Principal-to-principal distributor sales exclude TDS under section 194H where the arrangement is not agency.

Distributors were found to act on a principal-to-principal basis because title in the goods passed to them with the attendant risks and rewards, and the occasional acceptance of expired goods with refund did not change the essential nature of the arrangement. The transactions were treated as sales of goods rather than an agency relationship, so the assessee was not liable to deduct tax at source under section 194H.

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Issues: Whether the relationship between the assessee and its distributors was principal-to-principal and not principal-agent, so as to exclude liability to deduct tax at source under section 194H of the Income-tax Act, 1961.

Analysis: The distributor transactions were examined as sales of goods on a principal-to-principal basis. The title in the goods passed to the distributors along with the risks and rewards of ownership. The acceptance of expired goods and refund of sale price in some cases did not alter the essential character of the arrangement. The material facts supported a purchase-and-sale transaction simplicitor and not an agency relationship.

Conclusion: The relationship was principal-to-principal and not principal-agent. The assessee was not liable to deduct tax at source under section 194H.

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