2016 (5) TMI 1028 - AT - Income Tax

Retail Concessionaire Relationship: Not Subject to TDS

The Tribunal upheld the CIT(A)'s decision that the relationship between the assessee and its retail concessionaires was principal-to-principal. The ... TDS u/s 194H - whether amount to retail concessionaires is in the nature of commission to attracts TDS provisions? - Held that:- Respectfully following the decision of Hon’ble High Court of Delhi in the case of CIT Vs. Mother Diary India Ltd.(2008 (12) TMI 436 - ITAT DELHI ), we are of the opinion that the arrangement between assessee and its retail concessionaire is not in the nature of principal to agency basis and which is principal to principal basis. Therefore, the amount paid by the assessee to its retail concessionaires is not in the nature of commission which attract the provisions of section 194H of the Act. The CIT(A) has rightly deleted the additions made by the A.O. We do not see any reasons to interfere with the order passed by the CIT(A) - Decided in favour of assessee Issues Involved:1. Nature of the relationship between the assessee and its retail concessionaires (principal-to-principal vs. principal-to-agent).2. Applicability of TDS provisions under Section 194H of the Income Tax Act, 1961, on payments made to retail concessionaires.Issue-Wise Detailed Analysis:1. Nature of the Relationship Between the Assessee and Its Retail Concessionaires:The core issue was whether the relationship between the assessee (a milk producers' cooperative) and its retail concessionaires was that of a principal-to-principal or principal-to-agent. The assessee argued that the relationship was principal-to-principal, asserting that once the goods were sold to the retailers, the ownership and risk were transferred to them, and the retailers sold the goods on their own account. The assessee supported this claim by stating that the retailers bore the risk of unsold goods and were not indemnified for any losses, which is a typical characteristic of a principal-to-principal relationship. The assessee also referred to the decision of the Hon'ble Delhi High Court in the case of Mother Dairy India Ltd., which supported their stance.The Assessing Officer (A.O.), however, contended that the relationship was principal-to-agent, citing the agreement's conditions that allowed the assessee to control the sale price, place of sale, and mode of payment, and the right to terminate the agreement if conditions were violated. The A.O. argued that these conditions indicated a principal-to-agent relationship, making the payments to retailers commissions subject to TDS under Section 194H.2. Applicability of TDS Provisions Under Section 194H:The A.O. held that the payments made by the assessee to the retailers, categorized as trade discounts, maintenance charges, and compensation for leaked milk packets, were in the nature of commission and thus attracted TDS under Section 194H. Consequently, the A.O. treated the assessee as an 'assessee in default' for not deducting TDS on such payments and computed the tax and interest accordingly.The CIT(A) (Commissioner of Income Tax (Appeals)), however, sided with the assessee, concluding that the relationship was principal-to-principal. The CIT(A) noted that the property in the goods was transferred to the retailers at the time of delivery, and the retailers dealt with the goods in their own right. The CIT(A) emphasized that the conditions in the agreement were for business facilitation and did not establish a principal-to-agent relationship. Consequently, the CIT(A) deleted the additions made by the A.O. under Sections 201(1) and 201(1A).Judgment:The Tribunal upheld the CIT(A)'s order, agreeing that the relationship between the assessee and its retail concessionaires was principal-to-principal. The Tribunal found that the agreement and the conduct of the parties indicated a sale of goods rather than a service contract. The Tribunal noted that once the goods were delivered to the retailers, the ownership and risk were transferred to them, and the retailers sold the goods on their own account without returning unsold goods. The Tribunal also referred to the decision of the Hon'ble Delhi High Court in Mother Dairy India Ltd., which supported the view that such arrangements do not constitute a principal-to-agent relationship.The Tribunal dismissed the revenue's appeals, concluding that the payments made by the assessee to the retailers were not in the nature of commission and did not attract TDS under Section 194H. The Tribunal emphasized that the conditions in the agreement were for business facilitation and did not alter the fundamental nature of the relationship as principal-to-principal.Conclusion:The appeals filed by the revenue were dismissed, and the Tribunal upheld the CIT(A)'s order, confirming that the relationship between the assessee and its retail concessionaires was principal-to-principal and that the payments made did not attract TDS under Section 194H of the Income Tax Act, 1961.