2012 (11) TMI 813 - AT - Income Tax

Commission versus Discount - TDS u/s 194H - Disallowance u/s 40(a)(ia) - discount on sale of SIM Cards and other BSNL products - Franchiseeship Agreement - assessee contended taht as the TDS has already been deducted, U/s. 194H, on the commission given by the BSNL. Therefore, there should not be any further TDS on the same said amount while forgoing certain percentage of the original commission by allowing discount to the sub-franchisee/retailer. - held that - The same income cannot be taxed again in the hands of different recipients which are a matter of business conducted being the fast network availability of BSNL products was not considered by the learned CIT(A) to establish that the discount available to the second and third tier franchisees was a matter of availability of products at its maximum retail price and not because they had made income from the service provider. - Decided in favor of assessee. Decisions in the matter of Vodafone Essar Cellular Ltd (2010 (8) TMI 691 - KERALA HIGH COURT) and Idea Cellular Ltd. (2010 (2) TMI 24 - DELHI HIGH COURT), Distinguished. TDS u/s 194I - rent - show room and go-down - Form 15G - Mistakes in the form 15G submitted by the land lady - held that - Mistakes in the form submitted by the land lady as provided under the Act remains a mere technical formality when the assessee cannot be subjected to disallowance of expenditure claimed as rent for its shop and godown which together were to be considered under the provisions of Section 194-I r.w.s 197A of the I.T. Act. Obviously the disallowance u/s.40(a)(ia) comes after considering the collection and recovery of tax by deduction of tax at source which the assessee has satisfied for non-deduction cannot result in disallowance of expenditure for no fault of the assessee. The remedy lies elsewhere. - Decided in favor of assessee.

Summary

Issues Involved:
1. Disallowance of expenditures claimed by the assessee due to non-deduction of tax at source under Section 194H.
2. Disallowance of rent paid to a senior citizen due to non-deduction of tax at source under Section 194-I.

Detailed Analysis:

1. Disallowance of Expenditures Claimed Due to Non-Deduction of Tax at Source under Section 194H:

The primary issue revolves around the disallowance of expenditures claimed by the assessee, a franchisee of BSNL, for not deducting tax at source on discounts allowed to sub-franchisees amounting to Rs. 1,74,00,814. The Assessing Officer disallowed this expenditure on the grounds that the assessee failed to deduct tax at source under Section 194H of the IT Act. The assessee contended that the discounts given were trade discounts and not commissions, and thus Section 194H was not applicable. The assessee argued that the commission received from BSNL was already subjected to TDS under Section 194H, and further deduction on the same amount when given as trade discounts to sub-franchisees was not justified. The assessee also distinguished its case from the Vodafone Essar Cellular Ltd. case, stating that it did not provide cellular services and was not the principal in the transaction, unlike Vodafone.

The Tribunal, after considering the agreements and the submissions, held that the discounts given by the assessee to its sub-franchisees were indeed trade discounts and not commissions. It was noted that the commission received from BSNL had already been subjected to TDS under Section 194H, and further TDS on the same amount when given as discounts was not warranted. Thus, the disallowance of Rs. 1,74,00,814 under Section 40(a)(ia) was deemed unjustified and was deleted.

2. Disallowance of Rent Paid to a Senior Citizen Due to Non-Deduction of Tax at Source under Section 194-I:

The second issue pertains to the disallowance of rent amounting to Rs. 1,92,000 paid to a senior citizen, a lady, for not deducting tax at source under Section 194-I. The assessee argued that the landlady, being a senior citizen with income below the taxable limit, had submitted Form 15G requesting non-deduction of TDS. The authorities below, however, disallowed the rent expenditure citing non-compliance with Section 194-I.

The Tribunal observed that the landlady had indeed submitted Form 15G, and the mistakes in the form were mere technicalities. It was held that the assessee could not be penalized for non-deduction of TDS when the landlady's income was below the taxable limit and she had requested non-deduction. Therefore, the disallowance of Rs. 1,92,000 under Section 40(a)(ia) was found to be unjustified and was deleted.

Conclusion:

The Tribunal concluded that the disallowances of Rs. 1,74,00,814 and Rs. 1,92,000 under Section 40(a)(ia) for expenditures on discounts and rent paid respectively were unjustified. The appeal of the assessee was allowed, and the disallowances were deleted.