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2013 (4) TMI 291 - HC - Income TaxAssessee in default - TDS u/s 194-H - commission or discount - legality and validity of the order passed by the Income Tax Officer (TDS), Agra passed under section 221(1)/221(1A) whereby the Chief Treasury Officer has been held as assessee in default questioned - allegations of the dept. that the petitioner sells general stamp papers, court fee stamps, copy stamps and other stamps either to the public directly or through licensed stamp vendors at a price less than 1% of the value of such stamps which amounts to commission within the meaning of section 19H - Held that - The central theme of the impugned order dated 16.12.2003 is that as the stamp papers etc. have been sold at a discounted price, it is nothing but payment of commission to stamp vendors by the petitioner. The impugned order proceeds on the ignorance of the scheme of U.P. Stamp Rules as also the difference in between the commission and discount. Similar kind of controversy was up for consideration before this Court in the case of Jagran Prakashan Limited (2012 (5) TMI 488 - ALLAHABAD HIGH COURT) where it was a case of publisher of newspaper engaged in the business of printing and publishing newspapers Dainik Jagran and Eye Next from different places across the country. It was giving trade discount to the advertisers who used to bring advertisements for the newspapers. The newspaper publisher used to charge less advertisement charges from a category of persons who are the members of Indian Newspapers Society. The Income Tax Department treated the newspaper Dainik Jagran as assessee in default as it failed to deduct the tax at source on the differential amount which according to the department was commission paid to such advertisers. This Court on the consideration of various judgements of the Apex Court has held that such type of discount is trade discount and it is not commission. By applying the ratio of the aforesaid decision and keeping in mind that the nature of transaction discount under Rule 161 is not payment of commission directly or indirectly but it is a discount. Therefore the impugned order has been passed without taking into consideration the relevant facts and is illegal. Also in similar set of facts CIT (A)-II, Kanpur has held that the provisions of 194-H are not attracted in the case of stamp vendors on the sale of stamp papers etc. to licensed vendors as per the U.P. Stamp Rules, 1942 deserves for acceptance and this decision should have been followed in absence of any material otherwise by the respondent no.2 who is below the rank of CIT (A). In the result, the writ petition succeeds and is allowed. The impugned orders declaring assessee in default are quashed - in favour of assessee.
Issues Involved:
1. Legality of the order passed by the Income Tax Officer (TDS) under section 221(1)/221(1A) of the Income Tax Act. 2. Whether the discount given to licensed stamp vendors constitutes 'commission' under section 194-H of the Income Tax Act. 3. Relationship between the Chief Treasury Officer and licensed stamp vendors: Principal-Agent or Principal-to-Principal. 4. Validity of the impugned order in light of the U.P. Stamp Rules, 1942. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by the Income Tax Officer (TDS) Under Section 221(1)/221(1A) of the Income Tax Act: The Chief Treasury Officer, Agra, filed a petition under Article 226 of the Constitution of India challenging the order passed by the Income Tax Officer (TDS), Agra. The order held the petitioner as an assessee in default for failing to deduct and pay tax under section 194-H of the Income Tax Act from commission. The tax liability along with interest amounted to Rs. 2,77,648/- as per the order dated 31st March, 2002. 2. Whether the Discount Given to Licensed Stamp Vendors Constitutes 'Commission' Under Section 194-H of the Income Tax Act: The Income Tax Department alleged that the petitioner sold stamp papers, court fee stamps, and other stamps to licensed vendors at a discount of 1%, which they considered as 'commission' under section 194-H of the Act. The petitioner argued that this discount is not 'commission' but a reduction in price as per Rule 157 read with Rule 161 of the U.P. Stamp Rules, 1942. The court examined the definition of 'commission or brokerage' under section 194-H, which includes any payment received by a person acting on behalf of another for services rendered or in relation to any transaction. The court concluded that the discount provided does not constitute 'commission' as it lacks the element of agency. 3. Relationship between the Chief Treasury Officer and Licensed Stamp Vendors: Principal-Agent or Principal-to-Principal: The court analyzed whether the relationship between the petitioner and licensed stamp vendors was that of principal and agent or a principal-to-principal basis. The U.P. Stamp Rules, 1942, were scrutinized, revealing that stamp vendors purchase stamps from the government treasury on payment of ready money at a discount. The court referred to several legal precedents and concluded that the relationship is not one of agency. The licensed vendors purchase stamps on their own account and not on behalf of the State Government. The court emphasized that the sale of stamp papers to licensed vendors is a principal-to-principal transaction. 4. Validity of the Impugned Order in Light of the U.P. Stamp Rules, 1942: The court examined the relevant provisions of the U.P. Stamp Rules, 1942, and found that the rules support the petitioner's stand. The rules indicate that licensed vendors purchase stamps from the treasury and sell them on their own account. The court noted that the impugned order dated 16.12.2003 was based on the incorrect assumption that the discount given to stamp vendors was a commission. The court also referred to a similar case decided by the Gujarat High Court and another by the Allahabad High Court, both of which supported the petitioner's argument. The court held that the impugned order was illegal and void as it failed to consider the relevant facts and the correct interpretation of the U.P. Stamp Rules, 1942. Conclusion: The writ petition was allowed, and the impugned orders dated 17.2.2004, 16.11.2004, and the notice dated 3.12.2007 were quashed. The court concluded that the discount given to licensed stamp vendors does not constitute 'commission' under section 194-H of the Income Tax Act and that the relationship between the petitioner and the vendors is not one of agency but a principal-to-principal relationship. The court emphasized the importance of considering the relevant rules and legal precedents in making such determinations. No order as to costs was made.
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