TaxTMI 
TaxTMI 
2026 (1) TMI 69
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.... (MSME) and TDS was not made under section 194 of the Act. 2. In view of the above, Ld. AO treated the Respondent Company as assessee in default and orders were passed under section 201/201(1A) of the Act. The Ld. CIT(A) deleted all the additions made by Ld. AO by adjudicating that TDS provisions under section 194H, 192 and 194 of the Act are not applicable to the Respondent company. 3. Aggrieved by the deletion of additions by Ld. CIT(A), the Revenue filed an appeal in ITAT with the following grounds of appeal :- 1. "The Learned CIT(A) has erred in holding that the transaction between the assessee company and stockist was on principal to principal basis, and therefore discount offered to the stockist would not come under the ambit of 194H of the Act." 2. "The Ld. C1T(A) has failed to appreciate the fact that as per the Agreement for appointment of Stockists and entered into by the Assessee and its stockists, it is clear that everything starting from prices, invoicing, margins, payment terms and even mode of transport, is decided by the Novartis India." 3. "The Ld. CIT(A) has failed to appreciate the fact that there are various restrictions imposed ....
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.... controlled by Novartis India. * The stockist agreements conferred NHPL with audit rights, requiring monthly sales and stock reporting, implying that the stockists operated under constant supervision of NHPL. * The stockists were mandated to provide retailer feedback and downstream customer information, further indicating their embedded role in NHPL's distribution and marketing function. * Even cash discounts and payment channels were pre-conditioned and structured by NHPL, without independent negotiation by the stockists. * These factors clearly indicate that the stockists are integrated into distribution mechanism of the company and are not operating independently in the market place. The stockists do not enjoy commercial autonomy and are functional agents executing a structured distribution strategy under the control of the assessee. Moreover, the so-called "discount" granted to the stockists is not a volume-based or market-driven incentive, but a pre-decided margin determined by the assessee. This fixed difference between the Maximum Retail Price (MRP) and the price charged to the stockist constitutes compensation for distribution service....
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.... NHPL trades is regulatory in nature and thus the products are to be stored and sold considering every kind of risk that can arise in the said sector. Therefore, it is a common business practice in a pharmaceutical industry to impose certain regulations formulated by drug regulators on the stockists. Further, in wholesale business (especially in pharmaceutical sector) a supplier generally places various terms and conditions before giving its distributorship to any stockists/distributors in order to maintain its goodwill in the market, also from good governance perspective i.e. no health hazards should be caused to the ultimate consumers of the medicines and in order to abide by the various regulations formulated by the drugs regulators." 5.2 The Ld. AR of appellant company has further stated in its written submission as follows :- The stockists enter into an agreement with NHPL and purchase the products from NHPL at a mutually agreed price. The title of the product passes from NHPL to the stockists upon this transaction and thus the stockists have to bear the risks associated with the storage and sale of the products and take independent decisions on the price ....
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....nown as Bharti Airtel Limited) [Civil Appeal No. 7257/2011 (SC)] * Unichem Laboratories Ltd. [ITA Nos. 4592 & 4593/Mum/2014 dated 29 January 2016 (Mumbai ITAT)] affirmed in ITA No. 199 and 220/2017 dated 15 April 2019 (Bombay HC) * Piramal Healthcare Ltd. (2015) (55 taxmann.com 534) (Bombay High Court * Vodafone Idea Ltd. (Formerly known as Idea Cellular Ltd.) [ITA No. 3785/Mum/2016 dated 13 November 2019 (Mumbai ITAT)] * Bajaj Auto Limited [ITA No. 2786/MUM/2025 dated 13 June 2025 (Mumbai ITAT)] * Wockhardt Limited (ITA No. 1821/Mum/2025 dated 8 May 2025) (Mumbai ITAT) (AY2016-17 * Total Energies Marketing India Pvt. Ltd. [ITA Nos. 127 to 133/MUM/2023 dated 16 August 2023 (Mumbai ITAT)] 6. Ld. DR has also filed detailed written submission stating that the cases relied on by appellant-company are not applicable to the facts of the present case and the same is reproduced below :- a. Unichem Laboratories Ltd.: The AO noted that while the distributor in Unichem bore full commercial risk, NHPL stockists were subjected to tight operational controls. Moreover, departmental appeal is pending against this judgment. ....
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....disallowance under Section 194H, backed by documentary evidence, legal analysis, and consistent case law, must be restored in full. 7. Heard both sides in detail and perused the record on lower authorities and written submission filed by both parties and Bench is of the opinion that the relationship between appellant company and stockists is not that of the Principal to Agent but of Principal to Principal and hence, the TDS provisions are not applicable for the following reasons:- a) The sale invoices of company to stockists clearly show that the goods were forwarded as "sale" and not as "commission" because GST applicable was paid by company. b) Whatever controls exercised by company is only as per the guidelines of Medical Council of India and company is not exercising any other control. The goods once sold to stockists are kept with them at their risk only. c) The stockists are showing the "sales" of company as their "purchases" and as per their Sale Invoices. After deducting the expenditure, the net profit/loss was offered for taxation in their Income Tax Returns. Even presuming that appellant company pays "commission" as contended by Revenue, they....
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....current year. Hence, TDS should be done in this year itself. 8b. Heard both sides. The Bench decides the issue in favour of appellant company for the following reasons :- a) The CBDT Circular No. 9/2007 says that the tax liability on company arises only when the benefit is exercised and actually availed, but not at the stage of mere grant. b) Section 17(2)(vi) of the Act and the Explanation says that on the date of transfer or allotment, the difference between FMV of option on the date of option exercised and price paid by employee is liable to tax in the hands of employee. This issue is squarely covered in favour of the appellant in the following cases : * Total Energies Marketing India Pvt. Ltd. [ITA Nos. 127 to 133/MUM/2023 dated 16 August 2023 (Mumbai ITAT)] * Infosys Technologies Ltd [297 ITR 167 (SC)] * Bharat Financial Inclusion Ltd. [ITA No. 237/Hyd/2017 dated 3 August 2018 (Hyderabad ITAT)] 8c. In view of the above, the addition made by Ld. AO is deleted. The Appeal of the Revenue is DISMISSED. C.O. No. 121/Mum/2025 The Respondent company filed a Cross Objection by raising following three grounds of appeal on the iss....