Trade discount on principal-to-principal sales is not commission, so section 194H withholding does not apply.

Discount allowed on sale of recharge vouchers and starter kits to distributors was treated as trade discount on a principal-to-principal sale, not commission under section 194H. Because no income was held by the payer for the distributors at the time of payment, tax deduction at source was not attracted, and liability as an assessee in default under sections 201(1) and 201(1A) could not arise. The appellate admission of additional evidence on distributors' tax compliance was also sustained, with verification directed on the principle against double recovery of tax. The tax demand was quashed and relief was upheld.

---

---

Issues: (i) Whether the discount allowed on sale of recharge vouchers and starter kits to distributors was commission so as to attract section 194H of the Income-tax Act, 1961 and consequent liability under sections 201(1) and 201(1A); (ii) Whether the additional evidence concerning the distributors' tax compliance was rightly admitted and whether relief could be granted in view of the principle against recovery of tax twice.

Issue (i): Whether the discount allowed on sale of recharge vouchers and starter kits to distributors was commission so as to attract section 194H of the Income-tax Act, 1961 and consequent liability under sections 201(1) and 201(1A).

Analysis: The receipts were found to be advance sale consideration at a discounted price, with no income being held by the assessee for or on behalf of the distributors. The transaction was held to be a sale on principal-to-principal basis, not a principal-agent arrangement. The discounted margin was treated as a trade discount, not commission, and the distributor's income arose only on onward sale, not at the stage of purchase from the assessee. In such circumstances, the precondition for deduction of tax at source under section 194H was not satisfied.

Conclusion: The discount did not amount to commission and section 194H was not applicable. The assessee was not liable as an assessee in default under sections 201(1) and 201(1A). This issue is decided in favour of the assessee.

Issue (ii): Whether the additional evidence concerning the distributors' tax compliance was rightly admitted and whether relief could be granted in view of the principle against recovery of tax twice.

Analysis: The appellate authority admitted additional evidence and directed verification of whether the distributors had included the relevant income in their returns. This approach was consistent with the principle that tax already recovered from the payee should not be recovered again from the payer, and the matter was sent back only for factual verification. In any event, once section 194H was held inapplicable, the Revenue's challenge to the admission of evidence and consequential relief did not survive.

Conclusion: The additional evidence and the consequential verification-based relief were sustained. This issue is decided against the Revenue.

Final Conclusion: The impugned demand under the tax-deduction provisions was quashed, the assessee's appeals succeeded, and the Revenue's appeals failed.

Ratio Decidendi: A discount on a bona fide principal-to-principal sale, where no income is held by the payer for the payee at the time of payment, is not commission within section 194H of the Income-tax Act, 1961 and does not attract tax deduction at source.

---