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2008 (4) TMI 397 - AT - Income TaxTDS u/s 194H - ‘distributors incentive’, ‘early payment discount’ and ‘bond expenses’ paid to distributors - default u/s 201(1) for non deduction of TDS - relationship between the company and its distributors "principal and agent" or "principal to principal"? - manufacture and sale of beer - whether or not the distributors appointed by the assessee could indeed be considered to be agents of the assessee-company? - HELD THAT:- It is necessary to appreciate the nature of relationship between the assessee and its distributors. This is for the reason that, as held in the case of Ahmedabad Stamp Vendors Association v. Union of India [2002 (6) TMI 32 - GUJARAT HIGH COURT], unless this relationship is relationship of a principal and agent, the payments made by the assessee cannot partake the character of commission. The approach so adopted by the AO, and which has met CIT(A)’s approval as well, is diametrically opposed to the following observations made by the Hon’ble Supreme Court in the case of Bhopal Sugars Industries Ltd. v. STO [1977 (4) TMI 151 - SUPREME COURT]. The very foundation of the case of the AO is thus devoid of any legally sustainable merits. Hon’ble Supreme Court’s very pragmatic observations succinctly sum up the principles governing decision on the relationship in case where sale is made subject to certain conditions warranted by the exigencies of business. What is to be really seen is the point of time when property in the goods sold passes from the assessee to the buyer. That undoubtedly is the time when assessee sells the goods to its distributors. The goods are invoiced to the distributor, the distributor has to make the payments within specific time schedules vis-á-vis date of invoicing to the distributor, and the risks associated with the goods sold pass on to the distributor when the goods are invoiced to him. It is not unusual that manufacturer of a consumer product puts conditions on the manner in which the product is stored or marketed so as to ensure that reputation of the manufacturer does not suffer. When we look at each component of the distributor incentives, we find that none of these incentives are in the nature of commission. Free issues under trade schemes is assessee’s giving free bottles of beer on sale of specified quantities is nothing but a sale incentive by way of trade discount. When the distributor buys x quantity of beer, he gets y quantity as free goods; that is part of the sale where distributor pays for x quantity but gets x + y quantity. Similarly, free gift of beer on sponsorships and promotions are sale promotion costs for the assessee company, and so is the incentive travels for the distributors. As for the early payment discount, it is nothing but a cash discount for timely payment of bills by the distributors to the assessee company. By no stretch of logic, this would constitute commission. AO was swayed by the considerations which were not germane to the context, and the CIT(A), in our considered view, erred in confirming the stand of the AO. As for ld DR’s vehement reliance on Tribunal’s decisions in the cases of Asstt. CIT v. Bharati Cellular Ltd.[2006 (4) TMI 50 - ITAT, KOLKATA] and Hindustan Coca Cola Beverages (P.) Ltd. v. ITO [2005 (7) TMI 306 - ITAT JAIPUR], suffice to say that as we have decided the nature of relationship between the assessee company and its distributors in the light of principles laid down by the Hon’ble Supreme Court in the case of Bhopal Sugar Ltd. which the co-ordinate Benches did not have the opportunity of being benefited from, we see no need to address ourselves to the guiding principles of those decisions. The normative effect of the judgments of Hon’ble Supreme Court is obviously far greater than that of the judgments of the co-ordinate Benches. Therefore, we quash the impugned demands raised on the assessee under section 201(1) read with section 194H of the Act. The assessee gets the relief accordingly. In the result, the appeals are allowed.
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