TDS on Commission to Ad Agencies

The recent judgment of the Supreme Court in the case of Prasar Bharati, confirming the liability of Prasar Bharati to deduct tax under section 194H from the commission paid to advertising agencies, caused me some anxious moments. There were the decisions of Allahabad (Jagaran Prakashan Limited) and Delhi (Living Media Limited) High Courts holding that despite the nomenclature used, there was no Principal and Agent relationship between a media house and an advertising agency and consequently section 194H was not applicable. This view was accepted by the CBDT a circular was issued in 2016 (5/2016 dated 29th February 2016). Would that mean the industry would be faced with a situation where a CBDT Circular says deduction of tax is not necessary but Supreme Court decides that deduction is statutorily mandated?

Thankfully, the Supreme Court, went through the facts and affirmed the Kerala High Court's finding that the agreements of Prasar Bharati with Advertising Agencies revealed a Principal-Agent relationship, unlike what was found by the Allahabad High court. Consequently, the Circular is still binding on those arrangements between media houses and advertising agencies where the Principal to Principal basis is not compromised. Point to note for drafting such agreements.