Principal-to-principal sale discount is not commission under section 194H where no agency relationship exists.

Discount allowed to licensed stamp vendors under the Gujarat Stamps Supply and Sales Rules, 1987 was held to be a purchase discount on a principal-to-principal basis, not commission or brokerage. The court found that the vendors bought stamp papers from the Government at a reduced price, title passed on purchase, and regulatory controls did not by themselves create an agency relationship. Section 194H applies only where payment is made to a person acting on behalf of another, so the essential element of agency was absent. The communications directing tax deduction at source were therefore unsustainable.

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Issues: Whether the discount allowed to licensed stamp vendors under the Gujarat Stamps Supply and Sales Rules, 1987 is commission or brokerage within section 194H of the Income-tax Act, 1961.

Analysis: The applicable rules showed that licensed vendors purchased stamp papers from the Government on payment of price less discount, maintained prescribed accounts, and operated under regulatory restrictions. Those restrictions did not, by themselves, create an agency relationship. The decisive features were that title passed to the vendor on purchase, the vendor was not merely remitting sale proceeds to the Government, and the discount was an allowance on purchase rather than remuneration for services rendered on behalf of the Government. The definition in section 194H, even though wide, still required a payment to a person acting on behalf of another person, so the element of agency remained essential. The court therefore treated the dealings as sales on principal to principal basis and not as an agency arrangement.

Conclusion: The discount allowed to licensed stamp vendors was not commission or brokerage within section 194H, and the impugned communications directing tax deduction at source were unsustainable.

Ratio Decidendi: A discount arising from a sale on principal to principal basis is not commission or brokerage under section 194H unless the recipient is acting on behalf of another person in an agency relationship.

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