TMI Blog2008 (4) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- -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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee, in short, is that the CIT(A) ought to have held that there was no tax withholding requirements from the distributors incentive , early payment discount and bond expenses paid by the assessee to its distributors. 3. A few material facts need to be taken note of. The appellant is an Indian company engaged in the business of manufacture and sale of beer. The appellant has for the purposes of sale and distribution of its products, appointed certain distributors. In the course of a survey carried out in the assessee s premises, and upon examining the appellant s books of accounts, it was noticed that while the appellant has paid certain amounts on account of distributors incentives and early payment discount , tax has not been withheld from these payments under s. 194H of the Act. It was also noticed that the appellant has appointed distributors granting them non exclusive rights to sell the products in a specified territory, that services to be rendered by the distributors are closely defined inasmuch as standards of warehousing, promotional activities and reporting requirements are controlled by the appellant, that the distributors are forbidden from appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, (iii) transit breakages and (iv) stationery, postage, electricity and other day to day running expenses on operations and maintenance of the bond; this submission of the assessee was rejected by the Assessing Officer that had it been the reimbursement of expenses, the same should have been reimbursed by the company on the basis of actual bills received from C F agents . The Assessing Officer was further of the view that as in case of every C F agent, payment on account of warehousing is inevitable and embedded . The Assessing Officer observed that the argument of the assessee that they have not occupied any space, and possession of bond is with the agent, and the conditions such as bond charges being able only in the event of sales, is also not acceptable.... It is mainly because C F agents are the custodians of the product of the assessee and product has to be warehoused for its distribution in the market . The Assessing Officer thus concluded that even though the premises is in the occupation of the agent but the expenditure reimbursed by the assessee on per case basis invariably includes payment on account of warehousing charges and the moment payment on account of wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he distributors appointed by the assessee could indeed be considered to be agents of the assessee-company. 6. A plain reading of the assessment order indicates that the very case of the Assessing Officer is that in view of the restrictions imposed by the assessee company on its distributors, the relationship between the assessee company and the distributor has to be considered to be that of principal and agent. This approach, which is clearly discernible from the following observations made by the Assessing Officer at pp. 5-6 of the assessment order as follows : ..... No independence has been granted by the assessee company in respect of several important matters so that the distributors are virtually seen operating on behalf of the company. Such restrictions can be accepted by the distributors only if the ownership is on principal to agent basis. If sale transaction is complete then why one would agree to keep, maintain warehouse as per the norms of the company, to keep records as per assessee s norms, to do sales-tax and excise formalities etc. for the assessee, and why would one give unrestricted access to the books of accounts and documents maintained by the assessee ? Why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- -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. Take for example, a beer bottle, or for that purpose even a cold drink bottle, being sold to the end consumer is sold long after its manufacture. This product, vis- -vis a similar product, which is available to the end consumer within a month of manufacture, will possibly, be at disadvantage in terms of taste and quality, and thus the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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