2015 (8) TMI 655 - AT - Income Tax

TDS liability - application of provisions of section 194H by the assessing officer (I.T.O., T.D.S.) to payments effected by appellant to retail dealers through Del-credere Agents, as commission paid to Del-credere Agents also confirmed by CIT(A) - Held that - the del-credere agents cannot be considered to Payees in these transactions as interpreted by Ld CIT(A), since they have acted only as conduits. The payment is actually made to the retail dealers. Accordingly, we are of the view that the payment made by the assessee under such scheme would constitute sales promotion expenses and it would not fall under the category of commission falling within the scope of section 194 H of the Act. In view of above, we set aside the order of the ld CIT(A) on this issue and direct the AO to delete the demand raised in respect of this issue under section 201(1) and 201(1A) of the Act in respect of all the three assessment years under consideration. - Decided of favour of assessee. Short deduction of tax on payments made under the head Brand fee - payment of Royalty or not - TDS u/s 194J or 194C - Held that - Though the Ld A.R tried to contend that the entire payment could not be considered as payment of royalty, yet no material was placed to substantiate the said contentions. If the contention of the Ld A.R that the amount transferred by way of brand fee was actually a transfer of business profits is to be accepted, it has to be shown that the property and risk attached with the products remained with the contractee. - there is no infirmity in the action of the tax authorities in treating the payment of brand fee as payment of royalty falling within the scope of sec. 194J of the Act. - Decided against assessee. CIT(A) has already set aside the matter relating to demand raised u/s 201(1) of the Act to the file of the AO with the direction to cancel the demand raised, if it is shown that the recipients have declared the same as their respective income. The Ld CIT(A) has also directed the AO to restrict the interest chargeable u/s 201(1A) of the Act till the date of payment of tax by the recipients. The above directions are in accordance with the provisions of the Act and also in accordance with the decision rendered by Hon ble Supreme Court in the case of Hindustan Coca-cola beverages Ltd (2007 (8) TMI 12 - SUPREME COURT OF INDIA )

Summary

Issues Involved:
1. Applicability of Section 194H on payments made under the "Trade Discount Scheme".
2. Applicability of Section 194J on payments made as "Brand Fee".

Issue-wise Detailed Analysis:

1. Applicability of Section 194H on Payments Made Under the "Trade Discount Scheme":

The core issue was whether the payments made to retail dealers under the "Trade Discount Scheme" should be considered as commission liable for deduction of tax at source under Section 194H of the Income Tax Act. The assessee argued that these payments were incentives provided to retail dealers to promote sales and were not commissions. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) held that these payments were commissions as they were made for services rendered in the course of selling goods.

The assessee contended that the payments were trade discounts and not commissions, citing the lack of a principal-agent relationship between the assessee and the retail dealers. The payments were made on a principal-to-principal basis, and the retail dealers were independent businessmen. The assessee relied on several judicial precedents, including decisions by the Gujarat High Court and the ITAT Pune Bench, which distinguished between discounts and commissions based on the nature of the relationship and the services rendered.

The Tribunal examined the definitions and judicial interpretations of "commission" and "discount". It concluded that the payments under the "Trade Discount Scheme" were sales promotion expenses and not commissions. The Tribunal emphasized that a principal-agent relationship is essential for a payment to be considered a commission under Section 194H. Since the payments were made to retail dealers on a principal-to-principal basis and not for services rendered on behalf of the assessee, they did not fall under the purview of Section 194H.

2. Applicability of Section 194J on Payments Made as "Brand Fee":

The second issue was whether the payments made by the assessee as "Brand Fee" should be treated as royalty liable for deduction under Section 194J, instead of being considered as contract payments under Section 194C. The AO and CIT(A) held that the payments were royalties for the use of brand names and thus attracted Section 194J.

The assessee argued that the payments were part of a contractual agreement for manufacturing beer on behalf of other companies and should be treated as business profits. The assessee contended that the payments were not exclusively for brand usage but also included other aspects of the contractual relationship, such as the deployment of resources and supervision of production.

The Tribunal noted that the assessee had declared itself as the manufacturer and sold the products under its own name, using the brand names of the contracting companies. The financial statements and the nature of the transactions indicated that the payments were indeed for the use of the brand names. The Tribunal upheld the tax authorities' decision to treat the payments as royalties under Section 194J.

The Tribunal also addressed the issue of short deduction of tax and the consequential demand raised under Sections 201(1) and 201(1A). The CIT(A) had directed the AO to verify whether the recipients had declared the payments as their income and to cancel the demand if they had. The Tribunal found no infirmity in this direction, as it was in accordance with the provisions of the Act and the Supreme Court's decision in Hindustan Coca-Cola Beverages Ltd.

Conclusion:

The Tribunal concluded that the payments under the "Trade Discount Scheme" were not commissions and did not attract Section 194H. However, the payments made as "Brand Fee" were royalties and attracted Section 194J. The appeals were partly allowed, with directions to the AO to delete the demand related to the "Trade Discount Scheme" and to verify the recipients' income declarations regarding the "Brand Fee" payments.