Commission paid to Primary Agriculture Cooperative Society agents requires TDS under section 194H despite bank accounts

ITAT Patna held that commission paid by assessee corporation to Primary Agriculture Cooperative Society (PACS) acting as agents is liable for TDS under section 194H. The tribunal noted that assessee lacked proper hearing opportunity and AO calculated TDS at maximum 20% rate due to non-availability of PAN, despite PACS having bank accounts. Commission calculation using Rs. 31.25/- rate finalized in 2013 for FY 2011-12 was incorrect. Matter restored to AO for proper verification of commission amount and correct TDS calculation, with assessee directed to provide full cooperation.

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ISSUES PRESENTED AND CONSIDERED

1. Whether commission paid by the assessee to Primary Agriculture Co-operative Societies (PACS) for procurement of foodgrains is subject to deduction of tax at source under section 194H of the Income-tax Act.

2. Whether the characterisation of the PACS' role vis-à-vis the State-owned procuring agency is principal-to-principal (trader/owner of risk and profit markup) or agency (agent acting under State guidelines) for the purpose of TDS liability under section 194H.

3. Whether the assessing officer's levy of tax in default under sections 201/201(1A) read with section 194H (including computation at maximum rate for non-availability of PAN and use of a later fixed per-quintal commission rate) is justified in view of procedural defects in assessment and availability of relevant information.

4. Whether the Tribunal should remit the matter to the assessing officer for fresh computation and verification in the interests of justice where procedural deficiencies and incorrect assumptions are identified.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to deduct TDS under section 194H on commission paid to PACS

Legal framework: Section 194H requires deduction of tax at source on payment of commission or brokerage. Liability depends on whether the payment qualifies as "commission" to a person chargeable under the provisions and whether the payee is acting as agent.

Precedent Treatment: Coordinate bench decisions were cited by appellant arguing principal-to-principal treatment; however, the Tribunal examined applicability of those decisions to the facts.

Interpretation and reasoning: The Tribunal examined State and Central Government guidelines governing procurement, which prescribe detailed duties, fixed commission rates (initially percentage of MSP, later per-quintal fixed amounts), reimbursement items, appointment of nodal agencies, training, credit facilitation, warehousing, and prescribed roles and responsibilities. The guidelines and notifications indicate a structured procurement mechanism mandated by government authorities with PACS operating pursuant to those directions. The Tribunal found that PACS' activities (procurement, payment of MSP, handling, delivery to government godowns, reimbursement of specific charges) were part of an agency framework established by the State/Central scheme rather than independent entrepreneurial activity bearing commercial risk. As the payments to PACS represented remuneration for agency services performed under governmental direction, they fall within the ambit of "commission" liable to deduction under section 194H.

Ratio vs. Obiter: Ratio - Payment characterized as commission for agency services under government procurement scheme is liable to TDS under section 194H. Obiter - Inapplicability of precedents relied upon by the assessee where factual matrix differs.

Conclusions: The Tribunal held that commission paid to PACS is taxable for TDS purposes under section 194H because PACS functioned as agents under prescribed State/Central guidelines.

Issue 2: Characterisation of PACS' role - principal-to-principal vs agency

Legal framework: The distinction turns on allocation of risk, control, and obligations under the arrangement; agency implies acting on behalf of principal under directions, principal-to-principal implies independent purchase/resale with commercial risk.

Precedent Treatment: The assessee's reliance on decisions treating similar payments as profit markup/principal-to-principal was considered but found factually distinguishable.

Interpretation and reasoning: The Tribunal emphasized the comprehensive governmental control - fixed commission schedules, prescribed duties, reimbursement of specific costs, facilitation of credit, oversight by nodal agencies - indicating PACS performed procurement under a governmental scheme. The requirement that PACS follow government-laid procedures, fixed reimbursement/commission mechanisms, and lack of independent price/marketing autonomy supported agency characterisation. The Tribunal rejected the assessee's contention of risk borne by PACS as insufficient to convert the relationship into principal-to-principal when the overall scheme vests substantive control with the government and the procuring agency.

Ratio vs. Obiter: Ratio - Where procurement is governed by government guidelines assigning defined duties and fixed remuneration, the operative relationship is agency and not principal-to-principal for TDS characterization. Obiter - Mere advance payment by PACS or bank involvement does not alone make the relationship principal-to-principal.

Conclusions: The Tribunal concluded PACS acted as agents of the State/procuring agency; thus payments are commission for agency services liable to TDS under section 194H.

Issue 3: Validity of assessing officer's computation (use of later commission rate and 20% TDS for missing PAN) and procedural defects

Legal framework: Assessing officer must compute tax in default based on correct taxable amounts and should apply appropriate rates; absence of PAN permits application of higher rates but only after proper enquiry and accurate computation of the underlying amount. Principles of natural justice require giving assessees opportunity to be heard.

Precedent Treatment: Not explicitly relied upon by the Tribunal; general administrative law and TDS procedural norms applied.

Interpretation and reasoning: The Tribunal identified procedural and substantive infirmities: (a) AO applied per-quintal commission rate of Rs.31.25 for FY 2011-12 though that fixed rate was finalised on 26.07.2013, i.e., after the relevant year - suggesting incorrect computation of commission for the year; (b) AO imposed TDS at maximum 20% due to non-availability of PAN despite record indicating PACS had bank accounts and likely PANs; (c) the assessee had been denied adequate opportunity to be heard before AO and CIT(A) (including non-appearance during COVID-19 restrictions). Considering these defects, the Tribunal found that immediate confirmation of demand without verification would be unfair and could lead to incorrect tax in default computation.

Ratio vs. Obiter: Ratio - Where assessing officer's computation uses post-factum fixed rates and applies maximum TDS rate for non-availability of PAN without adequate verification, the matter should be remitted for fresh verification. Obiter - The presence of bank accounts is indicative (but not conclusive) of PAN availability and warrants enquiry rather than automatic application of maximum rate.

Conclusions: The Tribunal found the AO's computation unsustainable as made and, in the interest of justice, restored the matter to the file of the assessing officer for fresh verification and correct calculation of commission and corresponding TDS obligation, directing the assessee to furnish relevant material and cooperate.

Issue 4: Condonation of delay and disposal direction

Legal framework: Tribunal has discretionary power to condone delay in filing appeals in the larger interest of justice; appellate directions from higher courts to expedite disposal are binding considerations in case management.

Precedent Treatment: The Tribunal exercised discretion to condone substantial delay based on asserted administrative mistake and public-interest considerations; no contrary precedent was adopted.

Interpretation and reasoning: Despite admission of a 389-day delay, the Tribunal, considering explanations (administrative oversight and need for governmental approvals), the lack of benefit to the assessee from late filing, and directions of the jurisdictional High Court to expedite disposal, condoned the delay and admitted the appeal for adjudication.

Ratio vs. Obiter: Ratio - In appropriate cases where delay is explained by administrative errors and justice warrants, the Tribunal may condone delay and proceed to dispose of the appeal. Obiter - Weight of High Court's expeditious disposal direction influenced case management.

Conclusions: Delay in filing the appeals was condoned and appeals admitted for adjudication; matter remitted to assessing officer as directed above.

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