2013 (12) TMI 1604 - HC - Income Tax

Summary

Issues involved:
The issues involved in the judgment are the deduction of Tax at Source (TDS) by the Treasury Department for stamp papers sold by a registered society of Stamp Vendor Association, and whether the stamp vendors are liable to pay income tax on the amount received from the Treasury Department.

Details of the Judgment:

Issue 1: TDS deduction on stamp papers sold by the association
The petitioner, a registered society of Stamp Vendor Association, challenged the action of the Treasury Department in deducting TDS for stamp papers sold to the members of the association. The Treasury Department relied on Section 194H of the Income Tax Act, 1961, which mandates the deduction of income tax on commission or brokerage payments. The challenge was based on the communication directing TDS deduction for stamp papers sold by the association's members.

Issue 2: Nature of payment received by stamp vendors
The main issue was whether the amount received by stamp vendors from the Treasury Department for selling stamp papers constitutes commission or brokerage, making them liable for TDS deduction. The petitioner argued that the payment was in the nature of a discount, not commission, citing a decision of the Gujarat High Court. The court examined whether the stamp vendors acted as agents of the Treasury Department or engaged in a contract of sale.

Judicial Interpretation and Decision:
The Division Bench of the Gujarat High Court determined that the payment received by stamp vendors was a discount, not commission, as it was part of a sale transaction rather than an agency relationship. The court distinguished between commission and discount, emphasizing the transfer of ownership in the sale of stamp papers. The court held that the stamp vendors were not agents of the State Government and were not liable for TDS deduction.

Precedent and Application:
The judgment of the Gujarat High Court was followed by the Kerala High Court, supporting the position that stamp vendors are not liable for TDS deduction on payments received for selling stamp papers. The Uttarakhand High Court upheld the Gujarat High Court's decision, quashing the communication for TDS deduction and allowing stamp vendors to seek refunds from the Income Tax Department.

Conclusion:
The judgment clarified that the payment received by stamp vendors for selling stamp papers was a discount, not commission, and they were not liable for TDS deduction. Stamp vendors were deemed not to be agents of the State Government, and the communication directing TDS deduction was quashed, allowing for potential refunds to the affected vendors.