TMI Blog2005 (7) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... mports these products and undertakes their marketing. The products are sold and marketed throughout the country and the appellant appointed clearing and forwarding agents (C FR's) to conduct its operation of distribution, sales, packing, repacking, storage, etc. It appointed M/s Ranbaxy Laboratories Ltd. and M/s Centum Pharma Ltd., as its C FR agents 4. The appellant filed its annual return of TDS in respect of payments it made to the C FR agent. The appellant had while deducting tax at source on payments made to the C FR agent deducted and deposited tax at the rate of 2.3 per cent (including surcharge). Such deduction of tax at source by the appellant was on the basis that the payment made to the C FR agents were in the nature of payments made to contractors and the applicable provisions for deduction of tax at source was s. 194C of the Act. The Dy. CIT who scrutinized the annual return of TDS called for copies of the agreements between the appellant and the C FR agents. On examination of the terms of the agreement under which the C FR agents were appointed by the appellant, he was of the view that in essence the agreement was for safe storage of goods and, therefore, it was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution. He also referred to the other clauses in the agreement viz., cl. 9 providing for assistance to be provided by the assessee for obtaining drug licenses, cl. 10 viz., the appellant assuming responsibility for obtaining insurance policies, cl. 11 providing for costs of stationery for preparing invoices and other papers being borne by the appellant, cls. 12 and 13 which provides for reimbursement of costs of freight, transportation and other incidental charges to be reimbursed to the agent by the appellant, cls. 14 to 16 which provides for banking services being undertaken by the agent on behalf of the appellant. From the above terms of the agreement, the Dy. CIT concluded that the dominant or overwhelming intention of the agreement between the parties was providing "Warehousing services". He also referred to the fact that payment for several other services set out above were separate from the payment mentioned in cl. 33(a) of the agreement which provided that the agent will be paid 1.85 per cent of the amount of invoice raised per month on the gross value of the goods sold. The payment to the agent on the basis of sales was not determinative of the fact that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges will be subject to deduction of tax under s. 194-I of the Act. The Dy. CIT ultimately concluded that the payment by the appellant to the C FR agents were in the nature of payment of rent and consequently there was a short-deduction of tax at source and consequently raised a demand for tax short- deducted and interest on tax short-deducted as per provisions of ss. 201(1) and 201(1A) of the Act. 6. On appeal, the CIT(A) confirmed the order of the Dy. CIT. Hence, the present appeal before the Tribunal. 7. We have heard the submissions of the learned counsel for the appellant as well as the learned Departmental Representative. 7.1 The learned counsel for the appellant drew our attention to the various clauses in the agreement and submitted that the agreement contemplates rendering of several services by the agents and the storage of goods was only incidental. He referred. to the fact that under cl. 33 of the agreement, in consideration of the services to be rendered by the C FR, remuneration was payable at 1.85 per cent of the amount of invoice raised per month for the gross value of goods sold. In addition to the above, the appellant was to bear the cost of transportati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land or building can be obtained by a person only under a lease, sublease or tenancy and the words "any other arrangement or agreement" has to be construed as making a reference to particular words which precede the above expression. According to him the appellant had no interest either as a lessee or sub-lessee or a tenant in respect of the warehouses where the goods were stored. The fact that in the area where appellants goods are stored is displayed by a sign board and earmarked, the fact that the goods are deemed to be under constructive possession of the appellant will not make the appellant either a lessee or sub-lessee or tenant of the premises. 7.3. It was submitted by him that the agents to whom payments were made had paid taxes on the receipts from the appellant and in such circumstances the purpose of the Revenue having been served, no proceedings against the appellant either for recovery of tax not deducted at source or interest on tax not deducted at source should have been taken. Reliance was placed on the following decisions in this regard: 1. CIT vs. Manager, Madhya Pradesh State Co-operative Development Bank Ltd.(1982) 31 CTR (MP) 187: (1982) 137 ITR 230 (MP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) to (c)....... (d) any company; or (e) to (j)....... shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein. (2)....... Explanation I : For the purposes of sub-s. (2), the expression "contractor" shall also include a contractor who is carrying our any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outsideIndia. Explanation II : For the purposes of this section,.... Explanation III: For the purposes of this section, the expression "work" shall also include- (a) advertising; (b) broadcasting and telecasting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of s. 194-I. Under the agreement with the C FR agents, the C FR agents have to render the following services for. sales, marketing, distribution, etc. of products of the appellant. Under cl. 1 of the agreement with M/s Ranbaxy Laboratories Ltd., the agent was to act as C FR agent for storage and distribution of appellant's pharmaceutical dosage forms throughout theRepublicofIndiaand theKingdomofNepal. Under cl. 2 of the agreement the agent's representation that he is in legal possession of storage facilities in different parts ofIndiais recited. Under cl. 3 the agent was to store the appellant's product in a demarcated area. Under cls. 4 and 5 title to the goods so stored was to remain with the appellant and that the possession of the agent is deemed to be in constructive possession of the appellant. Under cl. 6, the agent cannot hypothecate, etc., the goods nor shall he remove the goods from the premises, without written orders of the appellant. Under cl. 7, the condition in which the goods were to be stored is set out. Under cl. 8, the agent confirms that it possesses all licenses, permits, etc., under the relevant law as are required for storage and distribution of goods of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover, and if the composite arrangement is in essence the agreement for taking the premises on rent, tax will be deducted under s. 194-I from payments thereof. We are of the view that the said circular would not be of any assistance to the case pleaded by the Revenue. The agreement, terms of which we have set out above, cannot be said to be a composite arrangement which is in essence an agreement for taking premises on rent. The appellant does not have any interest whatsoever over the various places where his goods are stored. The agreement between the appellant and the agents cannot also be said to be a warehousing agreement. 12. Explanation to s. 194-I defines rent for the purpose of the said s. 194-I to mean any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory-building), together with furniture, fittings and the land appurtenant thereto whether or not such building is owned by the payee. Admittedly in the present case there was no lease, sublease or tenancy. The question is whether the payment would fall as a payment made under "any other agreement or arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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