TMI Blog2010 (7) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... Per R.V. Easwar, President: This appeal by the assessee pertains to the assessment year 2005-06 and the only ground taken is against the disallowance of the payment of Rs. 8,04,944 made by the assessee in computing the profits of the business. 2. .. While completing the assessment under section 143(3) of the Income-tax Act, the Assessing Officer noticed that the assessee had not deducted any tax from the royalty payment as required by section 194J. He therefore proposed to disallow the payment by invoking section 40(a)(ia). The assessee responded by furnishing the facts relating to the claim. The assessee had a sales counter in Akbarallys Departmental Stores (hereinafter referred to as ADS) in Fountain and Chembur. The assessee s products were being sold from that counter. Every fifteen days, ADS would submit the details of collection made and on the basis of these details, the assessee would prepare a bill on ADS and ADS would retain discount at the rate of 20% on the cash sales and 22% on the credit card sales and remit the balance to the assessee. These facts were brought to the notice of the Assessing Officer by the assessee by letter dated 7-9-2007. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee s books of account was not conclusive and that in these circumstances the assessee was not liable to deduct tax from the payment to ADS. It was accordingly contended that section 40(a)(ia) was not applicable and the disallowance was not justified. He submitted that even if the payment is considered to be royalty, section 194J covered royalty payments only w.e.f. 13-7-2006 and was not applicable for the year under appeal. In support of these submissions, the learned counsel for the assessee drew our attention to the contents of the paper book consisting of 30 pages. In support of his contention that discount and commission are different in nature, he referred to the judgement of the Kerala High Court in Kerala State Stamp Vendors Association vs. O/o. Accountant General Others, (2006) 282 ITR 7. In support of his contention that the goods were sold to Akbarallys at a discount and since the assessee has shown the same as sales in its sales tax returns, the same was binding on the income-tax authorities, the learned counsel for the assessee referred to the judgement of the Madras High Court in CIT Vs. Anandha Metal Corporation, (2005) 273 ITR 262. It was thus cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drew our attention to clause 22 of the agreement which provided that the intention of the parties was not to create any tenancy or sub-tenancy or any such rights of any nature whatsoever in favour of the assessee and that the intention was merely to permit and allow the assessee to conduct, manage and carry on sales of the goods in the premises of ADS for and on behalf of the ADS. It is therefore submitted that section 194H did not apply. 8. We have carefully considered the facts and the rival submissions. We may straight away rule out the applicability of section 194C which covers payments to contractors for purposes of tax deducted at source. Section 194J which covers payment of fees for professional or technical services and includes royalty within its fold is also ruled out since royalty was brought into the fold of the section by Taxation Laws Amendment Act, 2006 with effect from 13-07-2006, the date which falls subsequent to the year under appeal. The description of the payment as royalty in the profit and loss account is not decisive as rightly submitted on behalf of the assessee on the strength of the judgement of the Supreme Court in the case of Kedarnath Jute Manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only a discount and not a commission. 9. Adverting to the argument that the agreement dated 1st March, 1982 did not operate during the year under appeal, we find that the same is not borne out by the factual position. Clause 3 of the agreement provides that it shall commence to operate from 15-2-1982 and shall continue until determined by either party by giving sixty days notice in writing. Clause 17 also provides for certain other situations under which the agreement can be terminated by ADS. There are five situations contemplated by this clause under which ADS will have the right to terminate the agreement. These two clauses exclusively provided for termination of the agreement and no evidence has been brought on record to show that either of these clauses were activated by the parties. There is no evidence to show that the assessee or ADS gave sixty days notice to terminate the agreement as contemplated by clause 3. There is also no evidence to show that ADS terminated the agreement for breach by the assessee of the conditions prescribed by clause 17. Therefore the assessee is not right in saying that the terms of the agreement are mutually agreed year after year without en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. In the course of the judgment, it has been observed that a discount given on price by the seller to the purchaser cannot be termed as commission or brokerage for services rendered in the course of buying and selling of goods as the act of buying does not constitute rendering of any services. That takes us to the question whether the assessee sold the goods to Akbarallys as contended by the learned counsel for the assessee. It may be recalled that he also drew our attention to the fact that the assessee has been assessed to sales tax on the gross sales of Rs.38,09,433. In our opinion, this only shows that the assessee has sold the goods but it does not prove the further contention that the goods were sold to ADS on which discount was given. The invoice sent by the assessee to Akbarallys based on the sales report sent by ADS to the assessee also does not prove that the assessee sold the goods to ADS. In fact, the terms of the agreement dated 1st March, 1982 is only an agreement for payment of commission and it does not provide anywhere that ADS had paid for the goods from the assessee and would be selling it to the public in turn. The sales report sent by ADS to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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