2003 (1) TMI 243 - AT - Income Tax

Summary

Issues involved:
The issue involves the obligation of the assessee to deduct tax at source from payments termed as 'commission' under section 154 read with section 143(3) of the IT Act, 1961 for the assessment year 1992-93.

Summary:

Issue 1: Tax Deduction Obligation on Commission Payments
The Appellate Tribunal considered whether the assessee was liable to deduct tax at source from payments termed as 'commission'. The AO held the assessee liable for tax non-deducted on the commission paid to dealers, amounting to Rs. 92,81,460, and interest under section 201(1A). The assessee argued that the payments were trade discounts or incentives, not commission. The Tribunal analyzed the definition of 'commission or brokerage' under section 194H and the commercial nature of the transactions. It concluded that the payments were in the nature of trade discounts, not commission, and the demand raised under section 154 was not justified. The appeal was allowed, canceling the impugned order.

Issue 2: Interpretation of 'Commission' and 'Brokerage'
The Tribunal delved into the legal connotations of 'commission' and 'brokerage', citing definitions from legal sources. It noted that the payments in question were trade discounts, not payments to an outsider for services rendered. The relationship between the assessee and the recipients was that of seller and buyer, not principal and agent. Applying the principle of noscitur a sociis, the Tribunal restricted the scope of 'commission' to payments made to agents, factors, or brokers for effecting sales, excluding trade discounts. It emphasized that a demand cannot be raised under section 154 when a view in favor of the assessee is possible.

Conclusion:
The Tribunal held that the CIT(A) erred in upholding the order under section 154, as the payments were trade discounts, not commission. The appeal was allowed, canceling the demand. The Tribunal did not address the question of whether the assessee was liable to deduct tax at source, as it was unnecessary in the present case.