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2005 (9) TMI 295 - AT - Income TaxNon-deduction of TDS u/s 194H - Assessee in default - Government Milk Scheme - Commission paid to Milk Federations and Kiosk Owners and on transportation - difference between the procurement price and the maximum retail price for the Kiosk owner - relationship between Government Milk Scheme and Milk Centres - Principal to Principal Or Principal to Agent - HELD THAT - According to the factual matrix the appellant used to procure milk from various milk federations. After proper processing of milk the same was meant for sale in the open market. For this purpose milk centres or milk booths (kiosks) were contacted so the milk was sold in 500 or 100 ml. pouches. At the time of procurement the appellant pass 90 paise per litre to such Unions or Federations towards transport cost container charges management expenses and chilling charges. The bifurcation of this 90 paise being incurred on such various heads has also been discussed above. The next phase was selling of milk through milk booths. Appellant used to sell 1000 ml pouch of milk to Kiosk owner at the rate of 11.10 paise per litre and expected to sell the milk at Rs. 12 per litre. So there was a margin of 90 paise per litre. This difference between the procurement price and the maximum retail price for the Kiosk owner was stated to be reimbursement of transport cost container charges management expenses and chilling charges. In respect of both these transactions the revenue authorities have held the appellant was liable for TDS and held the assessee a defaulter. Whether the federations or the booth owners were acting on behalf of the appellant i.e. the Government Milk Scheme - We have perused few clauses and have found that in either case apparently the parties are independent not acting on behalf of the appellant. Though the Government is running a Public Welfare Activity by way of giving employment to youth and physically handicapped persons but such welfare activity was not binding in nature but rather optional only on one hand to ensure the farmers to get a fair price of their milk produced and on the other hand to ensure the people at large to get good quality of milk at reasonable rate to be supplied through milk booths. We have also examined some of the clauses according to which it is evident that the product once sold should not be taken back by the Milk Scheme. The Electricity Bill and the ownership of the kiosks having other incidental expenses shall be the responsibility of the booth owners. One more aspect was brought to our notice that the cost of the milk has always been paid in advance every day along with the indent for the requirement of the milk for the next day. This clause thus makes it clear that the activity was purely of trading in nature and the goods were procured on payment and there was transfer of ownership of the said good i.e. milk. So the transaction was purely on Principal to Principal basis and there was no existence of an agency as the goods either procured or disbursed at every stage of transaction was on actual payment basis. Once the buyer become the owner of the property and the seller has no vestige of title left in the property the concept of sale prevails. Resultantly applying the aforesaid definitions and the judicial pronouncements to the facts of present case and in the backdrop of the discussion on facts we hereby hold that the transaction was on principal to principal basis and the appellant was not liable for deduction of tax at source hence there was no infringement of section 194H of the IT. Act. With the result the liability created by an order u/s 201(1) and 201(1A) was bad in law. The appellant succeeds and grounds allowed. In the result the appeal is allowed.
Issues Involved:
1. Whether the transaction between the Government Milk Scheme (GMS) and Kiosk Owners was on a 'Principal to Principal' basis or 'Principal to Agent' basis. 2. Whether the payments made to Milk Federations and Kiosk Owners constituted 'commission' under Section 194H of the Income-tax Act, 1961, requiring tax deduction at source (TDS). 3. Whether the appellant was liable for non-deduction of TDS under Section 201(1) and interest under Section 201(1A) of the Income-tax Act. Detailed Analysis: Issue 1: Principal to Principal vs. Principal to Agent Relationship The primary contention was whether the relationship between GMS and Kiosk Owners was on a 'Principal to Principal' basis or 'Principal to Agent' basis. The appellant argued that the transaction was purely on a 'Principal to Principal' basis, as the kiosk owners purchased milk from GMS and sold it at a margin, with no obligation to return unsold milk. The agreement clauses indicated that the kiosk owners bore the costs of electricity, taxes, and other incidental expenses, reinforcing their status as independent entities rather than agents of GMS. The Tribunal examined the relevant clauses of the agreement and found that the transaction was indeed on a 'Principal to Principal' basis. The milk once sold to the kiosk owners became their property, and they were responsible for its further sale, thus negating the existence of a Principal-Agent relationship. Issue 2: Nature of Payments as 'Commission' under Section 194H The Assessing Officer had treated the payments made to Milk Federations and Kiosk Owners as 'commission' under Section 194H, requiring TDS. The appellant contended that these payments were reimbursements for transportation, container charges, management expenses, and chilling charges, and not 'commission.' The Tribunal noted that the term 'commission' was used in the Government Resolution but clarified by the government as reimbursement of expenses. The Tribunal referred to the definition of 'commission' in Black's Law Dictionary and the Income-tax Act, emphasizing that 'commission' involves a Principal-Agent relationship. Since the transactions were on a 'Principal to Principal' basis, the payments did not qualify as 'commission.' Issue 3: Liability for Non-Deduction of TDS under Section 201(1) and Interest under Section 201(1A) The Assessing Officer had held the appellant liable for non-deduction of TDS under Section 201(1) and imposed interest under Section 201(1A). The Tribunal examined whether the payments made by GMS fell within the ambit of 'commission' under Section 194H. It concluded that the payments were reimbursements and not 'commission,' thereby absolving the appellant of the liability for TDS deduction. The Tribunal also referred to several case laws, including Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 (Guj.), which supported the view that transactions on a 'Principal to Principal' basis do not attract TDS under Section 194H. Conclusion The Tribunal held that the transactions between GMS and Kiosk Owners were on a 'Principal to Principal' basis and the payments made were reimbursements for expenses, not 'commission.' Consequently, the appellant was not liable for TDS deduction under Section 194H. The orders under Section 201(1) and 201(1A) were deemed invalid, and the appeal was allowed.
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