2018 (5) TMI 1394 - HC - Income Tax

High Court overturns Tribunal decision on TDS deduction, distributor not agent, no payment made

The High Court ruled in favor of the appellant, finding that the Tribunal erred in its decision regarding TDS deduction under Section 194H of the IT Act. ... Liability to deduct TDS u/s 194H - relation between assessee and distributor - reliance upon Management Information System - Held that:- the relationship is not of agent - it is principal to principal basis - the payment is received by the company and the amount of commission is never paid to the agent or the distributor - no TDS is required to be deducted - decided in favor of assessee Management Information System is not a part of the books of accounts and could not be relied upon - Statutory Audit Report is final conclusion over the authorities - decided in favour of the assessee Issues:1. Challenge to Tribunal's judgment and order regarding TDS deduction under Section 194H of the IT Act.2. Deletion of demand under Section 201(1) for non-deduction of TDS under Section 194H on commission payments to distributors.Issue 1:The appellant challenged the Tribunal's decision on whether the assessee was liable to deduct TDS under Section 194H of the IT Act, arguing that the relationship between the assessee and the distributor was that of principal to agent. The High Court referred to a previous case and concluded that the Tribunal had misdirected itself by considering the case from an incorrect angle. It was noted that the provisions of Section 194H require actual payment by the assessee, which did not occur in this case. The Court emphasized that the distributor was not an agent as per Section 182 of the Contract Act, hence Section 194H was wrongly invoked. The Court ruled in favor of the assessee on this issue.Issue 2:The second issue revolved around the deletion of demand under Section 201(1) for non-deduction of TDS under Section 194H on commission payments to distributors. The Court held that the Management Information System could not be relied upon by the Income Tax Authorities and that the Statutory Audit Report was the final conclusion. It was determined that since no actual payment was made, there was no requirement to deduct TDS. The Court ruled in favor of the assessee on this issue as well. Additionally, the Court addressed the issue of penalties under Section 271 of the Act, stating that in light of the decisions made in favor of the assessee, penalties could not be levied. The Court provided detailed analysis on various aspects of the case, including the relationship between the parties, the nature of expenses, and the application of relevant tax provisions. Ultimately, the Court dismissed the appeal, stating that no substantial question of law arose.