TMI Blog2011 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... of Commission and consequently no addition made u/s 40(a)(ia) of the Act is warranted for non-deduction of tax at source on such discounts 3. The facts relating to the issue are discussed in brief. The assessee is engaged in the manufacture and sale of soft drinks under the brand name Pepsi . The company has appointed distributors and it supplies its products to the distributors, who in turn supply them to the retailers. The company is also directly 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p between the assessee and its distributors is that of Principal to Principal and not Principal to Agent . Aggrieved by the orders of Ld CIT(A), the revenue is in appeal before us for both the years. 4. Ld DR invited our attention to the restrictive clauses extracted by the assessing officer from the Agreement entered between the assessee and the distributor and submitted that the assessee, by incorporating such restrictive clauses, has taken full control over the business by the distributor 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 invi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tan Coca-Cola Beverages Ltd. is distinguishable, i.e. in that case, the assessee had debited Commission expenses separately in its Profit and Loss account and hence the ratio of the said case cannot be applied to the instant case. According to Learned A.R, the other cases relied upon by the Ld DR are also not applicable to the facts of the instant case. For example, in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case in view of the various clauses cited above. According to Learned A.R, the decision in the case of Hindustan Coca-cola beverages Ltd. has been distinguished by Hon ble ITAT Pune bench in the case of Foster s India (P) Ltd. v. ITO (2008) (IDI)-GJX-0163 -TPUN. 6. We have heard the rival contentions and carefully perused the 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 distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court in the case of Idea Cellular Ltd. (supra) has extracted at paragraph 27 of its order, the following observations made by the cochin bench of ITAT in the case of Vodafone Essar Cellular Ltd. 34. We do not think that this so-called pricing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and also reimbursement of supplies made by the appellant to certain designated customers showed that the agreement was a contract of sale and not of agency. Further, the term requiring the dealer to furnish statements of sales and other matters showed 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 Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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