2019 (4) TMI 2189 - HC - Income Tax

Distributor discounts/margins in outright product sales: whether s.194H TDS applies as 'commission'; tax claim rejected

The dominant issue was whether discounts/margins paid to distributors attracted TDS under s.194H on the footing that the distributor relationship was ... TDS u/s 194H - non-deduction of tax source by the assessee while making payment to its distributors - relationship between the assessee and distributors is in the nature of Principal to Principal OR Principal to Agent - Tribunal in the impugned judgment has come to the conclusion that the assessee company would sale the goods to its distributors on principal to principal basis - HELD THAT:- The property in case would transfer to distributors with all its risks and rewards. The distributor was thus customer of the assessee company. The tribunal also took into account the fact that in certain situations, the assessee accepted the expired drugs and returned the sale price to the said distributor. However, in the opinion of the tribunal this would not change the character of the relationship between the assessee and its distributors. Perusal of the judgment of tribunal would show that the tribunal has taken all material factors into consideration in order to come to the conclusion that the transaction between the assessee and its distributor was one of the purchase and sale of goods simplicitor. There was no agency element. Tribunal has also examined the point of time when the title in goods would pass. No substantial question of law arises. Revenue challenged the ITAT's decision on whether payments/discounts to a pharmaceutical company's distributors attracted TDS under section 194H of the Income Tax Act, 1961, i.e., whether the distributor relationship was 'Principal to Principal' or 'Principal to Agent.' The Assessing Officer treated the arrangement as agency and alleged non-deduction of tax at source, but the appellate authority and the ITAT held for the assessee. The ITAT found the assessee 'would sale the goods to its distributors on principal to principal basis,' with 'property in case would transfer to distributors with all its risks and rewards,' making the distributor 'customer of the assessee company.' It noted that the assessee sometimes accepted expired drugs and refunded the sale price, but held this 'would not change the character of the relationship.' The Court agreed that the ITAT considered 'all material factors' and correctly treated the transactions as 'purchase and sale of goods simplicitor,' with 'no agency element,' including analysis of when title passed. It held, 'No question of law arises,' and dismissed the appeals.