TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 230
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....IT(A) erred in confirming disallowance of Service Coupon of Rs. 35,49,01,000/- u/s 40(a)(1a), rejecting the Appellant's contention that tax was not deductible on service coupon under Section 194C. Without prejudice to the above, the learned CIT(A) ought to have appreciated that since the Appellant was not held to be an assessee in default u/s 201 of the Act, it cannot be held that the Appellant had failed to deduct tax at source in accordance with the provisions of the Act so as to merit disallowance u/s 40a(la) of the Act. In any event, the time limit for passing an order u/s 201 for the FY 2006-07 (AY 2007-08) having expired, the assessee could not now be deemed to be an assessee in default. In any event, the learned CIT(A) ought not to have made disallowance u/s 40a(la) in those cases where the payees had filed their returns of income and paid tax due there under for the relevant assessment year, there being thus no subsisting tax liability of the payee which would entitle the Appellant to claim deduction under the proviso to the section at any subsequent point of time. The addition made by the learned CIT(A) being contrary to the provisions of law be deleted. ....
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....ieved with the order of the CIT(A) has assailed the sustaining of the disallowance under Sec.40(a)(ia) of Rs. 35,49,01,000/- in appeal before us. Succinctly stated, the value of the service coupons are factored by the assessee into the sale price at the time of sale of vehicles to its dealers for an ascertained price. In turn, the dealer makes onward sales to the customers at a price which includes free service obligations. The service coupons enable the ultimate customer to obtain certain number of services for their vehicles from any of the dealer forming part of the network of the dealers of the assessee across the country. As a matter of fact, the consideration for the services being embedded in the sale price of the vehicle is paid for by assessee at the time of purchase of the vehicle. At the time of availing the free service, the customer presents the service coupon to the dealer, who in turn provides the service for the vehicle without charging for the same. Subsequently, the dealer presents the service coupons to the assessee company, which in turn pays a predetermined sum of money to the dealer. The A.O while framing the assessment was of the view that the payment made by....
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.... the assessee on sale of vehicles to its dealer, submitted, that the same included the value of service coupon charges. It was submitted by the ld. A.R that the service coupon charges was a part of the sale price, and the assessee would make a provision for service charges in its books of accounts. The ld. A.R further drawing our attention to a sample 'dealer agreement', submitted that the relationship between the assessee company and the dealer was clearly as that of principal to principal basis. It was further submitted by him that in the aforesaid 'agreement', it was clearly mentioned that the dealer was not to be considered as an 'agent' or 'employee' of the company for any purpose. Further, the ld. A.R took us through the observations of the CIT(A) in context of the issue under consideration. It was the claim of the ld. A.R that as reimbursement of expenses did not attract any obligation to deduct tax at source, therefore, the assessee could not be held as being in default for not deducting tax at source under Sec.194C. In nutshell, it was the contention of the ld. A.R that as the assessee was not obligated to deduct any tax at source at the time of reimbursement of the amou....
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....dered by the customers with them for availing services of their vehicles from the said dealers; and (ii) that now when the assessee company had not been held to be an assessee in default under the first proviso to sub-section (1) of Sec.201, then whether the amounts paid to the dealers for the service coupons would be liable for disallowance under Sec.40(a)(ia) of the I.T Act. 9. Admittedly, the assessee at the time of making the payments to its dealers towards the service coupons had not deducted any tax at source. In order to appreciate the issue under consideration, we are of the considered view that it would be relevant to briefly cull out the business model of the assessee company to the extent the same is relevant for adjudicating the present case. The assessee company which is engaged in the business of manufacturing of automobile vehicles, tractors etc., sells its vehicles through a wide network of dealers spread across the country. As a consistent practice in the automobile industry, the purchaser of the vehicle is entitled for availing certain number of free services of the same after it had touched different milestones, which may be reckoned in terms of mileage, lapse ....
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....ree service at the time of purchase of the vehicle (as a part of the cost of the vehicle), therefore, he is not required to pay for the same while availing such services from the dealer. Rather, the dealer who carries out the work of providing service to the customers vehicle is thereafter paid by the assessee company which had already received the consideration for such free services from its customers as a part of it sale price. In sum and substance, as the assessee had already recovered the value of free services at the time of sale of the vehicle, thus the dealer by carrying out the service of the vehicles in lieu of the service coupons, in fact, by so doing discharges the liability or the obligation of the assessee company viz. the manufacturer of the vehicle towards the customers. On a perusal of the aforesaid arrangement, it can safely be concluded that as the dealers provide free services to the vehicles of the customers in discharge of the obligation of the assessee company towards such customers, therefore, the assessee company is the actual beneficiary of the value of the services provided by the dealers. Succinctly stated, as the customer pays for the free service entit....
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.... dealers obligated the assessee to deduct tax at source under Sec. 194C at the time of making of such payments to them. The Tribunal in its aforesaid order had observed as under: "6. We have heard the parties, and perused the material on record. 6.1 We would firstly be required to see if the tribunal's order in Hero Motocorp Ltd. (supra) can be said to cover the assessee's case in-as-much as, where it is found as so, we may not be required to issue any independent findings. We may firstly begin by reproducing the relevant paras of the impugned order, delineating the respective cases of both the sides, as under: '4.3 As regards service coupon commission disallowed by the AO u/s 40(a)(ia) r.w.s. 194C, the facts as stated by the appellant are as under :- (i) Service coupon amount is fixed class of vehicle-wise. During 2006-07, only LCVs were sold for which the amount of service coupon per vehicle was Rs. 2500, as already stated in our earlier communications. (ii) For HCVs, the sale of which started in subsequent years, the amount of service coupon is Rs. 5000/- (Rs. 6000/- from June'12 onwards). (iii) Accounting for service coupon amount happens as under: (iv) Th....
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.... Sales-Vehicles 445,022.00 Sales-Vehicle Services 2500.00 Sales-Vehicle-Ware 10,750,00 Excise/Cess Transfer 55,566.00 Educ. Excise/Need 1667.00 Vat Payable-Maharashtra 64,438.13 Service Coupon-Domes 2500.00 Coupon-Domestic 2500.00 Prov Warrany-Domestic 4500.00 Warranty Claims 4500.00 4.4 The facts of the case have been considered: * A perusal of the aforesaid facts clearly shows that amount given by the manufacturer to the dealer in respect of free service coupon is fixed amount as per class of vehicle wise, i.e., (i) LCVs - Rs. 2500/- per vehicle, (ii) (ii) HCVs - Rs. 5000/- per vehicle (Rs. 6000 from June 2012 onwards) * As per the contract, the dealer is obliged to render the requisite services against the free services coupons reimbursable to him at amount of Rs. 2500/- per LCV vehicle and Rs. 5000/- per HCV vehicle (Rs. 6000 from June 2012 onwards). * Therefore, the said payment of Rs. 2500/- per LCV vehicle and Rs. 5000/- per HCV vehicle (Rs. 6000 from June 2012 onwards), is for carrying out the work by way of contract between the assessee company and the dealer. Hence, a payment for works contract. * The appellant's argument that t....
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.......... 29.42 We also find force in the argument of the assessee that the services in this case are availed by the ultimate customer who has paid the consideration by way of sale price to dealer by a separate transaction of purchase of two wheeler. Service is neither availed by the assessee nor is the payment made by the assessee in consideration of availing a service for itself. As already stated, even if taken as a service availed by the assessee, sec. 194J is not attracted as this is not a technical service.' In para 29.43, the tribunal considers the Revenue's reliance on Circular 8 of 2009 dated 24.11.2009, concerning tax deductible at source u/s. 194-J, wherein it stood clarified by the Board that the payments made by TPA on behalf of Insurance Company to hospitals are liable for tax deduction at source, before concluding at para 29.45 of its order, which reads as under: '29.45 On this factual matrix, and as Sec. 194J is not attracted in this case, we uphold the contentions of the assessee and allow this ground of appeal.' Clearly, the said decision stands rendered with reference to whether the impugned payment falls within the purview of section 194J of the Act or ....
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.... a) a contract between a resident (contractor) and a specified person in pursuance to which some work is carried out; and b) credit or payment to the contractor by any person responsible for such work. 6.3 In the present case, we are completely unable to see as to how the terms of the provision, or its' parameters, are not met. The customer is charged for the value of some services - in the nature of repairs and maintenance of his vehicle, to be undertaken on it reaching different milestones (reckoned in terms of mileage, lapse of time, etc.), i.e., qua the vehicle purchased from the company manufacturing and selling the vehicles, as the assessee-company, which (services) are though only through its' authorized dealers. Clearly, what is carried out, even as held by the ld. CIT(A), is 'work' within the scope of the term as defined u/s. 194C. The authorized dealers through whom the vehicle is sold, are not paid for the services (value of which is embedded in the sale price of the vehicle sold to the customer) at the time of it's sale. The reason is simple. It is not certain as to which dealer and, rather, from which place - the dealers being spread across the country, the custo....
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....ch as the same operate to discharge its' liability or obligation under the contract of sale, and which, being an incident of the sale of vehicle, would extend to who-so-ever is the owner of the vehicle for the time being. Whether it could be, strictly speaking, termed as a product warranty; the obligation for undertaking repairs being independent of the sale of vehicle, though incurred at the time of or as a part of the contract of sale, and is accordingly to be honored, is of little moment. As afore-stated, the vehicle manufacturer, as the assessee-company, is the beneficiary of the value of these services in-as-much as the consideration for the same is already received by it in advance, making it is a part of the sale arrangement (of the vehicle). We, accordingly, see no reason as to why the provision of section 194C is not applicable, or how could it be said as not so. 6.4 Section 194J requires deduction of tax at source on fees for technical services, in contradistinction to payment under a work contract u/s. 194C and, thus, is on an altogether different footing. The tribunal found the nature of the repairs as not qualifying for being considered as 'technical services' and, ....
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....so to sub-section (1) of Sec.201, then, as to whether the disallowance under Sec. 40(a)(ia) can be made in its case, or not. We find that as per the second proviso of Sec. 40(a)(ia), where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Sec.201, then, for the purpose of Sec. 40(a)(ia) it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee, subject to the condition that the said resident payee satisfies certain conditions viz. (i) has furnished his return of income under Sec.139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income. Further, the assessee shall furnish a certificate to the said effect from an accountant in such form as may be prescribed. As a matter of fact, the second proviso to Sec. 40(a)(ia) provides for an exception wherein the amount on which the assessee has failed to deduct tax at so....