TMI Blog2020 (11) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (7) TMI 248 - ITAT BOMBAY-H] which has been reproduced somewhere in the preceding paragraph. Thus, in view of the above detailed discussion and after considering the facts in totality, the grounds of appeal of the assessee are allowed whereas the grounds of appeal of the revenue are dismissed. - ITA No(s) 1269 to 1271/Ahd/2017, 1184 to 1185/Ahd/2017, ITA No(s) 1197/Ahd/2017 - - - Dated:- 26-11-2020 - Shri Rajpal Yadav, Vice President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Vartik Chokshi, AR For the Revenue : Shri Virendra Ojha CIT DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: In this bunch of appeals three appeals have been filed by the Assessee and three appeals have been filed by the Revenue for A.Ys. 2011-12 to 2013- 14 which are arising from the separate orders of the ld. CIT(A)-7 8, Ahmedabad dated 14.03.2017, 20.03.2017, 24.03.2017, in the assessment proceedings under section 201(1)/201(1A) of the Income Tax Act, 1961 (in short the Act ). First we take up ITA No. 1269/Ahd/2017 A.Y. 2011-12(Assessee s Appeal):- 2. The assessee has raised the following grounds of appeal: 1. That on the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s promotion and marketing and takes the color of commission. That for the applicability of provisions of section 194H, the relationship between the payer and payee need not be necessarily of principal-agent. That the commission would include any payment, received or receivable, whether directly or indirectly, by the doctors. 5. Without prejudice to ground no. 2 to 4 above, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing officer to segregate the payments made to / for doctors, directly or indirectly, in respect of reimbursement of expenses on Regional Conferences and Scientific Conferences and treat the same as commission liable to IDS u/s. 194H of the Act. 6. Without prejudice to ground no. 2 to 4 above, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing officer to treat the entire expenditure for Field participation (debited under the head Sales Promotion Expenses and Marketing Development and Promotional Expenses) as commission liable to IDS under the provisions of section 194H of the Act. 7. Without prejudice to ground no. 2 to 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses under various head as detailed under: Sales promotion expenses incurred for doctors and others by Intas Pharmaceuticals Ltd. S. No. Ledger head F.Y. 2010-11 (in lacs of Rs.) 1. Regional Conference 455.4 2. Scientific Conference 1832.2 3. Sales Promotion Exps 2281.3 4. Marketing Development Promotional Exps 6097.0 5. Product Promotional Exps 4000.8 6. Camp Exps 54,4 7. Academic Workshops 27.9 8. M R Exps 5020.5 9. Travelling Exps - Total 19769.5 5. There was a survey action u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type of expense included under this head was towards the hotel accommodation, conveyance and traveling facility provided to the individuals participating in the conference who are the staff of various branches and the head office of the assessee company. The assessee claimed that these expenses were in nature of reimbursement. Hence the same is not liable for deduction of tax under chapter XVII-B of the Act. 2. Sales Promotion Expenses The assessee submitted that sales promotion expenses include payment: i. Towards market research assignments for new medicine launched by the assessee. These payments were made to medical experts for providing the expert opinion related to production of particular medicine. ii. Payment towards staff meeting and participation in seminar educational program,staff performance award ceremony, tour package for stockiest, discount on bulk purchase of medicine to Apollo hospital. The assessee further submitted that the payment toward research assignment was made after deducting tax @ 10% whereas the taxwas deducted @ 2 % on the payments made to travel partner for staff meeting, award ceremony, stockiest tour etc. Further there was no ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee submitted that under the head MR expenses, the TA/DA of the field staff has been debited. Hence the same does not attract the provision of tax deduction under chapter XVII-B of the Act. 8. Tour and travel: The assessee submitted that the payment to travel agencies including car hiring was made after deducting taxes @ 2% under section 194C of the Act. In view of the above submission, the assessee contended that the sales promotion expenses are not in nature of commission and similarly the payment made to doctors or facility provided to doctors are part of it business promotion expenses. The assessee claimed that the provision of section 194H of the Act i.e. TDS on commission expenses arise where payment is made to intermediaries or facilitator for buying and selling of goods/services in monetary term and such payment become the income of the recipient. A payment to be called in the nature of commission must have contractual obligation and having relationship of principle and agent whereas in the present case, there no such obligation on doctor or on assessee. Furthermore the payment were made in kinds and not in monetary terms which never became the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders in the company such as stockiest, field staff etc. The Principal Officer of the company was asked to describe the procedure of arriving at the names to which articles to such stockiests and field staff are to be distributed and the names of recipients of such gift articles in statement dated 10.10.2013 and 06.12.2103. The assessee could not furnish any reply in this regard. Even, if such articles have been provided to other stakeholders in the company such as field staff or stockiest etc, then the same form part of cither salary or, commission of the said persons (as the same is believed to have been distributed to the said person in lieu of his contribution towards increase in the sales of the company) liable for deduction of TDS u/s 394H (or 192) of the Act. 7.8 On the basis of the facts of the case, legal provisions of the Act, the assessee s reply, material placed on record and discussion in the preceding paragraphs, it is held that: The assessee company has incurred expenses as mentioned in the show cause notice dated on doctors. The said expenses have been incurred on doctors for providing gifts/articles/travel/accommodation/registration in conferences e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.9 8 M R Exps 5020.5 9 Travelling Exps - TOTAL 19769.5 Therefore, the assessee is treated as assessee in default u/s 201(1) /201(1A) of the Act for not deducting TDS u/s 194H of the Act over expenses in the nature of commission amounting to ₹ 19769.5 lakhs. Commission expenditure amount (in INR) TDS u/s 201(1) r.w.s. 194H @ 10% (in INR) Interest u/s 201(1A) (in INR) @ 1% * 48 19769.5 lakhs 19,76,95,000 9,48,93,600 9. Accordingly, the assesse company is liable to pay demand of ₹ 29,25,88,600/- (rounded off) u/s. 201(1)/201(1A) of the Income Tax Act, 1961. The assessee is also liable for penalty u/s. 271C of the Act. Penalty proceedings are being initiated separately. Issue demand notice and challans accordingly. 14. Aggrieved by the order of the AO the assessee preferred an appeal before the Learned CIT-(A). 15. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company and medical representatives and their statements recorded during the survey proceedings, it has been acknowledged by the appellant that various sales promotion expenses were also incurred on doctors in the form of gifts and facilities and were debited under various heads, in the order; the AO has cited various email correspondences between the field executives of the appellant company and senior officers of the company to bring forth instances to show that various expenses were incurred by the appellant on doctors by way of payments made for taxies, hotel accommodation, air-tickets, registration of doctors at conferences, etc. It was very clear that these doctors were acting as agents of the appellant company since this expenditure was being incurred on them in expectation of certain returns from these doctors in the form of prescribing of the company's medicines leading to increased business. Thus, In my view, since commission is a payment made for something received in return, and is a form of incentive, in this case, payments incurred on doctors in exchange of increased business for the appellant would definitely fell under the category of commission, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxes already deducted by the assessee. 3. Marketing development and promotion expenses With respect to various expenses under this head the Learned CIT(A) held as under: (i) Payment toward work assignment was made after deducting taxes. Hence no further deduction is required. (ii) Payment toward meeting and traveling, gift to CFA, gift to staff/stockiest, medical books journals, export center cost are not in the nature of commission. Hence there is no requirement for the deduction of TDS. (iii) Participation expenses are incurred for or on behalf of the doctors, hence the same are in nature of commission. Therefore the demand raised by the AO for the same was confirmed but after providing credit for 2% of taxes already deducted by the assessee. 4. Product promotion expenses: With respect to various expenses under this head the Learned CIT(A) held that the reason and nature of gift and to whom it was given was not verifiable. Furthermore, it was quite possible that gift were given to doctors. Accordingly, the Ld. CIT-A restricted the demand raised under this head to the extent of 20%, treating the same as commission under section 194H of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. On the facts of the present case, as per the tripartite agreement entered into between the assessee and the dealer, there is no service provided by the dealer to the assessee in the course of buying or selling goods, inasmuch as, the assessee directly sells goods to the dealer and the dealer makes the payment after collecting it from the consumers and, therefore, it is a transaction on principal to principal basis and, therefore, the payment made by the dealer is not liable for any deduction of tax by the assessee company. Therefore, in the facts of the case, the provisions of section 40(a)(ia) of the Act cannot be applied as the dealer cannot be said to be a commission agent of the assessee company. The ld. AR further contended that there was no element of income in the expenses incurred by the assessee for the stakeholders as alleged by the AO. As such the allegation of the AO in the order is that the expenses as discussed above have been incurred by the assessee to extend the benefit to the stakeholders. Even, if the allegation of the AO is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and set out under a separate chapter Determination of tax in certain special cases - special provision relating to tax on distributed profits of domestic companies . A plain reading of section 190 and section 191, which are first two sections under the Chapter XVII, and of sections 199, 202 and 203(1), would show this underlying feature of the tax deduction at source mechanism. Section 190 makes it clear that the scheme of tax deduction at source is one of the methods of recovering the tax due from a person and it is notwithstanding the fact that the tax liability may only arise in a later assessment year. The tax liability is obviously in the hands of the person who earns the income, and tax deduction at source mechanism provides for method to recover such tax liability. Therefore, this tax deduction at source liability is a sort of substitutionary liability. Section 191 further makes this position clear when it lays down that in a situation TDS mechanism is not provided for a particular type of income or when the taxes have not been deducted at source in accordance with the provisions of Chapter XVII, income-tax shall be payable by the assessee directly. This provision, thus, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to extend the benefit to the doctors and other stakeholders. 28. On the other hand, the Learned DR submitted that the AO in his order has given a clear-cut finding that there was the relationship of principle and agent between the assessee and the stakeholders. As per the Learned DR the whole of the business of the assessee was based on the prescription of the doctors for the particular drugs and therefore the assessee has incurred such expenses to extend the benefit to the stakeholders. The Learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore, we are not repeating the same for the sake of brevity. 29. Both the Learned AR and the DR vehemently supported the order of the respective authorities below to the extent favorable to them. 30. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Learned CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the preceding discussion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces), 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. 34. The element of agency has to be there in the case of all services or transactions contemplated by the said Explanation as held by the Hon ble Gujarat High Court in the case of PCIT vs. Gujarat Narmada Valley Fertilizer and Chemicals Limited (supra) and also held in case of Ahmedabad Stamp Vendors Association v. Union of India [2002] 124 Taxman 628 (Guj.) which was affirmed by the Hon ble Supreme court, wherein it was held as under: It was also not possible to accept the contention of the revenue that the definition of commission or brokerage as contained in Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. To fall within the Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee to APBCL and sale of beer by APBCL to retail traders were independent of each other, and were on a principal to principal basis. No services were rendered by the retail dealers to the assessee, and the incentive given by the assessee, to the retailers as trade discount, were only to promote their sales. In the absence of relationship of a principal and agent, as there was no direct relationship between the assessee and the retailer, the discount offered by the assessee to the retailers could only be treated as sale promotion expenses, and not as commission, as no services were rendered by the retailers to the assessee. Section 194H was not applicable in such case. Indeed, in the given facts and circumstances, there is no dispute to the fact that the assessee has incurred the expenses as discussed above to extend the benefit its stakeholders in order to achieve high amount of turnover. But the debate rigmaroles whether such benefit is in the nature of commission or brokerage as envisaged under the provisions of Section 194H of the Act. To resolve the controversy, we have to see whether there exist any agency relationship between the assessee and the stakeholders such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se expenses are incurred exclusively for purposes of business and product promotion. By no means these can be classified as commission as envisaged under Section 194H of the Act. 40. In addition to the above, we also note that tax under Section 194H of the Act is to be deducted at source,- (a) either at the time of credit of such income to the account of the payee, or (b) at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier. Under Explanation (iv) to Section 194H of the Act requires that where any income is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the payer, such crediting shall be deemed to be credit of such income to the account of the payee for purposes of deduction of tax at source. The controversy arises in the given facts and circumstances whether the stakeholders are the payees as contemplated under Explanation (iv) to Section 194H of the Act. The answer stands in negative. Undisputedly, the payees in the present facts and circumstances are not the stakeholders but the other parties.Thus, we are of the view that, there cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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