TMI Blog2002 (6) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... s delivered by M.S. SHAH J.-The petitioner is a registered association of the stamp vendors of Ahmedabad. As the officers of the Income-tax Department called upon the State Government to deduct tax at source under section 194H of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), on commission or brokerage to the persons carrying on the business as "stamp vendors", the petitioner-association has approached this court with a prayer to quash and set aside the communication at annexure D collectively, and for a declaration that section 194H of the Act is not applicable to an assessee carrying on business as a stamp vendor. In response to the notice, an affidavit-in-reply has been filed by the Commissioner of Income-tax, Ahmedabad-II, for justifying the invocation of section 194H of the Act. By the Finance Act, 2001, section 194H was inserted in the Act with effect from June 1, 2001. The section reads as under: "194H. Commission or brokerage.--Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the June 1, 2001, to a resident, any income by way of commission (not being insurance commission referred to in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the discount available to the vendor. (ii) Since the stamp vendor has to pay the price less discount in advance to the treasury officer and thereafter the required stamps are disbursed to the stamp vendor on the next day of payment, all dealings are done only on cash basis. Hence there is no payment from the Government to the stamp vendor, much less commission or brokerage. (iii) There is distinction between "discount being offered to the stamp vendors at the time of purchasing the stamp papers" on the one hand, and "the commission which the principal pays to his agent". Reference is also made to the decisions under the Central Excise Act for explaining the said distinction. (iv) When the stamp papers are lost or destroyed, the stamp vendors are not entitled to get any compensation from the Government, and even when the stamp papers are returned under rule 24 of the Rules, the Government pays the stamp vendors 10 per cent. less than the face value of the stamp paper as against hardly 1/2 per cent. to 4 per cent. of discount which the stamp vendor gets at the time of purchasing stamp papers. (v) Perusal of the Gujarat Stamps Supply and Sales Rules, 1987 (hereinafter refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion relating to any asset valuable article or thing not being securities and therefore the so-called discount or rebate, being received by the stamp vendors, is "commission" for the purposes of section 194H. Before proceeding to deal with the rival submissions, it is necessary to make a reference to the letter dated February 27, 2002, from the Senior Treasury Officer, Ahmedabad, who is an officer of the State Government. In response to the Tax Recovery Officer's letter dated February 18, 2002, the Senior Treasury Officer replied as under: "Treasury is neither paying commission nor brokerage to stamp vendors. Treasury only allows them discount. Discount is neither paid by cash nor by cheque but it is allowed as less payment. Discount on sale of stamp does not attract section 194H, please confirm. If discount comes within the purview of section 194H, you are requested to prescribe the procedure for tax deduction at source as in case of State Government employees. Statement showing stamp sold and discount allowed from June 1, 2001, to February 26, 2002, is enclosed herewith." The statement accompanying the aforesaid letter indicates that there are 148 licensed vendors regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property passes on to the buyer on delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no vestige of title left in the property. The concept of a sale has, however, undergone a revolutionary change, having regard to the complexities of the modem times and the expanding needs of the society, which has made a departure from the doctrine of laissez faire by including a transaction within the fold of a sale even though the seller may by virtue of an agreement impose a number of restrictions on the buyer, e.g., fixation of price, submission of accounts, selling in a particular area or territory and so on. These restrictions per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of a sale. A contract of agency, however, differs essentially from a contract of sale inasmuch as an agent after taking delivery of the property does not sell it as his own property but sells the same as the property of the principal and under his instructions and directions. Furthermore, since the agent is not the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance for service or labour in discharging certain duties such as for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some service to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can be for a variety of services and is of the nature of recompense or reward for such services. 'Rebate', on the other hand, is a remission or a payment back and of the nature of a deduction from the gross amount. It is sometimes spoken of as a discount or a draw-back. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealings with one another it is nothing unus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon completion of the financial year. Rule 21 provides that the accounts to be kept and rendered by the licensed vendors shall be in the forms prescribed by the State Government. Rule 22 provides for execution of security bond by the licensed vendors, and Rule 23 confers powers upon the officers of the State Government to inspect the register maintained by the licensed vendor and also to examine the stock of stamps. Rules 24 and 25 read as under: "24. (1) A licensed vendor-- (a) may deliver up any stamps in his possession either on application for leave to do so or on resigning his licence, and (b) shall deliver up all stamps embossed or engraved on stamped paper remaining in his possession on demand made at any time by the Collector or other officer duly authorised by the State Government in this behalf. (2) The payment of the value of stamps paid for by a licensed vendor and delivered up, shall be made subject to deductions as follows, namely:-- (a) A deduction of ten paise in the rupee or a fraction of a rupee of the full value of all stamps delivered up in the following circumstances, namely: (i) on resignation by the licensed vendor of his licence; (ii) on revoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he discount at the rates provided in Appendix III to the Rules, which rates vary from 0.5 per cent. to 4 per cent. It is not that the stamp vendor collects the stamp papers from the Government, sells them to the retail customers and then deposits the sale proceeds with the Government less the discount. The liability of the stamp vendor to pay the price less the discount is not dependent upon or contingent to sale of the stamp papers by the licensed vendor. The licensed vendor would not be entitled to get any compensation or refund of the price if the stamp papers were to be lost or destroyed. As regards Mr. Naik's submission that rules 24 and 25 of the Rules, enabling the licensed vendor to deliver any stamps in his possession by merely making an application for leave to do so without resigning his licence and to exchange any stamps for which there is no immediate demand for other stamps of the like aggregate value, are inconsistent with the contract of sale, it does prima facie seem attractive but on closer scrutiny it cannot be accepted. The reason is that the licensed vendor after purchasing the stamps on payment of full price less discount is not permitted to go out to sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of price less discount, but the stringency of the conditions is on account of the nature of the stamp papers as such stamp papers are used in transactions relating to valuable properties for the purpose of creating, transferring and extinguishing the interest in valuable properties. judicial notice can be taken of the fact about the important, if not paramount, role being played by stamp papers in our legal system. The doubt, if any, on the controversy at hand may also be cleared by reference to entry 84 in Schedule I to the Gujarat Sales Tax Act, 1969. If these licensed stamp vendors were mere agents of the State Government, no sales tax would have been leviable when the stamp vendors sell the stamp papers to the customers because it would be "sale" by the Government through the stamp vendors. However, entry 84 has been specifically provided in Schedule I to the Gujarat Sales Act for exempting sale of stamp papers by the licensed vendors. The relevant entry reads as under: SCHEDULE I [See section 5] Goods, the sale or purchase of which is free from all taxes --------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. If a car dealer purchases cars from the manufacturer by paying price less discount, he would be the purchaser and not the agent of the company, but in the course of selling cars, he may enter into a contract of maintenance during the warranty period, with the customer (purchaser of the car) on behalf of the company. However, such services rendered by the dealer in the course of selling cars does not make the activity of selling cars itself an act of agent of the manufacturer when the dealings between the company and the dealer in the matter of sale of cars are on "principal to principal" basis. This is just an illustration to clarify that a service in the course of buying or s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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