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2017 (2) TMI 442 - AT - Income TaxTDS u/s 194H - addition u/s 40(a)(ia) on account of payment made by the assessee to the Hawkers - non deduction of tds - Held that - Concerning the modus operandi of the assessee s business as well as the functions performed by the Hawkers, it is of the view that the amount in question paid by the assessee to the Hawkers is in the nature of discount and the same cannot be treated as commission merely on the basis of nomenclature used by the assessee in his books of account. For this conclusion, we derive support from the decision of in the case of Ahmedabad Stamp Vendors Association vs.- Union of India 2002 (6) TMI 32 - GUJARAT High Court wherein it was held that discount in the nature of cash discount on sale is outside the expression of commission or brokerage as envisaged in section 194H of the Act. The assessee therefore, was not required to deduct tax at source from the amount in question paid to the Hawkers and the question of disallowance under section 40(a)(ia) would not arise. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of ?14,47,045/- under section 40(a)(ia) of the Income Tax Act. 2. Applicability of section 194H regarding the requirement to deduct tax at source on payments made to Hawkers. Detailed Analysis: 1. Disallowance of ?14,47,045/- under section 40(a)(ia) of the Income Tax Act: The primary issue in this case is the disallowance of ?14,47,045/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under section 40(a)(ia) on account of payment made by the assessee to the Hawkers. The AO contended that the assessee was required to deduct tax at source from the said amount as per the provisions of section 194H and, since there was a failure to do so, the amount should be disallowed. The assessee argued that the payments were not commissions but delivery charges paid to casual laborers for delivering newspapers and magazines. The AO rejected this explanation, stating that the payments were indeed commissions as defined under section 194H, and thus, tax should have been deducted at source. 2. Applicability of section 194H regarding the requirement to deduct tax at source on payments made to Hawkers: The AO and CIT(A) held that the payments made by the assessee to the Hawkers were in the nature of commission, as the Hawkers were acting on behalf of the assessee and providing services in selling newspapers and magazines. The assessee contended that the payments were actually discounts on the MRP of newspapers sold to the Hawkers, who then sold them to customers. The CIT(A) confirmed the AO's view, stating that the relationship between the assessee and the Hawkers was that of principal and agent, not principal to principal. The CIT(A) also noted that the term "commission" was used in the Profit and Loss Account and that the payments were made in cash, further supporting the AO's stance. Tribunal's Decision: The Tribunal examined the nature of the payments and the relationship between the assessee and the Hawkers. It was observed that the assessee was in the business of trading in newspapers and magazines, purchasing them from Ananda Bazar Patrika and supplying them to Hawkers for further sale to customers. The Tribunal noted that the Hawkers operated independently and were compensated through cash discounts on the printed price of the newspapers and magazines. The Tribunal concluded that the payments were in the nature of discounts and not commissions, as the Hawkers were not acting as agents for the assessee. The Tribunal relied on the decision of the Hon’ble Gujarat High Court in the case of Ahmedabad Stamp Vendors’ Association vs. Union of India, which held that cash discounts on sales are outside the scope of "commission" or "brokerage" as envisaged in section 194H. Conclusion: The Tribunal held that the assessee was not required to deduct tax at source from the payments made to the Hawkers, and therefore, the disallowance under section 40(a)(ia) was not justified. The appeal of the assessee was allowed, and the disallowance of ?14,47,045/- was deleted. Order Pronouncement: The order was pronounced in the open Court on February 03, 2017.
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