TDS – Credit for tax deducted at source – Effect of section 199 – Assessee acting as collection agent for television network – Subscription charges collected from cable operators and paid to television network – Amounts routed through assessee’s accounts – Assessee entitled to credit for tax deducted at source on such amounts

TDS – Credit for tax deducted at source – Effect of section 199 – Assessee acting as collection agent for television network – Subscription charges collected from cable operators and paid to television network – Amounts routed through assessee’s accounts – Assessee entitled to credit for tax deducted at source on such amounts

The assessee acted as the collection agent of a television network and collected the subscription charges and the invoices, raised in the name of the assessee on the subscription income from the pay channels during the relevant year, and remitted them to the network. For the A.Ys. 2009-10, 2010-11 and 2011-12 the assessee was denied credit for the tax deducted at source on such amounts.

The Tribunal allowed the claim for credit of the tax deducted at source.

On appeal by the Revenue, the Madras High Court upheld the decision of the Tribunal and held as under:

‘i) Under section 199(2), credit for tax deducted at source can be allowed only when the corresponding income is offered for taxation in the year in which such tax deducted at source is claimed and deduction of tax at source was allowed without the corresponding income being declared in the profit and loss account.

ii) On a perusal of the agreement dated 14th October, 2002 entered into between the television network and the assessee, it is clear that the assessee was entitled to a fixed commission on the collection amount from the network. The agreement was entered into much prior to the A.Ys. 2009-10, 2010-11 and 2011-12. All these collection charges had been credited to the account “subscription charges” as and when they were billed and this account was debited at the end of the financial year when the sum was paid back to the network. Therefore, the amounts in question had been routed through the accounts maintained by the assessee, which formed part of the balance sheet and, in turn, formed part of the profit and loss account. Therefore, the amount received by the assessee was the collection of subscription charges on behalf of the principal, viz., the television network and did not partake of the character of income chargeable to tax in its hands.

iii) In the assessee’s case, the income chargeable to tax was only the commission income and interest income. Therefore, the subscription charges collected on behalf of the television network was chargeable as income only in the hands of the network and did not partake of the character of any expenditure, revenue or capital in the hands of the assessee. Merely because the income had been offered and processed in the hands of the network, credit for tax deducted in the name of the assessee could not be denied. The assessee was entitled to credit for the tax deducted at source.’