Court rules assessee not liable for tax on agent commissions due to Ministry's exemption; Revenue advised to pursue agents.

The High Court dismissed the appeals, holding that the assessee was not liable to deduct tax at source on commission payments to agents based on a communication from the Ministry of Finance relieving them from such obligation. The court emphasized that once an instruction exempting tax deduction was issued, the assessee could not be held accountable based on a subsequent communication. It was suggested that the Revenue pursue action against the agents for taxable income. The Tribunal's decision was upheld, and the appeals were dismissed.

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Issues:
Determining liability to deduct tax at source on commission paid to agents.

Analysis:
The case involved two appeals related to Income Tax Appeal Nos. 120 of 2006 and 192 of 2008, concerning the same parties and the same assessment year. The primary issue was whether the respondent-assessee was liable to deduct tax at source on commission payments made to agents. The Revenue contended that tax should have been deducted under Section 194-H of the Income Tax Act, as revealed during a survey that commission amounting to Rs. 2,30,56,660/- was paid without tax deduction. The CIT(A) allowed the appeal based on a memorandum from the Ministry of Finance, stating that no tax was required to be deducted for the relevant year. The Tribunal upheld the CIT(A)'s decision.

The Revenue relied on a communication from the Government of India, stating that tax should have been deducted at source on commission payments to agents. However, the Ministry of Finance had issued a communication on 4.12.2002, specifying that no tax needed to be deducted for the previous year's commission payments. The CIT(A) accepted this argument and quashed the tax and interest charges imposed on the assessee. The Tribunal upheld this decision, emphasizing the communication's validity.

The High Court dismissed the appeals, concluding that the assessee was not liable to deduct tax at source based on the communication from the Ministry of Finance. The court highlighted that once an instruction was issued relieving the assessee from tax deduction, they could not be held liable based on a subsequent communication. The court suggested that the Revenue could pursue action against the agents for taxable income. Consequently, the Tribunal's decision was upheld, and the appeals were dismissed.

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