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2014 (1) TMI 230 - AT - Income TaxNon-deduction of TDS - Assessee in default u/s 201(1) - Held that - Following Hindustan Coca Cola Beverages Pvt Ltd Vs CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA - In order to hold the assessee is liable for deducting tax at source under section 194H of the Income-tax Act, 1961, whether the relationship between the assessee and its franchisees created by the agreement is of a principal and agent has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the relationship - The court is to examine whether after delivery of the goods to the buyer, the seller has retained the control or right of regulation in any form with regard to the mode of dealings of the buyer, in other words, whether the buyer has substantially unfettered choice to deal with the property purchased in any manner he likes - Sometimes the seller under the contract or enactment prescribes certain regulatory measures to prevent abuse of the rare articles and goods even after sale but such measure cannot be ascribed to be attributes of the relationship of principal and agent - Once the recipients have paid tax on income embedded in these payments then the tax cannot once again be recovered from the assessee by treating the assessee in default for non deduction of TDS - The issue was restored for fresh adjudication.
Issues Involved:
1. Non-deduction of TDS on commission payments. 2. Charging of interest under Section 201(1A) of the Income-tax Act, 1961. 3. Determination of principal-agent relationship for tax purposes. 4. Verification of tax payment by recipients to avoid double taxation. Detailed Analysis: Non-deduction of TDS on Commission Payments: The primary issue in these appeals was whether the assessee was in default under Section 201(1) of the Income-tax Act, 1961, for not deducting TDS on commission payments. The CIT(A) had confirmed the action of the DCIT in treating the assessee as a defaulter. The assessee contended that it had not violated any provision of law and had deducted tax on commissions paid to franchisees. The argument was based on the fact that no discount was allowed to franchisees for the year in consideration, thus negating the need for TDS deduction. Charging of Interest under Section 201(1A): The appeals also addressed the issue of interest charged under Section 201(1A) for the non-deduction of TDS. The assessee argued that the appellate authority had not clearly directed the assessing authority regarding the quantum of modification, despite the submission of all necessary documents, including Form 26Q and audited final accounts. Determination of Principal-Agent Relationship: The relationship between the assessee and its franchisees was scrutinized to determine if it was of a principal-agent nature, which would necessitate TDS deduction under Section 194H. The assessee's counsel conceded that the issue of commission was covered by the decision of the Hon'ble jurisdictional High Court in the case of Bharati Cellular Ltd. Vs. ACIT & Anr., which held that the relationship between the assessee and franchisees was that of principal and agent when selling SIM cards and providing post-paid connections. However, for cash cards, the relationship was principal-to-principal, and no TDS was required. Verification of Tax Payment by Recipients: The assessee's counsel argued, citing the Supreme Court's decision in Hindusthan Coca Cola Beverage Pvt. Ltd., that if the recipients had already paid tax on the income embedded in these payments, the tax could not be recovered again from the assessee. The Tribunal referred to the coordinate bench decision in Ramakrishna Vedanta Math Vs. ITO, which supported this view, emphasizing that the onus was on the revenue to demonstrate that taxes had not been recovered from the primary liable party. Tribunal's Decision: The Tribunal found that the issue was covered by the decision of the Hon'ble Calcutta High Court in Bharati Cellular Ltd., which established the principal-agent relationship for TDS purposes. However, following the Supreme Court's principle in Hindusthan Coca Cola Beverage Pvt. Ltd., the Tribunal directed the AO to verify if the recipients had paid taxes on the income. The assessee had provided detailed information about the recipients, including their PAN, address, and commission paid. If the recipients had paid the taxes, the assessee could not be treated as in default under Section 201. However, differential interest could be charged under Section 201(1A). Conclusion: The appeals were allowed for statistical purposes, with the AO directed to verify the tax payment by the recipients. The Tribunal emphasized that recovery provisions under Section 201(1) could only be invoked if there was a loss of revenue, which would only be established if the recipients had not paid the due taxes. Order Pronouncement: The order was pronounced in the open court on 19th Dec., 2013.
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