2013 (3) TMI 878 - AT - Income Tax

Summary

Issues Involved:
1. Whether the payment on account of service charges by NAFED to KSCMFL or procuring societies is in the nature of "commission" within the meaning of section 194H of the Act.
2. Whether NAFED ought to have deducted tax at source on the component of payment made to KSCMFL or procuring societies.
3. Whether failure to deduct tax at source results in NAFED being treated as an assessee in default u/s. 201(1) of the Act.
4. Whether interest u/s. 201(1A) of the Act is applicable.

Summary:

Issue 1: Nature of Payment as "Commission"
The primary issue to be decided is whether the payment on account of service charges by NAFED to KSCMFL or procuring societies is in the nature of "commission" within the meaning of section 194H of the Act. The assessee argued that the payments were not commissions but reimbursements for administrative costs. The Tribunal noted that the transactions between NAFED and SLAs were on a principal-to-principal basis and not principal-agent. The Tribunal referred to clause 16 of the agreement dated 11.04.2008, which explicitly stated that the agreement does not confer the status of an agent of NAFED on the second part. The Tribunal concluded that the service charges were administrative mark-ups and not commissions.

Issue 2: Obligation to Deduct Tax at Source
The Tribunal examined whether NAFED ought to have deducted tax at source on the payments made to KSCMFL or procuring societies. The Tribunal referred to the definition of "commission or brokerage" in clause (i) of the Explanation to section 194H of the Act, which requires an agency relationship. Since the transactions were on a principal-to-principal basis, the Tribunal held that section 194H was not applicable, and therefore, NAFED was not required to deduct tax at source.

Issue 3: Assessee in Default u/s. 201(1)
The Tribunal considered whether NAFED's failure to deduct tax at source would result in it being treated as an assessee in default u/s. 201(1) of the Act. Given that the Tribunal found section 194H inapplicable, it concluded that NAFED could not be treated as an assessee in default.

Issue 4: Interest u/s. 201(1A)
The Tribunal addressed the applicability of interest u/s. 201(1A) of the Act. Since the Tribunal held that NAFED was not liable to deduct tax at source u/s. 194H, the question of charging interest u/s. 201(1A) did not arise.

Conclusion:
The Tribunal allowed the appeals by the assessee, canceling the impugned orders of the Assessing Officer. It held that the provisions of section 194H were not attracted to the disputed payments made by the assessee, and consequently, NAFED could not be treated as an assessee in default u/s. 201(1) of the Act, nor was interest u/s. 201(1A) applicable. The appeals were pronounced in the open court on March 8, 2013.