 182 of the Indian Contract Act as a person employed to do any act for another or to represent another in dealings with third pereons. The person for whom such act is done, or who is so represented, is called the 'principal'. However, the Hon'ble Courts have repeatedly held that the true nature of a contract of agency has to be gathered from its terms and conditions; the terminology used is not decisive of the legal relationship of the parties. Hon'ble Bombay High Court in the case of Superintendent of Stamps v. Breul & Co. [1944] 46 Bom. L.R. 686 has held that a person referred to as agent is not an agent if by the terms of the contract the relationship is one of principal and principal.
6. It may be mentioned here that the relationship of principal and agent was examined by a Full Bench of the Calcutta High Court in the case of Ghasiram Agarwalla v. State AIR 1967 Cal. 568. In that case the appellant was appointed retailer of a fair price shop. The agreement was governed by elaborate and restrictive rule. The appellant had to obtain supply of wheat on indents placed by him with the officer concerned and subject to sanction by such officer. He had to deposit price of wheat at Rs. 14 per maund inclusive of price of containers and had to sell them to consumers at Rs. 15 per maund. He had to maintain stock register of the goods and also a daily sales register. The stocks and books had to be made available to the inspecting staff of the Department of Food. The appointment of the appellant was liable to be cancelled at the discretion of the Director of Department of Food, In the above background, the Hon'ble High Court had held that the transaction between the Government and Ghasiram was one of sale and purchase and not of agency. The property in the goods, it was held, passed on to the retailer (Ghasi Ram) and he did not hold the property as an agent in trust for the Government.
7. Hon'ble Kerala High Court has held in the case of Dy. Commissioner of Agricultural Income-tax and Sales-tax v. Alwaye Agencies 1974 Tax L.R. 2281 that the assessee was appointed as a distributor for sale of Sodium Hydrosulphite within the area of Kerala Stale and the appointment was subject to several conditions and restrictions imposed by the manufacturer. So that was a contract of one of sale and not of Agency.
8. In the case of Sri Tirumala Venkateswara Timber & Bamboo Firm v. CIO AIR 1968 SC 784. Hon'ble Supreme Court has observed- "As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions and the terminology used by the parties is not decisive of the legal relationship." 9. In the instant case, it is observed that the appellant-assessee sells the newspapers to the agents. The agents pay for the newspapers bought by them. They do not merely collect the sale proceeds from consumers for handing over to the assessee. If newspapers remain unsold with the agents, they have to bear the liability and pay the assessee for the total number of newspapers lifted by them.
On these facts, we are of the view that the ratio of the aforesaid decisions of Hon'ble Calcutta and Kerala High Courts and Hon'ble Supreme Court are squarely applicable to the assessee and the arrangement between the assessee and the agents cannot but be treated as a contract of sate.
10. It is observed that the 'commission' is a recompense or allowance for service or labour rendered by the payee in discharging certain functions such as, for instance, of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some service to another. Where there is an agreement for sell there being no element of agency, the payment cannot be deemed to be commission as envisaged in section 194H of the Income-tax Act. It is also further observed that mere use of the word 'commission' in the contract does not convert a relationship of vendor and purchaser into one of agency. In view of the same we hold that there is no justification in disagreeing with the findings of the learned CIT(A).
11. Next is about commission to Advertising Agencies. The newspaper published by the assessee is used by various advertising agencies for placing advertisements. The said agencies purchase space on the newspaper and supply the material to be published in such space. From the bill raised by the assessee for the space and printing charges, the agencies deduct a specified percentage as their charges and pay the balance to the assessee. Although the payment deducted by the advertising agencies is described as 'commission', the transaction between the assessee and the agencies is entered into on principal to principal basis. We agree that the CIT(A) is justified in holding that the above transaction made to the Advertising agencies as Principal to Principal basis instead of Principal to agent basis.