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Facts
The Revenue filed an appeal against the CIT(A)'s order for AY 2021-22, challenging the ruling that the discount offered to stockists was not within the ambit of Section 194H and that ESOP benefits are taxable at the time of exercise. The assessee filed a cross-objection.
Held
The Tribunal held that the transaction between the assessee and its stockists was on a principal-to-principal basis, making Section 194H TDS provisions not applicable. For ESOPs, tax liability arises only when the benefit is exercised and availed, not at the stage of grant.
Key Issues
Applicability of TDS provisions under Section 194H on discounts to stockists and taxability of ESOP benefits.
Sections Cited
194H, 192, 201(1A), 194A, 17(2)(vi)
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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by the Revenue and cross-objection (C.O.) therein by the assessee are directed against the order of ld. CIT (A) dated 26.09.2025 for assessment year 2021-22. The Revenue has raised following grounds of appeal:-
"1. Whether the Learned Addl./JCIT(A) has erred in law and on facts in holding that the transaction between the assessee company and its stockists was on a principal-to-principal basis, and thereby concluding that the discount offered to the stockists would not fall within the ambit of section 194H of the Act.
Whether the Learned Addl./JCIT(A) has failed to appreciate that, under the Agreement for Appointment of Stockists entered into between the assessee Novartis Healthcare Private Limited, (A.Y. 2021-22) and its stockists, all essential aspects of the business relationship, including pricing, invoicing, margins, payment terms, and even the mode of transport are determined and controlled by the assesse company.
Whether the Learned Addl./JCIT(A) has failed to appreciate that the assessee imposes various restrictions on thestockists/distributors/wholesalers, such as restrictions on the sale of products, allocation of territories, appointment of stockists, and monitoring and controlling of product stocks. These restrictions clearly establish that the stockists were functioning as agents of the assessee company for promoting and effecting sales on its behalf, and hence, the assessee's contention of a principal-to-principal relationship is not valid.
Whether the Learned Addl./JCIT(A)has erred in holding that tax on Employee Stock Ownership Plan (ESOP) benefits is deductible only at the time of exercise of options by the employees, without appreciating that the assessee had already quantified the value of ESOP benefits during AY 2021-22 itself, thereby leading to accrual of income in the hands of employees in that year."
The assessee on receipt of memorandum of appeal of Revenue, file its cross- objection raising following grounds:-
“1. Whether the Learned Addl./JCIT(A) has erred in law and on facts in holding that the transaction between the assessee company and its stockists was on a principal-to-principal basis, and thereby concluding that the discount offered to the stockists would not fall within the ambit of section 194H of the Act.
Whether the Learned Addl./JCIT(A) has failed to appreciate that, under the Agreement for Appointment of Stockists entered into between the assessee and its stockists, all essential aspects of the business relationship, including pricing, invoicing, margins, payment terms, and even the mode of transport are determined and controlled by the assesse company.
Whether the Learned Addl./JCIT(A) has failed to appreciate that the assessee imposes various restrictions on thestockists/distributors/wholesalers, such as restrictions on the sale of products, allocation of territories, appointment of stockists, and monitoring and controlling of product stocks. These restrictions clearly establish that the stockists were functioning as agents of the assessee company for promoting and effecting sales on its behalf, and hence, the assessee's contention of a principal-to-principal relationship is not valid.
Whether the Learned Addl./JCIT(A)has erred in holding that tax on Employee Stock Ownership Plan (ESOP) benefits is deductible only at the time of exercise of options by the employees, without appreciating that the assessee had already quantified the value of ESOP benefits during AY 2021-22 2
The rival submissions of both the parties have been heard and record perused. At the outset of hearing the ld. Authorised Representative (AR) of the assessee submits that grounds of appeal raised by Revenue as well as ground in C.O. of assessee are covered by the decision of Mumbai Tribunal in assessee’s own case for assessment year 2020-21 in and C.O. No.121/M/2025 dated 08.12.2025. The ld. AR also furnished copy of decision of Tribunal. The ld AR of the assessee by referring various paras of assessment order and the decision of CIT(A) and the finding of Mumbai Tribunal in assesses own case would submits that there is no variation in facts viz a viz earlier year and the year under consideration.
On the other hand, the ld. CIT DR for the Revenue after going through the grounds of appeal and the decision of Tribunal submits that he relied upon the order of Assessing Officer.
We have considered the rival submissions of both the parties and have gone through the order of lower authorities carefully. We have also gone through the order of Tribunal in assessee’s own case of AY 2020-21 in and C.O. No.121/M/2025 dated 08.12.2025wherein on similar grounds of appeal raised by Revenue as well as in C.O. raised by assessee, the coordinate Bench has passed the following order:-
“Heard both sides in detail and perused the record on lower authorities and written submission filed by both parties and Bench is of the opinion that the relationship between appellant company and stockists is not that of the Principal to Agent but of Principal to Principaland hence, the TDS provisions are not applicable for the following reasons:-
Novartis Healthcare Private Limited, (A.Y. 2021-22) a) The sale invoices of company to stockists clearly show that the goods were forwarded as "sale" and not as “commission" because GST applicable was paid by company. b) Whatever controls exercised by company is only as per the guidelines of Medical Council of India and company is not exercising any other control. The goods once sold to stockists are kept with them at their risk only. c) The stockists are showing the "sales" of company as their "purchases" and as per their Sale Invoices. After deducting the expenditure, the net profit/loss was offered for taxation in their Income Tax Returns. Even presuming that appellant company pays "commission" as contended by Revenue, they would deduct the tax and as per TDS certificate, the sellers would reduce their tax payment. d) The stockists are at liberty to sell the goods as per MRP mentioned and they only earns their margin, expenditure would be incurred by them and they filed their Income Tax Returns as their "purchases" from company and "sales" to retail customers. e) Reliance is placed on following the Pharma Cases where it was held that TDS provisions as "commission" are not applicable and hence followed: i) Unichem Laboratories 4593/Mum/2014 dated 26.1.2016 (Mum-ITAT) ii) Wockhardt Ltd. dated 8.5.2025 (Mum- ITAT) f) The Ld. DR had mentioned that the decisions of Mumbai ITAT of Unichem Labs and Wockhardt are being contested by Revenue in Bombay High Court and the same are pending.
Novartis Healthcare Private Limited, (A.Y. 2021-22) g) Hon'ble Bombay High Court in the case of Piramal Healthcare Ltd. (2015) 55 Taxman.com 534 (Bom) addressed this issue and held that in similar circumstances, the relationship is akin to Principal to Principal to Agent, and hence section 194H or 194J are not applicable and hence TDS need not be deducted by appellant company. h) For TDS provisions to be applicable, the appellant must be the one making a payment of commission or brokerage. In our case, the appellant company was receiving sale price and not paying to stockist.
In view of the above detailed discussion and by respectfully following the decisions of Hon'ble Jurisdictional High Court and Coordinate Benches in similar circumstances, the Bench decides that appellant company need not deduct TDS as TDS provisions are not applicable.
The next ground relates to non-deduction of TDS under section 192 of the Act on Employees Stock Options (ESO's). The appellant company's contention is that no TDS under section 192 arises in the current financial year which was granted in January 2020, but TDS has to be deducted in the year in which employee exercises the option because employee had to fulfill certain conditions in subsequent years. The appellant company contends that this perquisite value under section 17(2)(vi) of the Act was taxable in A.Y. 2023-24 only.
8a. Per contra, Ld. DR argues that the appellant company has quantified the grant to the employee in the current year and booked the salary related expenditure in its books in the current year. Hence, TDS should be done in this year itself.
8b. Heard both sides, The Bench decides the issue in favour of appellant company for the following reasons :-
Novartis Healthcare Private Limited, (A.Y. 2021-22) a) The CBDT Circular No. 9/2007 says that the tax liability on company arises only when the benefit is exercised and actually availed, but not at the stage of mere grant. b) Section 17(2) (vi) of the Act and the Explanation says that on the date of transfer or allotment, the difference between FMV of option on the date of option exercised and price paid by employee is liable to tax in the hands of employee. This issue is squarely covered in favour of the appellant in the following cases:
• Total Energies Marketing India Pvt. Ltd. [ITA Nos. 127 to 133/MUM/2023 dated 16 August 2023 (Mumbai ITAT)] • Infosys Technologies Ltd [297 ITR 167 (SC)] • Bharat Financial Inclusion Ltd. [ITA No. 237/Hyd/2017 dated 3 August 2018 (Hyderabad ITAT)]
8c. In view of the above, the addition made by Ld. AO is deleted. The Appeal of the Revenue is DISMISSED.
C.O. No. 121/Mum/2025
The Respondent company filed a Cross Objection by raising following three grounds of appeal on the issue of applicability of section 194A of the Act on interest on delayed payments to MSMES.
9. On this issue, the Ld. AO held that there is a TDS shortfall of Rs. 40,000/- and interest under section 201(1A) of the Act of Rs. 13,600/-. The Ld. AO held that the Respondent Company ought to have deducted tax under section 194A of the Act on the provisions created by it in respect of interest delayed payments to MSMEs. The failure of doing the same resulted this addition by Ld. AO. The Ld. CIT(A) concurred with the view of Ld. AO.”
Considering the decision of Tribunal in assessee’s own case on similar set of fact, and respectfully following the same, the grounds of appeal raised by Revenue is dismissed and grounds raised by assessee in its C.O. are allowed.
No contrary facts or law is brought to our notice to take other view.
In the result, appeal by Revenue is dismissed and C.O. by assessee is allowed.
Sd/- Sd/- ARUN KHODPIA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, Dated: 08/01/2026 Ashwani Rao Sr. Private Secretary