2024 (12) TMI 761 - AT - Income Tax

TDS u/s 194H - incentives provided to dealers - non deduction of TDS on incentives constitutes payments in the nature of commission - HELD THAT - We note that the risk and rewards of ownership of goods are transferred to dealers once the goods are invoiced and delivered to them in their place of business and hence, the relationship between the assessee and the dealers is only seller and buyer and not that of Principal-agent. Therefore, there is no agency between the assessee and the dealers and hence, the payments made towards promotional activities like Gold Coin Scheme, Atoot Rishtey Scheme, Foreign Scripts etc does not attract TDS u/s. 194H of the Act, which are provided as target incentive to increase the volume of sales. Since, these payments are made by the assessee towards a promotional activities to increase the sales volume of the products on Principal-Principal basis, we are of the considered view that, there is no relationship of Principal- Agent between the assessee and the dealers appointed in the State and hence, the provisions of section 194H of the Act is not applicable to these payments. As relying on Hon ble Apex Court decision in the case of Bharti Cellular Limited 2024 (3) TMI 41 - SUPREME COURT we are of the considered view that the payments made by the assessee towards promotional expenses in the form of various schemes are not liable for TDS u/s. 194H of the Act and hence, delete the addition. TDS u/s 194C - Disallowance towards EPF, PF ESI contribution of the job workers - As admitted fact that the assessee has made payments to ESI, PF authorities on behalf of labour supplier i.e. contractor. We note that the assessee has made payments towards EPF ESI contributions; however these payments are made in the name of the contractor, but not in the name of the assessee. Hence, these payments are nothing but payments made to the contractor towards his liabilities and hence, in our considered view, these payments are liable for TDS u/s. 194C. Therefore, we are inclined to confirm the order of the CIT(A) in disallowing this expenditure u/s. 40(a)(ia).

Summary

Issues Involved:

1. Disallowance under Section 40(a)(ia) of the IT Act for non-deduction of tax under Section 194H in respect of incentives provided to dealers.
2. Disallowance under Section 40(a)(ia) of the IT Act for non-deduction of tax under Section 194C in respect of ESI, PF, and EPF contributions.
3. Disallowance under Section 40(a)(ia) of the IT Act for non-deduction of tax under Section 194C in respect of meet and greet expenses provided to dealers.

Issue-Wise Detailed Analysis:

Issue 1: Disallowance under Section 40(a)(ia) for non-deduction of tax under Section 194H for dealer incentives

The appellate tribunal considered whether the incentives provided to dealers constituted payments in the nature of commission, thereby requiring tax deduction under Section 194H. The assessee argued that the incentives were non-monetary and thus did not fall under the purview of Section 194H, which applies to 'sums paid'. Additionally, the assessee contended that there was no principal-agent relationship between them and the dealers, which is a prerequisite for invoking Section 194H. The tribunal found that the relationship between the assessee and the dealers was of a principal-agent nature, as the assessee exercised control over the dealers, including setting prices and guidelines. The tribunal concluded that the incentives were in the nature of commission and upheld the disallowance, as the assessee failed to deduct TDS under Section 194H.

Issue 2: Disallowance under Section 40(a)(ia) for non-deduction of tax under Section 194C on ESI, PF, and EPF contributions

The tribunal examined whether contributions to ESI, PF, and EPF made by the assessee were subject to TDS under Section 194C. The assessee argued that these contributions were made directly to the government and not to contractors, and thus were not subject to TDS. However, the tribunal found that the payments were made on behalf of job workers employed through a contractor, which constituted a contractual relationship. Therefore, the provisions of Section 194C were applicable, and the assessee was required to deduct TDS on the entire payment made to the contractor, including contributions to ESI, PF, and EPF. The tribunal upheld the disallowance for non-deduction of TDS on these contributions.

Issue 3: Disallowance under Section 40(a)(ia) for non-deduction of tax under Section 194C on meet and greet expenses

The tribunal assessed whether expenses incurred for meet and greet events were subject to TDS under Section 194C. The assessee contended that these expenses, which included travel tickets, food, and stationery, were not liable for TDS as they did not involve 'carrying on any work'. The tribunal, however, noted that the payments were made to hotels for promotional meets, which constituted advertisement and promotional activities. As such, these expenses were considered contractual payments, subject to TDS under Section 194C. The tribunal upheld the disallowance for non-deduction of TDS on these expenses.

Conclusion:

The tribunal partially allowed the appeal by the assessee. It confirmed the disallowance related to ESI, PF, and EPF contributions and meet and greet expenses due to non-deduction of TDS under the relevant sections. However, it allowed the appeal concerning the incentives provided to dealers, concluding that these were not liable for TDS under Section 194H, as the relationship was not that of a principal-agent but rather a principal-principal relationship.