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2023 (5) TMI 1397 - AT - Income TaxTDS u/s 194H - discount given to distributors on sale of pre-paid products, being, right to use Airtime for a specified value - Liability for non-deduction of tax at source and interest u/s 201(1) and 201(1A) - transactions of allowing the discount by the assessee to the dealers/distributors is between principal to principal and not between principal to agent - as argued nature of transaction between the assessee and distributors/dealers is not a commission but the assessee is allowing only discount to the distributors/dealers - HELD THAT - Assessee has filed before us the specimen copy of the agreement entered into between the assessee and the distributors/dealers as well as ledger copy of the distributors in the books of the assessee. These relevant documents have not been examined and considered by the AO while passing order u/s 201(1)/201(1A). CIT(A) has also not given a finding of fact regarding nature of transaction but has simply followed the decision of this Tribunal in pursuant to the judgment of Hon ble Delhi High Court only precedent at that point of time therefore, Ld. CIT(A) has not considered the contrary view taken by other High Courts while the passing the impugned order. In fact the terms and conditions of the agreement between the assessee and distributors/dealers as well as treatment of the transactions in the books of the assessee are essential consideration for determining the nature of transaction have not been taken into account either by the AO or by the Ld. CIT(A). Hence matter requires a proper verification/ examined and fresh adjudication at the level of the AO after considering terms and conditions of the agreement between assessee and distributors/dealers as well as the treatment of these transactions in the books of the assessee. Appeals of assessee are allowed for statistical purposes.
Issues Involved:
1. Applicability of Section 194H of the Income Tax Act, 1961 to discounts given to distributors. 2. Nature of the business relationship between the assessee and distributors (principal-to-principal vs. principal-to-agent). 3. Liability for non-deduction of tax at source and interest under Section 201(1) and 201(1A). 4. Treatment of the transaction in the books of accounts. 5. Levy of interest under Section 220(2) for the assessment year 2009-10. Issue-wise Detailed Analysis: 1. Applicability of Section 194H: The primary issue revolves around whether the discount offered by the assessee to its distributors on the sale of prepaid products constitutes a commission under Section 194H of the Income Tax Act, 1961. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld that the discounts were in the nature of commission, thereby necessitating tax deduction at source. The assessee contended that the relationship was principal-to-principal, and thus the provisions of Section 194H were not applicable. The tribunal noted divergent views from various High Courts on this matter, with some rulings favoring the assessee and others the revenue. The tribunal emphasized the need for examining the terms of the agreement and the treatment of transactions in the books to determine the nature of the discount. 2. Nature of the Business Relationship: The assessee argued that the relationship with distributors was principal-to-principal, not principal-to-agent, which is crucial in determining the applicability of Section 194H. The AO and CIT(A) treated the relationship as principal-to-agent based on precedents from the Delhi High Court and other tribunals. The tribunal highlighted the necessity of scrutinizing the agreements between the assessee and distributors to ascertain the true nature of their relationship. 3. Liability for Non-Deduction of Tax at Source and Interest: The AO held the assessee liable for non-deduction of tax amounting to Rs. 52,778,043 under Section 194H and imposed interest under Section 201(1A). The assessee challenged this, arguing that the amount in question was already taxed in the hands of the distributors. The tribunal pointed out that there were conflicting judgments from various High Courts and that the Supreme Court was yet to adjudicate on the matter. The tribunal remanded the issue back to the AO for fresh adjudication, emphasizing the need for a detailed examination of the agreements and accounting treatment. 4. Treatment of the Transaction in the Books of Accounts: The assessee maintained that the transaction was recorded as a discount in its books, not as a commission. The tribunal noted that neither the AO nor the CIT(A) had adequately considered the treatment of these transactions in the assessee's books. The tribunal instructed the AO to examine the ledger entries and agreements to determine the nature of the transactions accurately. 5. Levy of Interest under Section 220(2) for AY 2009-10: For the assessment year 2009-10, the issue involved the levy of interest under Section 220(2) on a calendar month basis. The assessee argued that interest should be computed based on the actual number of days. The tribunal linked this issue to the determination of the transaction's nature for AY 2010-11 and remanded it back to the AO for fresh adjudication, contingent on the outcome of the proceedings for AY 2010-11. Conclusion: The tribunal set aside the orders of the lower authorities and remanded the matters back to the AO for a comprehensive re-evaluation, emphasizing the importance of examining the agreements and accounting treatment to determine the true nature of the transactions. The appeals were allowed for statistical purposes, pending fresh adjudication.
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