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ITO, (TDS) Ward-58 (3) , Kolkata Versus M/s Metro Diary Limited

2015 (11) TMI 1133 - ITAT KOLKATA

TDS u/s.194H - payment in the nature of "Commission" - difference between the MRP and the price that the franchisees pay to the Assessee - CIT(A) deleted the disallowance and held that the relationship between the Assessee and its franchisee was on a principal to principal basis and was not in the nature of relationship between principal and agent - Held that:- Passing of title in the goods is important and determinative of the question whether franchisee was acting as agent or acting on a princ .....

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80 - DELHI HIGH COURT] was squarely applicable to the case of the Assessee. We therefore concur with the view of the CIT(A) and dismiss these appeals by the revenue. - Decided in favour of assessee. - ITA Nos. 852 & 853/Kol/2013 - Dated:- 20-10-2015 - P. M. Jagtap AM And N. V. Vasudevan, JM For the Petitioner : None For the Respondent : Shri M K Biswas, JCIT Sr. DR ORDER Per N V Vasudevan, JM These are appeals by the Revenue against two orders both dated 3.1.2013 of CIT(A)-I, Kolkata, passed u/s .....

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both these appeals are identical and arise out of same facts and circumstances. We deem it appropriate to pass a common consolidated order. 4. The Assessee is a company engaged in the business of production and sale of milk, icecream and other Dairy products. The Assessee sells its milk and other products to the public through franchises who have different retail outlets (booths). The Assessee enters into agreement with Franchisee setting out the terms and conditions under which they were to ac .....

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Assessee to the public. According to the revenue such difference is nothing but in the nature of "Commission" and therefore the Assessee was bound to deduct tax at source u/s.194H of the Act on the difference between the MRP and the price which the franchisee pay to the Assessee. Sec.194-H of the Act reads thus: "Section 194H: COMMISSION, BROKERAGE, ETC. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of O .....

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rsons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette , specify in this behalf; (b) Where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person refe .....

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uable article or thing; (ii) "Professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) Where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of th .....

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able 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 and selling of goods or in relation to any transaction relating to following: (i) For services rendered (not being professional); (ii) For any services in the course of buying and selling of goods or in relation to any transaction relating to any asset, valuable article or thing 5. Sec. 201(1) of the Act provides that where .....

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l such time such taxes are paid to the Government. 6. According to the AO, the following terms of the Agreement between the Assessee and the franchisee clearly showed that the Franchisee was acting as Agent of the Assessee and therefore the payment by the Assessee to the Franchisee partakes the character of "Commission": a) Clause 6.1 which provides that the Franchisee shall pay a deposit of ₹ 10,000 to MDL (Assessee) for due performance and observances of the various terms and c .....

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d a right to enter the selling premises for implementation and observance of various provisions of the agreement and to collect sample of the milk supplied by the Assessee and to check the various records in connection with the agreement. e) Clause 10.2 whereby the Assessee reserved a right to change the selling price of milk to the consumers from time to time and the same will not have any connection with the margin allowable to the franchisee. f) Clause 22 whereby the franchisee was obliged to .....

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auses of the agreement between the Assessee and franchisee would show that the arrangement for sale of dairy products of the Assessee to the public through franchisees was on the basis of principal to principal there being an outright sale of products by the Assessee to the franchisee and not in the capacity of commission agent. The Assessee pointed out that para 2 of the Franchisee Agreement provided that the Assessee will sell milk and the franchisee will purchase the same. This was very impor .....

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cense for running the business had to be obtained by the franchisee in its own name and cost. Storage of the products was the responsibility of the Assessee. The agreement also specifically provided that the arrangement should not be mistaken to consider the franchisee an agent, servant or employee of the Assessee. 8. The Assessee relied on the decision of the Hon'ble Delhi ITAT in the case of Mother Diary India Ltd. Vs. ITO 28 SOT 42(del) wherein on identical facts the Hon'ble ITAT held .....

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n'ble Calcutta High Court in the case of Bharti Cellular Ltd. Vs. ACIT ITA No.222 of 2006, were distinguishable in as much as the said decision was rendered in the context of terms of agreement between Bharati Cellular Ltd., and its franchisee whereby it was specifically provided that the property in goods will not pass on to the franchisee and unsold stock was the responsibility of Bharati Cellular Ltd. as follows: 10. The CIT(A) agreed with the contentions of the Assessee and held that the .....

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in the meaning of Sec.194-H of the Act and therefore there was no obligation on the payment of the Assessee to deduct tax at source on such payment. 11. Aggrieved by the orders of the CIT(A), the revenue is in appeal before the Tribunal. 12. We have heard the submission of the learned DR who relied on the order of the AO. We have considered the order of the AO and that of the CIT(A) in the light of the various judicial pronouncements referred to therein in the light of the agreement between the .....

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auses of the agreement as have been referred to in the orders of the Tribunal as well as those of the income tax authorities, we are unable to say that the view taken by the Tribunal is erroneous. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the concessionaire at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent of the Dairy. The clauses of t .....

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o principal. Even if the milk gets spoiled for any reason after delivery is taken, that is to the account of the concessionaire and the Dairy is not responsible for the same. These clauses have all been noticed by the Tribunal. The fact that the booth and the equipment installed therein were owned by the Dairy is of no relevance in deciding the nature of relationship between the assessee and the concessionaire. Further, the fact that the Dairy can inspect the booths and check the records maintai .....

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. These are only terms included in the agreement to ensure that the system operates safely and smoothly. From the mere existence of these clauses it cannot be said that the relationship between the assessee and the concessionaire is that of a principal and an agent. That question must be decided, as has been rightly decided by the Tribunal, on the basis of the fact as to when and at what point of time the property in the goods passed to the concessionaire. In the cases before us, the concessiona .....

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wnership vests and is transferred to the concessionaires. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missing. 13. It is irrelevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture provided by the Dairy. That fact is not determinative of the relationship between the Dairy and the c .....

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ities were not justified or correct in law in mixing up the two distinct relationships or telescoping one into the other to hold that because the concessionaires were selling the milk and other products from the booths owned by the Diary and were using the equipment and furniture in the course of the sale of the milk and other products, they were carrying on the business only as agents of the Diary. 14. We may refer to the judgment of this Court in the case of Delhi Milk Scheme vs CIT (Supra.) I .....

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concessionaires. The agreement also provided that the daily cash collection of the concessionaires was to be handed over to DMS. On these facts, it was held by the Tribunal that the concessionaires only rendered a service to DMS for selling milk to the customers and, therefore, the relationship between DMS and the concessionaires was that of a principal and an agent. This attracted the provisions of Section 194H. This is apart from the fact, as noticed earlier, that the DMS redrafted the agreem .....

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