TMI Blog2016 (4) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income then in view of the ratio laid down by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT ), no disallowance under section 14A can be made. The Hon’ble Delhi High Court after taking the note of Hon’ble Supreme Court in the case of CIT vs Rajendra Prasad Mody, reported in [1978 (10) TMI 133 - SUPREME Court] held that if no exempt income has been earned during the year, then no disallowance can be made under section 14A.- Decided in favour of assessee - ITA No. : 4677/Mum/2012, ITA No. : 6726/Mum/2012 - - - Dated:- 23-3-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Appellant : Shri A K Srivastava For The Respondent : Shri Yogesh Thar, Shri Deepak Jain PER AMIT SHUKLA, JM: The aforesaid appeals filed by the revenue against separate orders dated 02.04.2012 and 27.08.2012 passed by CIT(A)-13 Mumbai, for the quantum of assessment passed under section 143(3) for the assessment year 2007-08 and 2008-09 respectively. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, same were heard together and are being dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cal) as reported have held that the amount retained by distributors is in nature of commission and therefore the distributors who collected the amounts of sale proceeds from customers were acting s agent of assessee and therefore TDS was liable to be deducted in request of this commission. (viii) Learned CIT(A) has erred in law and on facts in not Appreciating the facts that the nature of payment and the liability for deduction of tax at source arises from the manner in which the transactions are carried out and the purpose of payment. The various distributors rendered the service at next level to RCIL and therefore the provisions of Section 194H will be applicable as the nature of payment remains the same as transaction between RCOM and RCIL. (ix) The Learned CIT(A) has erred in law and on facts in not appreciating the facts that various judicial pronouncements relied upon by the CIT(A) in CIT(A)-14/IT09/TDS.RG.3/10-11 were equally applicable to the case of the assessee for fact that there existed the relationship of agency between the assessee and its distributors. (x) The Learned CIT(A) has erred in law and on facts in holding that TDS was not deductable in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-paid services and therefore, such an amount paid is in the nature of commission on which assessee was liable to deduct TDS under section 194H. The failure to deduct TDS by the assessee, entails disallowance under section 40(a)(ia). In response to the show cause notice by the AO, as to why disallowance under section 40(a)(ia) should not be made, the assessee filed detailed reply, which was incorporated from pages 2 to 4 of the assessment order. The sum and substance of the assessee s contention was that, as per the Distributor Agreement , the assessee sells the Prepaid vouchers at a discounted price and assessee gets the money upfront and such an agreement is entered into principal to principal basis. They are not the agents of the assessee. Once the Pre-paid vouchers have been sold to these Distributors, the assessee recovers the whole cost upfront and whether the Distributors are able to sale at a higher prices or a lower price, the assessee has no role at all. The margin retained by the Distributors, that is, the profit earned by them is the difference between the price paid to the company and the price at which they decide to provide to the ultimate buyer or subscribers. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light o the foregoing discussion, I hold that that the trade discount given by the Appellant is not in the nature of commission payment to the distributors liable for TDS u/s 194H of the Act. Thus, the Appellant cannot be held to be a defaulter u/s 201(1) of the Act and the demand raised on this count stands deleted. Therefore, this ground of appeal is allowed. Following the orders of CIT(A)-14 and to maintain judicial consistency disallowance u/s 40(a)(ia) of the Act made by the AO is deleted . 6. At the outset, the Ld. Counsel for the assessee, Shri Yogesh Thar, submitted that, the decision of Ld. CIT(A) in 201(1) proceedings has been accepted by the Department specifically on this issue as the Department has not preferred any appeal before the Tribunal. He further pointed out though the revenue had preferred the appeal before the Tribunal on various other issues against the same order but on this issue no appeal or grounds was filed or raised. Thus, in the case of the assessee, it has attained finality that, assessee was not liable to deduct TDS on such a payment and, therefore, consequentially no disallowance under section 40(a)(ia) should be made. In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity and no appeal was preferred by the revenue against the said finding, even though on other issues, the Department had preferred appeal before the Tribunal. Once in assessee s own case, it has been categorically held that, assessee was not liable to deduct TDS on such a trade discount given by the assessee to the Distributors then it cannot be reckoned as a commission , and consequentially disallowance under section 40(a)(ia) does not has any legs to stand. There could not be a situation where on one hand, a finding has attained finality that assessee was not liable to deduct TDS on trade discount given by the assessee and cannot be treated as commission payment to the distributors; and on the other hand, a disallowance of expenditure under section 40(a)(ia) is being made on the same amount by holding that that assessee should have deducted TDS. Thus, we do not find any infirmity in the order of the CIT(A) in deleting the said disallowance. Accordingly, the issue is allowed on this ground alone. 9. However, by way of a academic discussion, we find that, the revenue in the grounds of appeal has relied upon following decisions in favour of making the disallowance: (1) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment or credit thereof, whichever is earlier. The word income has been defined under section 2(24) of the Act. Income includes profits and gains. A commission is defined in Explanation (i) to section 194H as any payment received or receivable, directly or indirectly by an agent for services rendered acting on behalf of the principal. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. The mere fact that the word agent or agency is used or the words buyer and seller are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the status would be conferred. While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. Thus, the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (Appeals) and the Tribunal. On appeals to the High Court: Held, allowing the appeals, (i) that SIM cards had no intrinsic sale value and were supplied to customers for providing mobile services to them. There was no relationship of principal and agency. On the contrary, it was expressly stated that the relationship was that of principal to principal. Secondly, the distributor or channel partner had to pay consideration for the product supplied and it was treated as sale consideration. There was a clause, which specifically stated that after such sale of products, the distributor or channel partner could not return the goods to the assessee for whatever reason. What was given by the assessee to its distributor or channel partner was a trade discount. It was not commission. (ii) That the assessee sold pre-paid cards and vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor did not earn any income. In fact, rather than earning income, the distributors incurred expenditure for the purchase of pre-paid cards. Only after the resale of those prepaid cards, would the distributors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the Legislature. On the other hand, Ld. Counsel relied upon the decision of Delhi High Court in the case Cheminvest Ltd vs CIT, reported in 378 ITR 33 (Delhi). 13. After considering the rival submissions and on perusal of the impugned orders, we find that, it is an admitted fact that, assessee has not earned any exempt income during the year. This fact has been noted by the Ld. CIT(A) in the following manner: 3.4 Further the Authorized Representative submitted that the disallowances so made of ₹ 8,65,06,770/- is grossly disproportionate specifically considering the fact that the Appellant has not earned any Exempt Income during the year under review. Therefore, it was urged that the disallowance is made without any basis and on presumption, hence, same be deleted. 3.5 I have considered the facts and perused the material on record. The provisions of section 14A(1) read with section 14A(2) provides that for the purpose of total income computed under this chapter, no deduction shall be allowed in respect of expenditure incurred by the appellant in relation to income which does not form part of total income under this Chapter and the AO will determine the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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