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TMI Blog2025 (4) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the appeals have same nature of facts and have a common issue. All the appeals are taken together, heard together and disposed of together. So, ITA No.5210/Mum/2024 is taken as lead case. ITA 5210/Mum/2024 3. The revenue has taken the following grounds:- "1) "Whether on the facts and in the circumstances of the case and law, the Ld. Addl./Jt. CIT(A) has erred in holding that the transaction between the assessee company and channel partners was on principal to principal basis and therefore transaction would not come under ambit of 194H, without appreciating the fact that Ownership of the goods lies with the assessee company (brand owner) till the time of sale of the goods by channel partner to end customer since the business risk of goods supplied to channel partners lies with assessee company till the time goods are sold to the end customer." 2) "Whether on the facts and circumstances of the case and in law, the Ld. Addl./Jt. CIT(A) has erred in holding that the transaction between the assessee company and channel partners was on principal to principal basis and therefore transaction would not come under ambit of 194H, without appreciating the fact that sale as a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver a specifically demarcated area in the premises; possession of that specific area is with deductor and it enjoys unrestricted and uninhibited possession as well as right to use of the area; the employees of the deductor use the space exclusively for their own business; and Interior decoration as well as presentation, layout and configuration etc. of the demarcated area is in the exclusive control of the deductor, therefore, present arrangement falls squarely within the definition of 'RENT' which has been accorded a wider meaning than the connotation of 'rent' as commonly understood." 7) "Whether on the facts and circumstances of the case and law, the Ld. Addl./Jt. CIT(A) has erred in holding that the case law i.e. Bharti Cellular Ltd. vs ACIT [(20240 462 ITR 247 (SC)] cited by Ld. Addl/JCIT(A)is squarely applicable in this case without appreciating the fact that the instant case is different from the cited case law as there are certain restrictions in with respect to freedom of fixing retail sale price of the branded goods, in other words, there is no severance of control by the assessee company till the goods are sold to the retail customer, regulation of desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd retailing of branded apparel, selling its products through multiple channels. A survey action u/s. 133A of the Income Tax Act 1961 (in short "the Act") was conducted by department on 28.08.2019 revealed some discrepancies related to tax deduction at source. The company primarily sells goods through channel partners on a "Sale or Return (in short "SOR") basis"; meaning unsold goods are returned to the company. The modus operandi followed by the assessee company found during the course of survey proceedings are as follows: 1. Franchise-Owned-Franchise-Operated (FOFO) Stores: The franchise owns or leases the store and sells branded goods provided by the assessee-company on an SOR basis. Unsold items are returned by the franchise to the assessee-company. It is the absolute right of the assessee-company to decide sale prices and discounts to the franchises. 2. Large-Format Stores (LFS): The assessee-company supplies products to stores like Pantaloons, Central and Lifestyle on an SOR basis. The assessee-company also provides brand promoters who are paid by the assessee-company itself. The assessee-company reserves absolute rights to determine sale prices and discounts. 3. E-Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, the channel partners are provided margins by the assessee-company, e.g. in case of margin of 20%, goods, whose retail sale price is Rs 100/- plus GST, are invoiced at Rs 80/- plus GST by the assessee-company. Once goods are sold to end customers, the channel partner collects money from end customer, retains its margin and gives the balance amount to the assessee-company. b. On the basis of facts gathered during survey proceedings, it was found that supply of goods to franchisee/E-commerce/LFS player under SOR basis is not sale transaction. This supply is also not on Principal to Principal basis. Though the company claims that supply to franchisee/E-commerce/LFS player is a sale transaction as invoice is raised and GST is paid to the government, in substance the supply is not a sale transaction. In reality, the franchisees/E-commerce/LFS players are being provided margin for acting like an agent for providing various services which culminates on the sale of goods of assessee company. Hence, prima facie, it is evident that the payment made to the channel partners, quantified as percentage of retail sale price, ought to have been subjected to TDS u/s. 194H of the Act. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners. The channel partner is not needed to deploy capital for receipt of goods. ii) If goods are not sold, channel partners return the unsold goods to the assessee company at the price at which goods were received by them. iii) Ownership of the goods lies with the assessee-company under (Brand Owner) till the time of sale of the goods by channel partner to end customer since the business risks of goods supplied to channel partners lies with assessee-company till the time goods are sold to the end customer. iv) Risks of obsolescence of the goods lies with the assessee (Brand Owner) v) At the end of every month, assessee-company determines the quantum of unsold goods lying at the premises of channel partners and makes sale reversal entries in its books of accounts irrespective of the fact whether the unsold goods are physically returned to it or not. It proves overall control of the assessee-company till the sale to end-customers. vi) End sale price of the goods supplied to the channel partners for sale to end customers is decided by the assessee-company. This means that sale price of goods is always controlled by the assessee-company alone. vii) Construction/design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be constructed and equipped in all respects in accordance the standards and specifications furnished and/or approved by the HOADL. 4.8 The franchisee shall sell the Franchised items only at the stated maximum retail price on the Franchised items price tag and shall not offer any discounts, freebies promotions without prior written consent of the HOADL. 4.10 Staff to be appointed as a franchise store must be approved by the HOADL. 5.8 HOADL will provide Performance discounts @3% linked to the Franchise Store Performance. The HOADL will also conduct audits every quarter and on the basis of that the performance incentive will be given. 6.2 The franchise acknowledges that from time to time HOADL may deem it necessary for its franchisees to conduct sales, give away and other promotional on advertising programs as an integral part of the operation of Franchise Store. Upon HOADL's request the Franchisee shall, participate in such sales, give-away and promotions. 7.9 The Franchisee shall undertake that it will not use any social network website for marketing of franchised store without prior approval for the same from the HOADL 7.11 The franchisee shall fully co-operate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale price of goods is Rs 100/-. Further, as channel partner is getting commission (in lieu of providing some services) from assessee company, the commission receipt will also be subjected to GST @18%. Hence total GST receipt in the hands of the govt's account will be higher when compared to total receipt that is being received under modus operandi being adopted by the assessee-company presently. It has been a settled position that retention of commission by an agent amounts to constructive payment on which TDS is required to be deducted by the principal. In this regard, reference is made to CBDT Circular No. 619dated 04.12.1991 (copy enclosed) which, inter-alia, stipulated the following: "A question may raise whether there would be deduction of tax at source under section 194H where commission or brokerage is retained by the consignee/agent and not remitted to the consignor/principal while remitting the sale consideration. It may be clarified that since the retention of commission by the consignee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' as per Explanation to Section 194I of the Income-tax Act, 1961 is reproduced below :- "RENT Section 194-I Any persons, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, which is earlier deduct income-tax thereon at the rate of........ Explanation For the purposes of this section, - [(i) rent mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, 3. land; or 4. building (including factory building); or and appurtenant to a building (including factory building); or ............................." In view of the above discussion, the decision of FAA is not acceptable and it is prayed that order of Assessing Officer for the A/Yr. 2016-17 to 2018-19 may kindly be upheld." 6. The Ld. DR further mentioned that the entire agreement with the franchise of the assessee is fully controlled by the assessee itself and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en goods are returned by the franchisee / LFS, a separate entry is passed for sales return. 3. Income of the Respondent-assessee is offered to tax on the basis of the said sales, as recorded in the books of accounts of the Respondent-assessee. In so far as the income tax assessment is concerned, the income has been accepted by the Assessing Officer by treating the said transaction with franchisee / LFS as sales and income therefrom, which has been offered to tax by the Respondent-assessee, has been so assessed to tax. 4. It is the Respondent-assessee's case that transaction between the assessee and the franchisee / LFS is on principal-to-principal basis. 5. However, the TDS Officer has passed an order dated 15.02.2021 under section 201(1)/201(1A) of the Income-tax Act, 1961 ('the Act' for short) treating the Respondent-assessee as an assessee in default for non-deduction of tax at source under section 194H of the Act by treating the franchisee/LFS as the agent of the assessee and the amount of discount as being in the nature of commission paid by the Respondent-assessee to franchisee/LFS. The TDS Officer has, by referring to the statements of employee of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l partners to come to the aforesaid conclusion. The Commissioner of Income-tax (Appeals) concluded that once the goods are delivered to the franchisee/LFS, the goods were the responsibility of the franchisee/LFS and, therefore, the agreement between the Respondent-assessee and the franchisee/LFS was that of principal-to-principal relationship. (ii) The Commissioner of Income-tax (Appeals) further held that merely because the agreement has clause for return of goods does not deter from the fact that originally when the goods are supplied by the assessee to the channel partners, there is a sale of goods. (iii) The Commissioner of Income-tax (Appeals) notes that the Respondent-assessee fixes and pays the GST liability when the goods are transferred to the channel partners. Thus, the agreement entered into between the Respondent-assessee and the channel partners amounts to sale of goods. (iv) The Commissioner of Income-tax (Appeals) further held that LFS has not let out any space to the Respondent-assessee merely by allowing the employees of the Respondent-assessee to be present on the floor of the LFS. There is no rental agreement between the Respondent-assessee and the franchis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully reliance is placed upon the decisions in: a. CIT v. Piramal Health Care Ltd. [55 taxmann.com 534 (Bom)], held where assessee had received sale price from stockist but had not paid/credited any amount to stockist, question of invoking section 194J against assessee did not arise b. CIT v. Super Religare Laboratories Ltd. [133 taxmann.com 313 (Bom)], held Where assessee-company engaged in providing laboratory and testing services to customers through its own and through third party collection centres had allowed certain discount to its collection centres, since assessee did not perform any act of paying but was only receiving payments from these collection centres, there was no obligation on assessee to deduct tax at source under section 194H on discount so allowed c. PCIT v. Gujarat Narmada Valley Fertilizers & Chemicals Ltd. [108 taxmann.com 541 (Guj)], held where in terms of tripartite agreement, assessee sold its goods at discounted price to dealers who, in turn, sold those goods to final consumers, collected sale consideration from them and handed it over to assessee, since it was a transaction on principal to principal basis and, there was no service rendered by dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance is placed on CIT v. Khadim Shoes Pvt. Ltd. [61 taxmann.com 413 (Cal)] the relevant paragraph is reproduced as below:- "5. The case of the assessee has always been that the goods were purchased on the basis of samples which has not been disputed or could not be disputed by the revenue. The reasoning advanced by the CIT for the purpose of holding that the purchase worth Rs. 7.90 crores amounted to awarding a specific job work to the vendors is neither supported by law nor is factually a correct finding. Goods can be sold either by sample or by description or manufactured as per requirement of the buyer. The assessee has purchased the goods and has admittedly paid sales tax, central excise duty and has in its turn availed the benefit of cenvat credit which is inconsistent with a job contract contemplated by section 194C of the Income Tax Act. Section 194C contemplates payment to a contractor for carrying out any work including supply of labour or carrying out any work. It was not the case of the revenue that the vendor of the assessee carried out any work of or for the assessee. The CIT could not dispute the fact that it was "purchase of shoes from 10 manufacturers only wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in trust or on behalf of the assessee. There is no clause in the agreement similar to Clause 7.2 of the Passenger Sales Agency Agreement considered in Singapore Airlines Ltd. (supra). Accordingly, the said decision does not apply to the present facts. 12. During the course of hearing, the Ld. DR placed reliance upon the judgment in Delhi Milk Scheme v. CIT [2008] 173 Taxman 54 (Delhi), wherein the assessee had appointed agents for distribution of milk and unsold stock was returned at the same price. In that context, the Hon'ble High Court held that the relationship between the parties was of principal and agent, thereby justifying the invocation of Section 194H of the Act. However, the facts of the present case are clearly distinguishable, as the assessee herein has not appointed the LFS/franchisees as agents, and no commission has been paid. Therefore, the case relied upon by the revenue is not applicable to the facts under consideration. Respectfully reliance was also placed by the Ld. DR on the decision of the Hon'ble Supreme Court in Gordon Woodroffe & Co. v. M.A. Majid & Co., Civil Appeal No. 164 of 1964, decided on 22.03.1966 [MANU/SC/0065/1966], which dealt with the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper Book - Index II, pages 1 to 66), it is evident that the assessee raised invoices in the name of the LFS/franchisees, and the LFS/franchisees in turn raised invoices to the end customers. The brand name was merely used to sustain the market position. The transactions are clearly on a principal-to-principal basis, and the discounted pricing mechanism adopted by the assessee cannot be considered as payment of commission. No evidence has been placed by the revenue to establish that the assessee has paid any commission to the LFS/franchisees. Further, the transactions have been accepted by both the Assessing Officer and the GST Authorities as sales on a principal-to-principal basis. The only objections raised pertain to alleged applicability of TDS under Sections 194H and 194-I, which, in our considered view and as elaborated hereinabove, are not sustainable. 16. In light of the above, and respectfully following the binding precedents of the Hon'ble Supreme Court, Hon'ble Bombay High Court, and Hon'ble Calcutta High Court, we find no infirmity in the impugned order passed by the Ld. CIT(A). We therefore see no reason to interfere with the same. In the result, the appeal filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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