TaxTMI 
TaxTMI 
2024 (12) TMI 761
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....der Section 40(a)(ia) of the IT Act in respect of incentives provided to dealers for reason that tax was not deducted under Section 194H of the IT Act. 1. That the Ld. CIT (A) has erred in holding that the payments made to dealers for various incentives provided constitutes payments in the nature of commission and therefore subject to deduction of tax under Section 194H of the IT Act. 2. Without prejudice, the Ld. CIT(A) ought not to have held that the provisions of Section 194H would apply without properly appreciating the fact that the incentives were all given in non-monetary terms and the provisions of Section 194H being made expressly applicable only for 'sums paid', cannot be invoked for non-monetary payments. 3. That the Ld. CIT (A) has failed to appreciate that existence of principal agency relationship between the payer and payee is a sine qua non for invoking the provisions of Section 194H and that in the present facts, such a relationship does not exist and therefore, provisions of Section 194H cannot be invoked. 4. Without prejudice, the Ld. CIT(A) erred in holding that relationship between the Appellant and dealers constitute relationship in the nature ....
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....40(a)(ia) of the IT Act in respect of meet and greet expenses provided to dealers for reasons that tax was not deducted under Section 194H of the IT Act. 11.That the Ld. CIT (A) has erred in holding that the payments made by the Appellant towards various meet and greet events are towards advertisement, promotion expenses and hence, subject to deduction of tax under Section 194C of the IT Act. 12.That the Ld. CIT(A) ought to have appreciated that the expenses incurred for meet and greet do not involve 'carrying on any work' and consequently the provisions of Section l 94C cannot be attracted in the instant case. 13.That despite the Appellant placing various bills and vouchers to substantiate the nature of expenses, the Ld. CIT (A) erroneously construed the expenses to be in the nature of advertisement/ promotional expenses. 14.The consequential levy of interest under Section 234B and Section 234C are not sustainable in law and merits to be set aside. 15.The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before, or at, the time of hearing of the appeal." 3. The brief facts of the case are that, the ....
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....actor comes under sum for the purpose of Section 194C. It does not make any difference that the assessee paid this amount to the Govt. and not to Job workers because it is paid on behalf of Job workers who are employed in contractual capacity with the assessee as these job workers have been hired by the contractor rendering contractual services to the assessee. Circular No.23 of 2017 exempts only GST charges in the invoice if shown separately. But the contract is awarded considering the whole amount that is to be paid to the contractor. Therefore, while deducting TDS on Contractual payment to the contractor for hiring of job workers, the assessee cannot exclude the payment made towards PF and ESI contributions of Job workers. It ought to have deducted TDS on entire payment made to Contractor as per provisions of section 194C. Since the assessee has failed to deduct TDS on EPF, ESI and PF contribution of Job workers (8,37,642) from the total payment made to contactors for hiring Job workers, 30% Disallowance under Section 40(a)(ia) is made on this amount (Rs.8,37,642) which is calculated at Rs. 2,51,292.60 4.6.2 Non Deduction of TDS on Advertisement and Promotional on promotiona....
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....o the contractors for their superior performance in rendering Advertisement and Sales Promotion services to the assessee. Thus these are only commission income though paid in different name. Therefore, the incentives or discounts given to dealers under the dealership agreement are in the nature of commission, liable to TDS under section 194H of the Income-tax Act, 1961. Since the assessee has failed to Deduct TDS under section 194H on Payment made to dealers on Dealer Incentive Schemes worth Rs. 10,13,32,654.26, 30% Disallowance under section 40(a)(ia) is made. This amount is calculated at Rs. 3,03,99,796.28 4.6.3 Non deduction of TDS on Expenses under Advertisement and Promotion Head on account of Promotional expenditure on Meet and Events (Rs.8,51,250/-) as same are liable for TDS deduction under 194C. Assessee has stated that since these expenses were incurred on purchase of travel tickets, food expenses, stationery for promotional meets, same were not liable to TDS deduction. However, it is observed that these payments have been made to the hotels for promotional meets. The nature of expense incurred is in the form of advertisement to promote the sales of the company so T....
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.... Section 194C are applicable on entire payment made to the contractor. Also, held that it does not matter whether the appellant paid this amount to the Government on behalf of Job workers since the employees are employed in contractual capacity as these were hired by the contractor. Also, it is held that Act specifies no exemptions for such payments made to the contractor. In view of the above discussion, this appellate authority is of the opinion that the claim of the appellant that TDS provisions cannot be applicable for such payments cannot be accepted and the addition in this regard is upheld. Hence, the Ground No. 2 of the appeal is dismissed. 8.2. The appellant's contentions in the form of Grounds of appeal and submissions made have been considered. It is seen that the appellant had not deducted TDS on payments made to dealers on promotional schemes. At first, the appellant has stated that these payments were not made in cash but in form of various nonmonetary schemes Viz. Gold Coin Scheme, Atoot Rishtey Scheme, Foreign Scripts etc.. The appellant has claimed that since no payment was done to the dealers, TDS provisions does not attract in these case. With regard to the....
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....the dealers in form of training programs, technical sessions etc at its own cost. Besides, the appellant conducts audit at regular intervals to monitor compliance of the guidelines mentioned in appointment of dealers. These all conditions specifically says the relationship between appellant and the dealers is Principal-Agent relationship. The appellant has stated that the terms and conditions are laid down to the dealers for maintaining the TATA Company's standards and policies. The same cannot be accepted as the appellant has the control over dealers in respect of the price, business, training, etc.. Therefore, the contention of the assessee that dealer incentive scheme of the assessee are on principal-to principal basis, does not stand to the test of facts and clauses of the dealer appointment letters. In normal situation of principal-to principal relationship one cannot control the other. However, in the present case, the assessee exercises control over the performance of the dealers through the Dealer incentive schemes. As such, the relationship between appellant and dealers is that of Principal to agent relationship where the appellant acts as Principal and dealers act as ....
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.... expense incurred is in the form of advertisement to promote the sales of the company. Since the expenditure was incurred towards promotion of business sales, the same needs to be considered as a contract and as such the payment is liable get TDS deducted u/s 194C. Since the appellant failed to deduct the TDS as per the provisions of the Act, The AO has rightly disallowed the same. As per the above discussion, this appellate authority is of the opinion that the claim of the appellant cannot be entertained and the addition in this regard is upheld. Hence, the Ground No. 4 of the appeal is dismissed. Aggrieved by the order of the ld.CIT(A), the assessee is before us. 5. Disallowance of Rs. 2,51,293/- towards EPF, PF & ESI contribution of the job workers: 5.1 The ld.AR submitted that these payments have been directly made by the company towards contribution to EPF, ESI with respect to job of workers. Since, it is employee related expenditure, the ld.AR stated that these expenditures to the tune of Rs. 8,37,642/- are not liable for TDS u/s. 194C of the Act. The ld.AR also filed copies of remittances confirmation slips substantiating that the payments have been made to EPFO, Trichy (....
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....d.AR argued that the assessee has claimed that TDS under 194H are not attracted on such payments made to dealers by way of non-monetary benefits. The assessee has submitted that the schemes were there to promote the sales and turnover of the business. Further, the ld.AR stated that there is no risk borne by it if the goods invoiced in the name of dealers were not sold. Since, the assessee and dealers are working on principal to principal basis, the TDS provisions are not applicable for this kind of business promotional expenditure spent by the assessee and not paid to the dealers. 6.1.1 Further, the assessee relied on the various judicial decisions laying down the difference between the relationship of 'Principal-Agent' and 'Principal-Principal' as below: (i) Bharti Cellular Limited vs ACIT [2024] 462 ITR 247 (SC) (ii) Singapore Airlines Ltd vs CIT [2022] 144 Taxmann.com 221 (SC) (iii) CIT vsIntervet India (P) Limited [2014] 364 ITR 238 (Bombay HC) (iv) PCIT vs Shalimar Chemical Works Ltd [2018] 96 Taxmann.com 275 (Calcutta HC) (v) CIT vs Jai Drinks (P) Ltd [2011] 336 ITR 383 (Delhi HC) (vi) Ahmedabad Stamp Vendors Association vs Union of India [2002] 257 ITR 202 (Guja....
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....erentiated the pure trading activity of the distributor and the agency business for the purpose of applicability of section 194H of the Act by holding as under: "39. Coming back to the legal position of a distributor, it is to be generally regarded as different form that of an agent. The distributor buys goods on his account and sells them in his territory. The profit made is the margin of difference between the purchase price and the sale price. The reason is, that the distributor in such cases is an independent contractor. Unlike an agent, he does not act as a communicator or creator of a relationship between the principal and a third party. The distributor has rights of distribution and is akin to a franchisee. Franchise agreements are normally considered as sui generis, though they have been in existence for some time. Franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacture, i.e. a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franc....
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....the disposition of the principal's property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and examining the indicia mentioned in clauses (a) to (d) in paragraph 8 of this judgment. It is in the restricted sense in which the term agent is used in Explanation (i) to Section 194-H of the Act." 6.5 Therefore, in the present facts and circumstances of the case and by respectfully following the decision of the Hon'ble Apex court (Supra), we are of the considered view that the payments made by the assessee towards promotional expenses in the form of various schemes are not liable for TDS u/s. 194H of the Act and hence, delete the addition made u/s. 194H of the Act to the tune of Rs. 3,03,99,796/- by allowing the ground nos. 1 to 6 raised by the assessee. 7. Payments made towards expenditure on meets and events at Rs. 2,55,375/-: 7.1 The ld.AR submitted that these are the expenditure spent by the assessee towards promotional activities and various meeting expenditure of the dealers and the customers. These expenditures are in the nature of travel tickets, food expenses, hotel ....