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TMI Blog2010 (7) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... counter. Every fifteen days, ADS would submit the details of collection made and on the basis of these details, the assessee would prepare a bill on ADS and ADS would retain discount at the rate of 20% on the cash sales and 22% on the credit card sales and remit the balance to the assessee. These facts were brought to the notice of the Assessing Officer by the assessee by letter dated 7-9-2007. It was explained that the discount given to ADS was being termed as royalty in the accounts though it was not actually royalty. It was reiterated that what was given was only discount and therefore section 194J was not applicable. It was further explained that the discount was given to ADS for the following services:- (a) space of 150 sft.(approximate) provided by ADS free of cost at prominent places. (b) providing electricity, general decoration, display, telephone facilities, security etc. (c) providing packing material, carry bags and other staff services such as delivery, checking of goods etc. (d) the brand name of Akbarallys also helps in achieving the sales. 3. The Assessing Officer did not accept the assessee's explanation. He took the view that the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accountant General & Others, (2006) 282 ITR 7. In support of his contention that the goods were sold to Akbarallys at a discount and since the assessee has shown the same as sales in its sales tax returns, the same was binding on the income-tax authorities, the learned counsel for the assessee referred to the judgement of the Madras High Court in CIT Vs. Anandha Metal Corporation, (2005) 273 ITR 262. It was thus contended that the disallowance was not in accordance with law and facts. 6. On behalf of the department, Mr. A.R.Bajware, learned Senior D.R. submitted that this is a case to which section 194H of the Act clearly applied since the payment represented commission and the assessee ought to have deducted tax from the same if the payment had to be allowed as a deduction. He submitted that the assessee's contention that the agreement dated 1st March, 1982 did not operate for the year under appeal was erroneous and that the agreement continued to operate for the year under appeal in the absence of anything to show that it ceased to operate. He drew our attention to the relevant clause in the agreement which says that it cannot be revoked except by notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and includes royalty within its fold is also ruled out since royalty was brought into the fold of the section by Taxation Laws Amendment Act, 2006 with effect from 13-07-2006, the date which falls subsequent to the year under appeal. The description of the payment as royalty in the profit and loss account is not decisive as rightly submitted on behalf of the assessee on the strength of the judgement of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd., vs. CIT(Central), 82 ITR 363. The true nature of the payment has to be gathered from the terms of the agreement, if any, entered into between the parties as well as their conduct and all the surrounding circumstances. The assessee itself has not been consistent in its description of the payment in its accounts as we see from the profit and loss accounts for the years ended 31-03-2001 to 31-03-2004, compiled in the paper book. For the years ended 31-03-2002 and 31-03-2003, the assessee has described the payment as royalty. For the year ended 31-03-2001, the payment has been described as commission and for the year ended 31-03-2004 it has been described as discount. Nothing therefore can be gleaned from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence has been brought on record to show that either of these clauses were activated by the parties. There is no evidence to show that the assessee or ADS gave sixty days notice to terminate the agreement as contemplated by clause 3. There is also no evidence to show that ADS terminated the agreement for breach by the assessee of the conditions prescribed by clause 17. Therefore the assessee is not right in saying that the terms of the agreement are mutually agreed year after year without entering into a separate agreement or that the written agreement dated 1-3-1982 did not operate for the year under appeal. In our finding, the agreement continued to operate even for the year under appeal. 10. Turning now to the nature of the payment made to ADS, the contention of the department put forth before us is that clause (6) of the agreement refers to the payment as commission and therefore it is not for anybody else the business of the goods, the assessee shall pay a "commission" of 12.5% on the gross sales with a minimum compensation of Rs. 24,000 per annum. The clause further provides that the commission and minimum compensation are subject to revision and such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not prove the further contention that the goods were sold to ADS on which discount was given. The invoice sent by the assessee to Akbarallys based on the sales report sent by ADS to the assessee also does not prove that the assessee sold the goods to ADS. In fact, the terms of the agreement dated 1st March, 1982 is only an agreement for payment of commission and it does not provide anywhere that ADS had paid for the goods from the assessee and would be selling it to the public in turn. The sales report sent by ADS to the assessee, in our opinion, can only be taken as a report of the sales made from the assessee's counter in the premises of ADS and it does not establish that the assessee sold the goods to ADS. There is further evidence in the agreement itself to fortify this conclusion. The learned Senior DR has aptly pointed out to clause 9(c) of the agreement which provides that the assessee shall at its own cost and expenses purchase the goods and store the same at its own risk and will not hold ADS responsible for any damage or loss due to theft, fire, burglary, earthquake, riots, civil commotion etc. or otherwise. In addition to this sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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