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2016 (4) TMI 1128

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..... rict requirement of section 194H of the Act to deduct the TDS. Therefore we hold that the payments paid to the distributors/ dealers by way of incentives would not come under the purview of section 194H and invocation thereon under section 40(a)(ia) is bad and hence no interference is required with the order of the CIT(A), therefore, it is confirmed. - Decided against revenue. - ITA No. 1336/Kol/2012, C.O. No. 98/Kol/2012 - - - Dated:- 18-3-2016 - Shri P. M. Jagtap, A.M. Shri S.S.Viswanethra Ravi, J.M. For The Department : Shri Saurabh Kumar, JCIT, Sr.DR For The Assessee : Shri S. Jhajharia, FCA Shri Sujoy Sen, Adv. ORDER Per Shri S.S.Viswanethra Ravi, J.M. The appeal in ITA No.1336/Kol/2012 and Cross Objection in C.O. 98/Kol/12 are preferred by the Revenue and the assessee respectively against the common order dated 06.06.2012 passed by the CIT(Appeals)-VIII, Kolkata in Appeal No.187/CIT(A)- VIII/Kol/10-11 for the assessment year 2008-09 framed under section 143(3) of the I.T.Act. 2. At the time of hearing, the assessee submitted that he is not advancing any arguments in Cross Objection and prayed to treat the same as not pressed. Accordingly, t .....

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..... ved from the arguments of ld. AR that the provision has been made on estimation to meet obligation arising from past events in order to meet liability on account of claims by the customers. C bench of ITAT, Kolkata benches, while following the principle laid down by the Hon ble Supreme Court in the case of Retork Controls India (P) Ltd. vs- CIT decided the same issue in assessee s own case in ITA No.1537 1538/Kol/2011 for assessment years 2006 to 2008, the relevant portion of which is reproduced hereinbelow: 6. In view of the facts and circumstances of the case, now we will go through the case of Hon ble Supreme Court, as referred by Ld. Senior Advocate Sh. Bajoria, in the case of Retork Controls India P. Ltd. Vs. CIT (2009) 314 ITR 62 (SC) wherein Hon ble Supreme court held that such estimated provision for warranty as an allowable expenses. Hon ble Supreme court finally held as under:- 18. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated abov .....

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..... 182 of 2007- Rotork Controls India (P) Ltd. v. CIT, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under section 37 of the 1961 Act. However, the High Court has failed to notice the reversal which constituted part of the data systematically maintained by the assessee over last decade. 19. For the above reasons, we set aside the impugned judgment of the Madras High Court dated February 5, 2007, and accordingly the civil appeals stand allowed in favour of the assessee with no order as to costs. In view of the above facts and circumstances and the precedent of Hon ble Supreme Court, since in the present case before us the provision for such warranty is being made on the basis of past experience and has been computed in a systematic and scientific manner, as in the present case, surely we have to appreciate that these warranty expenses are towards expenses which have been incurred or are likely to be incurred within the period for which warranty has been assured to the customers against the sale of products and as such, such expenses are deductible as business expenditure. Such expenditure having been incurred wholly for the purpos .....

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..... in a specified area. The products were to be purchased by the distributor from the assessee and was allowed discount per case on the printed MRP. Thereafter, it is the responsibility of the distributor to sell those goods further to the consumers. The Hon ble Delhi High Court held that the relation between assessee and distributor therein are not of principal and agent and it is a relationship of principal to principal, the relevant portion of which is reproduced hereinbelow: 8. A perusal of the agreement shows that the assessee had permitted the distributor to sell its products in a specified area. The distributor was to exclusively deal in the products of assessee in a specified territory. The products were to be purchased by the distributor from the assessee against 100 per cent advance payment, though decision rested with the assessee to give the products on credit to the distributor. The distributor was to maintain at all times the minimum stock and was to deal only in the products of the assessee. The distributor was to maintain its operational infrastructure including requisite staff under its employment with liability of PF contribution, ESI contribution, etc. as per t .....

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..... that the distributors/ stockists were the persons to whom the product was sold, no services were offered to the assessee. The distributors/ stockists were not acting on behalf of the assessee and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to section 194H of the Act. The relevant portion of which is reproduced herein as below: 7. We have perused the concurrent orders with the assistance of the learned Counsel for both the parties. The Assessee had undertaken sales promotional scheme viz. Product discount scheme and Product campaign as discussed hereinabove under which the Assessee had offered an incentive on case to case basis to its stockists /dealers/agents. An amount of ₹ 70,67,089/- was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the Assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were .....

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