2018 (5) TMI 1312 - AT - Income Tax

TDS u/s 194H - assessee in default - commission or discount - relation between the assessee and distributor was that of Principal and Agent - deduction of tax u/s 194H of the Act on commission payments to various distributors. Held that - The issue arising before us is similar to the issue before the Pune Bench of Tribunal in assessee s own case in earlier years. Even the Assessing Officer while raising demand in the hands of assessee had relied on earlier orders passed in the case of assessee starting from assessment year 2006-07, which is consequent to survey operation carried out at the premises of assessee to check evasion of payment of TDS under section 194H of the Act. Since the issue is squarely covered by the order of Tribunal in assessee s own case and also by the Hon ble High Court of Rajasthan again in assessee s own case and in Bharti Airtel Vs. DCIT (2014 (12) TMI 642 - KARNATAKA HIGH COURT), we find merit in the plea of assessee in this regard.

Summary

Issues:
- Non-deduction of tax at source under section 194H of the Act on discount allowed to pre-paid distributors
- Applicability of TDS machinery failure in determining assessee as an "assessee in default"
- Interpretation of legal position in the absence of jurisdictional Tribunal decisions
- Levy of interest under section 200(1A) of the Act

Issue 1: Non-deduction of tax at source under section 194H of the Act on discount allowed to pre-paid distributors:
The appeals by the assessee contested the orders of CIT(A) regarding non-deduction of tax at source under section 194H of the Act on discounts given to distributors. The assessee argued that the discounts should not be liable to TDS as the relationship with distributors was on a Principal-to-Principal basis. They also contended that the provisions of section 194H were not applicable in cases where no payment or credit was made to distributors. The Tribunal, in a prior case, had ruled in favor of the assessee, following the decision of the Hon'ble High Court of Karnataka, stating that discounts to distributors were not commission and hence not subject to TDS. The matter was remitted to the Assessing Officer for verification based on the books of account treatment. Consequently, the Tribunal directed the Assessing Officer to conduct necessary verification, and the appeals were allowed in favor of the assessee.

Issue 2: Applicability of TDS machinery failure in determining assessee as an "assessee in default":
The assessee argued that if the TDS machinery failed, they should not be deemed as an "assessee in default" under section 201(1) of the Act. They emphasized that section 194H was not intended to apply when no payment or credit was involved. The Tribunal supported the assessee's position, stating that the issue was similar to previous cases where the Tribunal and High Courts had ruled in favor of the assessee. The Tribunal directed the Assessing Officer to follow the earlier directions and conduct necessary verifications, ultimately allowing the appeals in favor of the assessee.

Issue 3: Interpretation of legal position in the absence of jurisdictional Tribunal decisions:
The assessee challenged the CIT(A)'s decision to follow a non-jurisdictional High Court's ruling due to the absence of jurisdictional Tribunal decisions. They argued that in cases where divergent views existed among High Courts, the favorable view should be adopted. The Tribunal found merit in the assessee's argument, citing previous rulings in the assessee's favor by the Hon'ble High Courts of Rajasthan and Karnataka. The Tribunal directed the Assessing Officer to conduct necessary verifications based on previous directions, leading to the allowance of the appeals in favor of the assessee.

Issue 4: Levy of interest under section 200(1A) of the Act:
Regarding the levy of interest under section 200(1A) of the Act, the assessee contended that the interest should be deleted or reduced. The Tribunal, after considering the arguments and previous rulings, directed the Assessing Officer to follow earlier directions and conduct verifications, resulting in the reduction of the demand raised under section 201(1) and interest charged under section 201(1A) to Nil. The appeals were allowed in favor of the assessee based on the Tribunal's decision and previous High Court rulings.

In conclusion, the Tribunal allowed the appeals filed by the assessee against the orders of CIT(A) related to non-deduction of tax at source under section 194H of the Act on discounts given to distributors. The Tribunal directed the Assessing Officer to conduct necessary verifications based on previous rulings and decisions, ultimately ruling in favor of the assessee and reducing the demand and interest levied to Nil.