2016 (8) TMI 223 - AT - Income Tax

TDS u/s 194G - Disallowance under section 40(a)(ia) - payment of disbursed prize monies - whether the assessee was liable to deduct tax at source from the amount in question disbursed as prize monies on lottery tickets under section 194G - revision u/s 263 - Held that - As rightly contended by the ld. counsel for the assessee, the amount in question can be considered as in the nature of commission for the purpose of section 40(a)(ia) read with section 194G only if the same represents payment received or receivable, directly or indirectly, by a person acting on behalf of another person for any services rendered, inter alia, in the course of buying or selling of goods. As per the terms and conditions of the agreements entered into between the assessee and its stockists (copy of Stockist Agreement placed), the assessee-firm and the stockists were acting on principal to principal basis, inasmuch as, the stockists were free to act in their capacity and once the lottery tickets were sold to them, such lottery tickets stood transferred to the stockists. The stockists were mainly concerned with their shares on sale of lottery tickets and they were not entitled to receive any commission on sale of lottery tickets from the assessee. They were free to sale the lottery tickets to any sub-stockists or retailers at the self determined prices as per their free will and the contract between the assessee and the stockists was that of purchase and sale of lottery tickets and not that of rendering services on commission. In the matter of lottery business as governed by the relevant agreements, the stockists were to act on their own and not for or on behalf of the assessee. The relationship between the assessee and the stockists thus was that of principal to principal and there being no principal agent relationship between them as held by the Hon ble High Court of Sikkim in the case of Future Gaming and Hotel Services Pvt. Limited (supra), we agree with the contention of the ld. counsel for the assessee that the amount in question was not in the nature of commission as defined in clause (i) of Explanation to Section 194H so as to attract the provision of section 40(a)(ia) read with section 194G. In our opinion, the amount in question representing the disbursal of prize monies on lottery tickets thus was not liable to be disallowed under section 40(a)(ia) in the facts and circumstances of the case and there was no error in the order of the Assessing Officer not making such disallowance as alleged by the ld. CIT justifying revision under section 263. - Decided in favour of assessee

Issues Involved:
1. Delay in filing the appeal.
2. Nature and treatment of prize money payments.
3. Applicability of Section 194G and Section 40(a)(ia) of the Income Tax Act.
4. Principal-Agent relationship between the assessee and stockists.
5. Rejection of books of accounts and estimation of income.
6. Revision of assessment order under Section 263.

Issue-Wise Analysis:

1. Delay in Filing the Appeal:
The assessee filed an application seeking condonation for a delay of 75 days in filing the appeal. The Tribunal, satisfied with the reasons provided and supported by an affidavit, condoned the delay and proceeded to dispose of the appeal on merit.

2. Nature and Treatment of Prize Money Payments:
The assessee, a partnership firm dealing in lottery tickets, made an aggregate payment of ?551.30 crores to various stockists as prize money attributable to unsold lottery tickets. The Principal Commissioner of Income Tax (Pr. CIT) found that no tax was deducted at source from these payments, which were part of the total purchases debited to the Profit & Loss Account. The Pr. CIT viewed these payments as liable for disallowance under Section 40(a)(ia) due to non-deduction of tax under Section 194G.

3. Applicability of Section 194G and Section 40(a)(ia) of the Income Tax Act:
The Pr. CIT held that the assessee was liable to deduct tax at source under Section 194G for payments made as prize money and that the failure to do so rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee argued that the prize money payments were reimbursements and not commission or remuneration, and thus, Section 194G was not applicable. The Tribunal found that the relationship between the assessee and stockists was that of principal to principal, not principal-agent, and thus, the payments did not constitute commission under Section 194G.

4. Principal-Agent Relationship Between the Assessee and Stockists:
The Tribunal referred to the decision of the Hon’ble Sikkim High Court in the case of Future Gaming and Hotel Services Pvt. Limited, which held that the relationship between the lottery distributor and the State Government was that of a buyer and seller on a principal-to-principal basis. The Tribunal concluded that the relationship between the assessee and its stockists was similar, and therefore, the payments made to stockists were not in the nature of commission.

5. Rejection of Books of Accounts and Estimation of Income:
The Assessing Officer (AO) had rejected the books of account of the assessee under Section 145(3) and estimated the income based on the Bernoulli's Theorem. The Tribunal held that once the income is determined on an estimated basis after rejecting the books of account, no disallowance under Section 40(a)(ia) can be made separately. This view was supported by the decision in the case of Shri Arun Bhowmik, affirmed by the Hon’ble Calcutta High Court.

6. Revision of Assessment Order Under Section 263:
The Tribunal held that the AO’s order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal emphasized that when a possible view is taken by the AO on a debatable issue, the Pr. CIT cannot substitute his own view by exercising revisionary powers under Section 263. The Tribunal concluded that the revision of the AO’s order by the Pr. CIT was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order passed by the Pr. CIT under Section 263 and restoring the order of the AO passed under Section 143(3)/144.

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