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TMI Blog2017 (9) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... utor of RTL appointed 496 retailers and through them sold RTL products to the end users. RTL fixed the maximum retail price (MRP) at which the products could sold to the end users. The assessee sold these products to the retailers at a discounted price on the MRP. The Assessing Officer held as follows: (a) As per the copy of the agreement between the distributor (asses see) and the RTL, the assessee has a right to promote/provide RTL cellular mobile phone service at such rates as fixed by RTL, to the end users and RTL allowed commission against services and deducted tax under section 194H of the Act. (b) The assessee acted on behalf of RTL as a service provider and service can only be rendered and cannot be sold. (c) Hence the claim that the assessee allowed discount, does not arise, and it is a case where the assessee allowed the commission to the retailers for providing services. (d) The assessee is engaged in the business of providing cellular telephone network through a card called "subscriber identity module" (SIM). (e) Pre-paid and post-paid communication services were provided to the subscribers through distributors appointed by RTL. (f) The agreement requires th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous, without proper reasons, invalid and bad in law. (2) That the learned Revenue authorities erred in having assumed that discount was in the nature of commission whereas the discount was a reduction in sale price for achievement of higher turnover and, therefore, the provisions of section 40(a)(ia) read with section 194H of the Act had no application on the facts of the case and that being so, the disallowance of Rs. 71,42,777 in the guise of commission is based on misconception of facts of the case and hence not sustainable in law. (3) That the learned Commissioner of Income-tax (Appeals) erred in not having considered that the assessee never claimed discount by way of expenditure by debit in his profit and loss account, rather the discount given was reduced from the sale price and, therefore, never amounted to payment of commission and that being so the discount given by the assessee cannot be said to be a commission payment within the meaning of section 194H(1) of the Act. (4) That the learned Commissioner of Income-tax (Appeals) while upholding the disallowance of Rs. 71,42,777 erred in not having considered that the relationship between the assessee and the several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but rather they were purchasers of RTL for reconciling them to the end users. He contends that the retailers act in independent capacities and once the products are sold to the retailers, the propriety of any such product stands transferred to the retailers. He submits that the retailers were free to sell the products to the end users upon verification of their documentation and such sale does not constitute rendering of any service to the assessee and it is not a case of payment of commission. He vehemently contends that there is no relationship of principal and agent but rather that of a buyer and a seller on principal to principal basis. He relied on the decision of the hon'ble Andhra Pradesh High Court in the case of CIT v. United Breweries Ltd. [2016] 387 ITR 150 (T&AP). 5.1. He referred to the definition of the term "commission" in the Black's Law Dictionary, and relied on the judgment of the hon'ble Bombay High Court in the case of Harihar Cotton Pressing Factory v. CIT [1960] 39 ITR 594 (Bom) and the judgment of the hon'ble Delhi High Court in the case of C1T v. Mother Dairy India Ltd. [2013] 358 ITR 218 (Delhi) for the propositions that the discount given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra). He further relied on the second proviso to section 40(a)(ia) and submitted that as retailers have accounted for the discount paid regarding the actual purchase price in their books, the assessee cannot be deemed to be an assessee in default and consequently no disallowance can be made under section 40(a)(ia) of the Act. He relied on the following case law for the proposition that the amendment by way of introduction of the second proviso to section 40(a)(ia) of the Act is retrospective : (a) Rajeev Kumar Agarwal v. Asst. CIT [2014] 149 ITD 363 (Agra) (b) CIT v. Ansal Land Mark Township P. Ltd. [2015] 377 ITR 635 (Delhi). 6. The learned Departmental representative on the other hand, relied on the order of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) and submitted that the issue is squarely covered in favour of the Revenue by the decision of the jurisdictional High Court in the case of Bharti Cellular Ltd. (supra). He took this Bench through the agreement between the assessee and RTL and the facts of the case of Bharti Cellular Ltd. (supra) and submitted that this were identical. He pointed out that the hon'ble High Court held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals), that it is a case of rendering of services by the retailer to the franchisee store/distributor. The difference in the facts are that the distributor deducts his discount and remits the balance to the cellular operator and whereas the retailer pays the discounted rate to the distributor. The retailer sells the goods to the customers at the maximum retail price. 8.1. The jurisdictional High Court was dealing with a case between the seller company and the franchisee/distributor. It was not dealing with the case of a distributor and a retailer. It is clear that the facts of the case are different and hence this judgment is not applicable to the facts of this case. Be it as it may, the undisputed fact is that the assessee i.e. the distributor M/s. Dhruba Communication, records the sales to the retailers at a discounted rate which is below the MRP. This is the rate at which the sale is made. There is no payment of the differences between discounted rate and the MRP by the retailer to the distributor or vice versa. This quantum of discount from the MRP has never been claimed as expenditure by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the following cumulative conditions, are required to be satisfied : (i) The impugned amount should be of the nature of interest, commission or brokerage, rent, royally, fees for professional services or fees for technical services or amounts payable to contractor or sub-contractor for carrying out any work as defined in the Explanation to the said section. (ii) The assessee should be held liable under Chapter XVII-B of the Act for deduction of tax at source on such amounts/payments. (iii) The assessee should have failed to deduct tax at source on such payments or after deduction should have failed to pay it on or before the due date specified under section 139(1). If all the aforesaid cumulative conditions are satisfied, then the said expenditure will be caught within the mischief of section 40(a)(ia) of the Act and will not be allowed as deduction under section 30 to 38 while computing income chargeable under the head "Profits and gains of business or profession". In other words, if an amount satisfying all the afore said conditions is claimed by the assessee by way of deduction under sections 30 to 38 of the Act while computing income under the head "Prof its and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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