2023 (8) TMI 877 - AT - Income Tax

Tribunal Affirms Tax Deductions on ESOPs, Defines Dealer Discounts as Rebates, and Partially Allows Appeal on TDS Delays.

DCIT (OSD) TDS 2 (3), Mumbai Versus Total Energies Marketing India Pvt. Ltd.

DCIT (OSD) TDS 2 (3), Mumbai Versus Total Energies Marketing India Pvt. Ltd. - [2024] 120 ITR (Trib) 137 (ITAT [Mum]) Issues Involved:1. Tax Deductibility on ESOP Provisions.2. Tax Deductibility on Discounts Offered to Dealers.3. Tax Deductibility on Year-End Provisions of Expenses.Summary:1. Tax Deductibility on ESOP Provisions:The core issue was whether tax is deductible on ESOP provisions when granted or at the time of allotment of shares. The Tribunal upheld the CIT(A)'s decision that tax should be deducted at the time of allotment of shares when it becomes taxable as perquisites under section 17(2)(vi) of the Act. The Tribunal referenced the principle that TDS is considered as advance tax and should align with the time income becomes taxable in the hands of the employee. Therefore, the assessee was not in default for non-deduction of tax at the time of grant.2. Tax Deductibility on Discounts Offered to Dealers:The Tribunal examined whether discounts offered by the assessee to its dealers should be recharacterized as commission, making them subject to TDS under section 194H. The Tribunal agreed with the CIT(A) that these discounts are not commissions but rebates, following the precedent set by the Supreme Court in CIT vs. Ahmedabad Stamp Vendors Association. The Tribunal emphasized the principal-to-principal relationship between the assessee and its distributors, ruling out the need for TDS on these discounts.3. Tax Deductibility on Year-End Provisions of Expenses:The Tribunal addressed whether tax should be deducted on year-end provisions of expenses that are reversed the next day and for which TDS is deducted when bills are received in the subsequent year. The Tribunal found that the issue is covered against the assessee by the Supreme Court decision in Palam Gas Services. The Tribunal noted that the payees were identified, and provisions were made on a reasonable basis, thus requiring TDS. However, since the assessee deducted tax in the subsequent year, the Tribunal ruled that the assessee is only liable for interest under section 201(1A).Conclusion:The Tribunal dismissed the grounds related to ESOP provisions and discounts offered to dealers, upholding the CIT(A)'s decisions. However, it partly allowed the ground related to year-end provisions, directing the AO to compute interest under section 201(1A) for the delayed TDS. All six appeals were decided similarly, resulting in partial allowance of the appeals.