TaxTMI 
TaxTMI 
2025 (4) TMI 789
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....involved in ITA No.6419/M/2024 as a lead case and result of the same would be applicable mutatis mutandis, to all the appeals under consideration. 3. ITA No.6419/M/2024: In this case, the Assessee has claimed to be engaged in the business of tyre manufacturing and selling and therefore in order to verify whether the Assessee company is properly applying with the provisions contained in chapter (xviib) of the Act, a survey action u/s 133(a)(2a) of the Act was conducted at the premises of the Assessee on dated 05.10.2018, wherein it was found that the Assessee company's sales of tyres are through consignees and forwarding agents (CFAs). As per clause 5 of CFA agreement, the CFA will be eligible for claiming the reimbursement of expenses on actual as fixed expenses for warehouse, rent, storage, furniture, fixtures etc. as incentive and commission on sales on a monthly basis at the specified rate per kilogram of sales made per month for local sales and upcountry sales, as case may be. On perusing the TDS ledgers for the payments made to the CFA, it was seen by the Assessing Officer (AO) that the Assessee was deducting TDS @ 2% u/s 194C of the Act, on the fixed expenses paid as incen....
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....ing in the nature of carrying out work on the basis of contracts entered were subjected to TDS u/s 194C- Payment to contractors. In this regard we would now like to distinguish the language as given in Section 194C as compared to other TDS provisions. As per Section 194C, any person making payment to any resident for carrying out work in pursuance of a contract is liable for deduction of tax at source. The relevant extract of section 1940 is reproduced for ease of reference 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given....
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....for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods? Answer: The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction ut source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provision of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source under section 1940 of the Act." Further we would also like to draw your goodself attention to the decision of the Delhi ITAT in the case of Glaxo Smithkline Consumer Healthcare Ltd. V. Income-tax Officer, Ward 49(3), New Delhi (2007) 12 SOT 221 (Delhi) wherein the Hon'ble Delhi Tribunal has categorically held that payments....
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.... enclosed as Annexure to this order. As per this calculation sheet it is found that they have worked out deduction of TDS on commission @ 10%. When he was confronted with this fact he stated that they consider this income as commission but the controlling person of the CEAT Ltd had directed to raise bills mentioning TDS @ 2%. The format for raising the bill is also provided by CEAT. (ii) Monthly Variable Service charge bill (Commission bill) (iii) Fixed service charge bill, which are for rent, storage material charge etc. (a). M/s Hoosaini Company is recording the receipt from CEAT as Commission income in there book's of account. (b) It is also important to mention here, that upto F.Y 2013-14 M/s CEAT Itd was deducting TDS u/s 194H on the payments made to the CFA M/s Hoosani company. They had started to deduct TDS U/s 194C from F.Y 2014-15 in spite of the fact that the nature of transaction with CFA remains same. (6.5) The circular No 715 quoted by assessee is also not relevant with the facts of the case as the same is for TDS deduction on payments made to clearing and forwarding agents. (6.6) The decision of Delhi ITAT in t....
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....ction 201(1) of the Act and raised the demand of Rs.1,25,00,396/- . 8. The Assessee, being aggrieved, challenged the said demand before the Ld. Commissioner and raised various issues/grounds. 9. The Ld. Commissioner considering the peculiar facts and circumstances in totality, ultimately confirmed the decision of the AO in raising the demand of Rs.1,25,00,396/- by the AO u/s 201(1) & 201(1a) of the Act, by holding that variable payment being made by the Assessee to the CFAs as commission income, is liable to TDS @ 5% u/s 194H as against @ 2% u/s 194C as being done by the Assessee. For brevity and ready reference, the analyzations made and conclusion drawn by the Ld. Commissioner are reproduced as under: "7. Decision 7.1 The findings of the AO in the order, the detailed submission of the appellant and the various case laws relied upon by the appellant have been perused and are being considered. The main issue of dispute is whether the nature of variable payment done to the CFAs by the appellant is Commission or contractual payment. While the AO is of the opinion that the payment is nothing but commission and hence liable for tax deduction U/s 194H@%, the appe....
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....er for someone to be an Agent, there must be actions that show the requisite control to make someone an Agent. Without enough control, they will instead be categorized as an independent Contractor. However, it is extraordinarily difficult to know exactly how much control would make a meaningful difference. In my view therefore, the instant dispute will have to be analysed with this very important fact in mind that the tax liability in the instant agreement was never on the appellant. 7.5 Coming to the instant agreement in terms of nature of roles and responsibilities of the CFAs, following clauses are worth mentioning: 2.1 The CFA shall act as the Company's consigning, forwarding and storing agent in the said territory for receiving, warehousing, safe storage and dispatch of goods to all categories of customers/dealers & company's depots in specified territory as per schedule A in line with the policies decided by the company from time to time. 2.2 The CFA shall act only as an agent of the company for the purposes of the above and shall deal only with the Goods of the company and shall not transgress his responsibilities beyond than what has been ....
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....iable component based on the quantity of sale which is nothing but what commission normally is. 7.7 Having analysed the clauses of the agreement with respect to the operational aspect and also the financial methodology, I now proceed to take up the argument of the appellant one by one. (i) With respect to the agreement of the appellant with the CFAs, the appellant has vehemently argued that there is no Principal to Agent relationship and hence the payment cannot be in the form of Agency commission. However, in the preceding paras, it has already been elaborated that there is no component of Principal- to-Principal agreement as is the case with a Contractor and in fact the nature of control exercised by the appellant over the CFAs point towards an agency relationship. (ii) The appellant has objected to the AO not providing the copy of the statement given by the CFA ie, M/s Hoosaini & Co in which the appellant has stated that they themselves were treating the payment received from the appellant as Commission in their books of accounts. The appellant has stated that the AO did not give any opportunity to cross examine the third party witness and hence there ....
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.... my considered submission, the clauses of the CFA agreement do not indicate an independent agreement as in the case of a Contractor. (ii) It is of utmost importance to consider that the tax liability in this transaction was never on the appellant and the appellant was only doing its sovereign duty of delegated tax collection. The purpose of TDS is to ensure that there is no leakage of tax by deducting it at the source itself. This is extremely relevant in a situation wherein the recipient of the sum/income are a large number of entities of different credibility. In the instant case, there are multitude of CFAs, each of different credit worthiness and hence it was the duty of the appellant to ensure that tax as per rules is deducted at the source itself so that there is no leakage of tax. It is further surprising that the appellant was earlier deducting taxes on the same payment @ 5% for years prior to AY 2013-14 and thereafter changed its position to treat these payments as contractual payment liable for reduced rate of TDS. The appellant did not also approach the department at any point of time to assist it in categorising the nature of payment. (iii) The CFAs we....
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....opportunity to cross examine and controvert such third party statement, as against the rule of principle of natural justice. 14. The Assessee further submitted that CFA is required to act as a company's consignee, storing and forwarding agent in the territory for receiving, warehousing, safe storage and dispatch of the goods to all categories of customers/dealers and company's depots in a specified territory as per schedule -A in line with the policies decided by the company from time to time. The CFA shall act only as an agent of the company for the purposes as above and shall deal only with the goods of the company and shall not transgress his responsibility beyond with, what has been mentioned in this agreement and/or shall not act/deal either as an agent or in any other capacity for in other party in respect of the said goods or derivative, so thereof which may in any manner effect the interest of the company adversely. Further, CFA is responsible to make required transportation arrangement expeditiously, entirely at its own cost. CFA will be eligible for claiming the reimbursement of expenses, on actual as scheduled in the schedule (a) on a monthly basis. CFA shall also be ....
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....the Act, as per circular no.715 dated 08.08.1995 and as per judgments of the Hon'ble High Court and the Tribunal in the case of CIT vs. Hindustan Lever Ltd. - 29 taxmann.com 313 (Del. - HC) and Glaxo Smithkline Consumer Healthcare Ltd. V. Income-tax Officer, Ward 49(3), New Delhi (2007) 12 SOT 221 (Del. ITAT). 20. On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting as under: "That in earlier assessment years, the Assessee himself was deducting the TDS u/s 194 of the Act. Even otherwise during the survey proceedings, M/s. Hossaini Company one of the CFAs, has admitted that up to A.Y. 2013-14 the Assessee was deducting TDS u/s 194 of the Act, however, thereafter from A.Y. 2014-15 onwards they started deducting the TDS u/s 194C of the Act, in spite of the fact that the nature of transaction with the CFA remains the same. The Assessee and CFA are principal and agent, as the agent is to do the work as per the wisdom of the principal and for the welfare of the principal and as per terms and conditions set out in the memorandum of association/contract and therefore the Assessee cannot skip the liability, as determined by the AO, as affirmed by the Ld.....
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....he Assessee himself was deducting the TDS u/s 194 of the Act and during the survey proceedings, M/s. Hossaini Company one of the CFAs, has admitted that up to A.Y. 2013-14 the Assessee was deducting TDS u/s 194 of the Act, however, thereafter from A.Y. 2014-15 onwards they started deducting the TDS u/s 194C of the Act, in spite of the fact that the nature of transaction with the CFA remains the same. The Assessee and CFA are principal and agent, as the agent is to do the work as per the wisdom of the principal and for the welfare of the principal and as per terms and conditions set out in the memorandum of association/contract and therefore the Assessee cannot skip the liability, as determined by the AO and as affirmed by the Ld. Commissioner. 23. We have given thoughtful considerations to the documents available on record and contentions raised by the parties. From the aforesaid contentions of the Assessee, it is clear that the CFA was appointed as an agent for storing/warehousing and dispatching/forwarding of the goods of the Assessee, may be with the limited directions/liability. As per agreement, the consideration was/is supposed to be payable in following two components: ....
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.... they received fixed charges, variable charges and reimbursement of expenses. Shri Hussain also submitted monthly CFA commission calculation chart, where from it was found by the AO that they have worked out deduction of TDS on commission @ 10%. When Shri Hussain Valjee was confronted with this fact, he stated that they considered this income as commission but the controlling person of CEAT Ltd. had directed to raise bills mentioning TDS @ 2%. The format for raising the bill, is also provided by M/s. CEAT Ltd. The AO further observed that M/s. Hoosaini Company, is recording the receipt from CEAT Ltd. as commission income in its books of account and it is also important to mention here that up to F.Y. 2013-14 M/s. CEAT Ltd. was deducting the TDS u/s 194H of the Act on the payments made to CFA M/s. Hoosaini Company. However, from F.Y. 2014-15 onwards, they have started to deduct TDS u/s 194C of the Act, in spite of the fact that nature of the transaction with CFA remains same. 27. Admittedly, the AO while relying on the statement of Shri Hussain Valjee, partner of M/s. Hoosaini Company, has not given any opportunity to the Assessee to contradict the statement and/or cross examine ....
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....ousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds one lakh rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation.-For the purposes of this section,- (i) "specified person" shall mean,- (a) the Central Government or any State G....
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....ned in clause (b) of sub-section (2) of section 40A, 89[but does not include- (A) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or associate of such customer; or (B) any sum referred to in sub-section (1) of section 194J.]" "194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) 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 or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 92[two] per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, doe....
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....by any mode of transport other than by railways; (d) ...... (e) ..... 29. Whereas section 194H, deals with the payment on account of "commission and brokerage". 30. The Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Hindustan Lever Ltd. (2013) 29 taxmann.com 313 (Delhi) also dealt with an identical issue, wherein the Assessee was manufacturing consumer goods such as detergent, soaps etc. and therefore it hires godowns on rent and also engaged C & F agents for various purposes. The then Assessee was deducting tax @ 2.2% u/s 194C of the Act from the amounts paid to C & F agents, however, the AO was of the opinion that the TDS ought to have deducted tax @ 22% u/s 194I of the Act, because they contained warehousing charges. Therefore, the AO treated the Assessee in default u/s 201(1) of the Act and made consequential demand us/ 201(1a) of the Act. Matter went up to the then CIT(A) and Tribunal, who vide their respective orders allowed the claim of the Assessee in deducting the tax at source on the payments made to the C&F agent u/s 194C of the Act. Thereafter, the matter travelled to Hon'ble Delhi High Court. The Hon'ble High Court ultima....
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.... The payment made by the assessee to the C&F Agents was for a consolidated set of services, The services included receipt and despatch of goods, storing the goods, keeping accounts/ records of the same, ensuring the safety of the goods, complying with formalities for effecting receipt and despatch of goods, etc. The object of the agreements was to ensure handling and delivery of the goods as per the directions of the assessee. Since the services involved carrying out of "work" within the meaning of the said term in Section 194C of the Act, the assessee, therefore, correctly deducted tax at source under the said section out of the payments made to C&F Agents. The assessing officer held that the services rendered by the C&F Agents were in the nature of managerial services and, therefore, tax should have been deducted on such payments under Section 194J of the Act. The assessing officer, thus, treated the assessee as an assessee in default for short deduction of tax at source and accordingly computed tax payable under Section 201(l) of the Act. Action of the assessing officer was confirmed by the Commissioner (Appeals). 4. We have carefully gone through the agreement entered ....
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....of (a) fee for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount of equal to five per cent of such sum as income-tax on income comprised therein. Explanation (a) and (b) to Section 194J of the Act defines "professional services" and "fees for technical services" respectively. The same reads as under: Explanation-for the purposes of this section: (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural professional or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of Section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as Explanation 2 to Clause (vii) of Sub-section (1) of Section 9. Explanation 2 to Section 9(1)(vii) of the Act "fees for technical services"to mean any consideration (including any lump ....
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....he business of manufacturing and trading of laundry soap and washing powder, detergent cake etc. and has paid certain amounts to the consignees to whom they have sold their goods and claimed the said amount as reimbursement of expense incurred. However, the AO opined that the case of the Assessee was not of reimbursement of actual expenses incurred by the consignees but a fixed percentage had been paid irrespective of the actual expenses incurred b them. Therefore, the Assessee was liable to deduct the tax at source as per the provision of section 194H of the Act, since the Assessee has failed to do so and therefore the AO made an addition of Rs.28,14,174/- by invoking the provision of section 40(a)(ia) of the Act. The said addition made by the AO, subsequently got affirmed by the then Ld. CIT(A) and therefore the matter travelled up to the Tribunal. The Hon'ble Tribunal by considering the facts and circumstances and the issue whether the expenditures incurred by the Assessee were in nature of commission or reimbursement of expenditure, ultimately, set aside the decision of the Revenue in holding/deducting the tax at source u/s 194H of the Act and consequently deleted the additi....
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....plied the provisions of section 40a(ia) while making that disallowance. The grounds are dismissed." The facts are identical to the facts of this case for the year under consideration. I am in agreement with the views of my predecessor and accordingly the addition made by the AO is confirmed and grounds of appeal 2 to 5 are dismissed." 5. We have heard the learned Representatives of the parties and records perused. The issue under consideration whether the impugned expenditures are in nature of commission or reimbursement of expenditures. To understand nature of transaction first of all we have to see dictionary meaning of "Commission". The related meaning as per different dictionaries are as under:- i) As per THE LAW LEXICON Commission Agent : One who sales or buys goods for another and receives by way of remuneration a commission or percentage upon the amount involved in each transaction. ii) As per OXFORD DICTIONARY Payment to an agent for selling goods or services. iii) By FARLEX DICTIONARY A fee paid based on a percentage of the sale made by an employee or agent, as distinguished from regular payments of wa....
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....Cartage paid on dispatch of goods/sale to distributor/dealer/retailer. d) Traveling expenses of the staff kept by consignee agents or salary of the sales staff. The consignee agents sent the monthly details of sales on "Sale Patti. On the sale patti the consignee agent deducts their commission on sales and the expenses at the fixed cost rate structure as per Agreement. The assessee company by way of credit note amount for their expenses as pr Sale Patti, though the expenses incurred by the, are much more than the expenses accounted for by the assessee company. Copies of their Ledger Account of expenses incurred by them on behalf of Assessee Company have been filed and are put on record. It is also to note that that the expenses incurred by the consignee agents on behalf of the assessee company are from the sale amount collected by them as there always remain outstanding balance. Considering the facts of the case following points are not in dispute :- i) Consignee agents are making sales on behalf of assessee company on commission basis. ii) Consignee agent incurs expenses on sales on behalf of the assessee company. iii) Consignee agent maintains ....
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....st rate structure as per Agreement. The assessee company by way of credit note amount for their expenses as pr Sale Patti, though the expenses incurred by the, are much more than the expenses accounted for by the assessee company. Copy of their Ledger Account of expenses incurred by them on behalf of assessee company are enclosed (Page No. 30 to 50) in support of the submission that the expenses incur by them are much more than the expenses reimbursed to them by way of credit note. 1.7. It is important to mention here that the expenses incurred by the consignee agents on behalf of the assessee company are from the sale amount collected by them as there always remain outstanding balance. 1.8. That the Assessing Officer has treated the reimbursement of expenses as commission paid only on the ground that the expenses are reimbursed at fixed rate and therefore it is not in the nature of reimbursement of expenses but it was part and parcel of commission on which tax at source has not been deducted and consequently made addition u/s 40a(ia) of the Act." 5.3 The concerned parties have also furnished the sale Patti along with claim of the expenses on sale of cons....