Assessee entitled to full TDS credit on commission income under Sections 194Q and 194A, Rule 37BA rejected

The ITAT Visakhapatnam allowed the assessee's appeal, holding that as a commission agent, the gross sale proceeds should not be treated as the assessee's income for TDS credit purposes under sections 194Q and 194A. Following precedents, the tribunal ruled that the assessee is entitled to credit for the entire TDS amount deducted, rejecting the Revenue's application of Rule 37BA. The orders of the Revenue Authorities were set aside, and the AO-CPC was directed to grant full TDS credit to the assessee.

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ISSUES:

Whether a commission agent (kaccha arahtia) is entitled to claim TDS credit on the entire amount deducted as tax at source under sections 194Q and 194A of the Income Tax Act, 1961, when the gross commission received is only a percentage of the turnover.Whether the turnover for a commission agent includes the total sales effected on behalf of principals or only the gross commission earned.Whether Rule 37BA(2) of the Income Tax Rules, 1962, and section 199 of the Income Tax Act can be invoked to restrict the TDS credit claimed by the commission agent.

RULINGS / HOLDINGS:

The Court held that the assessee, being a commission agent (kaccha arahtia), is entitled to claim credit of the entire amount deducted as tax at source under sections 194Q and 194A of the Act, as the gross commission alone constitutes the turnover and not the total sales effected on behalf of principals.The Court affirmed that the "turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered," relying on CBDT Circular No. 452 dated 17th March, 1986.The invocation of section 199 and Rule 37BA(2) to restrict the TDS credit was found to be erroneous in the context of a commission agent whose turnover is limited to commission earned; thus, the entire TDS credit claimed should be allowed.

RATIONALE:

The Court applied the legal framework established by CBDT Circular No. 452/1986, which distinguishes between kaccha arahtias (commission agents) and pacca arahtias, clarifying that for kaccha arahtias, turnover includes only gross commission and excludes sales effected on behalf of principals.The Court relied on precedent decisions by the same Tribunal, including rulings in Thota Venkateswarlu vs. ITO and Yegneswari General Traders vs. ITO, which consistently applied the principle that commission agents are entitled to full TDS credit on tax deducted against their commission income.The Court emphasized the principle of consistency in tax administration and set aside the orders of the Revenue Authorities that restricted TDS credit, directing the Assessing Officer to grant credit of the entire amount deducted as tax at source.

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