TaxTMI 
TaxTMI 
2020 (11) TMI 906
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....that the impugned order u/s. 201(1) / 201(1A) is passed beyond the time limit stipulated under section 201 (3) of the Act; it is time barred and needs to be quashed. Assuming but not accepting and without prejudice to the above, the learned CIT(A) further erred in not appreciating that even on the basis of logic given by the Assistant Commissioner of Income Tax, TDS Circle, Ahmedabad, that time limit is to be decided based on the financial year in which the statement is filed, is accepted, only for the statement relating to fourth quarter of F.Y. 2010-11, which was filed in May 2011 (in F.Y. 2011-12), the A.O can pass order u/s 201 of the Act up to 31.03.2014 i.e. within two years from end of F.Y. 2011-12. 2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the order passed by the Assistant Commissioner of Income Tax, TDS Circle, Ahmedabad, wherein the Appellant company was held as "assesse-in-default" for not deducting tax at source u/s. 194H of the Act in relation to certain payments in the nature of Selling and Marketing expense by treating the same as commission paid to the doctors. 3. On the facts and ....
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....mstances of the case and in law, the learned CIT(A) has erred in directing the Assessing officer to treat entire expenditure incurred on meeting and travelling (debited under the head Marketing Development and Promotional Expenses) as commission liable to IDS under the provisions of section 194H of the Act, without appreciating the fact that the said expenditure have been incurred by the Appellant mainly on various kind of field meetings organized for product promotion and travelling relating to said meetings. 8. Without prejudice to ground no. 2 to 4 above, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing officer to treat 20% of Product Promotion expenditure as commission liable for TDS under section 194H, being expenditure relating to doctors. 9. Without prejudice to ground no. 2 to 4 above, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing officer to treat 20% of MR expenses as liable for TDS under provisions of section 194H of the Act on the ground the said expenses are relating to doctors. 10. On the facts and circumstances of th....
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....that the aforesaid expenses were representing the facilities/ services such as travel/ accommodation/ equipment provided to the stockiest/ field staff/ distributors and doctors. This fact was also admitted by Shri Jayesh Shah, General Manager Finance and Accounts and Shri Rajnikant Patel General Manager Marketing in the statements furnished under Section 133A and under Section 131(1) of the Act dated 10.10.2013 and 06.12.2013 respectively. 7. The reasoning by the assessee for the aforesaid expenses was submitted that the doctors, stockiest /distributors and field staff provide extra business to it (assessee) or help in getting larger customer base. 8. However, the AO was of the view that these expenses are in the nature of commission and liable to tax deduction @ 10 % under Section 194H of the Act but the assessee has failed to do so. Accordingly, the AO issuedthe show cause notice dated 5.3.2014 proposing the assessee as assessee in default under Section 200(1)/201(1A) of the Act for non-deduction of TDS under section 194H of the Act. 9. The assessee in response to show cause notice vide letter dated 13.3.2014 submitted that none of the payment mentioned in show cause are....
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....nd meeting expenses of marketing executives, field person, PMT and HO executive. (iv) Towards gift and articles given to carry forwarding agencies (CFA), Stockiest, Distributors, field staff, purchase of medicals books and journals. The assessee further submitted that the payment toward work assignment was made after deducting tax @ 10% whereas the tax was deducted @ 2% on the payments made to conference organizer and travel partner for staff meeting. But there was no TDS liability on payment made for the distribution of books & journals and gift & articles etc. to stockiest, distributer, CFA and filed staff. 4. Product promotion expenses: The assessee submitted that expenditure incurred under this head includes for the distribution of some articles like surgical equipment, momentum etc. which were given to medical fraternity member by the field staff while meeting for the promotion of new pharmaceuticals products. Accordingly the assessee claimed that the payment of this nature does not attract the provision of tax deduction under chapter XVII-B of the Act. 5. Camp expenses: The assessee submitted that it organized medical c....
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.....12.2013 and 12.03.2014.Accordingly, it is transpired that there was the relationship of principal- agent between the assessee and the stakeholder i.e. doctors, dealers, stockiest and the field staff. As such the particular drugs were prescribed by the doctors at the instance of the assessee which resulted increase in sales of the company. Thus, such expenses were incurred for the services rendered by the doctors by prescribing the particular drugs. Accordingly, such expenses as discussed above partake the character of the commission and therefore the same are subject to TDS under section 194H of the Act. 11. The AO, while invoking the provisions of Section 194H of the Act on the expenses as discussed above to facilitate the doctor and other stakeholders also made the reference to following rules and regulations, having bearing on the profession of the Doctors: i. The Medical Council of India guidelines on industry - physician relationship: braking the conspiracy of silence. ii. India medical Council (professional conduct, etiquette and ethics) regulation 2009. iii. Code of pharmaceutical marketing practices 2007 prescribed by the Organization....
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....essee company to the doctor and the sales of the pharmaceutical preparations of the assessee company as a result of service rendered by the doctor (prescribing drugs of the assessee company). The gifts/services have been provided to the doctors in lieu of the services of prescribing the drugs manufactured by the assessee company. The relationship between the assessee company and the doctor is that of "Principal and agent". Various studies have suggested that gifting to doctors influence their prescription habits in favour of the pharmaceutical company providing gifts. The services rendered by the doctor and payment thereof falls within the definition of "commission" as suggested by the Act and various case laws. The rationale given by the assessee for justifying the expenses as essential for brand building is considered unfortunate in the wake of "unethical" tag attached to such activity by both the Medical Council of India (Doctor's fraternity) and code of ethics laid down by the various pharmaceutical associations/organizations and is unacceptable. 8. Hence, the assessee was liable for deducting TDS @ 10% u/s 194H of the A....
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....ove expenses incurred cannot be held as commission without detailed verification. Accordingly the AO was directed to examine the nature of expenses and decide the matter after verification of details. 17. The assessee further submitted that it has been engaged in the business of pharmaceuticals for more than 30 years and now operating through 30 regional offices in India and also selling its product in USA, European Countries, Africa and Australia Oceania. Being a pharmaceutical company and to get large amount of market share it has to set up an extensive network of selling, distributing and product promotion. To achieve the same it has incurred various expenses in order to develop relationship and large network. Hence, in such circumstances the rejection of its contention and explanations without having proper consideration and making huge demand is unreasonable. 18. The assessee also claimed that the AO does not poses the power to reclassify or re-characterize the nature of payment under Chapter XVIB of the Act. 19. The Learned CIT(A) after considering assessment order and submission made by the assessee observed as under: "6.2.6 A perusal of the order shows ....
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.... doctors which is evident from the emails, voucher and statement of MD & CFO. Accordingly, the Ld. CIT-A directed the AO to segregate the payment made to doctors or on behalf of the doctors separately and treat the same as commission for the purpose of Section 194H of Act but give the credit of 2% of TDS deducted by the assessee. With respect to reimbursement expenses, the Learned CIT-A directed to find whether the reimbursements made to doctor, if yes, then treat the same as commission under Section 194H of the Act. Thus, the CIT(A) provided relief for the payment made to the parties other than doctors. 2. Sales promotion expenses: With respect to various expenses under this head the learned CIT (A) held as under: (i) Payment made for work assignment in order to obtain expert opinion are wholly and exclusively for its business and that too after deduction of taxes. Thus contention of assessee was allowed. (ii) Payment made for meeting of assessee staff, organization of functions or tour for stockiest,award function for staff and expenses made for export which are not in the nature of commission. (iii) Participation expenses pai....
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.... conferences, product promotion and MR Expenses. On the contrary, the Revenue is in appeal for the relief extended by the Ld. CIT-A with respect to the items of the expenses as discussed above. 22. The Learned AR before us filed a Paper Book running from pages 1 to 7 and submitted that there is no relationship of principle and agent between the assessee and the stakeholders i.e. doctors/stockiest/dealers and field staff which is mandatory to attract the provisions of Section 194H of the Act. The Learned AR in support of his contention relied on the judgment of Hon'ble Gujarat High Court in the case of PCIT vs. Gujarat Narmada Valley Fertilizer and Chemicals Limited reported in 108 Taxman.com 541 wherein it was held as under: "14. On a perusal of the aforesaid provision of section 194H, it is clear that any person, not being an individual or Hindu undivided family, who is responsible for paying by way of commission or brokerage shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash whichever is earlier, is liable to deduct tax. Explanation (1) to section 194H defines "Commission or Brokerage" which include....
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....XVII of the Act. 26. The Learned AR also contended that the provisions of TDS presupposes that income should be credited in the account of the payee but in the case on hand the stakeholders as alleged by the AO were not the payee. 27. The assessee with respect to many expenses as discussed in the order of the AO has deducted the TDS and the benefit of the TDS was availed by the respective parties under the provisions of Section 199 of the Act and not by the stakeholders. Therefore, there is no question of TDS on the expenses as discussed above. The Learned AR in support of his contention relied on the order of Mumbai Tribunal in the case of Industrial Development Bank of India vs. ITO reported in 107 ITD 45 where it was held as under: "The liability of tax deduction at source is in the nature of a vicarious or substitutionary liability, which presupposes existence of a principal or primary liability. Chapter XVII-B is titled 'Collection and recovery of tax - deduction of tax at source'. This title also indicates that the nature of tax deduction at source obligation is obligation for collection and recovery of tax. Under the Act, tax is on the income and it is in the ....
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.... of person to whom the credit is to be given, though whether by way of credit to the account of such person or by way of credit to some other account. This again shows that tax deduction at source liability is a vicarious liability to pay tax on behalf of the person who is to be beneficiary of the payment or credit, with a corresponding right to recover such tax payable from the person to whom credit is afforded or payment is made. Thus, the whole scheme of tax deduction at source proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or the recipient of the income. It is a sine qua non for a vicarious tax deduction liability that there has to be a principal tax liability in respect of the relevant income first, and a principal tax liability can come into existence when it can be ascertained as to who will receive or earn that income because the tax is on the income and in the hands of the person who earns that income. Therefore, tax deduction at source mechanism cannot be put into practice until identity of the person in whose hands it is includible as income can be ascertained. [Para17]" It was also contended that t....
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....ns must be satisfied for the applicability of the provisions of Section 194H of the Act: • Payment is paid/credited on or after 1-6-2001. • The payer must be a person specified. • The payment must be in the nature of 'commission or brokerage' as explained subsequently. • The payee must be any resident. • The quantum of payment during the financial year must exceed the specified monetary limits. 32. The next question arises what is 'commission or brokerage'. Under Explanation (i)to Section 194H of the Act, the expression 'commission or brokerage' includes any payment received or receivable, directly or indirectly by a person acting on behalf of another person for services rendered (not being professional services) or for any service in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, other than securities. 33. The definition of 'commission or brokerage' as contained in the above Explanation to Section 194H of the Act cannot be interpreted so widely as to include any payment receivable, directly or indire....
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....rship/dealership arrangement is on principal-to-principal basis and not principal-to-agent basis, any incentive given under sales promotion schemes (called by different names like discount, bonus, premium, etc.) cannot be treated as commission and subjected to deduction of tax at source under the provisions of Section 194H of the Act. 36. In holding so, we also draw support and guidance from the judgment of Hon'ble Delhi High Court in the case of CIT v. Mother Dairy India Ltd. [2012] 18 taxmann.com 49/206 Taxman 157 (Delhi) wherein it was held as under: "It is a well-settled proposition that if the property in the goods is transferred 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 as a principal and not as an agent of the Dairy. The clauses of the agreements show that there is an actual sale, and not mere delivery of the milk and the other products to the concessionaire." We also find that there being no relationship of a principal and agent between assessee and retailers, trade incentives paid by assessee to retailers through del credere agentsin order to bo....
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....e that the assessment proceedings are different with the proceedings under the Chapter XVII relating to the deduction of tax at source of the Act. Therefore the question whether it was the unethical practice adopted by the assessee to extend the benefit to the doctors in order to achieve high turnover of its products is not relevant. Here, the issue is limited to the extent whether the assessee is liable subject to the provisions of TDS on the commission as specified under Section 194Hof the Act. As we have already held that, the existence of the agency relationship between the assessee and the doctor is missing in the present case which is compulsory to invoke the provisions of Section 194H of the Act, therefore, in our considered view the provisions of Section 194H of the Act cannot be applied. 39. Regarding the benefit extended to the other stakeholders i.e. stockiest, dealers and field staff, we note that the AO has not brought anything on record suggesting that there existed any agency relationship between the assessee and the other stakeholders. Thus, in the absence of such evidence, we hold that the provisions of Section 194H of the Act cannot be applied. It is also perti....