2006 (1) TMI 462 - AT - Income Tax

Summary

Issues Involved:
1. Whether the discount given to concessionaires by the assessee should be treated as commission for the purpose of deducting income tax under section 194H of the Income-tax Act.
2. Whether the relationship between the assessee and the concessionaires was that of principal to principal or principal to agent.
3. Whether the assessee was justified in not deducting tax at source on the payments made to concessionaires.
4. Whether the assessee should be treated as in default under sections 201(1) and 201(1A) for non-deduction of tax at source.

Issue-Wise Detailed Analysis:

1. Treatment of Discount as Commission:
The primary issue was whether the discount given by the assessee to its concessionaires should be treated as commission under section 194H of the Income-tax Act, necessitating the deduction of tax at source. The Assessing Officer concluded that the payments made to concessionaires were in the nature of commission, as per the provisions of section 194H. The CIT(A) upheld this view, noting that the consideration paid by DMS to its concessionaires was indeed commission, not discount. The Tribunal agreed, stating that the payments fit the definition of commission as outlined in section 194H.

2. Relationship Between Assessee and Concessionaires:
The assessee argued that the relationship with concessionaires was that of principal to principal, not principal to agent. However, the Assessing Officer and CIT(A) found that the concessionaires were agents of DMS, selling milk and milk products on behalf of DMS. The Tribunal supported this view, citing the terms of the agreements and the control DMS maintained over the milk booths and unsold products. The Tribunal concluded that there was no principal to principal relationship, and the concessionaires were indeed agents.

3. Justification for Non-Deduction of Tax at Source:
The assessee contended that the payments were discounts, not commissions, and thus did not require tax deduction at source. The CIT(A) and the Tribunal rejected this argument, noting that the agreements and appointment letters provided during the survey indicated the payments were commissions. The Tribunal found the redrafted agreements presented by the assessee, which replaced the term 'commission' with 'discount,' to be an afterthought and not credible. The Tribunal emphasized that the original agreements clearly indicated a commission-based relationship.

4. Treatment of Assessee as in Default:
Given the findings that the payments were commissions and the relationship was principal to agent, the Tribunal upheld the Assessing Officer's decision to treat the assessee as in default under sections 201(1) and 201(1A) for failing to deduct tax at source. The Tribunal also upheld the imposition of interest under section 201(1A).

Conclusion:
The Tribunal dismissed both appeals filed by the assessee, affirming the decisions of the Assessing Officer and CIT(A). The Tribunal concluded that the payments made to concessionaires were commissions, not discounts, and the relationship was that of principal to agent. Consequently, the assessee was required to deduct tax at source under section 194H and was correctly treated as in default for failing to do so.