2025 (6) TMI 1755

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.... tax at source under section 194H, computed at 30% of the following discounts provided to spare parts dealers: (a) Target discount of Rs. 90,72,94,817; (b) Consistency discount of Rs. 72,72,96,107; and (c) Cash discount of Rs. 20,47,71,915. In doing so, the Commissioner of Income-tax (Appeals) erred in the following respects: 2. in incorrectly observing that the Appellant has paid commission to its dealers under the cover of sales discounts. 3. in observing the Appellant is offering discounts on completion of periodic targets which is computed as a percentage of sales turnover and therefore akin to commission. 4. in upholding the stand taken by the Assessing Officer that since the discount is not a part of the invoice and is provided by way of credit note, it should be treated as commission 5. in not appreciating the fact that in the case of the Appellant, the discount paid to dealers ought not to be regarded as commission, since the dealers neither act on behalf of the Appellant, nor do they provide any service to the Appellant in the course of sale of goods by the Appellant, 6. in not appreciating th....

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....art dealers as per the scheme of assessee. Target discount and consistency discount are offered on completion of periodic target and computed as per percentage of sales turnover. Such discount policy was decided and communicated to all dealers well in advance and the said discount is more in the nature of trade discount offered to those dealers who purchase in bulk quantities from assessee during particular period. Cash discount is given for maintaining a specified credit balance with assessee. Such discount is not linked to the sales made by dealers, but based on purchase of bulk quantities by the dealers from assessee. The transaction of assessee with dealers is on principal-to-principal based. The dealers purchase spare part from assessee independently and not as agent. In case any spare parts, if remains unsold by the dealers, is not returnable to assessee and loss, if any has to be borne by the dealers himself. Further, discount is provided only to those dealers who achieve the targets as set by assessee and not for all dealers. Further, neither the assessee privy to the sale of spare parts by a dealer to the customers, nor is the customers privy to sale of his spare parts by ....

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....stribute and the sale of products only within the territory and will not do anything that may prevent/affect such distribution/sale or interfere with the development of assessee's trade of assessee exclusive dealership or in the business of other dealers of assessee for the product, if any in the said territory. Dealers are required to pay to all cost incurred by assessee inclusive of packing, insurance, freight, etc. the dealer is required to make 100% advance payment for the orders place with the assessee. In case of delay in making payment, the dealers are liable to pay interest. This shows that dealer independently places their order with assessee and has to make payments irrespective of whether, the product is sold or not. Such arrangements are not found in case of involving the agent. The assessee also explained various other clauses of their agreement with dealers. 4. The Ld. CIT(A) after considering the submission of assessee confirm the action of AO by holding that discount scheme are directly passed through credit notes. The assessee offering discounts on completion of periodic target and this is computed as per percentage of sales turn over. Discount is given from gro....

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....unt is provided to the dealer on early payment against the spare parts. Such discount is made on principal to principal basis. Once the spare parts/ goods are supplied to the dealers, it is at the disposal of those dealers and if any spare part remains unsold the same are not returnable the assessee and any if any loss, it is to be borne by the dealer himself. Discount is provided only those dealers who achieve the target set by assessee. The department has never questioned such arrangement. The provision of Section 194H is not at all applicable on such discount. Distributors are not in fact agent of assessee. The distributors purchases goods on their account and sales in their territory. The profit made is the margin of difference between the purchase price and the sale price. The distributor is an independent person. The ld. AR of the assessee submit that grounds of appeal raised in the present appeal is in fact covered in favour of assessee by the decision of Jurisdictional High Court in CIT(A) Vs Intervet India (P) ltd (supra) wherein, it was held that the assessee offered incentive to distributors/stockiest sale target on principal-to principal basis, that incentive could not ....

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....sion, the ld. CIT/DR for the Revenue relied on the decision of Mumbai Tribunal in SKOL Breweries Ltd. Vs ACIT (2013) 29 taxmann.com 111 (Mumbai). The ld CIT-DR for the revenue while referring para-12 of decision would submits that the assessee recognized its revenue from sale on which the goods were sold to the distributor and the amount of so called discount is separately treated as expenditure on account of sale scheme expenses and under specific head 'sale price discount' and accordingly, debited to the profit and loss account. Such treatment clearly brings out the case of the assessee from the ambit of discount. For sales tax purpose also the assessee has shown sale price without reducing such so called discount. The benefit given under the sale scheme expense may be for marketing and sales promotion of the products by the distributor which does not pass on to the retailer or the end user of the products. Thus, the benefit given by the assessee does not percolate to the retailer or to the end user and limit to the distributor cannot be said in the nature or character of 'discount'. 7. We have considered the submission of both the parties and have gone through....

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....under the terms and conditions of dealership. 9. We find that Hon'ble Apex Court in CIT Vs Ahmadabad Stamp Vendors Association (2012) 348 ITR 378 (SC) while confirming the finding of Gujarat High Court held that discount given to Stamp Vendors for purchasing stamp in bulk quantity was in the nature of cash discount in transaction of sale, an therefore, section 194H has no application to that transaction. The Gujarat High Court held in said case reported viz, [2002] 124 Taxman 628 held the licensed vendor has to pay less the discounted at the rate provided in the Gujarat Stamp duty and Sales Rules. The liability of the Stamp Vendor to pay the price less the discount is not dependent upon or contingent to the sale of the stamp paper by the Licensed Vendor. The licensed vendor would not be entitled to get any compensation or refund of the price if the stamp papers were to be lost or destroyed. The Gujarat Stamps Supply and Sales Rules themselves contemplate that what the licensed vendor does, while taking delivery of the stamp papers from the Government offices, is purchasing the stamp papers. 10. The Hon'ble Delhi High Court inCIT Vs Jai Drinks (P) Ltd. (2011) 336 ITR 383 (Delh....