Statutory discount to stamp vendors is not commission where the sale is principal to principal and no agency exists.

A statutory discount allowed to licensed stamp vendors under the U.P. Stamp Rules, 1942 was treated as a price adjustment on a principal-to-principal sale, not as commission or brokerage. Section 194-H applies only where the recipient acts on behalf of another, so an agency relationship is essential; here, the vendors bought stamps from the treasury for ready money and resold them in their own account. Because no real principal-agent relationship existed, the discount did not attract TDS under section 194-H and the impugned demand based on that premise could not stand.

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Issues: Whether the 1% discount allowed to licensed stamp vendors under the U.P. Stamp Rules, 1942 was commission or brokerage attracting deduction of tax at source under section 194-H of the Income-tax Act, 1961, and whether the relationship between the treasury and the licensed vendors was one of principal and agent.

Analysis: Section 194-H applies only where a payment is made to a person acting on behalf of another, so the existence of agency is essential. The relevant stamp rules showed that licensed vendors purchased stamps from the treasury for ready money at a notified discount and resold them in their own account. The rules did not indicate that title in the stamps remained with the State after sale, nor did they show that the vendors were employed to act for the State in dealings with the public. Applying the settled distinction between sale and agency, the Court treated the transaction as a sale on principal to principal basis. The discount was therefore a price adjustment and not a commission payment. Following the same approach, the Court also relied on the view that a discount, even if regulated by statute, does not become commission unless an agency relationship exists.

Conclusion: The discount allowed to licensed stamp vendors was not commission or brokerage, no agency relationship existed, and section 194-H was not attracted.

Final Conclusion: The writ petition succeeded and the impugned orders and notice were quashed because the TDS demand rested on an erroneous assumption that the statutory discount to licensed stamp vendors was commission.

Ratio Decidendi: A statutory discount allowed on a sale made on principal to principal basis does not constitute commission or brokerage for the purposes of tax deduction at source unless the transaction involves a real agency relationship under which the recipient acts on behalf of another.

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