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TMI Blog2023 (6) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... l agreement. As per the terms, the risk and rewards of sale transaction pass on to these dealers at the point of time of sale only. The assessee merely regulates business terms for the purpose of sale. Nevertheless, the sale happens on principal-to-principal basis only. Fixed rebates are generally reduced from the invoice and only net sale consideration is shown in the financial statements. Variable rebates are based on sales quantity or on achievement of sales targets - Dealers / distributors do not act on behalf of the assessee rather they act on independent basis subject to business terms laid down by the assessee. The risk and reward of goods get transferred at the time of sale by assessee to these dealers. The documents as pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer u/s 201(1) / 201(IA) of the Act on 19-02-2020. 2. The Ld. AR, drawing our attention to copies of invoices, credit notes and ledger extracts, submitted that the transactions were carried out on principal-to-principal basis and there was no agency relationship between the assessee and its customers. Therefore, the assessee was not obligated to deduct TDS on the impugned payments. The Ld.AR submitted that rebate was given on sales turnover and it was not in the nature of agency commission. The Ld. Sr. DR, on the other hand, submitted that payments were in the nature of commission only. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 3. In AY 2018-19, an order was passed u/s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer or their authorized agent shall ensure, during the currency of this agreement, to promote the distribution of Product within the prescribed location. 5. The Principal shall have and does reserve the rights at all times during the currency of this agreement to appoint other Distributor/ Dealer, Agents or to open marketing points besides effecting distribution directly by themselves by opening and operating their own depots and distribution points or otherwise. 6. The Distributor/ Dealer will abide by and follow such instruction and directives that the principal may issue from time to time regarding the procedures to be adopted pertaining to transactions under this Agreement. 7. The Distributor/ Dealer shall prepare and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is on the principle to create incentives for the agent to ensure they act as the principal wants. Therefore, the contention of the appellant that the relationship between the appellant company and these dealers is that of principle to principle and not that of principle and agent did not stand to the test of facts and clauses of the dealer agreement. 5.4 Further, it was noted that the appellant appointed dealers to distribute its product in the prescribed geographical areas. The dealer should purchase the goods from the appellant at a fixed rate (fixed by the appellant) and the appellant offered various incentives and commissions based on their sales performance. The dealer had to sell the product of the appellant at the rate fixed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or loss is the cumulative result of the working carried on by the appellant for a particular year. Therefore, there was no requirement of immediate nexus between payment as such and the TDS made out of a particular payment. Further, where the law used the words credit shall be given to TDS on production of certificate for AY for which income is assessable under section 194H of the act, it was implied that nexus between TDS and corresponding income was rather notional / conceptual. 5.6 TDS is a machinery provision for collecting tax on the potential income of the payees and there is a presumption that tax should invariably be deducted out of income. For the purposes of section 194H the definition of commission or brokerage includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In our considered opinion, for applicability of TDS obligation u/s 194H, there should exist agency relationship between the payer and the payee. The payee should act as on agent for the assessee. From the fact, it emerges that the assessee sells its products through network of dealers / distributors under a commercial agreement. As per the terms, the risk and rewards of sale transaction pass on to these dealers at the point of time of sale only. The assessee merely regulates business terms for the purpose of sale. Nevertheless, the sale happens on principal-to-principal basis only. The assessee provides rebates to dealers depending on market conditions. Fixed rebates are generally reduced from the invoice and only net sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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