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Income Tax Officer (TDS) -3 (4) Versus M/s. Unichem Laboratories Ltd.

2015 (4) TMI 1099 - ITAT MUMBAI

TDS u/s 194H - payments in the form of discounts/rebates/incentives on MRP given by the assessee to the distributors in the course of selling its goods - Held that:- Following the decision of the Coordinate Bench of the Tribunal in the assessee’s own case for assessment years 2009-10 & 2010- 11 we hold that the discount on MRP granted by the assessee to distributors at the time of sale of the drugs/medicines (i.e. goods) does not fall within the ambit of section 194H of the Act and therefore no .....

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tible at source on payment of sitting fees to Directors and the assessee cannot be held as ‘assessee in default’ under section 201(1) of the Act or be charged interest under section 201(1a) of the Act. - Decided in favour of assessee - ITA Nos. 5991 & 5992/Mum/2014 - Dated:- 22-4-2015 - Shri Jason P. Boaz, Accountant Member And Shri Sandeep Gosain, Judicial Member For the Appellant : Ms. Kranti For the Respondent : Shri Milin Bakhai ORDER Per Jason P. Boaz, A. M These appeals by the Revenue are .....

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9;) was conducted at the business premises of the assessee on 14.10.2011 in order to verify compliance of TDS provisions as contained in Chapter XVIIB of the Act. The assessee-company has manufacturing plants at Goa, Ghaziabad, Sikkim, Roha and Pithampur and warehouses at Bhiwandi, Ghaziabad and Zirakpur. Finished products are dispatched from the factories/warehouses to distributors and Consignment Agents based on orders/indents received from them. The assessee-company sells the formulation prod .....

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s sales after deducting the margin earned by the distributor/ stockist. The AO observed that while the assessee is paying commission to its consignment agents and deducting tax at source thereon at the rates applicable under section 194H of the Act, the assessee has given discounts/ schemes to the distributors/stockists and no tax is deducted at source thereon. In this regard, a statement on oath was recorded by the Department of the G.M. Finance of the assessee-company on 14.10.2011. 2.2. The A .....

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hem to the stockists/retailers and then are finally sold to the ultimate customers. The contention of the assessee-company is that the distributors are independent traders and are not its agents. The AO, however, observed that in the course of survey it was seen that the MRP margins for drugs/medicines was fixed by the assessee-company, which would be different for controlled and uncontrolled drugs. In the event of expiry of the medicines, the same are returned by the distributors to the assesse .....

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e assessee and the distributor was one of principal and agent and the discount/incentives/rebate given to/retained by the distributor is nothing but commission payments for services rendered in the course of buying and selling of goods within the meaning of section 194H of the Act. The AO held that these discounts/incentives/ rebates are nothing but commission payments embedded in a mutually beneficial pricing structure and is nothing but income within the meaning of section 194H of the Act. The .....

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s per the amendments to the provisions of section 194J(ba) w.e.f. 01.07.2012. 2.4 On appeal, the learned CIT(A)-14, Mumbai disposed off the assessee s appeals vide the impugned orders dated 11.07.2014 for A.Y. 2011-12 and order dated 14.07.2014 for A.Y. 2012-13, allowing the assessee partial relief. 3. Revenue is aggrieved by the orders of the learned CIT(A)-14, Mumbai dated 11.07.2014 for A.Y. 2011-12 and dated 14.07.2014 for A.Y. 2012-13 and has raised identical grounds for both these years. W .....

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able to deduct TDS u/s. 194H of the IT. Act and thereby erred in deleting the non deduction/short deduction u/s. 201(1) and interest u/s. 201(1A). (ii). On the facts and circumstances of the case and in law, the Id. CIT (A) erred by holding that the assessee company was not liable to deduct TDS u/s. 194H of the I.T. Act and thereby erred in deleting the non deduction/short deduction u/s. 201(1) and interest u/s. 201(1A)without appreciating that the pricing structure between the assessee company .....

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ereby erred in deleting the short deduction u/s. 201(1) and interest u/s. 201(1A) without appreciating that the payment was made as honorarium for the managerial services rendered by the directors and was clearly in the nature of professional fees paid for the services rendered by them. (iv) On the facts and circumstances of the case and in law, the Id. CIT (A) erred in holding that no TDS is required to be deducted on directors' sifting fees as the amendment to the provisions of section 194 .....

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T(A) is erroneous in holding that the relationship between the assessee and distributors is in the nature of principal to principal and that therefore the assessee-company was not liable to deduct tax at source under section 194H of the Act. It is contended that the learned CIT(A) in holding so did not appreciate that the pricing structure between the assessee-company and distributors is nothing but a payment received or receivable, directly or indirectly by a person acting on behalf of another .....

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29.01.2014. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited (supra). We find that the issue of whether or not the assesseecompany is liable to deduct tax at source (TDS) under section 194H of the Act in respect of payments in the form of discounts/rebates/incentives on MRP given by the assessee to the distributors in the course of selling its goods was considered and held in favour of the assessee b .....

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o 34 clearly reveals that the assessee company is selling goods/products i.e. drugs-medicine to the distributor which is being paid by the distributor on principal to principal basis and property in goods with all risk and rewards passes to the distributor at the time of selling of the goods by the assessee company to the distributor when the goods are delivered by the carrier to the distributor. In-fact the distributors are the customers of the assessee company to whom the sales of the products .....

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other situations the loss or damage to products shall be borne by the distributor. The drugs being medicines contains certain restriction on the sale w.r.t. good governance and conduct by the distributors to follow first expiry and first out basis as the medicines having expiry could not be sold after the stipulated date of expiry, otherwise it will be health hazard to the consumers , the assessee company as normal market practice takes back the said expired drug-medicines from distributors whi .....

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ce in the industry but the same is not decisive to conclude that the property in the goods with all risks and rewards have not passed to the distributor on sale of products by the assessee company to the distributor at the time of delivery by the carrier to the distributor as per stipulated terms of distribution agreement. We have also observed that the assessee company is raising sale invoice s on the distributor M/s Rudra Pharma Distributors Limited which are placed on the paper book filed by .....

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he distributors is buying the products from the assessee company and then selling the same in its own right with all risks and rewards of ownership got vested in the said distributors on the delivery of goods by carrier to the said distributor which is also supported by the clause 5 of the distribution agreement dated 01-07- 2001. Thus, we, therefore, hold that the assessee company has paid discount to MRP to the distributors at the time of sale of the said goods/products i.e. drugs-medicine whi .....

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he time of sale of the drugs/medicines (i.e. goods) does not fall within the ambit of section 194H of the Act and therefore no tax was required to be deducted at source thereon and therefore the assessee cannot be held to be an assessee in default under section 201(1) of the Act and charged interest under section 201(1A) of the Act. Consequently, grounds 1(i) & (ii) of Revenue s appeal are dismissed. 6. Ground No. 1(iii) & (iv) 6.1 In these grounds, Revenue contends that the learned CIT( .....

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ent to the provisions of section 194J(ba) made w.e.f. 01.07.2012 was not applicable to the relevant assessment year, when the amendment was only curative in nature. The learned D.R. was heard in support of the grounds raised. 6.2 At the outset, the learned A.R. for the assessee submitted that this issue before us, raised by Revenue (supra) has been considered and adjudicated in favour of the assessee by a Coordinate Bench of this Tribunal in the assessee s own case for assessment years 2009-10 a .....

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e by the Coordinate Bench of this Tribunal in the assessee s own case for assessment years 2009-10 and 2010-11 in ITA No. 5492 & 5493/Mum/2014 dated 29.01.2016, holding as under at para 13 thereof: - 13. We have heard the rival parties and perused the material on record and we are in respectful agreement with the decision of the Pune Tribunal in the case of Bharat Forge Limited (supra) that no tax is to be deducted at source on Director sitting fee payable to Director u/s 194J of the Act pri .....

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to the Finance Bill 2012 has stipulated that there is no specific provisions in the Act providing for deduction of tax at source on remuneration paid to directors which is not in the nature of salary whereby tax is deductible covered u/s 192 of the Act, which clearly indicates that there was no provision for deduction of tax at source prior to the amendment by Finance Act,2012 w.e.f. 01-07-2012 on payment of remuneration or fee or commission by whatever name called to Directors other than those .....

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Act by insertion of sub-section (ba) to Section 194J(1) of the Act were made effective from 01-07-2012, which in our considered view is prospective in nature to be applicable only from 01-07-2012 as it has caste an additional burden on the tax-payer by way of deduction of tax at source on remuneration, fees or commission to directors other than the salary for which tax is to be deducted at source under Section 192 of the Act. Since the instant appeal is for the assessment year 2009-10 which is .....

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