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TMI Blog2018 (3) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... id not make any addition in the consequential order passed u/s 143(3) r.w.s. 263 of the Act dated 29.12.2017. In respect of the incentives passed on to the retailers, the A.O. has obtained the details of ledger accounts and examined the same. Therefore, it is established beyond doubt that the A.O. has examined the issue and taken one of the possible views. Not examining the entire transaction and sales by the assessee company to its retail dealers and sales by its dealers till to the end users and verification of principal agent relationship etc. at best can be treated as inadequate enquiry but not lack of enquiry. Once the A.O. has conducted the enquiry and completed the assessment and the enquiry conducted was inadequate, there is no case for revision u/s 263 for inadequate enquiry. Lack of enquiry is a reason for taking up the case for revision u/s 263 of the Act but the inadequate enquiry cannot be a reason for taking up the case for revision u/s 263 of the Act. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... alers who purchased Nokia hand sets from the assessee during the financial year 2011-12. The incentives were passed on to the retail dealers by credit notes who purchased from the assessee based on their sales turnover. Thus, the assessee contended that the trade incentives are nothing but discounts allowed by the assessee on its purchases, hence, the same is neither commission nor brokerage, hence, argued that the tax deduction at source u/s 194H of the Act has no application in the assessee's case. The Ld. A.R. further argued that for deduction of tax at source u/s 194H of the Act, the assessee should have paid the brokerage or commission as defined in explanation (1) of section 194H of the Act. In the instant case, there were no service rendered by the recipients and no brokerage or commission was paid to the payees. It is only an incentive passed on to the retailers which goes to reduce the purchase cost in the hands of the retailers and relation between the retailer and the assessee is principal to principal but not principal and agent. The relation between the retail dealer and the assessee is a pure purchase transaction and the incentives passed on are directly linked to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on record and gone through the orders of the authorities below. It is observed that the assessee is a wholesale distributor of Nokia mobile phones and accessories. During the previous year relevant to the assessment year, the assessee had received the incentives and out of which the assessee had passed on incentives to the retailers to the extent of ₹ 1,38,34,314/- and passed on the incentives to the extent of ₹ 4,46,924/- to its employees. During the assessment proceedings, the A.O. has called for the details of ledger accounts with respect to the incentives passed on to the retailers and examined the same by the A.O. as evident from the order u/s 263 of the Act passed by the Principal CIT in page No.9 of the order. Similarly, with respect to the incentives passed on to the employees, it was included in the salaries and the same was examined by the A.O. at the time of assessment. 8. The question whether the incentives are covered u/s 194H of the Act or not for the purpose of brokerage and commission is an issue which required to be decided in this case. Explanation (1) to section 194H of the Act reads as under; "Commission or brokerage includes any paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the distributor from the assessee and was allowed discount per case on the printed MRP. Thereafter, it is the responsibility of the distributor to sell those goods further to the consumers. The Hon'ble Delhi High Court held that the relation between assessee and distributor therein are not of principal and agent and it is a relationship of principal to principal, the relevant portion of which is reproduced hereinbelow: "8. A perusal of the agreement shows that the 'assessee had permitted the distributor to sell its products in a specified area. The distributor was to exclusively deal in the products of assessee in a specified territory. The products were to be purchased by the distributor from the assessee against 100 per cent advance payment, though decision rested with the assessee to give the products on credit to the distributor. The distributor was to maintain at all times the minimum stock and was to deal only in the products of the assessee. The distributor was to maintain its operational infrastructure including requisite staff under its employment with liability of PF contribution, ESI contribution, etc. as per the laws. It was specifically stated in ci. 16 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the persons to whom the product was sold, no services were offered to the assessee. The distributors/ stockists were not acting on behalf of the assessee and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to section 194H of the Act. The relevant portion of which is reproduced herein as below: "7. We have perused the concurrent orders with the assistance of the learned Counsel for both the parties. The Assessee had undertaken sales promotional scheme viz. Product discount scheme and Product campaign as discussed hereinabove under which the Assessee had offered an incentive on case to case basis to its stockists /dealers/agents. An amount of ₹ 70,67,089/- was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the Assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of another. The incentives received by the distributors/dealers is neither contractual transaction nor payment commission or brokerage under the relation of principal and agent and which are a strict requirement of section 194H of the Act to deduct the TDS. Therefore, we are of the view, that the principle laid down by the Hon'ble High Courts at Delhi and Bombay in the decisions (supra) applicable to the case on hand. Respectfully following the same, we hold that the payments paid to the distributors/ dealers by way of incentives would not come under the purview of section 194H and invocation thereon under section 40(a)(ia) is bad and hence no interference is required with the order of the CIT(A), therefore, it is confirmed. The ground no.2 raised by the Revenue is dismissed. 13. In the result the appeal filed by the Revenue and the CO. filed by the assessee are dismissed. 10. Hon'ble A.P. High Court in the case of United Breweries Ltd. (supra) held as under: 4. In the order under appeal the Tribunal, after extracting Section 194H of the Act, held that the definition of "commission or brokerage" made it clear that the payment received by a person for acting on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was required to be indemnified by the principal; and the payment received by the agent for the services rendered to the principal is understood as "Commission". 6. After referring to the judgment of the Gujarat High Court in the case of Ahmedabad Stamp Vendors Association vs. Union of [21 India, the Tribunal held that the "element of agency" was an essential requirement in order to characterise a payment made for services provided as "commission". The Tribunal relied on the judgment of the Bombay High Court in Harihar Cotton Processing Factory vs. CI and held that commission was in the nature of recompense or reward for the services rendered, and expressed its inability to agree with the view of the Commissioner of Income Tax (Appeals) that the discount should be shown as a reduction in the selling price. 7. The Tribunal also relied on the order of the Visakhapatnam Bench of the Tribunal in Additional Commissioner of Income Tax vs. Pearl Bottling (P) Ltd. wherein discounts offered to retailers, and also promotional discount, were held not to be "commission" as the relationship between the assessee therein and its distributor was on a principal to principal basis. The Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sales promotion expenses, and not as commission, as no services were rendered by the retailers to the respondent-assessee. 10. An appeal under Section 260-A of the Act would lie only on a substantial question of law. Save perversity, or a finding based on no evidence, the findings of fact recorded by the Tribunal would not give rise to a substantial question of law. The findings of the fact recorded by the Tribunal cannot be said to suffer from any such infirmity. The order of the Tribunal does not also suffer from any error of law necessitating interference in proceedings under Section 260-A of the Act. We see no reason, therefore, to interfere with the order of the Tribunal in the exercise of our jurisdiction under Section 260A of the Act. 11. The appeals fail and are, accordingly, dismissed. The miscellaneous petitions pending, if any, shall also stand dismissed. There shall be no order as to costs." 11. From the above judicial pronouncements, it is evident that passing on incentives by the wholesale distributor to the retail dealer, there is no principal and agent relationship and cannot be held to be commission or brokerage paid to the recipient. Therefore, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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