2012 (5) TMI 203 - AT - Income Tax

Tribunal rules Principal to Principal relationship, exempts TDS compliance. Orders set aside, demand canceled.

Piramal Healthcare Ltd. Versus Assistant Commissioner of Income-tax (TDS), 2(2), Mumbai

Piramal Healthcare Ltd. Versus Assistant Commissioner of Income-tax (TDS), 2(2), Mumbai - TMI Issues Involved:1. Whether the super stockist should be treated as a Manager for the purpose of compliance with TDS provisions under Section 194J of the Income-tax Act, 1961.2. Whether the relationship between the assessee and the super stockist is that of Principal to Manager or Principal to Principal.3. Applicability of Section 194J in the context of the transactions between the assessee and the super stockist.4. Validity of the demand raised by the Assessing Officer (AO) and the penalty proceedings initiated.Issue-wise Detailed Analysis:1. Whether the super stockist should be treated as a Manager for the purpose of compliance with TDS provisions under Section 194J of the Income-tax Act, 1961.The Income-tax Department conducted a survey on the assessee company to examine compliance with TDS provisions and issued a notice questioning why the super stockist should not be treated as its Manager. The Department argued that the stockist performed managerial duties and received remuneration based on turnover. However, the assessee contended that the transactions were on a Principal to Principal basis, with no payment made to the stockist by the assessee, and hence, TDS provisions were not applicable.2. Whether the relationship between the assessee and the super stockist is that of Principal to Manager or Principal to Principal.The agreement between the assessee and the super stockist explicitly stated that the relationship was on a Principal to Principal basis. The super stockist purchased the products at 70% of the MRP and sold them to retailers at 80% of the MRP, earning a margin of 10%. The agreement also clarified that the super stockist was not an agent, employee, or legal representative of the assessee. The Tribunal found that the relationship was indeed Principal to Principal, contrary to the conclusions drawn by the AO and CIT(A).3. Applicability of Section 194J in the context of the transactions between the assessee and the super stockist.Section 194J requires TDS to be deducted on payments for professional or technical services. The Tribunal noted that for Section 194J to apply, there must be a payment from the assessee to the service provider. In this case, the super stockist paid the assessee for the products and earned a margin on resale. There was no payment by the assessee to the super stockist. Hence, Section 194J was not applicable.4. Validity of the demand raised by the Assessing Officer (AO) and the penalty proceedings initiated.The AO had raised a demand of Rs. 13,54,02,632, including tax and interest, and initiated penalty proceedings. The CIT(A) upheld the AO's order but referred the matter back to verify if the super stockist had included the amount in its income. The Tribunal, however, vacated the orders of the AO and CIT(A), concluding that the TDS provisions under Section 194J were not applicable, thus invalidating the demand and penalty proceedings.Conclusion:The Tribunal allowed the appeals, ruling that the relationship between the assessee and the super stockist was on a Principal to Principal basis, and therefore, the provisions of Section 194J were not applicable. Consequently, the orders of the AO and CIT(A) were set aside, and the demand and penalty proceedings were canceled.