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The DCIT, Circle-3 (1) (TDS) , Vijayawada Versus The Krishna District Milk

2016 (5) TMI 1028 - ITAT VISAKHAPATNAM

TDS u/s 194H - whether amount to retail concessionaires is in the nature of commission to attracts TDS provisions? - Held that:- Respectfully following the decision of Hon’ble High Court of Delhi in the case of CIT Vs. Mother Diary India Ltd.(2008 (12) TMI 436 - ITAT DELHI ), we are of the opinion that the arrangement between assessee and its retail concessionaire is not in the nature of principal to agency basis and which is principal to principal basis. Therefore, the amount paid by the assess .....

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or The Respondent : Shri C. Subrahmanyam, AR ORDER PER BENCH: These four appeals filed by the revenue are directed against the common order of CIT(A), Vijayawada dated 14.11.2010 for the assessment years 2008-09 to 2010-12. Since, the issues are common, they are clubbed, heard together and disposed off, by way of this common order for the sake of convenience. 2. The brief facts of the case are that the assessee M/s. The Krishna District Milk Producers Mutually Aided Co-operative Union Ltd. is en .....

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espectively. It was further noticed that though these payments are in the nature of commission as defined u/s 194H of the Act, the assessee has not deducted TDS on such payments. Hence, a show cause notice was issued to the assessee on 30.12.2009 and asked to explain why it should not be treated as assessee in default u/s 201(1) of the Act. In response to show cause notice, the assessee has filed its written submissions on 19.3.2010 and 28.3.2011 and raised objection to the proposed action of th .....

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s and as per such conditions, the property in goods is transferred to the retail dealers and there is no provision of return of unsold goods. The milk sold to retail outlets would be the exclusive property of the retail dealers and the retail dealers should sell milk on their own right and do not render any services to the assessee. The assessee further submitted that as per the principals of contract of agency, the principal would indemnify the agent for any liability on account of loss of good .....

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. In its case, it has sold the goods and raised the invoice on the retailers and money has been collected either on the same day or on the next working day. Though it has restricted its retailers through certain conditions such as sale price, place of sale and mode of payment, these conditions are to put to facilitate the sale according to its convenience. Just because there are certain conditions which suggest the agency agreement, it cannot be held that it is a contract for agency and not a co .....

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for TDS. The assessee has failed to deduct TDS on payments made to its retail dealers, therefore, held that the assessee as an assessee in default u/s 201(1) of the Act and computed the tax and interest. The A.O. has passed elaborate order wherein he has discussed how the relationship between the assessee and the retailer is pit into the definition of commission as defined u/s 194H of the Act, therefore, held that the payments made by the assessee to its retail dealers such as trade discount, ma .....

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s retailers and raised invoice. The risk and ownership in the goods is transferred to the retail outlets and also there is no provision for return of unsold goods. The product sold to retail outlets is exclusive property of the retailers. The retail dealers should sell milk on their own right and do not render any service to the assessee. Therefore, the transaction between the assessee and the retailers is a sale of principal to principal basis does not involve any payment of commission. The ass .....

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uct is fixed by the State Government. Though the retailers have sold the goods on MRP, it has billed the goods to its retailers on MRP price and paid the margin allowed to the retailers separately by way of cheque. It was further submitted that as per the principles of contract of agency, the principal would indemnify the agent for any liability on account of loss of goods in transit, whereas in the present case, the assessee does not indemnify the agent for any loss of goods in transit which cl .....

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argued that the relationship between the assessee and the retail agent is of principal to agent and not principal to principal basis. Therefore, the payment made by the assessee to its retailers is nothing but a commission as defined u/s 194H of the Act. The CIT(A) after considering the assessee submission and also taken into account the remand report of the A.O., held that the relation between the diary and its concessionaire is nothing but principal to principal basis and as such the provision .....

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order, the revenue is in appeal before us. 6. The Ld. D.R. submitted that the CIT(A) was erred in deleting the additions made by the A.O. u/s 201(1) & 201(1A) of the Act. The D.R. further submitted that the CIT(A) was erred in holding that the relation between the assessee and its concessionaire is nothing but principal to principal basis and as such the provisions of section 194H of the Act are not applicable. The D.R. further argued that it is clearly an agreement of agency, therefore, any .....

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has collected security deposit and also directed the retailers to sell the goods at specified point and also at specified rate. The D.R. further submitted that the assessee has paid the amount on a fixed percentage to its retailers, which is nothing but a commission as defined u/s 194H of the Act. Therefore, the order passed by the A.O. should be upheld. 7. On the other hand, the Ld. A.R. of the assessee strongly supported the order of the CIT(A). The A.R. further submitted that till the goods w .....

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tailers. Unsold goods at the end of the day are not returned back to the assessee and it is the responsibility of the retailers to sell the goods. The allegation of the A.O. is that it is merely a contract for service as the assessee has appointed the retail agents by obligation and also entered into an agreement with the retailers with certain conditions. Though the assessee entered into an agreement with the retailers, it is for the convenience of doing the business. Therefore, the A.O. was no .....

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goods through its retail concessionaires and paid the fixed percentage of margin on such sale. The A.O. held that the amount paid by the assessee to its retail concessionaire is in the nature of commission as defined u/s 194H of the Act which attracts TDS. Therefore, held that the assessee as an assessee in default for not deducting TDS on such payments. It was the contention of the assessee that it is merely a contract of sale and not a contract for service. The assessee further submitted that .....

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ee with its retail concessionaires which is available in paper book filed by the assessee, we find that it is only a contract for sale and not a contract for service. On perusal of the agreement copy, we find that the milk and milk product shall be exclusive property, once they were delivered to the retailers and it is the responsibility of the retailers to sell the goods on its own. The risk and right involved in the goods is transferred to the retailers as and when the goods were delivered. Th .....

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sk involved in the goods is assigned to the retailers once the goods are delivered to the retailers. Therefore, it is only a contract for sale and not contract for service. We find force in the argument of the assessee for the reason that just because certain conditions are specified in the agreement which suggest the agreement of agency it cannot be held that it is an agreement of agency based on such conditions. Majority of the conditions specified in the agreement shows that it is an agreemen .....

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assessee categorically proved that it is a contract for sale. Therefore, we are of the opinion that the A.O. was not correct in coming to the conclusion that agreement entered into by the assessee with its retail concessionaires is in the nature of agreement of agency and there exist a principal and agency relationship between the assessee and its retail concessionaires. 10. It was the contention of the assessee that the sale is of principal to principal basis. The assessee further contended tha .....

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arly specified that once the goods are delivered to the retailers, it is the exclusive property of the retailer and any unsold goods cannot be taken back. From this, it is abundantly clear that the risk involved in the property has been transferred to the retailers as and when goods are delivered. The goods sold or not, the retailer has to pay the amount as per the bill. Though assessee pays fixed percentage of margin to the retailers, it is only to facilitate the business and not for any reason .....

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e case of CIT Vs. Mother Diary India and ANR (2012) 206 Taxman 157. The Hon ble High Court of Delhi, under similar circumstances held that the arrangement between the assessee and its retailers is not a principal to agent relationship and hence, any payment made to the retailers is not in the nature of commission which attracts TDS u/s 194H of the Act. Relevant portion is reproduced hereunder: 12. The Revenue challenges the aforesaid orders of the tribunal relying upon section 194H of the Act. I .....

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uced before them in the course of the proceedings under section 201(1)/(1A). We have to therefore, proceed on the basis of the terms of the agreement as they have been discussed in the orders of the Income Tax Authorities as well as the orders of the tribunal. The principal question that falls for consideration is whether the agreements, between thE assessee and the concessionaires gave rise to a relationship of principal to principal or relationship of principal to agent.: On a fair reading of .....

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uses of the agreements show that there is an actual sale, and not mere delivery of the milk and the other products to the concessionaire. The concessionaire purchases the milk from the Dairy. The Dairy raises a bill on the concessionaire and the amount is paid for. The Dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement the concessionaire cannot return the milk under any circumstance, which is another c1ear indication that the relationship was that of pr .....

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s maintained by the concessionaire is also no4 decisive. As rightly pointed out by the tribunal the Dairy having given space, machinery and equipment to the concessionaire would naturally like to incorporate clauses in the agreement to ensure that its property is properly maintained by the concessionaire, particularly because milk and the other products are consumed in large quantities by the general public and any defect in the storage facilities which remains unattended can cause serious healt .....

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oncessionaire becomes the owner of the milk and the products on taking delivery of the same from the Dairy. He thus purchased the milk and the products from the Dairy and sold them at the MRP. The difference between the MRP and the price which he pays to the Dairy is his income from business. It cannot be categorized as commission. The loss and gain is of the concessionaire. The Dairy may have fixed the MRP and the price at which they sell the products to the concessionaire but the products are .....

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and the concessionaires with regard to the sale of the milk and other products. They were licencees of the premises and were permitted the use of the equipment and furniture for the purpose of selling the milk and other products. But so far as the milk and the other products are concerned, these items became theft property the moment they took delivery of them. They were selling the milk and the other products in their own right as owners. These are two separate legal relationships. The income- .....

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(Supra.) In that case the facts were different. Under the terms of agreement entered into between DMS and its concessionaires, the milk and other products did not become the property of the concessionaires on delivery. The unsold milk was taken back by the DMS from the concessionaires . The ownership of the milk and other products did not pass from DMS to the concessionaires inasmuch as there was no sale of the milk or milk products to them. Further the unsold milk was to be taken back by the DM .....

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the agreements and filed them before the CIT(A) and the Tribunal and such redrafted agreements were found to be different from the agreements found during the survey under section 133,4. This Court, on the above facts - !Je/d that section 194/4 was attracted. As already pointed out, the terms of the agreement entered into between the present assessees and their concessionaires are different in crucial aspects. Therefore, the judgment of this Court in the case of DMS (Supra) is not applicable to .....

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. CIT and Others reported in 301 ITR 373. We have gone through the case law relied upon by the Ld. D.R. in the light of the facts of the present case and finds that the case law relied upon by the D.R. is not applicable to the facts of the present case. The fact before the Hon ble Delhi High Court was that the assessee used to sell milk and milk products through concessionaires appointed by it. For goods sold, commission was being paid, unsold milk was taken back and cash collection was made dai .....

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pal and agency and accordingly, amount paid attracts TDS u/s 194H of the Act. In the present case on hand, the facts are totally different. The assessee has sold the goods to its retail concessionaires and the risk and property of the goods has been transferred to the retailers as and when the delivery is made and the unsold goods are not taken back. Therefore, the facts of the case are different from the facts of the case before the Delhi High Court and hence not relied upon. 14. The Ld. D.R. r .....

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