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TMI Blog2015 (8) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to retail dealers through Del-credere Agents, as commission paid to Del-credere Agents in the light of the evidences produced before the Department to show that the payments made were actually incentives provided to Retail Dealers, to place orders, on A.P. Beverages Corporation Ltd, of the products (Beer) supplied by the appellant. 3) The C.I.T.(A), is not justified in holding that the impugned payments made under the head Trade Scheme Discount would amount to commission and they fall within purview of section 194H and thereby concluding that there is obligation to deduct T.D.S. under Section 194H and further confirming that the assessee deductor would be liable to pay Demand raised Rs. 1,03,99,771/- u/s.201(1) even if the Tax Deductees have paid the tax on their regular Incomes. 4) The C.I.T.(A) failed to take into consideration, the principles laid down by Allahabad High Court in Jagaran Prakasan (2012) (21 Taxation 489) and the decision of I.T.A.T. Calcutta in the case of Rama Krishna Vedanta Math Vs I.T.O., Ward-15(1), Calcutta and thereafter failed to reject the claim of the I.T.O., T.D.S. in enforcing the liability U/s.201, without bringing on record evidence by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment" with another Group Company. It is stated that the distillery unit was originally set up by M/s GMR Beverages & Industries Ltd and later it was acquired by United Millennium Breweries Pvt Ltd, which later got merged with M/s United Breweries Ltd. In the paper book, the "Brewing and Distribution agreement" dated 04-03-2005 entered between M/s Inertia industries Ltd and M/s GMR Beverages & Industries Ltd is enclosed in pages 24 to 40. It has been submitted that the said agreement was renewed by the present assessee company on identical terms. 3.1 The Department conducted a TDS survey in the premises of the assessee on 25.03.2010 to verify the compliance of the TDS provisions of the Act. From the information gathered during the survey, the AO noted that the assessee has not deducted TDS on the payments made under the head "Trade Schemes and discounts". After examining the submission made, the assessing officer came to the conclusion that the assessee has committed default in terms of section 201(1) and also levied interest S.201(1A) as follows in respect of amount paid under Trade Schemes and Discounts:- A.Y. Trade Scheme & Discounts Non deduction TDS U/S.194H as per ITO u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of stocks from the manufacturer. In these cases, an abatement is given in the selling price itself and this is reflected in the invoice. On the other hand, a trade discount allows the dealer who has achieved in excess of a target to avail additional quantity of the goods, as a reward for his performance, free of cost....." Under section 194H of the Act, TDS provisions are applicable at the time of payment of commission or brokerage. Admittedly here, the trade discount which is a rebate in the selling price does not constitute either the brokerage or partake the character of commission. Accordingly, we submit that the provisions of section 194H are not applicable to the trade discounts and rebates given by the company to its dealers. In our case, since the ascertainment of exact quantity sold arises subsequently trade discounts are paid to the retailers through our agents and booked in the accounts as 'trade schemes'. This is nothing but a cash discount and no TDS provision is attracted on these payments". 3.6 The AO after considering the explanation filed by the assessee felt that the discount is generally allowed as a reduction in the price and would be reflected in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t give complete information as to who were the delcredere agents during the relevant financial years. It is seen from the details filed in ITA No.360/2010-11 relating to A.Y.2008-09 one Anupama Distributors Pvt, Ltd has also functioned as del-credere agent." 5. The assessee submitted before the tax authorities that it had implemented certain trade discount schemes to market the products manufactured by it. Under the scheme, certain discount was paid to the retail dealers through del-credere agents, depending upon the quantity of beer lifted by each retailer. It was represented that separate bank accounts were maintained in the name of the del-credere agents, into which the payments made by the assessee were deposited and from which disbursements were made to the various retailers. It was also represented that all the payments were made through account payee cheques and were debited under the head "trade scheme and discounts" in its books of account. It was further represented that the purpose of the payment was to induce the retail dealers to place orders for the assessee's brands/products with APBCL. Accordingly it was contended that the said payments cannot be considered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld CIT(A) went a step ahead and expressed the view that the relationship of principal and agent is not a mandatory requirement as per the definition given in sec. 194H of the Act. Accordingly, the Ld CIT(A) confirmed the order of the assessing officer. Being aggrieved, the assessee is in appeal before us. 7. The Ld A.R submitted that the assessee has made payments to the retail dealers under the Sales promotion scheme promoted by it with the name "Trade schemes and discount". He submitted that the existence of "Principal- Agent relationship and provision of service by the agent to the principal on his behalf are two essential requirements to treat the payments as commission " He submitted that the retail traders are businessmen on their own right and hence there was no question of providing any service by them to the assessee. Hence the relationship between the assessee and retail dealers is "Principal to Principal" basis and hence impugned payment shall not fall in the category of Commission payments. He further submitted that the payments under Trade discount scheme have been disbursed by the _ _ _ assessee through its del-credere agents. He submitted that the del-credere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 194H of the Act as there is no principal-agent relationship between the assessee and its distributors. The Tribunal also held that the property of the goods and risk attached thereto pass on to the distributors as soon as the goods are invoiced to the distributors and at that moment, the sales takes place. Hence, free gifts of goods on sponsorships and promotions are sales promotion costs of the assessee, early payment discount is nothing but cash discount for timely payment and both the payments do not constitute commission by any stretch of logic. The Ld A.R submitted that the Payment made to the distributors of the assessee under sales promotion scheme has been held to be not "Commission" in the above said case, even though there is direct relationship between the assessee therein and the distributors. The Ld A.R submitted that in the instant case, there is no direct relationship between the assessee herein and the retail dealers and hence the case of the assessee stands in a better footing, i.e., there cannot be any doubt that the payments made under Trade discount scheme falls under Sales promotion scheme and further they have been paid under Principal to Principal basis. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payee, since the agent acts on behalf of the principal. If the relationship between the payer and payee is in the nature of principal to principal, then it cannot be said to be a service provided by one person on behalf of another person and hence the said payment cannot fall under the definition of commission. Accordingly, we are unable to agree with the observation of the Ld CIT(A) that the provisions of section 194H does not provide that the relationship between the should be that of "principal to agent". 13. In the instant case, the assessee herein, supplies Beer to APBCL, a Government of Andhra Pradesh Undertaking, which in turn, sells Beer to various retail dealers. Hence, in effect, there is no direct relationship between the assessee and retail dealers. However, since the turnover of the assesee would be dependent upon the sales effected with the retail dealers, the assessee has promoted a sales promotion scheme, under which incentives are given to retail dealers upon achievement of certain targets in sales. Under this promotional scheme, the retail dealers will be motivated to purchase more quantity of beer manufactured by the assessee, which in turn would increase the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In certain trades, the word "agent" is often used without any reference to the law of principal and agent." Thus, the essence of "Contract of Agency" is that the agent does not sell the goods as his own but sells the same as the property of the Principal under his instructions and directors. Thus an agent always acts on behalf of his Principal only and the benefits of the activities done by the agent would be reaped by the principal. Furthermore, since the agent is not the owner of goods, loss, if any, suffered by the agent is to be borne by the Principal and the agent shall be indemnified by the principal. The payment received by the agent for the services rendered to the principal is understood as "Commission". The Hon'ble Gujarat High Court has followed the above said decision of the Hon'ble Supreme Court (supra) in deciding the issue before it in the case of Ahmedabad Stamp Vendors Association. Following observations made by Hon'ble Gujarat High Court are also relevant here:- "It is also not possible to accept the contentions of Mr. Naik for the Revenue that the definition of "commission or brokerage" as contained in the Explanation to section 194H is so wide that it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who manages the affairs or undertakes to do some work or renders some services to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can be for a variety of services and is of the nature or recompense or reward for such services. "Rebate", on the other hand, is a remission or a payment back and of the nature of deduction from the gross amount. It is sometimes spoken of as a discount or drawback. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealings with one another it is nothing unusual to do so." The decision rendered by Hon'ble Bombay High Court (supra) also clarifies that the "Commission" is in the nature of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors to achieve certain targets. The Tribunal examined the issue whether the discount offered to retailers and also the promotional discount would constitute commission payment within the meaning of section 194H of the Act. The Tribunal held that the relationship between the assessee therein and its distributor is on "principal to principal" basis. Accordingly, the Tribunal held that the reimbursement of discount given to the retailers and also promotional discount given to the distributors do not constitute commission. 17. In the instant case, the assessee apparently paid incentives under its sales promotion scheme to the retail dealers. We have already noticed that the assessee has sold goods to APBCL and the retail dealers have purchased goods from APBCL. There should not be any dispute that the sale between the assessee and APBCL and the sale between APBCL and retail dealers was on "Principal to Principal" basis, since the property and risk attached with the goods got transferred from seller to buyer under both occasions. Further, it cannot also be said that retail dealers have provided any service to the assessee herein, since there is no direct connection between the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Owned corporations, the said price becomes part of the turnover of the _ __ _ assessee. In terms of the very same agreement the assessee company re-distributes the profit over and above the excess mark up price agreed to between the parties as partly under the head "service charges" and the balance under the head "brand fees". In other words, the brand fees does not arise directly to the main line companies but arises as part of the manufacturing process." As per the agreement, the assessee shall produce and sell the goods as per the specifications given by the main line companies under their brand name. The purchase and sales are accounted as its own purchases and sales. However, the assessee is entitled to receive a fixed sum of Rs. 30/- per case of 12 bottles. The assessee would also get funds for payment of sales tax and excise duty. At the end of the year any profit over and above the amount of service charges worked out @ Rs. 30/- per case would be paid to the main line companies as "brand fee". Hence, at the end of the year, the net profit of the assessee company would be the amount calculated @ Rs. 30/- per case only. 20. In respect of payment made by the assessee as "b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s employees to supervise the production at the plant of the assessee contractor, in order to ensure the quality of the products. The Contractee has also provided funds for payment of excise duty and sales tax. Hence major portion of profit should be attributable to the resources provided by the contractee companies and only a portion of the same may be attributed towards "brand fee". The Ld A.R further submitted that the assessee has purchased materials for manufacturing beer on its own and produced the beer according to the specifications specified by the contractees. He submitted that the definition of the term "work" given in sec. 194C of the Act provides that the contract for manufacture would be considered as 'work', when the material is purchased from the customer who orders the product. 22. On the contrary, the Ld D.R submitted that the assessee is raising new contentions at the stage of the Tribunal. The Ld D.R submitted that the Ld CIT(A) has already set aside the matter to the file of the AO with regard to the demand raised u/s 201(1) of the Act and also directed to reduce the interest charged u/s 201(1A) of the Act. 23. We have heard rival contentions and perused the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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