Tribunal rules no agency relationship, deletes TDS demands for rebates.

The tribunal ruled in favor of the assessee, finding no agency relationship between the assessee and dealers regarding rebates given for sale transactions. The demands raised under section 201(1) / (1A) for lack of TDS on rebates were deleted for Assessment Years 2018-19 & 2019-20. The tribunal held that the nature of the rebates and the absence of an agency relationship exempted the assessee from TDS obligations.

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Issues involved:
The judgment involves the issue of demand raised under section 201(1) / (1A) for lack of tax deduction at source (TDS) on payments in the nature of rebates given by the assessee to its dealers / distributors for Assessment Years 2018-19 & 2019-20.

Details of the judgment:
Issue 1:
In Assessment Year (AY) 2018-19, the assessee faced demands u/s. 201(1) / 201(1A) due to not deducting TDS on rebates given to dealers. The Commissioner of Income Tax (Appeals) upheld the demands, citing the principal-agent relationship between the assessee and dealers based on the agreement terms.

Issue 2:
The CIT(A) observed that the dealer agreement indicated a principal-agent relationship, where the dealer acted on behalf of the assessee. The dealer had to follow the instructions of the assessee, and the activities of the dealer were under the control of the assessee, leading to the conclusion that the rebates were akin to commission liable for TDS under section 194H.

Issue 3:
The CIT(A) further held that the rebate given as credit notes reduced the dealer's receivable balance and purchase cost, but this did not negate the requirement to deduct TDS. The CIT(A) emphasized that TDS is a machinery provision for collecting tax on potential income, and the appellant had the duty to deduct TDS as the person making the payment.

Issue 4:
In the final adjudication, the tribunal found that there was no agency relationship between the assessee and dealers, as the dealers operated on a principal-to-principal basis. The tribunal referenced the Supreme Court's ruling in a similar case to support the assessee's position that TDS was not required on rebates given for sale transactions.

Conclusion:
The tribunal allowed both appeals, ruling in favor of the assessee and deleting the impugned demands for both years based on the absence of an agency relationship and the nature of the rebates given to dealers in the sale transactions.

Order pronounced on 27th June, 2023.

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