New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (8) TMI 655 - ITAT VISHAKHAPATNAM

2015 (8) TMI 655 - ITAT VISHAKHAPATNAM - TMI - TDS liability - application of provisions of section 194H by the assessing officer (I.T.O., T.D.S.) to payments effected by appellant to retail dealers through Del-credere Agents, as commission paid to Del-credere Agents also confirmed by CIT(A) - Held that:- the del-credere agents cannot be considered to “Payees” in these transactions as interpreted by Ld CIT(A), since they have acted only as conduits. The payment is actually made to the retail dea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Decided of favour of assessee.

Short deduction of tax on payments made under the head “Brand fee” - payment of Royalty or not - TDS u/s 194J or 194C - Held that:- Though the Ld A.R tried to contend that the entire payment could not be considered as payment of royalty, yet no material was placed to substantiate the said contentions. If the contention of the Ld A.R that the amount transferred by way of “brand fee” was actually a transfer of business profits is to be accepted, it has to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e declared the same as their respective income. The Ld CIT(A) has also directed the AO to restrict the interest chargeable u/s 201(1A) of the Act till the date of payment of tax by the recipients. The above directions are in accordance with the provisions of the Act and also in accordance with the decision rendered by Hon’ble Supreme Court in the case of Hindustan Coca-cola beverages Ltd (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) - I.T.A. Nos.103, 104 & 105/Viz/2014 - Dated:- 10-8-2015 - SHRI D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sake of convenience. Grounds of appeal filed for AY 2008-09 read as under: 1) The Order of C.I.T.(A) Dt:31-01-2014 confirming partly, the order passed by I.T.O., T.D.S., Ward-6(1), Visakhapatnam Dt:29-10-2010 U/s.201 & 201(1 A) of the Income tax Act is illegal and unjust. 2) The C.I.T.(A) is not justified in upholding the application of provisions of section 194H of the IT Act by the assessing officer (I.T.O., T.D.S.) to payments effected by appellant to retail dealers through Del-credere Ag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing that there is obligation to deduct T.D.S. under Section 194H and further confirming that the assessee deductor would be liable to pay Demand raised ₹ 1,03,99,771/- u/s.201(1) even if the Tax Deductees have paid the tax on their regular Incomes. 4) The C.I.T.(A) failed to take into consideration, the principles laid down by Allahabad High Court in Jagaran Prakasan (2012) (21 Taxation 489) and the decision of I.T.A.T. Calcutta in the case of Rama Krishna Vedanta Math Vs I.T.O., Ward-15(1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

x deductees have filed IT Returns and paid taxes on the incomes admitted. 6) The C.I.T.(A) is not justified in treating the contractual payments made to M/s. United Breweries Ltd., Bangalore and M/s. Millennium Breweries Industries Ltd., Bangalore on which T.D.S. was deducted U/s.l94C of the IT Act, as payments made to the respective companies as Royalty payments and there after uphold the action of the Income tax Officer (T.D.S.) in determining short deduction of T.D.S. by applying provisions o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

wo grounds:- (a) Whether the Ld CIT(A) was justified in holding that the payments made to retail dealers under Trade discount scheme would amount to Commission liable for deduction of tax at source u/s 194H of the Act. (b) Whether the Ld CIT(A) was justified in holding that the contractual payments made to M/s United Breweries Ltd, Bangalore and M/s Millenium Breweries Industries Ltd, Bangalore would amount to payment of Royalty liable for deduction u/s 194J of the Act, even though the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n agreement called Brewing and Distribution Agreement with another Group Company. It is stated that the distillery unit was originally set up by M/s GMR Beverages & Industries Ltd and later it was acquired by United Millennium Breweries Pvt Ltd, which later got merged with M/s United Breweries Ltd. In the paper book, the Brewing and Distribution agreement dated 04-03-2005 entered between M/s Inertia industries Ltd and M/s GMR Beverages & Industries Ltd is enclosed in pages 24 to 40. It h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n that the assessee has committed default in terms of section 201(1) and also levied interest S.201(1A) as follows in respect of amount paid under Trade Schemes and Discounts:- A.Y. Trade Scheme & Discounts Non deduction TDS U/S.194H as per ITO u/s.201 TDS U/S.194H as per assessee 2008-09 10,32,37,0207- 1,03,99,7717- NIL 36,14,389/- 2009-10 10,65,27,7077- 1,09,72,3537- NIL 24,63,0627- 2010-11 5,86,47,6307- 59,17,8157- NIL 6,13,4067- 3.1 Besides, the AO also noted that the assessee-deductor h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) Interest u/s.201(1A) 2008-09 9,13,64,139 79,84,844 27,55,997 2009- 2010 4,17,26,245 37,82,069 9,95,907 2010-11 2,26,48,247 20,12,125 2,56,894 4. The facts relating to the Non-deduction of TDS on payments made under Trade Discount Scheme have been discussed as under by Ld CIT(A):- 3.5 From the information gathered during the survey, the AO noted that the assesseedeductor has paid ₹ 10,32,37,0207- in F.Y.2007-08; ₹ 10,65,27,707/-in F.Y.2008-09; and ₹ 5,86,47,630/- in F.Y.2009-1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hy the company should not be treated as assessee in default u/s.201(1). In response to the notice issued by the Department, the assessee-company had filed reply as under;- The expression 'trade schemes' refers to the additional incentive provided to the dealers for achieving certain targets, which normally is reflected as an additional trade discount. As you may be aware, normally the dealers are entitled to 2 types of discount viz., Cash discount and Trade discount. A cash discount as t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the time of payment of commission or brokerage. Admittedly here, the trade discount which is a rebate in the selling price does not constitute either the brokerage or partake the character of commission. Accordingly, we submit that the provisions of section 194H are not applicable to the trade discounts and rebates given by the company to its dealers. In our case, since the ascertainment of exact quantity sold arises subsequently trade discounts are paid to the retailers through our agents and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

schemes' has not been passed to the end users i.e., retail purchaser. Therefore, the AO came to the conclusion that what-ever be the nomenclature used by the tax deductor as the payments are made for the services rendered to the tax deductor in the course of selling of its goods the provisions of section 194H would be applicable. The AO, accordingly, found the assessee to be in default u/s.201(1) and u/s.201(1A) of the I.T.At for the amounts aforestated. ……. 3.12 The assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rice for the beer supply with APBCL is fixed. The APBCL would procure from time to time depending on the demand for the supply of brands and the assessee is required to supply as per the rates agreed in the contract. It was clarified that the sales made to APBCL is recorded as sales turnover in the books of the assesseecompany. 3.13 It was represented that to market the products and brands manufactured by the assessee, the assessee's principal UBL had appointed del-credere agents who liaison .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

copies of acknowledgements of their returns of income were filed. (i) M/s. Shriram Marketing, Ameerpet (ii) M/s. Vitari Distributors Pvt. Ltd., (iii) M/s. Prayag Enterprises Pvt Ltd., However, the assessee could not give complete information as to who were the delcredere agents during the relevant financial years. It is seen from the details filed in ITA No.360/2010-11 relating to A.Y.2008-09 one Anupama Distributors Pvt, Ltd has also functioned as del-credere agent. 5. The assessee submitted b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lers. It was also represented that all the payments were made through account payee cheques and were debited under the head "trade scheme and discounts" in its books of account. It was further represented that the purpose of the payment was to induce the retail dealers to place orders for the assessee's brands/products with APBCL. Accordingly it was contended that the said payments cannot be considered to be Commission payments, since the payments have been made on principal to pri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

payments as Commission. The assessee contended that there is no principal agency relationship between the assessee and the retail dealers as the sales to them are effected to APBCL. Accordingly it was contended that the payment is not covered within the purview of commission or brokerage . 6. The Ld CIT(A), after examining the contentions of the assessee held as under:- 3.25 I have considered the pleas raised. All the above decisions are not applicable to the facts of this case. In all the abov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

its del-credere agents and they would be the payees and not the retail dealers. Such relationship of payer & payee would not change even if the claim that the payments were ultimately passed on to retail dealers were to be true. However, the assessee has not substantiated such claim. Being del-credere agents the relationship of principal and agent is clearly established. The del-credere agents have rendered the service of promoting the brands/products manufactured by the assessee inducing t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act. Accordingly, the Ld CIT(A) confirmed the order of the assessing officer. Being aggrieved, the assessee is in appeal before us. 7. The Ld A.R submitted that the assessee has made payments to the retail dealers under the Sales promotion scheme promoted by it with the name Trade schemes and discount . He submitted that the existence of Principal- Agent relationship and provision of service by the agent to the principal on his behalf are two essential requirements to treat the payments as comm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

del-credere agents have opened separate bank accounts for this purpose. He submitted that the said agents would collect the details of sales effected by each of the dealers and compute the incentive payable to the retail dealers as per the Scheme. On receipt of the said details, the assessee would transfer funds to the separate bank account of the del-credere agents, who in turn, would make payment to the concerned retail dealers. Accordingly, he submitted that the del-credere agents have acted .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

In this regard, the ld A.R. placed reliance on certain case laws. He invited our attention to the decision rendered by Hon ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association Vs. Union of India, 257 ITR 201 (Guj). In the above said case, Hon ble Gujarat High Court has explained the difference between agency and sales and held that the discount received by the stamp vendors on purchase of stamp papers does not constitute commission attracting the provisions of section 194 H .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2. It is a case where the assessee therein was also manufacturer of Beer and it appointed distributors for marketing its products. Under sales promotion scheme, it paid incentive to its distributors, early payment discount and bond expenses. The said payments were considered to be Commission by tax authorities. The Tribunal held that they do not constitute commission so as to attract TDS under section 194H of the Act as there is no principal-agent relationship between the assessee and its distri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ade to the distributors of the assessee under sales promotion scheme has been held to be not Commission in the above said case, even though there is direct relationship between the assessee therein and the distributors. The Ld A.R submitted that in the instant case, there is no direct relationship between the assessee herein and the retail dealers and hence the case of the assessee stands in a better footing, i.e., there cannot be any doubt that the payments made under Trade discount scheme fall .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oup customers were not providing any service to the assessee and were only getting flight tickets at a concession from the assessee. Hence such customers could not be considered as agents of the assessee and hence, the discount paid by the assessee cannot be considered as commission. 11. The Ld D.R, on the contrary, submitted that the assessee has made the payment under trade discount scheme to the del-credere agents and they have provided services to the assessee in connection with the promotio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tions on this issue and perused the record. Under the provisions of section 194H of the Act, the term commission is defined as under:- Explanation.-For the purposes of this section,- (i) commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

payee, since the agent acts on behalf of the principal. If the relationship between the payer and payee is in the nature of principal to principal, then it cannot be said to be a service provided by one person on behalf of another person and hence the said payment cannot fall under the definition of commission. Accordingly, we are unable to agree with the observation of the Ld CIT(A) that the provisions of section 194H does not provide that the relationship between the should be that of princip .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt of certain targets in sales. Under this promotional scheme, the retail dealers will be motivated to purchase more quantity of beer manufactured by the assessee, which in turn would increase the turnover of the assessee. In order to market trade discount scheme and also in order to promote sales of its products, the assessee has appointed del-credere agents. There is no dispute with regard to the fact that the payment made to delcredere agents for the services provided by them to the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the payments have been made to del-credere agents. 14. At this juncture, we may gainfully refer to the decision rendered by the Hon'ble Supreme Court in the case of Bhopal Sugar Industries Ltd Vs. STO AIR 1977 Supreme Court 1275, wherein the Hon ble Apex Court has explained about Contract of sale and Contract of Agency . The head notes of the said judgment are extracted below:- In a contract of sale, title to property in the goods passes on to the buyer on delivery of the goods for a pri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not per se convert a contract of sale into one of agency. A contract of agency differs from a contract of sale in as much as an agent, after taking delivery of the property, does not sell it as his own but sells it as the property of the principal under his instructions and directions. While interpreting the terms of an agreement, the court has to look to the substance rather than the form of the agreement. Use of words like agent or agency , buyer and seller is not sufficient to lead to the in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the principal. Furthermore, since the agent is not the owner of goods, loss, if any, suffered by the agent is to be borne by the Principal and the agent shall be indemnified by the principal. The payment received by the agent for the services rendered to the principal is understood as Commission . The Hon ble Gujarat High Court has followed the above said decision of the Hon ble Supreme Court (supra) in deciding the issue before it in the case of Ahmedabad Stamp Vendors Association. Following .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aning of section 194H. If this contention were to be accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from semi wholesaler to a retailer would be covered by section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stomer (purchaser of car) on behalf of the company. However, such services rendered by the dealer in the course of selling cars does not make the activity of selling cars itself an act of agent of the manufacturer when the dealings between the company and the dealer in the matter of sale of cars are on principal to principal basis. This is just an illustration to clarify that a service in the course of buying or selling of goods has to be something more than the act of buying or selling of goods .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nification and is understood as an allowance for service or labour in discharging certain duties such as for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some services to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can be for a variety of services and is of the nature or recompense or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealings with one another it is nothing unusual to do so. The decision rendered by Hon ble Bombay High Court (supra) also clarifies that the Commission is in the nature of recompense or reward for the services rendered. 15. The assessee has contended before the Ld CIT(A) that the incentives paid by it under Trad .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

case of Harihar Cotton Pressing Factory (supra) has clarified that the rebate (akin to discount ) need not be immediate, but can be handed back to the payer after receipt of payment also. Further, the Ld CIT(A) has also referred to the meaning of the term Discount explained by the CBDT in the context of Fringe Benefit Tax in para 3.16 of his order. The CBDT has clarified that the bonus points given to credit card customers are in the nature of deferred sales discount. The decision of Hon ble Bom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

who purchased the assessee s products from APBCL. 16. We also notice that the co-ordinate bench of Visakhapatnam Bench has considered an identical issue in the case of Additional Commissioner of Income Tax Vs Pearl Bottling (P) Ltd., 46 SOT 133. The assessee therein is a manufacturer of soft drinks. It has fixed Maximum Retail Price (MRP) for its products and they were sold at a discounted rate. The assessee supplied goods to its distributors, who in turn, would sell them to the retailers in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e relationship between the assessee therein and its distributor is on principal to principal basis. Accordingly, the Tribunal held that the reimbursement of discount given to the retailers and also promotional discount given to the distributors do not constitute commission. 17. In the instant case, the assessee apparently paid incentives under its sales promotion scheme to the retail dealers. We have already noticed that the assessee has sold goods to APBCL and the retail dealers have purchased .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nounced by the assessee in order to promote its sales and hence it is a sales promotion scheme only. Under the scheme, the assessee has disbursed the eligible amount of incentive or rebate or discount to the retail dealers through its del-credere agents. Hence the del-credere agents cannot be considered to Payees in these transactions as interpreted by Ld CIT(A), since they have acted only as conduits. The payment is actually made to the retail dealers. Accordingly, we are of the view that the p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of tax on payments made under the head Brand fee . The facts relating to this issue are set out in brief. The assessee herein possessed manufacturing facility along with license for manufacture of beer. Since it did not own any brand and since the beer is generally sold under a brand name, it had entered into an agreement to manufacture beer on behalf of other companies, who owned brand names. The assessee herein manufactured beer under a contractual agreement entered with United breweries group .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

other words, the entire production process up to the point of sale is part of a contractual agreement, where by the assessee produces under the brand name the goods conforming to the products specifications and supply the same to the State owned Marketing Corporations. Since the invoice is raised by the assessee company on all the State Owned corporations, the said price becomes part of the turnover of the _ __ _ assessee. In terms of the very same agreement the assessee company re-distributes t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ases and sales. However, the assessee is entitled to receive a fixed sum of ₹ 30/- per case of 12 bottles. The assessee would also get funds for payment of sales tax and excise duty. At the end of the year any profit over and above the amount of service charges worked out @ ₹ 30/- per case would be paid to the main line companies as brand fee . Hence, at the end of the year, the net profit of the assessee company would be the amount calculated @ ₹ 30/- per case only. 20. In res .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ult in respect of short deduction of tax and raised demand u/s 201(1) and 201(1A) of the Act. The Ld CIT(A) confirmed the order of the AO in principle. However, since the assessee claimed that the payees have declared the brand fee as their income and paid tax thereon, the assessee claimed that the demand u/s 201(1) should not be raised as per the decision of Hon ble Supreme Court rendered in the case of Hindustan Coco Cola beverages Ltd (293 ITR 266)(SC). The Ld CIT(A) held that the assessee ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the nomenclature brand fee is used for making payment to the Contractees, yet the entire payment cannot be considered as brand fees . He submitted that the assessee is entitled to job work charges of ₹ 30/- per carton and all other profits are transferred to the Contractee. However, due to licensing requirements, the assessee had treated the production and sale of beers as its own activity of production and sales. Accordingly he submitted that the real owner of the profit is the Contracte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see contractor, in order to ensure the quality of the products. The Contractee has also provided funds for payment of excise duty and sales tax. Hence major portion of profit should be attributable to the resources provided by the contractee companies and only a portion of the same may be attributed towards brand fee . The Ld A.R further submitted that the assessee has purchased materials for manufacturing beer on its own and produced the beer according to the specifications specified by the con .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct and also directed to reduce the interest charged u/s 201(1A) of the Act. 23. We have heard rival contentions and perused the record. The assessee might have acted as contract manufacturer, but the facts remains that, for all practical purposes, it has declared itself to be the manufacture and has also sold the products under its invoice only. The financial statements prepared by it also vindicate the same. When, for all legal requirements, the assessee has claimed itself to be the manufacture .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version