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2015 (8) TMI 655

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..... DS 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 be shown that the property and risk attached with the products remained with the contractee. - there is no infirmity in the action of the tax authorities in treating the payment of ‘brand fee’ as payment of royalty falling within the scope of sec. 194J of the Act. - Decided against assessee. CIT(A) has already set aside the matter relating to demand raised u/s 201(1) of the Act to the file of the AO with the direction to cancel the demand raised, if it is shown that the recipients have 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 th .....

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..... r loss on account of lapse by the Tax Deductor. 5) The Lower Authorities, in the light of evidences brought on record to show that no arrears of taxes were due from the tax deductees in respect of relevant assessment year, particularly in the light of evidence brought on record to show that Tax 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 of section 194J of the IT Act. 7) The C.l.T.(A), while upholding the levy of Interest U/s.201(1A) of the IT Act by I.T.O., T.D.S., ought to have directed I.T.O., T.D.S., Ward-6(1) to restrict the levy of Interest U/s.201(1A) till the date of filing IT Returns by Tax Deductees, following the Boards Circular No.275/20l/95 Dt:29-01 1997. Identical grounds have been raised in other two years also e .....

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..... s 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 has made certain payments by way of royalty for brand use, in respect of which the assessee-deductor has effected TDS in terms of section 194C, though it is required to deduct TDS in terms of section 194J of the I.T. Act. The said payment was made in terms of Brewing and Distribution agreement, referred earlier. As a result, the assessee-deductor was held to be in default for short deduction under section 201(1) and levied interest u/s.201(1A) as follows:- A.Y. Brand fee Short deduction u/s.201(1) Interest u/s.201(1A) 2008-09 9, .....

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..... visions 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 booked in the accounts as 'trade schemes'. This is nothing but a cash discount and no TDS provision is attracted on these payments . 3.6 The AO after considering the explanation filed by the assessee felt that the discount is generally allowed as a reduction in the price and would be reflected in the invoice itself. But in the assessee's case, the above discounts were not reflected in the invoices raised by the tax deductor. The AO also noted that the benefit of these 'trade 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 .....

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..... maintained in the name of the del-credere agents, into which the payments made by the assessee were deposited and from which disbursements were made to the various retailers. 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 principal basis. The assessee placed reliance on the decision rendered by Visakhapatnam bench of Tribunal in the case of Pearl Bottling (P) Ltd in this regard. The assessee also placed reliance on the decision rendered by Hon ble Delhi High Court in the case of Jai Drinks Ltd (2011)(336 ITR 383) and also hosts of other Tribunal decisions, all of which have been rendered in that context, i.e., it has been held that the existence of Principal Agent relationship is a mandatory requirement to treat the payments as Commission. The assessee con .....

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..... his behalf are two essential requirements to treat the payments as commission He submitted that the retail traders are businessmen on their own right and hence there was no question of providing any service by them to the assessee. Hence the relationship between the assessee and retail dealers is Principal to Principal basis and hence impugned payment shall not fall in the category of Commission payments. He further submitted that the payments under Trade discount scheme have been disbursed by the _ _ _ assessee through its del-credere agents. He submitted that the 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 as conduit only for disbursing the incentives to the retail dealers. Accordingly he submitted that the assessee has paid .....

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..... 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 falls under Sales promotion scheme and further they have been paid under Principal to Principal basis. 10. Ld A.R. also placed reliance on the decision rendered by Cochin Bench of the Tribunal in the case of ACIT vs. Al Hind Tours Travel (P) Ltd., (2013) 29 taxmann.com 294 (Cochin- Trib), wherein, the Tribunal considered the issue whether the discount paid by an Airline agent to a retail customer or group customers would constitute commission. The Tribunal held that the retail customers and group 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 an .....

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..... vernment of Andhra Pradesh Undertaking, which in turn, sells Beer to various retail dealers. Hence, in effect, there is no direct relationship between the assessee and retail dealers. However, since the turnover of the assesee would be dependent upon the sales effected with the retail dealers, the assessee has promoted a sales promotion scheme, under which incentives are given to retail dealers upon achievement 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 is treated as commission by the assessee and TDS has been deducted under section 194H of the Act from them. The incentives payable under the trade discount scheme was disbursed by the assessee to the retail dealers through del-credere agents who have opened separate bank accounts for the .....

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..... hall 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 observations made by Hon ble Gujarat High Court are also relevant here:- It is also not possible to accept the contentions of Mr. Naik for the Revenue that the definition of commission or brokerage as contained in the Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning 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 pe .....

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..... s a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance 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 Trade discount scheme is in the nature of discount. However, the Ld CIT(A) has expressed a view in paragraph 3.15 to 3.17 of his order that the discount given by the assessee would go to reduce the price of the product and in the instant case, the assessee has sold to APBCL and there is no adjustment made in the sale price towards discount. The Ld CIT(A) appears to have entertained the view that the discount should necessaril .....

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..... 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 goods from APBCL. There should not be any dispute that the sale between the assessee and APBCL and the sale between APBCL and retail dealers was on Principal to Principal basis, since the property and risk attached with the goods got transferred from seller to buyer under both occasions. Further, it cannot also be said that retail dealers have provided any service to the assessee herein, since there is no direct connection between the assessee and retail dealers. The trade discount scheme was announced 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 payment m .....

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..... s given by the main line companies under their brand name. The purchase and sales are accounted as its own purchases 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 respect of payment made by the assessee as brand fee , it had deducted tax at source u/s 194C of the Act by treating the same as Contract payment. However the assessing officer took the view that the brand fee is in the nature of royalty for use of brand name and hence the tax should be deducted u/s 194J of the Act. Since the rate at which the tax is required to be deducted u/s 194C is lower than the rate prescribed u/s 194J of the Act, the assessing officer treated the assessee as assessee in default in respect of short deduction of tax and raised demand u/s 201(1) and 201(1A) .....

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..... fications specified by the contractees. He submitted that the definition of the term work given in sec. 194C of the Act provides that the contract for manufacture would be considered as work , when the material is purchased from the customer who orders the product. 22. On the contrary, the Ld D.R submitted that the assessee is raising new contentions at the stage of the Tribunal. The Ld D.R submitted that the Ld CIT(A) has already set aside the matter to the file of the AO with regard to the demand raised u/s 201(1) of the Act 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 manufacturer of beer and has sold it under its own name by using the brand name of main line companies, it is incomprehensible as to how the assessee could claim for the li .....

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