TaxTMI 
TaxTMI 
2016 (5) TMI 954
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....payable to the advocate by applying the provisions of sect ion 40(a)(ia) . 3. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeals)-V Hyderabad has erred in upholding the disallowance of Rs. 9,96,397 made by Id. Assessing Officer by applying the provisions of sect ion 40(a)( ia). The Id. AO has made disallowance of Payment for Purchase of printed material of Rs. 3,36,077 /- for the reason that print ing was done as per the specification given by the assessee. The Id. AO had also disallowed cur tained reimbursement of expenditure to C&F agents of Rs. 3,30,512 by observing that TDS is deductible on reimbursement of expenditure. Ld. AO also disallowed certain other payments in form of reimbursement/ fee of Rs. 3,29,808/- to recruitment agency and various other parties wrongly considering them as covered u/s 194C or u/s 194J. 4. Under the facts and circumstances of the case Id. Commissioner of Income Tax (Appeals)-V Hyderabad has erred in upholding the disallowance of Rs. 1,88,67,445/- made by Id. Assessing Officer in respect of annual and quarterly target discounts paid/payable to the stockiest by applying the provisions of Sect ion 40(a)( ia). ....
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....158/- were paid before the due date of filing of return of income. He submitted that the ITAT is taking a consistent view that payment of ESIC made after statutory due date but prior to due date of filing of return of income is allowable as deduction. For this proposition, he relied on the following decisions: 1. ITO Vs. Prima Access Technologies Ltd., ITA No. 1677/Hyd/14, order dated 22/07/2015. 2. VBC Industries Vs. DCIT, ITA No. 143/H/13 and others dated 08/05/15 6.1 The AR submitted that the CIT(A) has wrongly considered the entire amount of Rs. 2,21,675/- as ESIC. However, out of Rs. 2,21,675/- only Rs. 10,158/- is ESIC and balance amount of Rs. 2,11,273/- is ex-gratia. He submitted that the provisions of section 43B or section 36(1)(va) does not apply on ex-gratia as held by ITAT, Hyderabad in case of Novopan Industries Ltd., Vs. DCIT, 1661/H/2008 and others dated 04/09/13. 7. The ld. DR on the other hand relied upon the orders of revenue authorities. 8. We have heard the arguments of both the parties and perused the orders of revenue authorities as well as material on record. We are of the view that the assessee had paid ESIC payment of Rs. 10158/- before filing the r....
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....aj Hindustan Ltd. had deducted tax on such provision made by the assessee company. He, therefore, disallowed the said amount of Rs. 37,500/- u/s 40(a)(ia) rejecting the assessee's plea vide its letter dated 17/12/08 that M/s Bajaj Hindustan Ltd. had raised a debit note on 30/04/06 for the period from September 2005 to April, 2006 for Rs. 2,62,500/-. 10. Before the CIT(A), it was submitted that Bajaj Hindustan Ltd. wrongly debited assessee by Rs. 1,87,500 instead of Rs. 2,25,000/- and the balance amount of Rs. 37,500/- was debited on 18/05/06 in the subsequent AY. Further, it was submitted that since Bajaj Hindustan is making payment to advocate, it is liable to deduct TDS and not the assessee company as assessee company is merely reimbursing expense to M/s Bajaj Hindustan Ltd. He submitted that Bajaj Hindustan Ltd. had properly deducted TDS while making payment to the advocate. 10.1 The above submissions of the assessee were not found favour with CIT(A) and he, therefore, confirmed the disallowance made by AO by holding that neither the assessee nor M/s Bajaj Hindustan Ltd. has deducted tax on such provision. 11. Before us, the ld. AR submitted that Debit note of Rs. 37,500/- fo....
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....o "X" party by "Y" party, the expenditure is pertaining to "Y" party and not pertaining to "X" party. Therefore, applying the ratio laid down in the case of ACIT vs. Crowe Boda & Co. Pvt. Ltd. in ITA No.4251/M/2009 vide order dated 30/3/2010, relied upon in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd., the issue is decided in favour of assessee. The relevant observations have already been reproduced above. In view of the above discussion, Ground No.1 of the assessee is allowed." By following the above decision, we are of the view that M/s Bajaj Hindustan Ltd., who deducted the TDS and remitted the same properly. Therefore, we do not find any default on the part of the assessee and hence, we delete the addition made on this count. 14. Ground No.3 pertaining to disallowance of Rs. 9,96,397/- made u/s 40(a)(ia) towards i) payment for purchase of printing material of Rs. 3,36,077/-, ii) reimbursement of Rs. 3,30,512/- to C&F Agents, iii) payment of Rs. 56,321/- to M/s Acreaty Management Services and iv) payment to professionals of Rs. 2,46,487/-. 14.1 Purchase of Printing Materials: With regard to disallowance of Rs. 3,36,077/-, the AO noted that the assessee had procured prin....
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....stries, 9 taxmann.com 120 16. The ld. DR relied on the orders of revenue authorities. 17. Considering the submissions of both the counsels and relying on the material, we are of the view that there is no doubt that the assessee has procured printing labels to its specification. The payment was made accordingly. In this connection, the Hon'ble P&H High Court in the case of CIT Vs. Markfed Khanna Branch, 304 ITR 17 held that where assessee purchased printed packing material from manufacturer for the purpose of packing to its finished products and no raw material was supplied by it to manufacturer, for manufacturing of such packing material, transaction was a contract of sale and not as works contract. Held, it was outside the purview of section 194C. In the present case before us also squarely false on the facts of the above judgment. By following the above ratio, we delete the addition made on this count. 18. With regard to reimbursement of Rs. 3,30,512/- to C&F agents, the ld. AR submitted that TDS has to be deducted on amounts payable without including the service tax component. Thus, out of total disallowance of Rs. 3,30,512/-, Rs. 2,37,961/- pertains to service tax and hence ....
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....by the learned tribunal in confirming the order passed by the CIT(A)." Respectfully following the said decision of the Hon'ble Gujarat High Court, we delete the addition made in this regard. 21. As regards payment of Rs. 56,321/- to M/s Acreaty Management Services, the ld. AR submitted that the said payment was for providing help to the assessee in hiring various employees and is not covered u/s 194C or 194J. Referring to the provisions of sections 194C and 194J, the ld. AR submitted that TDS u/s 194C or 194J was not required to be deducted on services provided by Acreaty Management Services and thus no disallowance u/s 40(a)(ia) should be made in this regards. 22. The ld. DR relied upon the orders of revenue authorities. 23. Considering the rival submissions and perusing the material on record, we are of the view that as per Circular No. 714, dated 03/08/1995, the services of recruitment agencies are in the nature of professional services rendered and hence, it will be charged to TDS u/s 194J. Hence, the assessee is liable to pay TDS on such payments u/s 194J. Accordingly, we sustain the disallowance made by the AO. 24. As regards payment to professionals of Rs. 2,46,487/-, ....
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....est are being remunerated in the form of target discount, incentive and super distributor's commission. Such additional remuneration, though determined on the basis of sales, it has no bearing on the original sales transactions of the stockiest as a dealer. The AO observed that the additional services and duties discharged by the stockiest are not in the nature of restrictions imposed for buying and selling the goods, as observed by the Supreme Court in the case of Bhopal Sugar Industries Ltd. Vs. STO, 3 SCC 147. The AO further observed that stockiest has in fact rendered additional services on behalf of the assessee company for a consideration, which is in the nature of commission though it is paid in different names. As the stockiest has acted and rendered additional services and incurred expenses on behalf of the assessee company and for which he has been duly compensated by way of target discount, thus, the element of agency is also present in the conduct between the company and the stockiest. 29. The AO observed that the payment received by the stockiest, who apart from a dealer is also acting on behalf of the company in hiring manpower and other infrastructure like transport....
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....ACIT Vs. CK Motors, ITA No. 122/JU/14, order dated 25/09/14 7. Merilyn Shipping & Transports Vs. Addl. CIT, 144 TTJ 1 32. We have heard the arguments of both the sides and perused the record as well as the orders of revenue authorities and also the decisions cited. It is observed that brokerage or commission envisaged under section 194H is for the payment received by the person acting on behalf of another for services rendered in the course of buying and selling of goods. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods which will render any payment to them as commission. AO after reviewing the documents filed before him that the stockiests are not merely acting as a dealer in purchase and sale of company's products but they are also rendering services and discharging additional duties to expand the assessee's marketability as well as reach interiors to market the company products. He also contended that the additional services rendered by stockiests are being remunerated in the form of target discount and incentives. In our view, the AO is missing the bigger picture. The additional service....
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.... as the orders of the authorities below, it is observed that as found from the order of the CIT(A) as a matter of fact what was offered by the assessee to the stockists is nothing but discount. The assessee sold stock to the stockists who in turn sold it to the customers. Stockists are allowed discount and commission separately. The assessee issued credit notes to the stockists giving discount on the sales price, on the basis of various scheme, in respect of quality, target, turnover etc., on the basis of the performance of the stockists. As found by the CIT(A), what is offered by the assessee to the stockists are nothing but discount because the assessee sells the goods to the stockists, who is turn sells the goods to the consumer. In the sale transaction between the assessee and the stockists there cannot be payment of commission to the purchaser himself . Brokerage or commission envisaged under section 194H is for the payment received by the person action on behalf of another for services rendered in the course of buying and selling of goods. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods....
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....rokerage. In fact, trade discount granted by the assessee to the parties in the invoice itself is the margin that the dealers may enjoy in carrying on the retail trade. Once the invoice is raised and the goods are delivered, sale is complete. The only transaction which remains is the payment of the invoice amount by the parties to the assessee company which is in the nature of trade debts. At the time of the sale also, the assessee is not crediting the personal accounts of the dealers with the amount of trade discount. The trade discount is directly debited in the trade discount account itself. There is no question of the assessee making any payment of commission or brokerage to the parties or crediting the accounts of the parties for similar amounts. Therefore, there is no occasion to deduct the tax as contemplated under s. 194H of the Act. 4. CIT Vs. Mother Dairy India Ltd., 18 taxmann.com 49 The Hon'ble High Court of Delhi held as follows: It is a well-settled proposition that if the property in the goods is transerred and gets vested in the concessionaire at the time of the delivery, then he is thereafter liable for the same and would be dealing with them in his own right ....
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....re. The Dairy may have fixed the MRP and the price at which they sell the products 10 the -concessionaire but the products are sold and ownership vests and is transferred to the concessionaires. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missing." 5. National Panasonic (P) Ltd. Vs. DCIT, 3 SOT 16 (Delhi) The coordinate bench held as follows: "Rent" for the purposes of s. 194-I is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, where the agreement is not predominantly for the use of land or building, but for something else, then payment under that agreement will not constitute rent even if that "something else" involves the use of land or building as an integral part of or incidental to the predominant objective of the agreement. The assessee has appointed several C&F agents. The appointment of C&F agents is necessitated for a smooth and ....
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.... a component of total cost, the break up of which was given by the assessee to the authorities. But, it does not attract the provisions of s. 194-I and, hence, the CIT(A) was not justified in holding it otherwise. In the final analysis, s. 194-I does not apply at all to the payments made by the assessee to its C&F agents." Respectfully following the ratios laid down by the above judicial pronouncements, we conclude that the above payments are in the nature of trade discounts and not commission on which provisions of section 194H will apply. Accordingly, the additions made on this count are deleted. 33. As regards the ground No. 5 pertaining to disallowance of Rs. 14,21,891/- made by AO u/s 40(a)(ia) for payments made to stockiests, the AO observed that the assessee's contention that the payments made by way of commission, incentive and target discount cannot be considered as trade discount. The said payments are in the nature of commission within the meaning of section 194H. Further, the AO observed that the assessee has in fact deducted tax u/s 194H on such commission and incentive payments except the above said provisions. He, therefore, held that the assessee was required to ....