2018 (6) TMI 397 - HC - Income Tax

TDS u/s 194H - non deduction of tds on trade turnover discount - assessee in default - Held that - In the present case, since concurrent finding has been recorded by the CIT(A) as well as the Tribunal that the assessee had been debiting trade discount allowed to its commission agents who were acting and procuring orders/effecting sales of its products for and on its behalf, the Assessing Officer was not justified in attracting the provisions of Explanation to Section 194H . Learned counsel for the appellant has not been able to point out any error or illegality therein. - Decided in favour of assessee.

Issues Involved:

1. Condonation of delay in refiling the appeal.
2. Applicability of Section 194H of the Income Tax Act, 1961, on turnover discounts.
3. Interpretation of "Commission or brokerage" under Section 194H.
4. Examination of precedents and their applicability to the current case.
5. Evaluation of findings by CIT(A) and Tribunal.

Detailed Analysis:

1. Condonation of Delay in Refiling the Appeal:
The court condoned the delay in refiling the appeal as per the averments made in CM No.19108 CII of 2016 and allowed the application.

2. Applicability of Section 194H of the Income Tax Act, 1961, on Turnover Discounts:
The appellant-revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) which confirmed the CIT(A)'s decision reversing the Assessing Officer's (AO) order that invoked Section 194H regarding the payment of turnover discount amounting to ?4,57,52,494/-. The AO had concluded that this amount was for services rendered and thus subject to TDS under Section 194H.

3. Interpretation of "Commission or Brokerage" Under Section 194H:
Section 194H mandates TDS on any income by way of commission or brokerage. The Explanation to Section 194H defines "Commission or brokerage" as any payment received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered, in the course of buying or selling goods, or in relation to any transaction related to any asset, valuable article, or thing, not being securities.

4. Examination of Precedents and Their Applicability to the Current Case:
The court examined various judgments cited by both parties. The revenue relied on cases like *Commissioner of Income Tax Vs. Director, Prasar Bharti* and *Commissioner of Income Tax Vs. Idea Cellular Ltd.*, where discounts were treated as commission. However, these cases were distinguished from the present case as they involved different factual matrices, such as the nature of transactions and the role of intermediaries.

The assessee cited judgments like *Ahemdabad Stamp Vendors Association Vs. Union of India*, where the Gujarat High Court held that discounts to stamp vendors did not constitute commission or brokerage under Section 194H, emphasizing the necessity of an agency relationship for Section 194H to apply.

5. Evaluation of Findings by CIT(A) and Tribunal:
The CIT(A) found that the assessee had been debiting commission paid to its agents, which was distinct from the trade discounts allowed to buyers/customers without involving intermediaries. The Tribunal upheld this finding, noting that the AO had not provided evidence to classify the trade discount as commission.

The CIT(A) observed that the AO failed to establish that the trade discount was a sham arrangement or that it was actually a commission. The Tribunal further noted that the AO had not demonstrated how the present case was similar to other cases where Section 194H was applied.

Conclusion:
The court concluded that the CIT(A) and the Tribunal correctly interpreted the provisions of Section 194H and the nature of the transactions. The substantial question of law was answered in favor of the assessee, and the appeal was dismissed.

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