9911796707
TMI Blog2019 (8) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... servations recorded herein below the provisions of Sec.40(a)(ia) were clearly attracted. Disallowance u/s 40(a)(ia) is assessee is not a Assessee in default under the first proviso to sub-section (1) of Sec.201 - Scope of second proviso of Section 201(1) inserted vide the Finance Act, 2012 w.e.f 01.04.2013 - HELD THAT:- As per the second proviso of Sec. 40(a)(ia), where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Sec.201, then, for the purpose of Sec. 40(a)(ia) it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee, subject to the condition that the said resident payee satisfies certain conditions viz. (i) has furnished his return of income under Sec.139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income. At this stage, we may herein observe that though the second proviso had been made avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law the learned CIT(A) erred in confirming disallowance of Service Coupon of ₹ 35,49,01,000/- u/s 40(a)(1a), rejecting the Appellant's contention that tax was not deductible on service coupon under Section 194C. Without prejudice to the above, the learned CIT(A) ought to have appreciated that since the Appellant was not held to be an assessee in default u/s 201 of the Act, it cannot be held that the Appellant had failed to deduct tax at source in accordance with the provisions of the Act so as to merit disallowance u/s 40a(la) of the Act. In any event, the time limit for passing an order u/s 201 for the FY 2006-07 (AY 2007-08) having expired, the assessee could not now be deemed to be an assessee in default. In any event, the learned CIT(A) ought not to have made disallowance u/s 40a(la) in those cases where the payees had filed their returns of income and paid tax due there under for the relevant assessment year, there being thus no subsisting tax liability of the payee which would entitle the Appellant to claim deduction under the proviso to the section at any subsequent point of time. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice coupons. On the basis of his aforesaid observations the CIT(A) upheld the disallowance u/s 40(a)(ia) of ₹ 35,49,01,000/- made by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has assailed the sustaining of the disallowance under Sec.40(a)(ia) of ₹ 35,49,01,000/- in appeal before us. Succinctly stated, the value of the service coupons are factored by the assessee into the sale price at the time of sale of vehicles to its dealers for an ascertained price. In turn, the dealer makes onward sales to the customers at a price which includes free service obligations. The service coupons enable the ultimate customer to obtain certain number of services for their vehicles from any of the dealer forming part of the network of the dealers of the assessee across the country. As a matter of fact, the consideration for the services being embedded in the sale price of the vehicle is paid for by assessee at the time of purchase of the vehicle. At the time of availing the free service, the customer presents the service coupon to the dealer, who in turn provides the service for the vehicle without charging for the same. Subsequently, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the A.O. The ld. A.R drew our attention to the submissions which were made by the assessee before the A.O in the course of the set aside proceedings. The ld. A.R taking us through a sample Invoice that was raised by the assessee on sale of vehicles to its dealer, submitted, that the same included the value of service coupon charges. It was submitted by the ld. A.R that the service coupon charges was a part of the sale price, and the assessee would make a provision for service charges in its books of accounts. The ld. A.R further drawing our attention to a sample dealer agreement , submitted that the relationship between the assessee company and the dealer was clearly as that of principal to principal basis. It was further submitted by him that in the aforesaid agreement , it was clearly mentioned that the dealer was not to be considered as an agent or employee of the company for any purpose. Further, the ld. A.R took us through the observations of the CIT(A) in context of the issue under consideration. It was the claim of the ld. A.R that as reimbursement of expenses did not attract any obligation to deduct tax at source, therefore, the assessee could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur indulgence has been sought by the assessee for adjudication of two issues viz. (i) that as to whether the assessee company was obligated to deduct tax at source under Sec. 194C at the time of making payments to its dealers towards the service coupons which were surrendered by the customers with them for availing services of their vehicles from the said dealers; and (ii) that now when the assessee company had not been held to be an assessee in default under the first proviso to sub-section (1) of Sec.201, then whether the amounts paid to the dealers for the service coupons would be liable for disallowance under Sec.40(a)(ia) of the I.T Act. 9. Admittedly, the assessee at the time of making the payments to its dealers towards the service coupons had not deducted any tax at source. In order to appreciate the issue under consideration, we are of the considered view that it would be relevant to briefly cull out the business model of the assessee company to the extent the same is relevant for adjudicating the present case. The assessee company which is engaged in the business of manufacturing of automobile vehicles, tractors etc., sells its vehicles through a wide ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of warranty against the service coupon. After the customer had availed the free service from the dealer on surrendering of the service coupon, the latter in turn is paid the predefined amount by the assessee company. As a matter of fact, as the customer had already paid for the free service at the time of purchase of the vehicle (as a part of the cost of the vehicle), therefore, he is not required to pay for the same while availing such services from the dealer. Rather, the dealer who carries out the work of providing service to the customers vehicle is thereafter paid by the assessee company which had already received the consideration for such free services from its customers as a part of it sale price. In sum and substance, as the assessee had already recovered the value of free services at the time of sale of the vehicle, thus the dealer by carrying out the service of the vehicles in lieu of the service coupons, in fact, by so doing discharges the liability or the obligation of the assessee company viz. the manufacturer of the vehicle towards the customers. On a perusal of the aforesaid arrangement, it can safely be concluded that as the dealers provide free services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 13.05.2016) . In the aforesaid case, it was observed by the Tribunal that as the free services provided by the dealers to the ultimate customers was in discharge of the obligation cast upon the assessee company towards the customers to provide such services, therefore, the payments made by the assessee company to the dealers obligated the assessee to deduct tax at source under Sec. 194C at the time of making of such payments to them. The Tribunal in its aforesaid order had observed as under: 6. We have heard the parties, and perused the material on record. 6.1 We would firstly be required to see if the tribunal s order in Hero Motocorp Ltd. (supra) can be said to cover the assessee s case in-as-much as, where it is found as so, we may not be required to issue any independent findings. We may firstly begin by reproducing the relevant paras of the impugned order, delineating the respective cases of both the sides, as under: 4.3 As regards service coupon commission disallowed by the AO u/s 40(a)(ia) r.w.s. 194C, the facts as stated by the appellant are as under :- ( i) Service coupon amount is fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is made for unexpired service coupons at the end of the year. Value of such service coupons being part of the sale price itself, it is the customer himself who pays the dealer for the value of the service coupon when he buys the vehicle purchased by the dealer from the company. The provisions of s 194C are not therefore applicable. The dealer does not carry out any work for the company when he services the customer's vehicle at his service station. ( x) Snap Shot of the accounting entry passed in the SAP system is as under: Description Amount Augusta Motors Pvt. Ltd. 579,943.13 Sales-Vehicles 445,022.00 Sales-Vehicle Services 2500.00 Sales-Vehicle-Ware 10,750,00 Excise/Cess Transfer 55,566.00 Educ. Excise/Need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.33 When the assessee sells vehicles to its dealers for the ascertained price, the cost of free service obligation on the part of the assessee is embedded in the concluded sale contract and sale price of the vehicle. The dealer, in turn, makes onward sales to the customers at a price which includes free service obligations. The contract between dealer and customer is independent and separate contract. The customer in terms of the sale contract with the dealer approaches the dealer for these free services. It is the customer who avails the service for the cost paid by him as part of the sale price of the vehicle he purchases from dealer during the warranty period. It is the dealer who renders the service to the customer pursuant to independent contract. The fact that the customer can approach any dealer for obtaining free service does not alter the position as it is a case of convenience and mutual arrangement drawn by the company. The reimbursement is not for services rendered by the dealer to the customer but in discharge of the warranty obligation included in the sale price. It is in term of a independent contract of sale which stipulates that the assessee should reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- ( i) ; ( ii) .. of such sum as income-tax on income comprised therein. ( 2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation.-For the purposes of this section,- ( i) specified person shall mean,- ( a) the Central Government or any Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bound to a particular dealer, seriously impairing the flexibility and the practicality of the scheme for the provision of such free services. Why, a customer may sell his vehicle to another, so that there is no privity of contract even between the person (who comes for the servicing of his vehicle) and the vehicle manufacturer. The company selling the vehicle, to honor it s commitment made to the customer at the time of sale, enters, in turn, in a back-up contract (arrangement) with it s dealers. Under this manufacture dealer contract, which in fact forms part of the specimen dealer agreement (PB pgs. 16-35), the dealer is obliged to provide services (in the nature of repair and maintenance services) to the vehicle (from whom-so-ever dealer purchased) that satisfies the conditions of warranty (qua services), against service coupons. The customer thereby only redeems his coupons. Payment/credit is allowed by the vehicle manufacturer on presentation of the service coupons - value of which is predefined, issued by it and received by the dealers from the vehicle owners. It is the vehicle owner who has paid for, and is accordingly the recipient of these services. However, having alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference stands made to Explanation 2 to section 9(1)(vii). Each of the decisions relied upon by the tribunal in Hero Motocorp Ltd. (supra) are also in the context of section 194J, and not applicable in the instant case. True, the observation in Hero Motocorp Ltd. (supra) with regard to the service recipient (customer) being not the payer for those services, could be said to hold even for the contractual arrangement, but, as stated, each of the observations by the tribunal has to be considered from the stand point and perspective of section 194J. The same, in any case, does not represent the ratio of the decision. As clarified in, inter alia, Goodyear India Ltd. vs. State of Haryana and Another [1991] 188 ITR 402 (SC), a precedent is an authority only for what it actually decides and not what may remotely or even logically follow from it. In fact, the customer receiving the services is the person who finally pays for the same, i.e., at the time of and alongwith the sale price of the vehicle, wherein the cost of the services is embedded. The payer, however, is the vehicle manufacturer (assesseecompany), which is the person responsible for making the payments to the dealers, and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.40(a)(ia). In our considered view, the aforesaid second proviso had been made available on the statute to give effect to the judgment of the Hon ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT (2007) 293 ITR 226 (SC) . In the aforesaid judgment, it was observed by the Hon ble Apex Court that where the payee has already paid the tax, the same would discharge the assessee from the obligation to deduct the same. At this stage, we may herein observe that though the second proviso had been made available on the statute vide the Finance Act, 2012 w.e.f 01.04.2013, however, the same as held by the Hon ble High Court of Delhi in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 (Del) shall be applicable retrospectively, i.e even for the years prior to A.Y 2013-14. Further, we find that a similar view had also recently been taken by the Hon ble High Court of Punjab Haryana in the case of PCIT Vs. Mobisoft Telesolutions Pvt. Ltd. (2019) 411 ITR 607 (P H) while disposing off the appeal of the assessee before them for A.Y 2011-12. Be that as it may, we are of the considered view that in case the assessee satisfies the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
