TaxTMI 
TaxTMI 
2005 (9) TMI 295
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....CIT (Appeals)-I, Pune has erred in treating the transaction between Government Milk Scheme and the Kiosk Owners as Sell on Commission basis but not on 'Principal to Principal' basis. He has also erred in not following the Gujarat High Court judgment in the case of Ahmedabad Stamp Vendors Association v. Union of India [2002] 176 CTR (Guj.) 193 - [2002] 257 ITR 202 - [2002] 124 Taxman 628. The learned Assessing Officer has erred in treating assessee, as assessee in default under section 201(1) of the Income-tax Act, 1961 and demanded Rs. 1,35,38,222 on account of non-deduction of tax at source on commission and Rs. 5,87,180 on account of non-deduction of tax at source on transportation charges." The facts of the case in brief are that the appellant is a government establishment under the Department of Dairy Development of Government of Maharashtra and engaged in the following activities:- "(i) Procurement of milk from various Milk Federations, District Milk Sanghs and other agencies like Agriculture College, Pune etc. (ii) Chilling and processing of the milk so procured. Processing involves preparation of products like Paneer, Shrikhand, Ghee, La....
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....he Government has also fixed selling rate of milk depending upon the quality of milk. The observation of the Assessing Officer was that though the selling rate was different but the rate of commission was fixed at 90 paise per litre for the said milk centres. So, he has mentioned that the said commission was prescribed under the head 'Milk Distributor's Commission' at the rate fixed at 90 paise per litre to its agents. 3. The General Manager of the GMS has given the reply to the Assessing Officer in following terms: "GMS sells a 1000 ml. bag to the kiosk owner at Rs. 11.10 paise and he, in turn is expected to sell it at Rs. 12. The difference between the price at which GMS sells the milk to the kiosk owner and the price at which he sells it in the market is the element of profit that he earns on the sale of this milk in retail. By no stretch of imagination can it be termed as 'commission' paid/payable to the kiosk owner though the said word has been mentioned in the Government Resolution. Therefore, if the amount that the kiosk owner earns is 'profit' on carrying out the activity of selling milk in retail and it is not commission paid to him ....
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....fixed upon the assessee, an appeal was preferred. 5. Before the first appellate authority, certain CBDT Circulars have been discussed and in respect of the alleged commission paid to Unions/ Federations from whom milk was procured, the nature of payment was explained as under:- "3. The rate of procurement of milk from such Unions/Federations have been stated in the above GR. The rate depends on the quality of milk. Besides, the amount paid for procurement of milk GMS pays 90 paise per litre on an average to the Union/Federation which it is expected to spend in the following manner: (i) Transport Cost 50 paise per litre (ii) Can (Container) Charges 3 paise per litre (iii) Management Expenses 20 paise per litre (iv) Chilling charges for maintaining good quality of milk 17 paise per litre Considering that the GMS has specific guidelines from the State Government as to how the margin of 90 paise is to be used, it cannot be termed as 'commission' or 'brokerage.' We would also like to draw the attention of Your Honour to the letter written by the Dairy Development Commissioner, Maharashtra State, Mumbai to Hon. Commiss....
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....ight a few clauses of the agreement, broadly translated from the original in Marathi." 6. So, it was vehemently argued that in respect of both the instances, the payment was not in the nature of 'commission' but reimbursement of the expenditure. It was also argued that the relationship between the GMS and Kiosk owner was that of 'Principal to Principal' and not that of 'Principal to Agent'. Few more arguments had been advanced that the cost of the milk was to be paid every day by Milk Centres with the indent of milk required for the next day. Once the milk was so sold, under no circumstances, taken back by GMS from kiosk owner. Since kiosks were owned by the owners, hence electricity bill payment was their responsibility. Likewise, rates and taxes, ownership of refrigerator and investment made in those milk centres was stated to be the property of the centre owners. However, the ld. CIT(A) was not convinced with all those arguments and in a cursive manner rejected the claims without any elaborate discussion and held that the relationship between the appellant and the kiosk owners was not 'Principal to Principal' and the commission was paid indirec....
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..... CIT(A) and argued that the 'commission' was fixed at 90 paise per litre, hence it was not profit as there was no chance of any valuation of the fixed commission. He has also argued that the Explanation to section 194-H defines the commission or brokerage; includes any payment to a person acting on behalf of another person for services rendered in the course of buying or selling of goods and to deduct the TDS at the time of payment in cash or draft or by any other mode. So, he has pleaded that the liability of TDS was in respect of any payment in the nature of commission even in cases where the payment is in respect of buying or selling of goods. He has also relied upon few clauses of the agreement in support of his argument that the relationship was in fact Principal and Agent, hence the assessee was rightly held defaulter of non-deduction of tax at source. In support, he has cited the decision in the case of Around the World Travel & Tours (P.) Ltd. v. Union of India [2004] 268 ITR 477 (Mad.) decision of the Single Judge. 9. We have conscientiously heard the submissions of both the sides and also thoroughly perused the orders of the authorities below in the light of m....
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....cified. Further, section 194H has an Explanation (i) to define the term 'commission or brokerage' which includes any payment received or receivable directly or indirectly by any person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable articles or things, not being securities. So, the revenue authorities have held that the payment made by GMS to both the parties was within the definition of 'commission'. We have examined this definition not only in the light of section 194H but also as per Black's Law Dictionary wherein, 'Commission' is defined as "The recompense, compensation or reward of an agent, salesman, executor, trustee, receiver, factor, broker of bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal. Weiner v. Swales 217 Md. 123, 141A/2nd 749,750. A fee paid to an agent or employee for transacting a piece of business or performing a service. Frayer v. Currin Appeal 280 SC 241 : 312 S.E. 2nd 16, 18. Compensation to an administrator or other fiducia....
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....yment of prices less discount on 'principal to principal' basis and it was held that there was no contract of agency at any point of time. The Hon'ble Court has clarified that the liability of the stamp vendor to pay the price less discount was not dependent or contingent upon sale of stamp paper by the vendor. The Court has also held that neither of the two activities, i.e., buying from the Government and selling to the customers can be termed as 'services in the course of buying or selling of goods' contemplated by Explanation (i) to section 194H. So it was held that the provisions of section 194H shall not attract. An identical issue has come up before the ITAT Cuttack Bench in the case of Asstt. CIT v. Samaj [2001] 77 ITD 358 wherein the so-called agent purchased newspaper from the assessee, a Publisher, and sell them through hawkers. As per the agreement, the liability in respect of the unsold newspaper was with such agents. Facts of that case have revealed that the so-called agents had to make payment for entire quantity of newspapers lifted by him irrespective of papers actually sold. On examination of agreement between the assessee and the agent, it was ....