2013 (7) TMI 694 - AT - Income Tax

TDS u/s 194H - nature of payment - commission or discount - Demand u/s 201 - Whether In deleting the demand raised u/s 201(1) 201(1A) on account of commission u/s 194-H treating the same as discount allowed to the distributors - the CIT (A) and also the ITAT rightly held that the payments being made by the assessee to the distributor were incentives and discounts and not commissions there was no infirmity in the findings of the CIT (A) and also ITAT - both the assessee and the distributor have been collecting and paying their sales tax separately - both the parties have clearly understood and accepted the agreement between them - it could not be said that the relation between them was that of principal-agent - it was clearly stipulated to be an arrangement between them on principal-to-principal basis appeal decided against revenue.

Summary

Issues:
1. Nature of relationship between the assessee and distributor - Del Credere Agent or principal to principal basis.
2. Tax deduction at source (TDS) liability under section 194-H for the financial years 2002-03 & 2003-04.
3. Appeal against the order of CIT (A) regarding demand raised under section 201(1) and 201(1A) of the IT Act on account of commission treated as discount.

Analysis:

1. Nature of Relationship Between Assessee and Distributor:
The Assessing Officer (AO) concluded that the relationship between the assessee and distributor was that of a Del Credere Agent, not on a principal to principal basis. The AO emphasized that the distributor facilitated the supply of the assessee's products and collected empty bottles, indicating a principal-agent relationship. However, the first appellate authority granted relief to the assessee, citing a High Court judgment in a similar case where it was held that the relationship was on a principal-to-principal basis, not that of a Del Credere Agent.

2. TDS Liability Under Section 194-H:
The AO held that the transactions fell within the purview of section 194-H, treating the assessee as an assessee in default for not deducting tax at source on the full amount of commission paid to distributors. The AO computed the total TDS liability for the financial years 2002-03 and 2003-04. However, the appellate tribunal, after considering the facts and circumstances along with the High Court judgment in a related case, upheld the order of the CIT (A) and dismissed the appeal of the revenue, stating that the payments were incentives and discounts, not commissions subject to TDS under section 194-H.

3. Appeal Against CIT (A) Order on Demand Raised:
The revenue appealed against the CIT (A) order that deleted the demand raised under section 201(1) and 201(1A) of the IT Act, treating the commission as discount allowed to distributors. The appellate tribunal, after examining the order of the AO and the High Court judgment in a similar case, upheld the CIT (A) order for both assessment years. The tribunal concurred with the High Court's findings that the relationship between the assessee and distributor was on a principal-to-principal basis, not that of a principal-agent, and the payments were incentives and discounts, not subject to TDS under section 194-H.

In conclusion, the appellate tribunal upheld the order of the CIT (A) based on the High Court judgment, dismissing the revenue's appeal and determining that the relationship between the assessee and distributor was on a principal-to-principal basis, not that of a Del Credere Agent, and the payments were incentives and discounts, not commissions subject to TDS under section 194-H.