Jagran Prakashan Ltd. v. Dy. CIT (TDS)

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The Tax PublishersWrit Tax No. 388 of 2012 2012 TaxPub(DT) 2050 (All-HC) : (2013) 050 (I) ITCL 0048 : (2012) 345 ITR 0288 : (2012) 251 CTR 0065 : (2012) 209 TAXMAN 0092 : (2012) 073 DTR 0233 INCOME TAX ACT, 1961 --TDS--Applicability of provisions of section 194HConditions precedent --The major source of revenue of the petitioner is generated from advertisements published in the said newspapers. The petitioner was also member of Indian Newspaper Society (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 revenue conducted a survey under section 133A at the premises of the petitioner at Kanpur Nagar and recorded statement of General Manager Taxation and Legal. The notice 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. The assessee was asked to show cause as to why order under sections 201(1) and 201(1A) be not passed declaring the assessee as an assessee in default in respect of such taxes and interest thereon. The assessee 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 month-wise amount of payment of trade discount by the assessee along with copy of the bills from January to March 2009. The assessee filed a reply to the notices dated 19-3-2012 and 21-3-2012 on 22-3-2011. On 22-3-2012, the assessee 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 assessee to submit reply along with documents called for by 12:00 Noon on 26-3-2012 positively. The assessee 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. This writ petition was filed in this Court 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 : In view of the fact that the assessment order is to be passed on or before 31-3-2012 as indicated in the notice, the assessee may appear and submit necessary information as required and revenue 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 revenue. Revenue is allowed three weeks' time to file counter affidavitÃ¢â‚¬. 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. On 28-3-2012 an assessment order for the financial year 2009-10 has been passed by the Dy. Commissioner holding the assessee 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) 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 proceedings was also sent to Jt. Commissioner (TDS), Kanpur separately. Another order dated 29-3-2012 for the financial year 2008-09 was passed holding the assessee 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 initiates under section 271C. The demand notice was also issued on 29-3-2012. The assessee 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 assessee 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. This writ petition by a public Ltd. Company, publishing a Hindi daily newspaper Dainik JagaranÃ¢â‚¬ 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) vide notices on the allegation that although the assessee 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 asessee in default of such tax. The assessee 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, which orders were also challenged in this writ petition by means of an amendment application, which was allowed. The proceedings under section 201/201(1A) have been initiated against the assessee on the ground that the assessee, 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. Held: 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. 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. 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. 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 agencies. The above two foundational facts being non-existent, the proceedings under section 201/201(1A) were clearly not permissible. The case of the department against the assessee is that allowing 15% trade discount to advertising agencies by the assessee during the relevant assessment year is nothing but payment of commission within the meaning of section 194H Explanation (i) and the assessee 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). 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. (Para). The proposition of law deducible from the pronouncement of Apex Court 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. [Para 16] 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 assessee, 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 assessee and the advertising agency from which any assumption can be inferred nor at any point of time the assessee has employed the advertising agency as its agent whereas the contention of the department is that advertising agencies are agent of the assessee since they are bringing advertising business which are services rendered by them to the assessee and payment of trade discount to the advertising agency is nothing but commission in lieu of services rendered. Court is now proceed to examine as to what are the tests for finding out relationship of principal and agent. [Para 16] 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. [Para 16] The assessment order has already been passed by the assessing authority holding that relationship between the assessee 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. [Para 18] 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. [Para 19] 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 assessee 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 assessee and the advertising agencies and the relationship of principal-agent exists between them. The assessee 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 assessee 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 assessee 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 assessee 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 assessee 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. [Para ] 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. [Para ] 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. 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. [Para 21] 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. 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. [Para 22] Clause 2 of the agreement clearly indicates that advertising agency works in the interest of consumer and advertisers. [Para 22] In the agreement, clause 2(q) mentions about 15% trade discount which advertising agency is entitled from newspaper agency. [Para 22] 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. [Para 22] The second precondition, which is required to be fulfilled for applicability of section 194H 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. [Para 23] A bare reading of Rule 20 indicates that advertising agencies are rendering service to the advertisers, i.e., their clients. [Para 23] Column 26 of the application form, 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), 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 clause 26 clearly indicates that advertising agencies act for the advertisers who are their client and they are not the agent of the News Agency. [Para 23] 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) were clearly not permissible. [Para 24] In the Judgment of Kerala High Court in the case of Commissioner v. Thiruvanathapuram v. Director, Prasar Bharti 325 ITR 205, 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 was applicable. In the present case, there is no agreement between the assessee and the advertising agency and the advertising agency has never been appointed as agent of the assessee. 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. [Para 26] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersWrit Tax No. 388 of 2012
2012 TaxPub(DT) 2050 (All-HC) : (2013) 050 (I) ITCL 0048 : (2012) 345 ITR 0288 : (2012) 251 CTR 0065 : (2012) 209 TAXMAN 0092 : (2012) 073 DTR 0233

INCOME TAX ACT, 1961

--TDS--Applicability of provisions of section 194HConditions precedent --The major source of revenue of the petitioner is generated from advertisements published in the said newspapers. The petitioner was also member of Indian Newspaper Society (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 revenue conducted a survey under section 133A at the premises of the petitioner at Kanpur Nagar and recorded statement of General Manager Taxation and Legal. The notice 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. The assessee was asked to show cause as to why order under sections 201(1) and 201(1A) be not passed declaring the assessee as an assessee in default in respect of such taxes and interest thereon. The assessee 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 month-wise amount of payment of trade discount by the assessee along with copy of the bills from January to March 2009. The assessee filed a reply to the notices dated 19-3-2012 and 21-3-2012 on 22-3-2011. On 22-3-2012, the assessee 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 assessee to submit reply along with documents called for by 12:00 Noon on 26-3-2012 positively. The assessee 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. This writ petition was filed in this Court 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 : In view of the fact that the assessment order is to be passed on or before 31-3-2012 as indicated in the notice, the assessee may appear and submit necessary information as required and revenue 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 revenue. Revenue is allowed three weeks' time to file counter affidavitÃ¢â‚¬. 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. On 28-3-2012 an assessment order for the financial year 2009-10 has been passed by the Dy. Commissioner holding the assessee 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) 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 proceedings was also sent to Jt. Commissioner (TDS), Kanpur separately. Another order dated 29-3-2012 for the financial year 2008-09 was passed holding the assessee 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 initiates under section 271C. The demand notice was also issued on 29-3-2012. The assessee 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 assessee 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. This writ petition by a public Ltd. Company, publishing a Hindi daily newspaper Dainik JagaranÃ¢â‚¬ 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) vide notices on the allegation that although the assessee 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 asessee in default of such tax. The assessee 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, which orders were also challenged in this writ petition by means of an amendment application, which was allowed. The proceedings under section 201/201(1A) have been initiated against the assessee on the ground that the assessee, 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. Held: 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. 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. 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. 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 agencies. The above two foundational facts being non-existent, the proceedings under section 201/201(1A) were clearly not permissible.

The case of the department against the assessee is that allowing 15% trade discount to advertising agencies by the assessee during the relevant assessment year is nothing but payment of commission within the meaning of section 194H Explanation (i) and the assessee 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). 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. (Para). The proposition of law deducible from the pronouncement of Apex Court 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. [Para 16] 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 assessee, 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 assessee and the advertising agency from which any assumption can be inferred nor at any point of time the assessee has employed the advertising agency as its agent whereas the contention of the department is that advertising agencies are agent of the assessee since they are bringing advertising business which are services rendered by them to the assessee and payment of trade discount to the advertising agency is nothing but commission in lieu of services rendered. Court is now proceed to examine as to what are the tests for finding out relationship of principal and agent. [Para 16] 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. [Para 16] The assessment order has already been passed by the assessing authority holding that relationship between the assessee 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. [Para 18] 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. [Para 19] 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 assessee 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 assessee and the advertising agencies and the relationship of principal-agent exists between them. The assessee 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 assessee 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 assessee 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 assessee 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 assessee 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. [Para ] 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. [Para ] 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. 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. [Para 21] 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. 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. [Para 22] Clause 2 of the agreement clearly indicates that advertising agency works in the interest of consumer and advertisers. [Para 22] In the agreement, clause 2(q) mentions about 15% trade discount which advertising agency is entitled from newspaper agency. [Para 22] 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. [Para 22] The second precondition, which is required to be fulfilled for applicability of section 194H 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. [Para 23] A bare reading of Rule 20 indicates that advertising agencies are rendering service to the advertisers, i.e., their clients. [Para 23] Column 26 of the application form, 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), 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 clause 26 clearly indicates that advertising agencies act for the advertisers who are their client and they are not the agent of the News Agency. [Para 23] 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) were clearly not permissible. [Para 24] In the Judgment of Kerala High Court in the case of Commissioner v. Thiruvanathapuram v. Director, Prasar Bharti 325 ITR 205, 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 was applicable. In the present case, there is no agreement between the assessee and the advertising agency and the advertising agency has never been appointed as agent of the assessee. 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. [Para 26]