TaxTMI 
TaxTMI 
2008 (4) TMI 397
X X X X Extracts X X X X
X X X X Extracts X X X X
....s for the purposes of sale and distribution of its products, appointed certain distributors. In the course of a survey carried out in the assessee's premises, and upon examining the appellant's books of accounts, it was noticed that while the appellant has paid certain amounts on account of 'distributors incentives' and 'early payment discount', tax has not been withheld from these payments under s. 194H of the Act. It was also noticed that the appellant has appointed distributors granting them non exclusive rights to sell the products in a specified territory, that services to be rendered by the distributors are closely defined inasmuch as standards of warehousing, promotional activities and reporting requirements are controlled by the appellant, that the distributors are forbidden from appointing sub distributors, that the price to be quoted by distributors is determined by the appellant, and that the activities of the distributors are controlled by the appellant. It was also noticed while discounts and incentives consisted of (a) free issues under trade schemes, (b) sponsorships and promotions, (c) incentive travels, and (d) early payment discounts, the overwhelming majority of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer was further of the view that "as in case of every C&F agent, payment on account of warehousing is inevitable and embedded". The Assessing Officer observed that "the argument of the assessee that they have not occupied any space, and possession of bond is with the agent, and the conditions such as bond charges being able only in the event of sales, is also not acceptable.... It is mainly because C&F agents are the custodians of the product of the assessee and product has to be warehoused for its distribution in the market". The Assessing Officer thus concluded that "even though the premises is in the occupation of the agent but the expenditure reimbursed by the assessee on per case basis invariably includes payment on account of warehousing charges" and "the moment payment on account of warehousing charges comes into picture, provisions of section 194-I are attracted. The bond expenses paid for territories of Delhi, Chandigarh and Haryana were @ Rs. 30 per case, Rs. 25 per case and Rs. 16 per case respectively. The Assessing Officer estimated rent element @ 20 per cent 15 per cent and 10 per cent respectively from these payments. It was in this backdrop that the short deduction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of principal and agent. This approach, which is clearly discernible from the following observations made by the Assessing Officer at pp. 5-6 of the assessment order as follows : "..... No independence has been granted by the assessee company in respect of several important matters so that the distributors are virtually seen operating on behalf of the company. Such restrictions can be accepted by the distributors only if the ownership is on principal to agent basis. If sale transaction is complete then why one would agree to keep, maintain warehouse as per the norms of the company, to keep records as per assessee's norms, to do sales-tax and excise formalities etc. for the assessee, and why would one give unrestricted access to the books of accounts and documents maintained by the assessee ? Why would he allow to take inventory/physical check of stock of goods already purchased? Why would he commit to all information related to market conditions, potential customers and activities of the competitors? Why would he restrict himself to sell the products of the assessee company only and not that of its competitors? Only an agent would agree to such restrictions. Therefore, distributo....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The goods are invoiced to the distributor, the distributor has to make the payments within specific time schedules vis-á-vis date of invoicing to the distributor, and the risks associated with the goods sold pass on to the distributor when the goods are invoiced to him. It is not unusual that manufacturer of a consumer product puts conditions on the manner in which the product is stored or marketed so as to ensure that reputation of the manufacturer does not suffer. Take for example, a beer bottle, or for that purpose even a cold drink bottle, being sold to the end consumer is sold long after its manufacture. This product, vis-á-vis a similar product, which is available to the end consumer within a month of manufacture, will possibly, be at disadvantage in terms of taste and quality, and thus the manufacturer could suffer. Similarly, the ultimate selling price of the distributors is also controlled for ensuring competitive edge, and so are other checks necessary to ensure that the distribution channels are effective and related policies are in tune with the policies of the manufacturer. The conditions attached to sales are inherent part of ground realities. Even whe....