TaxTMI 
TaxTMI 
2020 (1) TMI 48
X X X X Extracts X X X X
X X X X Extracts X X X X
....cer (AO) has not conducted enquiries on various issues in respect of incentives to its employees, trade incentives given to its dealers for which the assessee is liable to deduct the tax at source as per the provisions of section 194H of the Act. The Ld.Pr.CIT further observed that the AO did not obtain relevant information or details etc. with regard to deduction of tax at source, therefore, issued the show cause notice to the assessee calling for explanation as to why the assessment should not be revised u/s263 of the IT Act. In response to the notice, the assessee filed explanation objecting for revision and stated that the issue with regard to payments made to retailers and the incentives given to staff was examined by the AO at the time of assessment and the assessee is not liable for deduction of tax at source. The incentive was allowed to dealers on the purchases from the assessee which is not a brokerage or commission as defined u/s 194H of the Act for deduction of tax at source. The assessee further submitted that the incentives were paid to employees and the same are taxed under the head salaries. Salaries also does not qualify for disallowance u/s 40(a)(ia) of the Act, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o case for deduction of tax at source as required u/s 194H of the Act. The Ld.AR argued that the assessee has neither paid the commission nor paid the brokerage, therefore, there is no liability on the part of the assessee to deduct the tax at source. With regard to incentives paid to the employees, the assessee submitted that incentives paid to employees takes the character of salaries, thus there is no case for the disallowance u/s 40(a)(ia) of the Act. The assessee relied on the decision of this Tribunal in the assessee's own case for the A.Y.2012- 13 in I.T.A No.335/Viz/2017 dated 14.03.2018, wherein, this Tribunal held that incentives by the wholesale distributors to the retail dealer was neither commission nor brokerage. On the other hand the Ld.DR supported the orders of the lower authorities. 5. We, have heard both the parties and perused the material placed before us. In the instant case the assessee has passed on the discounts given by the manufacturer to the distributors/ retailers. The department did not place any material to controvert the submissions of the assessee. Similarly the incentives were paid to the employees of the assessee which comes under the head salar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on the printed MRP. Thereafter, it is the responsibility of the distributor to sell those goods further to the consumers. The Hon'ble Delhi High Court held that the relation between assessee and distributor therein are not of principal and agent and it is a relationship of principal to principal, the relevant portion of which is reproduced herein below: "8. A perusal of the agreement shows that the 'assessee had permitted the distributor to sell its products in a specified area. The distributor was to exclusively deal in the products of assessee in a specified territory. The products were to be purchased by the distributor from the assessee against 100 per cent advance payment, though decision rested with the assessee to give the products on credit to the distributor. The distributor was to maintain at all times the minimum stock and was to deal only in the products of the assessee. The distributor was to maintain its operational infrastructure including requisite staff under its employment with liability of PF contribution, ESI contribution, etc. as per the laws. It was specifically stated in ci. 16 that the arrangements under this agreement are on principal-toprincipa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee. The distributors/ stockists were not acting on behalf of the assessee and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to section 194H of the Act. The relevant portion of which is reproduced herein as below: "7. We have perused the concurrent orders with the assistance of the learned Counsel for both the parties. The Assessee had undertaken sales promotional scheme viz. Product discount scheme and Product campaign as discussed hereinabove under which the Assessee had offered an incentive on case to case basis to its stockists /dealers/agents. An amount of Rs. 70,67,089/- was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the Assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tractual transaction nor payment commission or brokerage under the relation of principal and agent and which are a strict requirement of section 194H of the Act to deduct the TDS. Therefore, we are of the view, that the principle laid down by the Hon'ble High Courts at Delhi and Bombay in the decisions (supra) applicable to the case on hand. Respectfully following the same, we hold that the payments paid to the distributors/ dealers by way of incentives would not come under the purview of section 194H and invocation thereon under section 40(a)(ia) is bad and hence no interference is required with the order of the CIT(A), therefore, it is confirmed. The ground no.2 raised by the Revenue is dismissed. 13. In the result the appeal filed by the Revenue and the CO. filed by the assessee are dismissed. 10. Hon'ble A.P. High Court in the case of United Breweries Ltd. (supra) held as under: 4. In the order under appeal the Tribunal, after extracting Section 194H of the Act, held that the definition of "commission or brokerage" made it clear that the payment received by a person for acting on behalf of another for services rendered or for any services in the course of buying or se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the agent for the services rendered to the principal is understood as "Commission". 6. After referring to the judgment of the Gujarat High Court in the case of Ahmedabad Stamp Vendors Association vs. Union of [21 India, the Tribunal held that the "element of agency" was an essential requirement in order to characterise a payment made for services provided as "commission". The Tribunal relied on the judgment of the Bombay High Court in Harihar Cotton Processing Factory vs. CI and held that commission was in the nature of recompense or reward for the services rendered, and expressed its inability to agree with the view of the Commissioner of Income Tax (Appeals) that the discount should be shown as a reduction in the selling price. 7. The Tribunal also relied on the order of the Visakhapatnam Bench of the Tribunal in Additional Commissioner of Income Tax vs. Pearl Bottling (P) Ltd. wherein discounts offered to retailers, and also promotional discount, were held not to be "commission" as the relationship between the assessee therein and its distributor was on a principal to principal basis. The Tribunal held that, since the assessee had sold the goods to APBCL and the retail d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the retailers to the respondent-assessee. 10. An appeal under Section 260-A of the Act would lie only on a substantial question of law. Save perversity, or a finding based on no evidence, the findings of fact recorded by the Tribunal would not give rise to a substantial question of law. The findings of the fact recorded by the Tribunal cannot be said to suffer from any such infirmity. The order of the Tribunal does not also suffer from any error of law necessitating interference in proceedings under Section 260-A of the Act. We see no reason, therefore, to interfere with the order of the Tribunal in the exercise of our jurisdiction under Section 260A of the Act. 11. The appeals fail and are, accordingly, dismissed. The miscellaneous petitions pending, if any, shall also stand dismissed. There shall be no order as to costs." 11. From the above judicial pronouncements, it is evident that passing on incentives by the wholesale distributor to the retail dealer, there is no principal and agent relationship and cannot be held to be commission or brokerage paid to the recipient. Therefore, the provisions of tax deduction at source u/s 194H of the Act would not attract the ta....