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2009 (7) TMI 827 - AT - Income TaxTDS - The relevant facts as stated are that the assessee is a limited company registered under s. 25 of the Companies Act, and formed under the co-operative movement - Department was of the view that the assessee was not deducting tax at source (TDS) on the payments made to the distributors though required under s. 194H as it was a payment made on account of commission - The assessee was therefore, given a show cause towards the alleged failure to deduct the tax at source and to show why assessee be not treated as assessee in default and also why interest under s. 201(1) should not be charged from the assessee The assessee through w/s dt. 16th Dec., 2007 mainly contended that the relations between the assessee dairy and the distributor were not of principal-agent but it was a pure case of sale of goods at discounted rates Commissioner (A) confirmed that the assessee was liable for the payment of TDS under s. 194H and the levy of the impugned interest - A careful perusal of the provision of 194H shows that it requires any person, who is responsible for paying any income by way of commission or brokerage, at the time of credit or payment thereof, whichever is earlier, to deduct income-tax thereon @ 10 per cent To determine the rights and obligations of the parties through a contract, it is always the intention which should prevail i.e., the substance must prevail over the form - In the case of Hindustan Coca Cola Beverages (P) Ltd. vs. ITO (2005) 98 TTJ (Jp) 1, wherein, the facts were that commission on sale of goods by the distributors, who were allowed to make sales only in the area precisely specified by the assessee company and they had no independence whatsoever of fixing the sale price by reducing their margins - . Thus, we are convinced that s. 194H, is not applicable on the facts and circumstances of the present case and therefore, it is held that the demand raised by the ITO, is without jurisdiction and hence quashed Interest - The learned Authorised Representative submitted that this is consequential to the earlier grounds - Held that the assessee was not liable to make any deduction under s. 194H hence there cannot be any charging of interest under s. 201 (1A) Appeal is allowed
Issues Involved:
1. Applicability of Section 194H of the IT Act, 1961 2. Levy of interest under Section 201(1A) 3. Consequential demand raised by the ITO, TDS Detailed Analysis: Issue 1: Applicability of Section 194H of the IT Act, 1961 The core issue was whether the payments made to distributors by the assessee, a limited company engaged in the business of milk distribution, were in the nature of commission, thereby necessitating the deduction of tax at source under Section 194H. The Department argued that the payments were commissions, supported by the terms of the contract and statements from the director (Finance). The assessee contended that the relationship was one of principal-to-principal, not principal-agent, and thus the payments were trade discounts, not commissions. The Tribunal analyzed the distinction between a contract of sale and a contract of agency. It emphasized that for Section 194H to apply, there must be a principal-agent relationship. The Tribunal found that the distributors purchased milk from the assessee and sold it to retailers, bearing all costs and risks associated with the distribution. The ownership of the goods transferred to the distributors upon delivery, indicating a principal-to-principal relationship. The Tribunal referenced the decision in Government Milk Scheme vs. Asstt. CIT, emphasizing that the essence of the transaction was a sale, not an agency. Issue 2: Levy of Interest under Section 201(1A) The Tribunal examined whether the assessee was liable for interest under Section 201(1A) for failure to deduct tax at source. Since the primary issue hinged on the applicability of Section 194H, the Tribunal concluded that if Section 194H did not apply, the question of interest under Section 201(1A) would not arise. The Tribunal referenced cases like Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, where it was held that no interest could be charged if there was no outstanding demand in the hands of the recipient. Issue 3: Consequential Demand Raised by the ITO, TDS The Tribunal quashed the demand raised by the ITO for the amount of TDS under Section 194H, declaring it illegal and without jurisdiction. The Tribunal noted that the Department had accepted the same method and manner of transactions in the past without raising any demands. The Tribunal stressed the importance of consistency in the application of the law. Conclusion The Tribunal allowed the appeal of the assessee, holding that the payments to distributors were trade discounts and not commissions. Consequently, the provisions of Section 194H were not applicable, and no interest under Section 201(1A) could be charged. The demand raised by the ITO was quashed, and the appeal was allowed in full.
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