Indian broadcasters fear that an Advertising Agencies Association of India (AAAI) move to request the Central Board of Direct Taxes (CBDT) to repeal Income Tax notices to broadcasters — which seems designed to help them — may actually be designed to bring back the gross ad-billings arrangement which they had managed to do away with from this month.
Broadcasters said they were very clear that the net billings arrangement (as per global practice) that was hammered out with AAAI from May 1, 2013, must continue, and that reverting to allowing gross amounts to appear on invoices would not be good governance accounting, as this amount is never transacted between broadcasters and advertising agencies.
"Broadcasters have already received severe notices, with potential to lock up significant working capital. The ambiguity of gross billing and its tax related consequences are not something the television industry can afford to risk," says Shailesh Shah, secretary general of the Indian Broadcasting Foundation, the apex organisation of television broadcasters in the country.
Gross billing would allow the problem to persist and give authorities an opportunity to question the practice again, like they have in the past, while net billing would move the industry closer to the successfully evolving accounting principles in India, and help clean up a mess that has been going on for decades. "Our position is that net billing is effective and clean and reflects what the broadcaster finally gets," says Manjit Singh, the chief executive officer of Sony Entertainment Television.
However, sources said that AAAI believes that net invoicing may impact agencies' transactions with their clients. It has, therefore, suggested that the CBDT issue a clarification on TDS for a repeal of the tax notices that broadcasters have recently received, perhaps in the expectation that this would force broadcasters to revert to gross billings. Sources say that AAAI has till May 31st to appeal to CBDT for a clarification on the TDS issue.
TV channels had been asked to pay TDS on the 15% trade discount to advertising agencies on account of gross billings for amounts which they had never transacted. Broadcasters opposed this strongly on the grounds that this was nothing more than a fictional amount shown on invoices, resulting from what broadcasters say is a "long-standing deplorable practice" and have filed several appeals before Commissioner of Income Tax - Appeal against the tax demands.