2008 (12) TMI 436 - AT - Income Tax

Non-deduction of tax at source - dairy business - milk sold to concessionaires - Revenue contended concessionaires to be agents and assessed difference between MRP of the product purchase price to be commission - TDS u/s 194H - order passed u/s 201(1) and 201(1A) - HELD THAT - In the present case it is found that there has been no redrafting of the agreements and the agreements as placed before us being the same as was found in the course of survey and as per the terms of the agreement which are identical even in 1993 as also in 2003, the discount as given by the assessee to its concessionaires are nothing but discount and do not have any characteristics of a commission. Consequently, we are of the view that the decision of the Hon ble Jurisdictional High Court upholding the order of this Tribunal in the case of Delhi Milk Scheme 2008 (3) TMI 2 - HIGH COURT OF DELHI would have no application to the assessee s case insofar as the facts, as also the terms of the agreement are completely different. Further just because the assessee keeps a substantial control over the concessionaires it cannot be said that the relationship is one of principal and agent, as the control would have to be seen when these agreements were drafted. Obviously any body who gives his space, machinery and equipment to another would like to put substantial clauses which can be invoked to cancel such agreements if it is found that the person they are dealing with is not trustworthy or is doing anything to the detriment of the assessee. In such circumstances it cannot be said that the strict control clauses of the agreement makes the transaction between the assessee and the concessionaires to be one of principal and agent. If the actual functional and operational clauses of the agreements are seen it would clearly show that it is one between two principals to which the provisions of section 194H would not apply. In these circumstances, we are of the view that the provisions of section 194H would not be attracted on the discounts given by the assessee to its concessionaires and consequently the order of the ld. CIT(A) as also the AO passed u/s 201(1) and 201(1A) are set aside. Therefore, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 194H of the Income Tax Act.
2. Nature of the relationship between the assessee and concessionaires.
3. Validity of the agreements between the assessee and concessionaires.
4. Comparison with the Delhi Milk Scheme case.

Issue-wise Detailed Analysis:

1. Applicability of Section 194H of the Income Tax Act:
The primary issue in this case is whether the provisions of Section 194H, which mandates the deduction of tax at source on commission or brokerage, are applicable to the transactions between the assessee and the concessionaires. The Assessing Officer had held that the difference between the Maximum Retail Price (MRP) and the sale price charged by the assessee to the concessionaires constituted commission, thereby attracting Section 194H. However, the Tribunal concluded that the discounts given by the assessee to the concessionaires were not in the nature of commission but were merely trade discounts, thus Section 194H was not applicable.

2. Nature of the Relationship Between the Assessee and Concessionaires:
The Tribunal examined the agreements between the assessee and the concessionaires to determine the nature of their relationship. The assessee argued that the relationship was on a principal-to-principal basis, with the concessionaires purchasing the products from the assessee and selling them to the customers independently. Various clauses of the agreements were scrutinized, such as the payment terms, ownership transfer, and responsibilities of the concessionaires. The Tribunal found that the agreements clearly indicated a principal-to-principal relationship, as the concessionaires bore the risk of unsold or spoiled milk and were not acting as agents of the assessee.

3. Validity of the Agreements Between the Assessee and Concessionaires:
The Tribunal noted that the agreements found during the survey were consistent with those presented during the hearing. There was no evidence of redrafting or altering the agreements post-survey, unlike in the Delhi Milk Scheme case. The agreements from both 1993 and 2003 were identical and indicated a consistent intention to operate on a principal-to-principal basis. The Tribunal emphasized that the control clauses in the agreements did not imply a principal-agent relationship but were standard business practices to safeguard the assessee's interests.

4. Comparison with the Delhi Milk Scheme Case:
The Tribunal distinguished the present case from the Delhi Milk Scheme case, where the agreements were found to be redrafted after the survey to replace the term "commission" with "discount." In the Delhi Milk Scheme case, the Tribunal had concluded that the relationship was one of principal and agent, and the provisions of Section 194H were applicable. However, in the present case, the Tribunal found that the agreements had not been altered and consistently reflected a principal-to-principal relationship. The Tribunal concluded that the facts and agreements in the present case were significantly different from those in the Delhi Milk Scheme case, and thus, the provisions of Section 194H were not attracted.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the orders of the Assessing Officer and the CIT(A). The Tribunal held that the relationship between the assessee and the concessionaires was on a principal-to-principal basis, and the discounts given were not in the nature of commission. Consequently, the provisions of Section 194H were not applicable, and the assessee was not liable for deduction of tax at source on the discounts given to the concessionaires.