2016 (10) TMI 1232 - AT - Income Tax

TDS u/s 194G - non deduction of tds on commission paid to the sub agents - Held that - The provisions contained in section 194G of the Act provides for deduction of TDS by any person who is responsible for paying to any person who is stocking distributing purchasing or selling lottery tickets any income by way of commission remuneration or prize on such tickets at the time of credit of such income to the account of the payee. Thus the requirement of deduction of tax will only arise when there is a payment of income by way of commission remuneration or prize on lottery tickets In the present case the assessee is not giving any commission to the sub agents as there is a sale being effected between the assessee and the sub agents and the assessee after transferring the lottery tickets to the sub agents has no control over the same. Moreover it is not a case where the assessee is giving any remuneration or prize to the sub agents in as much as the value of prize winning lottery tickets is claimed from the government agency supplying the lottery tickets to the assessee. The government agency after deduction of TDS credits the value to the account of the assessee who thereafter passes on the same to the sub agents. In the facts of the present case we find that the application of section 194G/194H of the Act was not warranted. - Decided in favour of assessee.

Issues Involved:
1. Whether the disallowance of Rs. 39,19,73,881/- under section 40(a)(ia) of the Income Tax Act for non-deduction of tax under section 194G by the assessee was within the bounds of law.
2. Whether the payments made by the assessee to sub-agents constitute commission under section 194G/194H of the Act.
3. Whether the relationship between the assessee and sub-agents is that of a principal-agent or principal-to-principal.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax under Section 194G:
The primary issue in this case was whether the disallowance of Rs. 39,19,73,881/- under section 40(a)(ia) for non-deduction of tax under section 194G by the assessee was justified. The assessee argued that they were merely conduits or intermediaries between the government agencies and sub-agents and that the government agencies had already deducted TDS on the prize-winning tickets before crediting the amount to the assessee. The CIT(A) held that the provisions of section 40(a)(ia) do not contemplate any disallowance for default under section 194G, and thus ruled in favor of the assessee.

2. Nature of Payments to Sub-Agents:
The Assessing Officer (AO) contended that the payments made by the assessee to sub-agents were in the nature of commission and thus attracted the provisions of section 194G/194H, requiring TDS deduction. The CIT(A), however, found that the payments were not commission but rather the value of prize-winning tickets collected from the government agencies and passed on to sub-agents. The CIT(A) relied on the decision in 249 ITR 186, which dealt with discounts received by agents on bulk purchases of lottery tickets, to conclude that the payments were not commission.

3. Relationship Between Assessee and Sub-Agents:
The AO argued that there was a principal-agent relationship between the assessee and sub-agents, which necessitated TDS deduction under section 194G. However, the CIT(A) and the Tribunal found that the relationship was that of a principal-to-principal. The assessee purchased lottery tickets from government agencies and sold them to sub-agents without retaining control over the tickets once sold. The Tribunal referred to the decision of the Hon’ble ITAT Kolkata Bench in M/s. Future Distributors Vs. Principal CIT, which held that such transactions were on a principal-to-principal basis and not liable for TDS under section 194G.

Judgment:
The Tribunal dismissed the appeal of the department, holding that the provisions of section 194G were not applicable as the payments made by the assessee to sub-agents were not in the nature of commission, remuneration, or prize but were merely the value of prize-winning tickets passed on from the government agencies. The Tribunal also noted that the relationship between the assessee and sub-agents was that of a principal-to-principal, further negating the applicability of section 194G. Consequently, the disallowance under section 40(a)(ia) was not warranted.

Conclusion:
The appeals of the revenue in ITA Nos. 510, 511, 512/Coch/2013 and 514/Coch/2015 were dismissed, and the cross-objection by the assessee in appeal No. 514/Coch/2015 was deemed infructuous and dismissed. The Tribunal upheld the CIT(A)'s decision, emphasizing that the payments to sub-agents were not commission and the relationship was not of a principal-agent, thus not attracting the provisions of section 194G or the disallowance under section 40(a)(ia).

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