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TMI Blog2011 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly supplying its products to certain kinds of retailers, like hotels, restaurants etc. without involvement of the distributors. The company has fixed the "Maximum Retail Price" (MRP) for all its products and the products are supplied to the retailers at a discounted rate. The methodology followed by the company in this regard is stated as under:- (a) In the case of retailers to whom the products are directly sold, it is stated that the company is reducing the applicable discounts in the invoice itself and only the net amount is collected from them. (b) In case of products that were sold through the distributors, it is stated that the said distributors offer discount to the retailers in the market and at the end of each month, they raise a claim before the company for reimbursement of the aggregate amounts of discounts so allowed during that month, which is said to be reimbursed by the assessee. (c) The assessee also allows discounts to its distributors a discount called "Promotional Discount" on fulfilling/achievement of sales targets that are fixed from time to time. It is stated that the quantum of discount is not fixed on a fixed per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the distributor is constrained to carry on his business as per the dictates of the assessee herein. Further the distributor shall not be entitled to deal with any other products without obtaining express written permission from the assessee. According to Ld DR, such kind of restrictions translates the relationship between the assessee and the distributor into that of "Principal to Agent". The Ld DR further submitted that it is well settled principle that the nomenclature given to a transaction shall not decide the nature of the transaction and the substance of the relationship should be decided on the basis of the terms and conditions of the agreement between the parties. By inviting our attention to the decision of M/s Hindustan Coca-cola beverages, (Supra), the Learned Departmental Representative submitted that the AO has brought out the parity of facts between the instant case and the case of M/s Hindustan Coca-cola Beverages, supra in page 9 of the assessment order and hence, the ratio of said decision shall squarely apply to the instant case. Accordingly the Ld D.R submitted that the amount paid to the distributors in the instant case partake the character of commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of Idea Cellular Ltd, supra, the relationship is established between the company and the customer upon the sale of SIM card and there after the company continues to provide services to the customers. Hence the distributors of the SIM card were considered to be the agents of the company. However, in the instant case, no such relationship is created between the assessee company and the customers by the distributors. With regard to the comments of the Assessing Officer, the Learned A.R submitted the following:- (a) The company is manufacturing the soft drinks as per the agreement entered with Pepsico Inc.. As per the agreement, which is placed at pages 157-170 of paper book relating to the assessment year 2005-06, the assessee can market its products only in the territories described in the agreement and further the assessee has also to ensure that its distributors also fully comply with the terms and conditions of the said agreement Hence the assessee is constrained to incorporate all types of such restrictions on the distributors. (b) As per clause 2.5 of the agreement entered between the assessee company and its dealers, the said dealers are not en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he record. There is no disagreement between the parties that the provision of sec. 194H relating to the TDS on commission shall be applicable only if the relationship between the assessee company and its distributors are in the nature of "Principal to Agent". The corollary is that the said TDS provisions shall not apply if the nature of the relationship is that of "Principal to Principal". Hence, the first issue that should be resolved is to ascertain the kind of relationship that existed between the assessee company and its distributors. It may be noted here that the distributor is described as "Dealer" in the agreement between the assessee company and its distributors. Hence we presume that in the instant case, the distributor and dealer refer to the distributor only. According to the revenue, the relationship between the assessee company and its distributors is in the nature of "Principal to Agent", while according to the assessee, it is in the nature of "Principal to Principal". In the various case law relied upon by both the parties, the courts have attempted to ascertain the nature of relationship first and then answered the questions posed to them. The pertinent point to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing freedom is so crucial in examining the exact nature of the business relation between the assessee company and its distributors. The pricing factor is also a matter of mutual consent between the parties. Even in the case of an agency, there can be a clause by which an agent is authorised to sell the goods for a price less than the MRP. Even in a case of principal-to-principal, there may be a clause that the distributor cannot sell a product for a price less than the MRP unless a consent is given by the manufacturer. The matter of pricing in both the cases i.e. principal-to-principal and principal to agents can be a matter of mutual consent between the parties and even a matter of negotiation after the execution of the agreement. There are no hard and fast rules of any legal proposition as far as these matters are concerned". 8.2 The Hon'ble Supreme Court has considered this issue in the case of Bhopal Sugar Industries Ltd v. STO AIR 1977 SC 1275 and head notes of the said judgment has been extracted by this bench in its order dated 20-07-2009 in the case of NMDC Ltd. v. ACIT (TDS). The same is extracted below: "In a contract of sale title to property in the goods passes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company wanted to keep itself fully informed of the proper conduct of the business in order to maintain its goodwill and to terminate the agreement in case it found that the appellant was misusing the privilege given to it. The term "commission and allowances" indicated that certain special benefits were conferred by the company on its distributors. It did not show that it was an agency nor was the term requiring the appellant to furnish security for the due observance and performance of the stipulations and indication that the agreement was an agency." 8.3 Thus, from the order of Hon'ble Supreme Court cited above, it can be noticed that all the points that were listed out by the Assessing Officer has been found to be not vital to determine the nature of relationship. 9. On a careful perusal of the agreement between the assessee company and its dealers and on consideration of the arguments of the Learned Authorised Representative summarized above, we are of the view that the title to property in the goods got transferred from the assessee to the distributors. Accordingly, we hold that the relationship between the assessee company and its distributors is in the nature of ..... 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