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TMI Blog2016 (4) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... gnoring the fact that the distributors are acting as agents of the assessee company and the margin enjoyed by the distributors are the commission/brokerage allowed by the assessee company and assessee is liable to deduct TDS u/s 194H (ii) The Learned CIT(A) has erred in law and on facts in deleting the disallowance u/s.40a(ia) r.w.s.194H as worked out by the Assessing Officer without properly appreciating the factual and legal matrix a clearly brought out by the Assessing Officer in the Assessment Order. (iii) The Leaned CIT(A) has erred in law and on facts in holding that discount given to distributor by RCIL is not commission and therefore the disallowance u/s.40a(ia) r.w.s.194H is not called for. (iv) The Learned CIT(A) has erred in law and on facts in relying on the decision of CIT(A) in which it is held that in those cases the surplus generated by the Distributors by virtue of discount offered by RCIL on the MRP is not a commission as the TDS on commission is already deducted by RCL while making the payment to RCIL in the form of discount on MRP of RCV. (v) The Learned CIT(A) has erred in law and on facts in not appreciating the facts that each entity is different asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 8,65,06,770/- u/s.14A ignoring the fact that the Department has not accepted the decision of Bombay High Court in the case of Godrej & Boyce Mfg.Ltd.vs DCIT(2010) 328 ITR 81(B0m). (xii) The Learned CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 8,65,06,770/- u/s.14A for the purpose of computing book profit u/s.115JB of the Act, ignoring the fact that the decision of disallowance has not accepted by the Department. (xiii) The Ld.CIT(A)'s order is contrary in law and on facts and deserves to be set aside. 2. Thus, the main issue involved is addition of Rs. 1,96,91,62,889/- on account of disallowance under section 40(a)(ia) made by the AO for non-deduction of TDS under section 194H on payments made to distributors as discount on sale of pre-paid recharge vouchers and secondly, disallowance under section 14A of Rs. 8,65,06,770/-. 3. Brief facts qua the first issue, is that assessee is a subsidiary of Reliance Communications Ltd (RCOM). RCOM had entered into a 'Marketing Agreement' with the assessee, to market and distribute Starter Packs / Pre-paid Recharge Vouchers through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-paid services is to be treated as "commission" and since, assessee has not deducted TDS, therefore, disallowance under section 40(a)(ia) should be made. While coming to this conclusion, the AO has strongly referred to the decision of Delhi High Court in the case of CIT vs Idea Cellular Ltd, reported in [2010] 325 ITR 148 and ITAT Kolkata decision in the case of ACIT vs Bharati Cellular Ltd, reported in [2007] 290 ITR (AT) 283 (Kolkata). 5. Before the CIT(A), it was brought to the notice that, in the proceedings under section 201(1) for the same assessment year the Ld. CIT(A) vide order dated 28.02.2011 has held that the trade discount given by the assessee to the distributors is not in the nature of commission payment and, therefore, there is no liability of the assessee to deduct TDS under section 194H and accordingly, assessee was held not to be defaulter under section 201(1). The Ld. CIT(A), in view of this finding given in 201(1) proceeding observed that, once it has been held that, assessee is not liable to deduct TDS in the assessee's own case by the CIT(A), then no disallowance under section 40(a)(ia) can be made. The relevant finding of the CIT(A) in this regard in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the relevant finding given in the impugned orders as well as material placed on record. Before us, the main issue for disallowance under section 40(a)(ia) is that, whether the assessee was liable to deduct TDS on the discount on sale of pre-paid vouchers and pre-paid services, which has been treated to be as a 'commission' by the AO, on which the assessee was liable to deduct TDS under section 194H. The Ld. AO though in the assessment order dated 29.12.2010 has discussed this issue in detail, however, it is a matter of that in subsequent proceedings under section 201(1), where on similar ground assessee was treated as assessee-in-default for nondeduction of TDS on similar payments by the AO, the Ld. CIT(A) after detailed discussion has held that, the trade discount given by the assessee is not in the nature of commission, therefore, it was not liable for deduction of TDS under section 194H and assessee accordingly was not treated to be defaulter under section 201(1). Operating portion of the Ld. CIT(A)'s order dated 28.02.2011 reads as under:- "In short, a commission payment, in order to attract the provisions of section 194H must have been revised by a person who is acting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in favour of the assessee holding that, the condition precedent for deduction of tax at source is that income should have accrued to the distributors from such discount and on sale of pre-paid Sim Cards. The relevant observation and the finding of the CIT(A) after discussing various provisions of the Act and catena of decisions including that of decisions referred by the Department in their grounds of appeal, the High Court has concluded in the following manner:- "The provisions for deduction of tax at source which are in Chapter XVII of the Income-tax Act, 1961, dealing with collection of taxes and the charging provisions of the income-tax form one single integral, inseparable code. Therefore, the provisions relating to deduction of tax at source apply only to those sums which are "chargeable to tax" under the Act. While interpreting the provisions of the Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. In order to deduct tax at source the amount being paid out must necessarily be ascertainable as income chargeable to tax in the hands of the payee. Tax deduction at source is a vicarious liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation (i) to section 194H as any payment received or receivable, directly or indirectly by an agent for services rendered acting on behalf of the principal. The word "discount" is normally used to describe a deduction from the full amount or value of something especially a price. Cash discount cannot be confused with trade discount. The two concepts are wholly distinct and separate. Cash discount is allowed when the purchaser makes payment promptly or within the period of credit allowed. It is discount granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers engaged in the trade. The allowance enables the retailer to sell the goods at the catalogue price and yet make a reasonable margin of profit after taking into account his business expense. The question has to be determined having regard to the terms and recitals of the agreement, the intention of the parties as may be spelt out from the terms of the document and the surrounding circumstances and having regard to the course of dealings between the parties and the statutory provisions and the interpretation placed by courts in the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and following the same, we are inclined to follow the same conclusion. Accordingly, following the aforesaid decision and ratio laid down by the Hon'ble High Court, we hold even otherwise also the assessee was not liable to deduct TDS on such discount therefore, no disallowance under section 40(a)(ia) could not have been made. Thus, first issue raised vide ground no.(i) to (x), is decided in favour of the assessee and against the revenue and accordingly grounds raised by the revenue are treated as dismissed. 10. The second issue relates to disallowance of Rs. 8,65,06,770/- under section 14A. The brief facts are that, Ld. AO noted that, assessee has made investment in mutual funds and other securities and accordingly, assessee was liable to allocate certain expenditure for making such investment, which are capable of earning exempt income. Accordingly, he calculated the indirect expenditure by taking 0.5% of the average value of investment and in accordance with the Rule 8D even though in AY 2007-08, Rule 8D was not applicable and, therefore, such a disallowance could not have been made at least under Rule 8D. 11. The Ld. CIT(A) held that since AO has not pointed out any default ..... X X X X Extracts X X X X X X X X Extracts X X X X
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