ACIT 1(2)(1), MUMBAI vs. ITL TOURS & TRAVELS P.LTD, MUMBAI

Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 08/06/2016 where Ld. CIT(A) placing reliance on the decision of Tribunal in assessee’s own case for AY 2006-07 concluded that the provisions of Section 194H were not applicable to the said transactions. The second addition pertaining to director’s remuneration was deleted by making the following observations:- 6.2 I have gone through the fact of the case and the submissions given by the appellant. It has been submitted by the appellant that the remuneration actually paid by the appellant is by adjusting the remuneration due to the director against the advances given to him earlier. The director had initially failed to reflect the remuneration in his return of income. But after realizing his mistake he immediately paid differential tax dues of Rs.3,57,477/-. The AR of the appellant also argues that the monthly remuneration of Rs.1,00,000/- to an executive director cannot be considered as excessive. The AR of the appellant further argues that Section 40(a)(ia) did not contemplate the disallowance of Director’s remuneration. The above submission of the AR of the appellant has been considered. The monthly remuneration of Rs.1,00,000/- paid to the executive director not an excessive one may be an acceptable one. However, on reading of the assessment order dated 17.03.2016 vide para no. 4 it is found that the AO is of the opinion that the appellant company has not deducted TDS for the remuneration paid of Rs.12,00,000/- but later on the director himself filed the return and paid the tax thereon but still the default of the appellant company is that not deducting the TDS in the right time is a mistake, and therefore, I am of the opinion that for the delay in payment of TDS amount the appellant company is supposed to pay an interest u/s 201(IA). Accordingly AO may intimate the fact to the concerned TDS officer for collecting the default interest otherwise the appeal is allowed in respect of addition of Rs.12,00,000/- towards remuneration paid to the Director as the amendment of 40(a)(ia) came into effect only from 01.04.2015 only.

ITA.No.5789/Mum/2016 ITL Tours & Travels Private Limited Assessment Year-2013-14 Aggrieved the revenue is in further appeal before us. The Ld. DR, Aarju Garodia, while placing reliance on the stand of Ld.AO fairly conceded that the issue of discount / handling charges stood covered in assessee’s favour by earlier orders of the Tribunal.

We have carefully heard the contentions and perused relevant material on record including order of Tribunal in assessee’s own case for AY 2010-11. Upon due consideration, we find that Ld. CIT(A) has relied on the decision of Tribunal in assessee’s own case for AY 2006-07 where it was held that the impugned transactions were on principal to principal basis and therefore not covered by the provisions of Section 194H. The decision of this Tribunal for AY 2006-07 has been followed in subsequent years also which is evident from perusal of Tribunal’s order dated 16/02/2016 as placed on record where the matter has been decided in assessee’s favor by the Tribunal with following observations:- 5. In this background, Revenue is in appeal before us. At the time of hearing, it was a common point between the parties that the subject matter of dispute is covered by the orders of the Tribunal in the case of the assessee for Assessment Years 2006- 07, 2008-09 and 2009-10. The learned representative for the assessee explained that the dispute arose, for the first time, in Assessment Year 2006-07 in ITA No. 5746/Mum/2009 wherein the Tribunal vide its order dt. 9.9.2010 set aside the disallowance in the following words : “9. From the above findings of the AO it is clear that the intermediaries are booking the tickets from the assessee. Therefore, the intermediaries are not working as agent of the assessee for doing assessee's business rather the intermediaries are bringing the business to the assessee as recorded by the AO and the assessee is passing out some handling charges. Thus, the assessee, in fact, giving some discount to the intermediaries for getting business. It is not a transaction between the principal and the agent but it is a transaction between the principal and principal. In order to bring the services or transaction within the expression commission and brokerage under section 194-H, the element of agency must be present. When there is no contract of agency at any point of time between the assessee and the intermediaries and ITA.No.5789/Mum/2016 ITL Tours & Travels Private Limited Assessment Year-2013-14 the discount made available to the intermediaries does not fall within the term commission or brokerage, then, such discount allowed by the assessee is not liable for deduction under section 194-H. Though the assessee has deducted the TDS, but mere deduction of TDS does not alter the nature of transaction and relation between the assessee and the intermediaries which is otherwise apparent and not disputed. In the case of Ahmedabad Stamp Vendors Association V/s Union of India reported in 257 ITR 202 (Guj), the hon.Gujarat High Court at page 215 of the report has held as under : “Applying the aforesaid definitions and the judicial pronouncements to the fact of the present case and in backdrop of the aforesaid rules, it is clear that although the Government has imposed a number of restrictions on the licensed stamp vendors regarding the manner of carrying on the business, the stamp vendors are require to purchase the stamp papers on payment of priceless the discount on the principal to principal basis and there is no contract of agency at any point of time. It is also not possible to accept the contention of Mr. Naik for the Revenue that the definition of "commission or brokerage" as contained in the explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. If this contention were to be accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from a semi-wholesaler to a retailer would be covered by section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another persons (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any assets, valuable article or thing. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. If a car dealer purchase cars from the manufacturer by paying prices less discount, he would be the purchaser and not the agent of the company, but in the course of selling cars, he may enter into a contract of maintenance during the warranty period, with the customers (purchaser of the car) on behalf of the company. However, such services rendered by the dealer in the course of selling cars does not make the activity of selling cars itself an act of agent of the manufacturer when the dealings between the company and the dealer in the matter of sale of cars are on "principal to principal" basis. This is just an illustration to clarify that a services in the course of buying or selling of goods has to be something more than the act of buying or selling of goods. When the licensed stamp vendors take delivery of stamp papers on payment of full prices less discount and they sell such stamp papers to retail customers, neither of the two activities of buying from the government and selling to the customers) can be termed as the service in the course of buying or selling of goods"

So far as the addition on account of director’s remuneration is concerned, we find that Ld. first appellate authority has clinched the issue in the right perspective since the payee director had offered the income in his return of income and paid due taxes thereupon. In such a scenario, the primary basis on which addition was made by Ld. AO did not survive and therefore, the conclusion of Ld. CIT(A) was quite fair and reasonable in the circumstances. Therefore, we do not find any infirmity in the same.

Resultantly, the revenue’s appeal stands dismissed.