TMI Blog2009 (7) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for paying any income by way of commission or brokerage, at the time of credit or payment thereof, whichever is earlier, to deduct income-tax thereon @ 10 per cent To determine the rights and obligations of the parties through a contract, it is always the intention which should prevail i.e., the substance must prevail over the form - In the case of Hindustan Coca Cola Beverages (P) Ltd. vs. ITO (2005) 98 TTJ (Jp) 1, wherein, the facts were that commission on sale of goods by the distributors, who were allowed to make sales only in the area precisely specified by the assessee company and they had no independence whatsoever of fixing the sale price by reducing their margins - . Thus, we are convinced that s. 194H, is not applicable on the facts and circumstances of the present case and therefore, it is held that the demand raised by the ITO, is without jurisdiction and hence quashed Interest - The learned Authorised Representative submitted that this is consequential to the earlier grounds - Held that the assessee was not liable to make any deduction under s. 194H hence there cannot be any charging of interest under s. 201 (1A) – Appeal is allowed - IT APPEAL NO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng given at pp. 4-6 of the impugned order and finally concluded that the payments made to the distributors were of the nature of commission and therefore, the assessee should have made deduction of tax at source @ 5.65 per cent. Consequentially, he required the assessee to deposit Rs. 9,53,664 relating to the financial year 2006-07 (asst. yr. 2007-08). Further interest under s. 201(1A) totalling to Rs. 1,14,439 was also levied. 4. In the first appeal, the learned CIT(A) at p. 4 para 3.3, after referring to the agreement with Shri R.K. Lonugani observed that the contract between the parties was for transportation of milk and not distribution. The assessee does not issue sale bills for this purpose. Only gate pass and delivery challan are issued for the milk. The sale bills are issued for other products like curd, Chacha etc. He therefore, supported the view of the ITO that the contract was for transportation only and not for purchases and sales. He found the reliance placed on Gujarat High Court decision is not of much relevance and referred to the CBDT Circular No. 619 dt. 4th Dec., 1991 [(1991) 100 CTR (St) 33], cited by the ITO-TDS and finally confirmed that the assessee was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions (in that case) per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of a sale. In this case also, the inference drawn by the authorities below from the wordings used, in the contract, cannot mean that it was a net a contract to sale but one of agency. The learned Authorised Representative drew our attention towards the facts and circumstances of the case. He submitted that a separate contract is entered between the assessee dairy and the distributors, who purchases the milk from the assessee and in turn, further sell to the retailer i.e., the milk-booth owner. The sale prices are fixed by the assessee and there is no interference therein by the distributor/milk-booth owner. The MRP is mentioned on the packing. Certain amount of margin is kept for the distributors, which is in the nature of a trade discount for the distributor and a further similar trade discount for the milk-booth. Such trade discounts are determined, of course, keeping in mind the various types of costs borne by the distributors. For this purpose, tenders are invited and various terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2007) 293 ITR 80 (Kar) (DPB 49-50) and Asstt. CIT vs. The Samaj (2001) 71 TTJ (Ctk) 783. For this purpose, he took us to the paper book pages to show the accounting entries made by the assessee and distributors in their respective books of account. The learned Authorised Representative further submitted that it is not disputed that the sales proceeds i.e., the receipt from the distributors were credited by the assessee to a separate sales account and has also been shown as the goods sold in the audited trading accounts. He submitted that the ITO agreed that the amount collected by the distributor is fully retained by him (AO p. 4 para 40), which implies that the collected amount is a part of the sale (consideration) by the distributor from the milk-booth and if failed, shall be borne by the distributor only. More is the sale, more shall be the profit of the distributor. The learned Authorised Representative further submitted that normally the milk sold and given to the distributor is sold away on the same very day yet however, if there remains something, the assessee does not show such stock as its own closing stock on consignment or with the consignee. For this, he referred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a sale bill as mentioned by him at p. 5 para, top of the impugned order and therefore, the learned CIT(A) could not have taken a different view thereof. The said gate pass is duly signed by the buyer as a token of his acceptance of the purchases of the milk at the rate mentioned therein and by this, he legally binds himself to make payment to the seller-assessee. Thus, it was established that it was a case of direct sales and not the sale through the agents. The learned Authorised Representative further submitted as regards the findings of the authorities below, in respect of Kalayan Gujar that Kalayan Gujar was not a milk distributor but he was a mere transport contractor who was engaged in the job of collecting milk from the villagers and transporting it to the assessee. The fact that the TDS was already made and deposited under s. 194C in his case, is evident from copy of Form 16A. However, these submissions and facts were totally ignored and rather misinterpreted. The learned Authorised Representative further submitted that when the ITO asked the assessee to produce some of the distributors, it was specifically requested vide letter dt. 26th Feb., 2008 that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of milk and nothing new. As a part of commercial policy, to avoid competition, different distributors, are appointed like any other business organization. To support his contention, the learned Authorised Representative strongly relied upon a decision directly applicable on the facts of the present case in Government Milk Scheme vs. Asstt. CIT (2006) 98 ITD 306 (Pune). He also cited CIT vs. Dy. Chief Accounts Officer, Markfed (2008) 217 CTR (P H) 555 : (2008) 5 DTR (P H) 326 : (2008) 173 Taxman 149 (P H) and recent being in Idea Cellular Ltd. vs. Dy. CIT (2009) 121 TTJ (Del) 352 : (2009) 18 DTR (Del) 475. He also heavily relied upon a decision of Ahmedabad Stamp Vendors Association vs. Union of India (2002) 176 CTR (Guj) 193 : (2002) 257 ITR 202 (Guj). The learned Authorised Representative further submitted that reliance placed by the ITO on a Circular No. 619 dt. 4th Dec., 1991 (AO p. 6 para 6) was not applicable as there was no retention of commission/brokerages by the distributor. The entire sales proceeds are normally paid in advance before taking the delivery, hence there is no question of retention. This circular was given in the different context. The ITO wrongly alleged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95) 127 CTR (Ra)) 413 : (1995) 213 ITR 98 (Raj), 101. 5.1 The learned Departmental Representative, on the other hand, strongly relied upon the orders of the authorities below. He submitted that at paper book pp. 6 and 36 copies of gate pass are available. However, in one set, "invoice" is mentioned, which is not there on the other set. He also stressed over the use of the word Privahan Tekha, Tekedar etc. and contented that these were the contracts of transportation. He therefore, prayed to upheld the orders of the authorities below. 6. We have heard the rival contentions with reference to the material referred to and in the light of the judicial pronouncements cited by the parties. Before we proceed, we may refer the relevant provision contained under s. 194H, reading as under: "Any person, not being an individual or an HUF, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in s. 194D or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, at the time of credit or payment thereof, whichever is earlier, to deduct income-tax thereon @ 10 per cent. Further, commission or brokerage has been defined under Expln. (i). A bare reading of the provision makes it clear that the person (the proposed deductor) must be a person responsible to make payment by way of commission or brokerage and not otherwise. In other words, the responsibility to pay commission or brokerage 1s a condition precedent to invoke s. 194H in the hands of such a person (here the assessee, as per, Revenue). This, in turn, necessarily requires the assessee to have a relation with the payee of principal-agent. Therefore, the basic facts of the case are required to be appreciated to conclude whether the relation of principal-agent did really exist in the present case or not. However, for that purpose, one has to be clear as regards the distinction between the contract for sale and contract for agency. The element of agency has to be there, in case of all services or transactions, contemplated by the Expln. (i) appended to s. 194H. We find that there is an essential distinction between a contract of sale and a contract of agency (by which the agent is autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in turn, further sells to the retailer i.e., the milk-booth owner. Before making any supply of the milk/products, amounts of security and the bank guarantee, commensurating to the supplies and in accordance with pre-decided criteria, are first got deposited. Normally, the entire sale price of the particular supply, is received in advance i.e., before the goods move out of the factory premises. The goods are sold to the distributors at the MRP (maximum retail price) which is 'X'-factory price and Includes margin of the distributor as also, the margin of the milk-booth. The fixation of the MRP is done periodically by the assessee dairy from time to time, depending upon the fat contents and other factors viz. the particular route, the cost likely to be incurred by the distributor on the transportation (depending upon the prices of diesel oil, other cost etc.), after purchases and procurement made by the assessee dairy. There is no interference by the distributor/milk-booth owner in the fixation of MRP. The loss, if any caused or sustained by the distributor because of the non-recovery of its sale consideration from the milk-booths or because of the deterioration in the quality (fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e co-operative movement. In any case however, it is working just like any other independent business organization. Hence, the operational areas have been fixed for smooth and timely distribution of milk and there is nothing new. As a part of commercial policy, to avoid competition, different distributors, are appointed like any other business organization. The exercise of control by the assessee therefore, is in a limited aspect and should not be misunderstood. The title of the contract may show that it is a transport contract between the assessee and the distributor however, the absence of the rate per kilometre shows otherwise. In other words, had it been a transport contractor what the assessee was to pay to the transporter per kilometre must have been mentioned, as is the case with Shri Kalayan Gujar. In the later contract reproduced at pp. 1 and 2 of the impugned order the rate per kilometre i.e., Rs. 4.38 is mentioned. To determine the rights and obligations of the parties through a contract, it is always the intention which should prevail i.e., the substance must prevail over the form. A perusal of a contract between the assessee and Mr. R.K. Lonugani (the distributor) at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and are just acting as an arm of the assessee, but absolutely without any material. On the contrary, there are various other facts and evidences which, clearly indicate that the subjected transactions between the parties were principal to principal. The basic test in such cases is to see that property in the goods stands transferred between the parties i.e., from the transferor to the transferee or not. In the present case, the facts clearly suggest that the ownership stood transferred to the distributor. Thus, it was established that it was a case of direct sales and not the sale through the agents. We have carefully perused the accounts of the assessee and the distributors filed in the assessee's paper book, maintained in the regular course. Needless to say that apart from the specific contract between the parties, one may also refer to the conduct of the parties. As submitted normally the milk, being of perishable in nature, is sold and given to the distributor, is sold away on the same very day yet however; if there remains something, the admitted facts are that the assessee does not show such stock available with the distributor, if any as closing stock on consignment or wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned order and therefore, the learned CIT(A) was not justified to have taken a different view thereof. The said gate pass is duly signed by the buyer as a token of his acceptance of the purchases of the milk at the rate mentioned therein and by this, he legally binds himself to make payment to the seller-assessee. Hence, such a reading by the learned CIT(A) is against the substance and intention of the parties. On the other hand, the distributors also in their accounts, have shown the milk so purchased from the assessee as their own purchases. The opening and closing stock of the milk has also been shown in their respective trading account/s as their own stock and not as consignment stock, which strongly suggest that the ownership of the goods stood transferred to the distributor, as and when it takes the delivery. From the illustrations cited by the learned Authorised Representative in the cases of namely, Shri Sukhpal Choudhary and Shri N.S. Rathur, we find that at paper book 51 to 62, the copies of IT return, Saral, copy of tax audit report, trading account, P L a/c, capital account and balance sheets for asst. yrs. 2006-07 and 2007-08, are available. A perusal of the trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative that the same method and manner of maintenance of accounts, conduct of the parties has been followed since last 5 to 7 years however, the Department never applied these provisions nor raised demands in the past. Even though similar TDS surveys were conducted by the Department in the past. The learned Departmental Representative could not deny these facts. We therefore, fail to understand why the Department be permitted to take a departure from the factual and legal position settled between the parties over the years. It is not the case of the Revenue that during this survey, they found a change in the facts or in the law. The rule of consistency compels us, apart from the other aspects and merits, to adopt the same view that the provisions of s. 194H are not applicable this year also. We do not find any force in the reliance placed by the AO on the Explanation below s. 194H to the effect that the distributors were indirectly receiving payment for services rendered, in as much as the Revenue failed to establish the principal-agent relationship between the parties the directions given by the assessee as a principal to conduct its own business to sell milk and to bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of payment by cheque or draft or any other mode shall deduct income-tax thereon at the rate specified. Further, s. 194H has an Expln. (i) to define the term 'commission or brokerage' which includes any payment received or receivable directly or indirectly by any person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable articles or things, not being securities. So the Revenue authorities have held that the payment made by GMS to both the parties was within the definition of 'commission'. The IT Act has also defined that commission or brokerage includes any payment receivable by a person acting on behalf of another person for services rendered. So an agent is a person who acts on behalf of another person. Though the Government is running a public welfare activity by way of giving employment to youth and physically handicapped person but such welfare activity was not binding in nature but rather optional only, on one hand, to ensure the farmers to get a fair price of their milk produced and, on the other hand, to ensure the people at large to get go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise also, the legal connotations of these two expressions namely, 'commission' and 'brokerage' observed that in commercial law, the commission is a compensation to an agent for services to be rendered. According to the given definition, already described hereinabove, it is an allowance or reward made to agents. This is generally calculated on certain percentage basis on the amount of the transaction on the profits to the principal. So it is clear from the above discussion that matter of law, there is a distinction between a contract of sale and contract of agency. Though a contract of agency, an agent is authorized to sell or buy on behalf of the principal. On the other hand, the essence of a contract of sale is the transfer of title of the goods for a price paid or promised to be paid. In the context of contract of sale, the transferee is liable to the transferor a debtor for the price paid and not as an agent for the proceeds of the sale. Distinction between the two is apparent because the essence of 'agency to sell' is the delivery of goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods, and will therefore, be liable to account for the sale proceeds. These restrictions (in that case) per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of a sale. In this case also, the inference drawn by the authorities below from the wordings used, in the contract cannot mean that it was a not a contract to sale but one of agency. In the case of Idea Cellular Ltd. vs. Dy. CIT, held: 'TDS-Under s. 194H-Discount to market associates on SIM cards and recharge coupons-Discount allowed on transactions resulting in outright purchases cannot be treated as brokerage or commission. There should be in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f regarded the distribution of goods by the distributors as an extension of assessee's own business-Moreover, assessee has made entries in its books of account debiting commission account as an expenditure and crediting the same to gross revenue account-In view of aforesaid facts and the conduct of the assessee, the transactions were not on principal to principal basis but principal and agent basis and, therefore, assessee was liable to deduct tax at source under s. 194H. However, the facts of the present case are entirely different and therefore, the above decision is not at all applicable. Thus, we are convinced that s. 194H, is not applicable on the facts and circumstances of the present case and therefore, it is held that the demand raised by the ITO, is without jurisdiction and hence quashed. Also we fully agree with the alternative submission made by the learned Authorised Representative and the fact not having been denied by the learned Departmental Representative that there is no outstanding demand in the hands of the distributor, the present case is also covered by the decisions of Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, CIT vs. Rathi Gum Industries and CIT vs. Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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