2005 (9) TMI 295 - AT - Income Tax

Tribunal Rules GMS Transactions with Kiosk Owners as Reimbursements, Not Commissions, Exempt from TDS Obligations.

Government Milk Scheme Versus Assistant Commissioner Of Income-tax, Tds Circle 1/2.

Government Milk Scheme Versus Assistant Commissioner Of Income-tax, Tds Circle 1/2. - [2006] 98 ITD 306, [2006] 281 ITR (A. T.) 88 Issues Involved:1. Whether the transaction between the Government Milk Scheme (GMS) and Kiosk Owners was on a 'Principal to Principal' basis or 'Principal to Agent' basis.2. Whether the payments made to Milk Federations and Kiosk Owners constituted 'commission' under Section 194H of the Income-tax Act, 1961, requiring tax deduction at source (TDS).3. Whether the appellant was liable for non-deduction of TDS under Section 201(1) and interest under Section 201(1A) of the Income-tax Act.Detailed Analysis:Issue 1: Principal to Principal vs. Principal to Agent RelationshipThe primary contention was whether the relationship between GMS and Kiosk Owners was on a 'Principal to Principal' basis or 'Principal to Agent' basis. The appellant argued that the transaction was purely on a 'Principal to Principal' basis, as the kiosk owners purchased milk from GMS and sold it at a margin, with no obligation to return unsold milk. The agreement clauses indicated that the kiosk owners bore the costs of electricity, taxes, and other incidental expenses, reinforcing their status as independent entities rather than agents of GMS.The Tribunal examined the relevant clauses of the agreement and found that the transaction was indeed on a 'Principal to Principal' basis. The milk once sold to the kiosk owners became their property, and they were responsible for its further sale, thus negating the existence of a Principal-Agent relationship.Issue 2: Nature of Payments as 'Commission' under Section 194HThe Assessing Officer had treated the payments made to Milk Federations and Kiosk Owners as 'commission' under Section 194H, requiring TDS. The appellant contended that these payments were reimbursements for transportation, container charges, management expenses, and chilling charges, and not 'commission.'The Tribunal noted that the term 'commission' was used in the Government Resolution but clarified by the government as reimbursement of expenses. The Tribunal referred to the definition of 'commission' in Black's Law Dictionary and the Income-tax Act, emphasizing that 'commission' involves a Principal-Agent relationship. Since the transactions were on a 'Principal to Principal' basis, the payments did not qualify as 'commission.'Issue 3: Liability for Non-Deduction of TDS under Section 201(1) and Interest under Section 201(1A)The Assessing Officer had held the appellant liable for non-deduction of TDS under Section 201(1) and imposed interest under Section 201(1A). The Tribunal examined whether the payments made by GMS fell within the ambit of 'commission' under Section 194H. It concluded that the payments were reimbursements and not 'commission,' thereby absolving the appellant of the liability for TDS deduction.The Tribunal also referred to several case laws, including Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 (Guj.), which supported the view that transactions on a 'Principal to Principal' basis do not attract TDS under Section 194H.ConclusionThe Tribunal held that the transactions between GMS and Kiosk Owners were on a 'Principal to Principal' basis and the payments made were reimbursements for expenses, not 'commission.' Consequently, the appellant was not liable for TDS deduction under Section 194H. The orders under Section 201(1) and 201(1A) were deemed invalid, and the appeal was allowed.