AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 860
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....unds of Appeal :- "1] The learned CIT (A) erred in holding that the authority to guarantee expenditure was in the nature of commission expenditure incurred by the assessee company and hence, the assessee company ought to have deducted tax u/s 194H in respect of the expenses under the head 'Authority to Guarantee' and thereby, upholding the demand raised by the A.O. u/s 201 and 201(1A) of the Act. 2] The learned CIT(A) erred in holding that the authority to guarantee expenditure payable to Sundaram Finance Ltd. was incurred against the credit finance services provided by Sundaram Finance Ltd. to the customers of the assessee company for the purposes of promoting the sales of the assessee and thus, the said expenditure was covered by the definition of 'commission' as envisaged in Explanation to section 194H and therefore, the assessee company ought to have deducted the tax thereon u/s 194H of the Act. 3] The learned CIT (A) failed to appreciate that the authority to guarantee expenditure payable to Sundaram Finance Ltd. was not in nature of commission expenditure as envisaged in section 194H and therefore, the assessee company was not liable to deduct TDS in r....
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.... basis to the assessee upto a certain agreed percentage. Hence any losses made by the finance company arising out of non-performing credit agreements for which the financed goods of the assessee cannot be repossessed from the customers within the stipulated time shall be borne upto the stipulated percentage by the company. In elaboration, the assessee submitted that their company's products are sophisticated and expensive and hence the retail customers (farmers) would buy them only if they are enabled credit assistance. The income of these customers are dependent on natural factors and hence do not have fixed income and established financial stability. Thus, to ensure that the demand for the products of the assessee continues to grow amongst the retail customers, the assessee endeavored to ensure that their customers get credit assistance from the financing company. In consideration of this commitment by the assessee to share stipulated percentage of losses, M/s Sundaram Finance Ltd. agreed to provide credit assistance to the retail customers of the assessee. The assessee also submitted that the obligation of the assessee to pay the amount to the finance company arises only in case....
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....inst this contractual liability is of no consequence for the purpose of applicability of section 194H of the Act. The liability of deduct TDS under section 194H arises even when the expenditure has been recorded in the books irrespective of actual payment. He therefore justified his action of invoking section 201(1) and section 201(1A) r.w.s. 194H of the Act and imposed penalty and interest for the alleged default in not deducting TDS. 9. Aggrieved by the action of the Assessing Officer, the assessee preferred an appeal before the CIT(A). 10. The CIT(A), inter-alia, took notice of the various clauses of the finance agreement and observed that the scheme of risk sharing as per finance agreement has been formed to promote the sales of product of the assessee. By entering into an arrangement of finance of tractor with the customers of the assessee, the said M/s Sundaram Finance Ltd. has rendered service to the assessee as the very nature of the customer profile i.e. farmer was not encouraging and therefore assessee made arrangement with its dealer to compensate possible losses to M/s Sundaram Finance Ltd.. In view of these reasons, the CIT(A) held that the financing of products of t....
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....Guarantee charges" falls within the ambit of section 194H of the Act or not. On analysis of facts noted earlier, we find that the finance support is being provided by M/s Sundaram Finance Ltd. to the customers of the assessee under the arrangement whereby the portion of the loss arising, if any, due to failure on the part of the customers of the assessee to make payment thereof, will be borne by the assessee. It is the case of the Revenue that sharing of such losses if any, has augmented to demand and sales of the products of the assessee. Thus, as per Revenue, services have been rendered by the financial institution which has helped in increasing the sales of the assessee. In view of the inclusive definition of section 194H of the Act, the risk sharing arrangement with the finance company which has resulted in increase in sale is similar to commission/brokerage and therefore section 194H of the Act is squarely applicable. 15. On the other hand, it is the case of the assessee that the risk sharing arrangement entered into by the assessee for sharing a portion of losses arising from default by its customers cannot be equated with 'commission' as defined in Explanation to section 19....
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....nt paid. On these facts, the Hon'ble High Court held section 194H of the Act is not applicable to the facts of the case. Likewise, in the case of Intervet India case (supra), the assessee was engaged in the business of manufacturing and trading of biological vaccines and animal health care pharmaceutical products, etc.. The assessee introduced a sale promotion scheme to boost sales, viz. products discount scheme and product campaign. The assessee passed on the incentives to the distributors or dealers/stockists through the consignment agents by way of sale credit notes. The Hon'ble High Court held that the relationship between the assessee and the distributor was that on principal to principal and distributor and stockists were not acting on behalf of the assessee. Therefore, the payment was not in the nature of commission payment. We find that the ratio of both the aforesaid judgements are squarely applicable to the present fact-situation also, wherein finance company is not acting on behalf of the assessee. The finance company is merely providing financial services in the form of loan and subsequently collecting the payment against the assurance for sharing a part of losses. Resp....