TMI Blog2005 (2) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-company. The findings of the AO were as follows : (a) Clauses 4 to 12 of the agreement concentrated on the physical space provided to the assessee which, according to the AO, was the main ingredient of the agreement; (b) As per cls. 8 and 9 of the agreement, it was not an outright sale to the agent but the property in the goods remained with the assessee; (c) As per cl. 11 of the agreement, the assessee had free access to the property at all times and had powers to inspect the goods, to make inventory, to take charge of and remove the goods without any hindrance; (d) Minimum guarantee was fixed to be paid to the C F agents; (e) Expenses incurred for certain minor services were reimbursed by the assessee to the C F agents. After considering the above aspects, the AO came to the conclusion that the dominant purpose of use of the premises was of storage of goods and that there was a deliberate arrangement to camouflage the transaction and make it look like a transaction of services. The explanation offered by the assessee could not convince the AO. Accordingly, short deduction of tax under s. 194-I was computed at Rs. 4,18,200. Interest under s. 201(1A) was cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. Thus, "rent" for the purposes of s. 194-I, is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, where the agreement is not predominantly for the use of land or building, but for something else, then payment under that agreement will not constitute rent even if that "something else" involves the use of land or building as an integral part of or incidental to the predominant objective of the agreement. Let us consider the facts of the case before us in the light of this basic concept of "rent". 7. The assessee has appointed several C F agents. The appointment of C F agents is necessitated for a smooth and proper distribution of its goods over a particular area. In other words, C F agents are a link between the manufacturer and the consumers. It is a part of sales and distribution network of the manufacturer. The manufacturer despa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise. In the final analysis, we hold that s. 194-I does not apply at all to the payments made by the assessee to its C F agents. 8. We now take up the issue relating to s. 194H of the Act. It was observed by the AO that in order to boost its sales, the assessee had offered huge commission to its distributors and dealers in the form of incentives and discounts by using different names. They were : (a) trade discount, (b) regional sales promotion, (c) key dealer incentive, (d) fast track bonus, (e) trade scheme (f) sales promotion, (g) sales promotion (price buffer), (h) special discount (institutional sales), and (i) market alterations. All these put together aggregated to Rs. 28,26,33,417. The AO noted the absence of written agreement between the assessee and distributors/dealers and was of the view that the assessee had tried to camouflage the real transaction which was in the nature of principal to agent by giving it a colour of principal to principal transaction. Therefore, he treated the entire amount of Rs. 28.26 crores as commission and held that assessee was liable to deduct tax therefrom under s. 194H of the Act. Not having done so, total demand of Rs. 3,31,52,900, inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions and the material on record. Clause (i) of the Explanation to s. 194H provides for an inclusive definition of the term "commission". It envisages three types of payments which can be regarded as "commission". They are : (a) payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services); (b) payment received or receivable, directly or indirectly, by a person for any services in the course of buying or selling of goods; (c) payment received or receivable, directly or indirectly, by a person in relation to any transaction relating to any asset, valuable article or thing, not being securities. Out of the above three types of payments, we are not concerned with the third type of payment. As regards the first type of payment, the CIT(A) has accepted that the arrangement of distributorship/dealership is on principal-to-principal basis and not on principal-agent basis. This conclusion reached by the CIT(A) is not under challenge before us. Since the first type of payment envisages a person acting on behalf of another person, it will not apply to the facts of the present case as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents placed on record. Clause 5.1 of the dealership agreement clearly indicates that the dealer will be purchasing the goods from the assessee. Clause 7 of the agreement stipulates that the dealer shall pay for the products ordered and accepted by it against delivery. Clause 6.1 of the agreement stipulates that the dealer is free to sell the goods at any price subject to the condition that it shall not be sold at a price beyond the maximum price suggested by the assessee. All these go to indicate that: (a) the distributor/dealer is not acting as an agent of the assessee; (b) the distributor/dealer pays for the goods he buys; (c) the profit of the distributor/dealer depends mainly on the prices at which he is able to sell the products, rather than on the progression of sales which would have been the case if the remuneration of the distributor/dealer would have been in the form of commission. Broadly speaking, one can of course say that the distributor/dealer is effecting sales on behalf of the assessee and that his profit will depend on the sales he makes. However, in saying so, one is missing the point that if the distributor/dealer were to earn by way of commission, then ..... X X X X Extracts X X X X X X X X Extracts X X X X
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