2017 (12) TMI 1361 - HC - Income Tax

Contract receipt/commission income - TDS under Section 194C/194H - payment received by assessee from M/s Vodafone Essar Digilink Limited under contractual obligation after deduction of TDS under Section 194C/194H is a contract receipt/commission income in the hands of assessee OR reimbursement of expenses to the sub dealers/retailers - Held that - It was rightly concluded by the CIT(A) that there was no justification for adding the said amount as suppressed receipts and, therefore, deleted the same. It was further recorded that the incentive by M/s Vodafone had been made directly to the retailers. Since the said amount was neither due nor received by the assessee, the question of adding the same as suppressed receipts did not arise and, therefore, the same was deleted. As the amount of ₹ 48,77,440/- did not form part of the receipts of the assessee, credit for corresponding TDS of ₹ 1,10,767/- could not be given to the assessee and the Assessing Officer was directed not to give credit for this TDS amount. The addition of ₹ 13,09,267/- on account of receipt of discount was deleted by holding it to be on account of reimbursement of amount paid to Assistant Distributors. Thus, the addition made by the Assessing Officer of ₹ 72,52,052/- was deleted. With regard to the charging of interest under Section 234B of the Act, the appeal of the assessee was dismissed. Aggrieved by the order passed by the CIT(A), the department went in appeal before the Tribunal. After examining the entire matter in detail, the Tribunal concurred with the findings recorded by the CIT(A). The issue was decided in favour of assessee by the Tribunal relying upon the decision of the coordinate Bench in Sh. Basant Kumar s case (2015 (11) TMI 1127 - ITAT DELHI) for the assessment year 2009-10. Learned counsel for the revenue has candidly admitted that no appeal has been filed against the said order and has been accepted by the revenue though the tax effect was more than the limit prescribed by the CBDT circular.

Summary

Issues:
1. Interpretation of contractual receipts and commission income.
2. Compliance with terms and conditions of the contract.
3. Treatment of TDS deductions and inclusion in profit and loss account.
4. Adequacy of explanations provided by the assessee.
5. Liability for TDS deduction under Section 40(a)(ia) of the Income Tax Act.

Analysis:

Issue 1: Interpretation of contractual receipts and commission income
The appellant-assessee challenged the Tribunal's decision regarding the nature of the payment received from M/s Vodafone Essar Digilink Limited. The Assessing Officer noted that the appellant received income in the form of contracts and commission, with TDS deductions under Sections 194C and 194H. However, the CIT(A) clarified that certain amounts were reimbursement of expenses and not commission income, as evidenced by details obtained from M/s Vodafone and the appellant's ledger account. The Tribunal upheld this interpretation, leading to the deletion of the addition made by the Assessing Officer.

Issue 2: Compliance with terms and conditions of the contract
The question arose whether the payments made or due to the assessee were in compliance with the contract terms. The CIT(A) found that certain payments were reimbursement for expenses incurred by the assessee, such as salary reimbursement and payments to Assistant Distributors, which were not explicitly mentioned in the contract but were deemed valid. The Tribunal, relying on a similar case, upheld the CIT(A)'s decision in favor of the assessee.

Issue 3: Treatment of TDS deductions and inclusion in profit and loss account
The Assessing Officer raised concerns about the non-inclusion of TDS deductions in the profit and loss account. The CIT(A) clarified that certain amounts were not commission income but reimbursements, hence not required to be reflected in the profit and loss account. The Tribunal agreed with this interpretation, leading to the deletion of the addition made by the Assessing Officer.

Issue 4: Adequacy of explanations provided by the assessee
The appellant's explanations regarding the nature of receipts and expenses were scrutinized for adequacy. The CIT(A) and the Tribunal found the explanations satisfactory, especially regarding reimbursements and non-inclusion in the profit and loss account, leading to the deletion of the addition made by the Assessing Officer.

Issue 5: Liability for TDS deduction under Section 40(a)(ia) of the Income Tax Act
The liability of the assessee for TDS deduction before making payments was questioned. The CIT(A) and the Tribunal found that certain payments were not subject to TDS deduction as they were reimbursements and not commission income. The Tribunal's decision favored the assessee, and the appellant-revenue failed to demonstrate any illegality or perversity in the Tribunal's order.

In conclusion, the High Court dismissed the appeal as no substantial question of law arose from the Tribunal's decision. The Tribunal's findings were upheld, and the application for condonation of delay in filing the appeal was left open.