2015 (6) TMI 483 - AT - Income Tax

Non-deduction of tax under section 194H - AO treating the discount offered by the assessee to pre-paid distributors in the nature of commission - ssessee in default - Held that - There is divergence of opinion on this issue amongst Hon ble High Courts. The controversy would ultimately be silenced by the Hon ble Supreme Court. Therefore, we deem it appropriate to set aside the impugned orders and restore these issues to the file of ld. AO for re-adjudication. The ld. AO shall take into consideration the decision of in assessee s own case for Delhi Circle or another case law available at that point of time - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Whether discount offered to pre-paid distributors constitutes commission under section 194H of the Income Tax Act, 1961, leading to non-deduction of tax and interest liability.

Detailed Analysis:

Issue 1: Discount as Commission under Section 194H
The appellant contested the treatment of discounts offered to pre-paid distributors as commission by the Assessing Officer (AO) under section 194H of the Income Tax Act, 1961. The AO observed that the difference between the face value and the sale value of pre-paid vouchers to distributors constituted commission attracting TDS. The AO calculated the commission amounts for different financial years and imposed demands under sections 201(1) and 201(1A) of the Act. The appellant challenged this treatment before the Commissioner of Income Tax (Appeals) [CIT(A)], which did not provide relief.

Issue 2: Judicial Precedents
The appellant referred to various High Court judgments, including the Delhi High Court, Kerala High Court, and Calcutta High Court, which upheld the treatment of discounts as commission liable for TDS under section 194H. The appellant also mentioned a recent decision by the Karnataka High Court, which took a different stance, emphasizing that income accrues to distributors only upon selling the right to service, not upon purchasing it. The appellant argued that conflicting decisions among High Courts should be resolved in favor of the assessee, citing the Supreme Court's decision in Vegetable Products Ltd.

Issue 3: Tribunal's Decision
The Tribunal acknowledged the divergence of opinions among High Courts on the issue and anticipated resolution by the Supreme Court. In light of this, the Tribunal set aside the orders and remanded the issues to the AO for re-adjudication. The AO was directed to consider the Supreme Court's decision in the appellant's case for the Delhi Circle or any relevant case law available at the time. The Tribunal emphasized that its decision would not prejudice the AO's case or the appellant's submissions, instructing the AO to provide a fair hearing and decide the matters in accordance with the law.

In conclusion, the Tribunal allowed all three appeals for statistical purposes, emphasizing the need for clarity and uniformity in interpreting the treatment of discounts to pre-paid distributors as commission under section 194H of the Income Tax Act, 1961.