TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1087
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....t year 2009-10 read as under: "(i). On the facts and circumstances of the case and in law, the Id. CIT (A) has erred in holding that the relationship between the assessee and distributors is in the nature of principal to principal and not that of principal to agent and held that the assessee company was not liable to deduct TDS u/s. 194H of the I.T. Act and thereby erred in deleting the non deduction/short deduction u/s. 201(1) and interest u/s. 201(1A). (ii). On the facts and circumstances of the case and in law, the Id. CIT (A) erred by holding that the assessee company was not liable to deduct TDS u/s. 194H of the I.T. Act and thereby erred in deleting the non deduction/short deduction u/s. 201 (1) and interest u/s. 201 (1A) without appreciating that the pricing structure between the assessee company and distributors is nothing but "a payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods within the meaning of section 194H of the Act. (iii). On the facts and circumstances of the case and in law, the Id. CIT (A) erred in holding that the asse....
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....ts for direct dispatch to concerned customers. Collections are received from Distributors, Consignment agents and Stockiest in assessee company's bank accounts. During the course of survey action u/s 133A(1) of the Act it was found by the learned assessing officer(Hereinafter called "the AO") that the assessee company is selling the products through its distributors, stockiest and consignment agent. The assessee company is also exporting products, it was observed by the AO that the assessee company has fixed the MRP for its products beyond which the same cannot be sold to the end user. The assessee company is accounting its sales through distributor after deducting the margin earned by the distributor/stockiest from the MRP as per the following examples:- If MRP of product is Rs. 100 then: DPCO NON DPCO MRP 100.00 100.00 ED 3.35 3.35 VAT 4.76 4.76 Ass Val 91.89 91.89 Ret Margin 14.70 18.38 Stk Margin 6.44 7.69 Dist Mar 3.62 3.46 Price to Dist 75.23 70.48 Price to Stks 78.85 73.94 Price to Retailer 85.30 81.62 Price to Customer 100.00 100.00 Since the assessee company is showing in its books of accounts ....
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....s made by the assessee company, the GM Finance of the assessee company stated during recording of statement on oath on 14.10.2011 that the assessee company is exporting formulations and bulk drugs to various countries. Finished goods are directly dispatched from manufacturing locations to customs ports. Export documentation is carried out by the commercial and logistic department who ensures all legal compliances and requisite documents with respect to pre and post shipment. Collections from overseas customers are being received directly in company's bank account. It was observed by the AO that there are three methods for the sale of the drugsmedicine by the assessee company. First through the consignment agents which are located in various parts of the country, secondly through distributors and thirdly through export of drugs. With respect to the commission agents, the assessee company is paying commission to the commission agents after deduction of tax at source u/s.194H of the Act . With regard to distributors, it was observed by the AO that the contention of the assessee company was that the drugs-medicine were sold to the distributors who then further sell them to the stockie....
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....tributor, ownership over goods pass to the distributor and thereafter Unichem does have any control over goods. ii) Distributor after purchasing goods form Unichem sell goods to the end customer's on its own and Unichem does not come in picture. iii) Distributors purchase goods from Unichem against advance or on payment against deliver or as per normal credit policy of the Unichem. The payment terms of the end customers is independently controlled by Distributors as per their trade policy. iv) Distributor issues sale invoice directly to the end customers and shows the sales so effected in its sales tax returns and assessed to sales tax. We understand that 'you have already verified this by issuing summons to few distributors. We request you to kindly give assessee copy of statement recorded, if any, of the distributors. v) Distributors hold all relevant registration in its name which is required in normal course of its distribution business of pharmaceutical products. vi) The stock of goods lying with distributors is not shown as stock of assessee. Insurance on these products is taken out by distributors and not assessee (copy of insurance policy taken by one....
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....s not but a "guise" for the commission payment. That the payments are nothing but commission payments embedded in mutually beneficial pricing structure. The amount retained in the form of "Discount" is nothing but income within the meaning of Section 194H of the Act. That the commission retained by distributor is not a discount as it is inextricably linked to the sale of goods. Thus the AO held that assessee company has failed to deduct the tax at source and the assessee company was liable to deduct tax at source u/ s.194H of the Act vide orders dated 30.03.2012. Accordingly, the AO held the assessee company as the 'assessee in default' in terms of Section 201(1) & 201(1A) of the Act for non deduction of tax at source on payment of commission and non-payment of interest thereon. The default was worked out by the AO as under, vide orders dated 30.03.2012: Commission Margin Amount TDS U/s. 194H @ 11.33% interest u/s. 201(1A) 3,301,895,785 3.46% 10,84,06,660 1,22,82,475 58,95,588 Total 18178062 5. Aggrieved by the orders dated 30.03.2012 passed by the AO u/s 201(1) and 201(1A) of the Act, the assessee company filed the first appeal before the CIT(....
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....stributor is maintaining FEFO method and there are expiry of drugs, same are taken back and money refunded. The assessee company relied upon the decisions in the case of the Mother Diary 249 CTR 559 and Jai Drinks Private Limited 336 ITR 363 by Hon'ble Delhi High Court and in the case of Fosters India Private Ltd. 29 SOT 32 and Government Milk Scheme 39 ITD 306 by Pune Tribunal . The assessee company also relied upon the decision of Hon'ble Supreme Court in the case of Ahmadabad Stamp Vendors Association, 25 Taxman.com 201 (SC) (292). The CIT(A) after considering the submissions of the assessee company held that the assessee company is manufacturing and selling bulk drugs and formulations in their plants at Goa, Ghaziabad, Sikkim, Baddi etc. The assessee company have their own warehouses wherein they store manufactured products. When survey action u/s 133A of the Act was conducted , it was found that the assessee company is selling the products through these distributors/stockiest and the consignment agents in different assigned areas and the sales/revenue is credited only for the net amount received/ receivable from the distributors after deducting discount as the assessee compan....
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....g the Survey conducted by the Revenue u/s 133A of the Act that the assessee company has paid these amounts of incentive/discounts to the distributors on which tax has not been deducted at source u/s 194H of the Act . The Ld. DR relied on the orders of the AO while on the other hand, the ld. Counsel of the assessee company submitted that the dealing between the assessee company and the distributors is based on principal to principal basis. The Ld. Counsel of the assessee company reiterated the submissions as made before the authorities below and relied upon the orders of the CIT(A), that there is sale of the products by the assessee to the distributors on principal to principal basis. The ld. Counsel drew our attention to the distribution agreement dated 01.07.2001 entered into by the assessee company with Rudra Pharma Distributors Ltd., the ld. Counsel of the assessee company submitted that the terms and conditions of the agreement clearly stipulate dealing between the assessee company and the distributor is on principal to principal basis, whereby the assessee company is selling the drugs to the distributor and all the risks and rewards of the ownership of the drugs-medicine are t....
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....er to claim loss from the assessee company, in other situations the loss or damage to products shall be borne by the distributor. The drugs being medicines contains certain restriction on the sale w.r.t. good governance and conduct by the distributors to follow first expiry and first out basis as the medicines having expiry could not be sold after the stipulated date of expiry , otherwise it will be health hazard to the consumers , the assessee company as normal market practice takes back the said expired drugmedicines from distributors which has expired and pay back the distributors but that does not in our humble opinion is decisive or change the character of dealing between the assessee company and the distributor which primarily continues to be on principal to principal basis . Such exception of taking back the expired products has its genesis to the sensitivity of the product being drugs-medicine handled by the assessee company otherwise it could have severe health hazard impacts on the consumer which is a normal market practice in the industry but the same is not decisive to conclude that the property in the goods with all risks and rewards have not passed to the distributor ....
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.... professional services to the assessee and therefore payment of sitting fees does not constitute payment of professional or technical services. Thus, the payment made to directors is not subject to TDS u/ s 194J of The Income Tax Act, 1961. 3. Moreover, the amendment proposed in Budget 2012 relating to TDS on remuneration or fees or commission payable to director (not being in the nature of salary) will attract TDS u/ s 194J as fee for professional or technical services at the rate of 10% is prospective from A Y 2013-14 . only Memorandum Explaining the Bill provides as under; Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration. This amendment will take effect from 1st July, 2012. ....
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....t amendment made in section 194J of the Act by insertion of sub-section (ba) to Section 194J(1) is prospective as the said Section is amended w.e.f. 1-7-2012 and the instant appeal is for assessment year 2009-10. The ld. Counsel of the assessee company relied upon the decision of Pune Tribunal in the case of Bharat Forge Limited v. Addl. CIT reported in (2013) 154 TTJ 649(Pune) whereby Pune Tribunal held as under: "8. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. The only dispute in this ground is regarding deduction of tax at source from the sitting fees paid to the directors. According to the learned counsel for the assessee the provision of s. 194J is not applicable to such sitting fees since fees do not fall in any of the categories of professional service as per Explanation to s. 194J. Further, no such objection was taken in the past by the Department for such nondeduction and in view of insertion of sub-s. (ba) to s. 194J(1) TDS is required to be made out of such dire....
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....ayment of Directors sitting fee prior to the amendment carried to Section 194J of the Act w.e.f. 01-07-2012. 13. We have heard the rival parties and perused the material on record and we are in respectful agreement with the decision of the Pune Tribunal in the case of Bharat Forge Limited(supra) that no tax is to be deducted at source on Director sitting fee payable to Director u/s 194J of the Act prior to the amendment w.e.f. 01-07-2012 in Section 194J by insertion of sub-section (ba) to Section 194J(1) of the Act . The insertion of sub-section (ba) to Section 194J of the Act has clearly stipulated that tax is to be deducted at source on any remuneration or fees or commission by whatever name called to a director of a company, other than those on which tax is deductible at source u/s 192 of the Act . The said amendment is brought in by the Finance Act, 2012 w.e.f. 01-07-2012 . The Memorandum to the Finance Bill 2012 has stipulated that there is no specific provisions in the Act providing for deduction of tax at source on remuneration paid to directors which is not in the nature of salary whereby tax is deductible covered u/s 192 of the Act, which clearly indicates that there was ....