2014 (8) TMI 1030 - AT - Income Tax

TDS u/s 194H - addition on account of marketing expenses inclusive of incentive and discounts for want of tds - Held that - As decided in assessee s own case for A.Y. 2007-08 according to the meaning provided in the explanation, the commission would be considered, if any person received it directly or indirectly on behalf of another person for the services rendered, and such services should not be professional services. In the present case, admittedly the person to whom discount was granted by the assessee were not acting as an agent for the assessee, rather they are the purchaser of the property. They have not provided any type of services to the assessee. They have just booked the flat through the assessee. In fact, assessee is an agent between the builder and the ultimate purchaser of the flats. The assessee has parted with some part of the commission received from the builder from alluring the purchaser so that it can earn more commission. It is just providing a discount to the purchaser and not paying any commission for any services taken from such customers. It appears that Ld. AO was influenced by the nomenclature of the receipt in the hands of the assessee. He failed to distinguish what character such receipt would attain when it will be offered to the customer. The relationship between the assessee and the purchaser of the flat is of buyer and seller. - Decided in favour of assessee

Summary

Issues:
Interpretation of Section 194H - Treatment of marketing expenses as incentives/discounts.

Analysis:
The appeal concerned the interpretation of Section 194H in relation to marketing expenses treated as incentives and discounts by an assessee involved in real estate dealings. The assessee, acting as a broker between builders and property purchasers, underwrote projects and facilitated bookings through sub-dealers. The assessing officer disallowed a sum of Rs. 57,71,536 as a deduction, contending that the payments made by the assessee to sub-dealers constituted commission attracting TDS under Section 194H. The assessing officer rejected the assessee's argument that the payments were discounts, stating that only the seller could offer discounts, not the broker. The CIT(A) reversed this decision, deeming the expenses as incentives/discounts incurred for commercial expediency, not commission as per Section 194H.

The Tribunal analyzed Section 194H, which pertains to commission or brokerage payments, and noted that the definition includes payments received for services rendered on behalf of another person, excluding professional services. In this case, the recipients of the discounts were not acting as agents for the assessee but were purchasers of the property. They did not provide services to the assessee but merely booked properties through the assessee. The Tribunal emphasized that the assessee acted as an intermediary between the builder and the purchasers, offering discounts to attract buyers and increase commission earnings. The Tribunal upheld the CIT(A)'s decision, emphasizing that the relationship between the assessee and property purchasers was that of buyer and seller, not payer and service provider.

In conclusion, the Tribunal dismissed the revenue's appeal, citing consistency with an earlier ITAT order in the assessee's case for A.Y. 2007-08. The Tribunal upheld the CIT(A)'s decision that the marketing expenses were incentives/discounts provided for commercial expediency, not commission subject to TDS under Section 194H. The Tribunal's decision was based on the understanding that the discounts were offered to buyers to boost sales and enhance the assessee's commission earnings, rather than being payments for services rendered by the recipients.