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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Coimbatore in dated 31.03.2017 for the assessment year 2012-13.
:-2-: ITA No. 1096/Mds/2017
M/s. Ramesh Hitechk Pumps Pvt. Ltd., the assessee, is engaged in the business of manufacture of sale of pumps. In the assessment made for the assessment year 2012-13, the assessee claimed Rs. 18,30,223/- as turnover discount . It explained to the AO that due to hectic competition for pumps in Andhra Pradesh and in order to encourage sales, dealers were given turnover discount. In this regard,before the financial year, letters were sent to the dealers specified with the discount pattern and at the end of the year on the basis of turnover achieved by them, discount is given as per the discount pattern. The assessee has furnished the discount details also. The AO after considering the assessee’s explanation held that turnover discount is paid in the form of the commission, when a particular turnover is achieved which is to avoid TDS. The sales commission is camouflaged under the nomenclature of “turnover discount”. Since, the assessee has not deducted tax on these payments as required u/s. 194H, he did not allow the expenditure claimed at Rs. 18,30,223/-. Aggrieved, the assessee filed an appeal before the CIT(A).
The CIT(A) held that since the impugned discounts were not deducted from the sales but were paid as commission when a particular turnover is achieved, the impugned sum represents sales commission. Since the assessee has not deducted tax on these payments as required u/s. 194H , he has upheld the disallowance. Aggrieved, the assessee filed this appeal pleading
:-3-: ITA No. 1096/Mds/2017 that the CIT(A) erred in not properly considering the objections raised in the grounds of appeal before him to the disallowance viz., Rs. 18,30,223/- was Turnover Discount and not “Commission” and the requirement of deduction of tax at source under section 194H does not apply and consequently, section 40(a)(ia) is not attracted etc.
4. The AR submitted that the turnover discount is allowed as an incentive in the normal course of buying and selling between the dealer and the assessee on a principle to principle basis. The authorities erred in not seeing that the turnover discount is allowed to dealers on achieving a certain turnover and by way of abatement against the catalogue price and hence the trade discount is distinct from the commission as envisaged under the Act.
Both the AO and the CIT(A) failed to see that even on a plain reading of the definition of “Commission” in Explanation (i) below section 194H, it will be evident that the recipient of payment contemplated is the third party intermediary who renders service in the course of buying and selling of goods.
In the assessee’s case, the assessee is selling these pumps as a principle and the dealers are also selling them as a principle. He invited our attention to the page no 7 of the paper book and submitted that, the assessee was offering turnover discount every year to the dealers based on the turnover achieved by them in the following discount structure:
1 lakh to 6 lakhs 1% 6 lakhs to 10 lakhs 2%
:-4-: ITA No. 1096/Mds/2017
10 lakhs to 15 lakhs 3% 15 lakhs to 25 lakhs 4% 25 lakhs to 30 lakhs 4.5% Above 30 lakhs 5% Inviting our attention to the paper book pane nos. 1 to 6 , he pointed out the list prices on various products dealt by the assessee and submitted that the dealers who achieved the turnover is given a turnover discount as per the turnover structure at the year end, which is credited to the respective ledger account. Since, the discount is based upon the turnover achieved, the turnover achieved by them is known only at the year end and accordingly, the turnover discount is credited in the year end in their respective accounts.
Thus, the company is providing turnover discount to major dealers on principle to principle basis. The AO as well as the CIT(A) have wrongly considered it as commission falling u/s. 194H. The AR submitted that liability u/s. 194H can arise only when any payment; is received or receivable, directly or indirectly by a person acting on behalf of another person; a) For services rendered (not being professional services), or b) For any services in the course of buying or selling of goods or c) In relation to any transaction relating to any asset, valuable or article or thing, not being securities.
:-5-: ITA No. 1096/Mds/2017 Therefore, the element of agency must be present in all services or transactions in order to fall within the expression “commission or brokerage” and submitted that the turnover discount is a discount given by the wholesaler or manufacturer for encouraging bulk purchase of their products and it has been extended to dealers/ distributors on principle to principle basis and there is no pre-determined agreement as agent between the dealers and the assessee. The payment of discount made to dealer/distributor is on achieving certain turnover, not on the basis of services. Since, there is no service or agency agreement, the provisions of section 194H will not attract for the payment towards turnover discount extended to dealers.In this regard, the AR relied on the following decisions:
1) CIT vs Ahmedabad Stamp Vendors Association [(2012) 348 ITR 378 (SC)] 2) CIT vsIntervet India P. Ltd [(2014) 364 ITR 238 (Bom)] 3) CIT vs Jai Drinks P. Ltd [(2011) 336 ITR 383 (Delhi)]
4) CIT vs United Breweries Ltd [(2016) 387 ITR 150 (T&AP)]. Per contra, the DR relied on the orders of the lower authorities.
We heard the rival contentions. The undisputed fact is that the assessee as a manufacturer has given the turnover discount for encouraging bulk purchases and it has been made to the dealers/ distributors on principle to principle basis and there is no pre-determined
:-6-: ITA No. 1096/Mds/2017 agreement as agent between the assessee and the dealers/ distributors. The payment of discount made to the dealer/ distributor on achieving certain turnover and not on the basis of services. We have gone through the ratios of the decisions relied on by the AR. The head notes of the decisions in CIT vsIntervet India P. Ltd., [(2014) 364 ITR 238 (Bom)] is extracted as under:
“ Business expenditure – disallowance-payments on which tax deductible at source – commission-sales promotion scheme-incentive offered on case to case basis to stockists/dealers/agents – relationship between assessee and distributors/stockists was that of principal to principal – distributors/stockists not acting on behalf of assessee-not a commission payment within meaning of clause (i) or explanation below section 194H – no disallowance could be made under section 40(a)(ia) –Income Tax Act, 1961, ss. 40(a)(ia), 194H.”
The head notes of the decision in CIT vs Jai Drinks P. Ltd [(2011) 336 ITR 383 (Delhi)] is extracted as under:
“ Deduction of tax at source-commission-agreement for distribution of products manufactured by assessee – distributor purchasing products at pre- determined price for sale within specified area- assessee and distributor collecting and paying sales tax separately – payment of incentive to distributor- not commission – tax not deductible at source on such payment- Income Tax Act, 1961, s. 194H.”
It is clear from them that the relation between the assessee and the distributors/dealers is that of principal to principal basis. Since, there is no service or agency agreement, the provisions of section 194H will not attract, as per the above ratios, on the payment made towards turnover discount
:-7-: ITA No. 1096/Mds/2017 extended to the dealers/ distributors. Hence, the impugned addition is untenable, it is deleted and the assessee’s appeal is allowed.
In the result, the assessee’s appeal is allowed.
Order pronounced on Wednesday, the 22nd day of November, 2017 at Chennai.