2015 (4) TMI 1099 - AT - Income Tax

TDS u/s 194H - payments in the form of discounts/rebates/incentives on MRP given by the assessee to the distributors in the course of selling its goods - Held that - Following the decision of the Coordinate Bench of the Tribunal in the assessee s own case for assessment years 2009-10 & 2010- 11 we hold that the discount on MRP granted by the assessee to distributors at the time of sale of the drugs/medicines (i.e. goods) does not fall within the ambit of section 194H of the Act and therefore no tax was required to be deducted at source thereon and therefore the assessee cannot be held to be an assessee in default under section 201(1) of the Act and charged interest under section 201(1A) of the Act. - Decided in favour of assessee TDS u/s 194J(ba) - sitting fees paid to Directors - Held that - Since the instant appeal is for A.Y. 2010-11 which is prior to A.Y. 2013-14, from when the amendment to section 194J(ba) comes into force w.e.f. 01.07.2012, we hold that no tax is deductible at source on payment of sitting fees to Directors and the assessee cannot be held as assessee in default under section 201(1) of the Act or be charged interest under section 201(1a) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Nature of the relationship between the assessee and its distributors.
2. Liability of the assessee to deduct tax at source (TDS) under section 194H of the Income Tax Act, 1961.
3. Liability of the assessee to deduct TDS on directors' sitting fees under section 194J(ba) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Nature of the Relationship Between the Assessee and Its Distributors:
The Assessing Officer (AO) observed that the assessee-company sells its products to distributors, stockists, and consignment agents at a fixed Maximum Retail Price (MRP). The AO contended that the relationship between the assessee and the distributors is one of principal and agent, as the assessee decides the margins and discounts for the distributors. The AO held that the discounts/incentives given to the distributors are essentially commission payments, thereby making the assessee liable to deduct tax at source under section 194H of the Income Tax Act, 1961.

2. Liability to Deduct TDS Under Section 194H:
The CIT(A) held that the relationship between the assessee and the distributors is in the nature of principal to principal, not principal to agent. The CIT(A) ruled that the assessee-company was not liable to deduct TDS under section 194H. The Revenue challenged this decision, arguing that the pricing structure between the assessee and the distributors constitutes a payment for services rendered in the course of buying or selling goods, which falls under section 194H.

Upon review, the Tribunal referred to its earlier decision in the assessee's own case for assessment years 2009-10 and 2010-11, where it was held that the relationship between the assessee and the distributors is on a principal-to-principal basis. The Tribunal noted that the property in goods, along with all risks and rewards, passes to the distributor at the time of sale. Therefore, the discounts given to the distributors are not covered under section 194H, and no tax is required to be deducted at source. Consequently, the Tribunal dismissed the Revenue's grounds on this issue for both assessment years 2011-12 and 2012-13.

3. Liability to Deduct TDS on Directors' Sitting Fees:
The AO also held that the assessee was required to deduct TDS on directors' sitting fees as per the amendments to section 194J(ba) of the Income Tax Act, effective from 01.07.2012. The CIT(A) disagreed, stating that the amendment is not applicable to the relevant assessment years.

The Tribunal upheld the CIT(A)'s decision, referring to its earlier ruling in the assessee's own case for assessment years 2009-10 and 2010-11. It was held that the amendment to section 194J(ba) is prospective and applies only from 01.07.2012. Therefore, for the relevant assessment years (2011-12 and 2012-13), the assessee was not liable to deduct TDS on directors' sitting fees. The Tribunal dismissed the Revenue's grounds on this issue as well.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2011-12 and 2012-13, upholding the CIT(A)'s orders that the assessee was not liable to deduct TDS under section 194H on discounts given to distributors and under section 194J(ba) on directors' sitting fees for the relevant assessment years.