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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI S.V. MEHROTRA : & MS. SUCHITRA KAMBLE :
The captioned appeal, by the revenue, and the cross-objection by the assessee, are directed against the order dated 15.12.2011 passed by the ld. CIT(Appeals)-XXX, New Delhi in appeal no. 1830/11-12 relating to AY 2009-10.
Brief facts of the case are that assessee company, in the relevant assessment year, was engaged in the business of retail sales of readymade garments. A survey was conducted u/s 133A of the Act on the business premises of the assessee on 21.12.2010 by the TDS Wing of the department. The business model of the assessee company was to sell the readymade garments and related goods through network of distributors and dealers who were providing horizontal expansion to the products of the assessee company. The AO observed that assessee company had debited an amount of Rs. 16,97,65,870/- under the head rebate and discount. On further verification it was found that this expense included an amount of Rs. 11,80,80,824/- on account of monthly guaranteed margin and fixed percentage margin paid to the dealer during the year consideration. The AO called for parawise details of this expense and noted that no TDS was deducted on the amount of monthly guaranteed margin and fixed percentage margin being paid to the dealers. The assessee’s main contention was that the dealers purchased the materials on outright sales basis and all activities were done by the dealers as owner of the goods after the good were purchased from the company subject to certain secondary conditions. Thus, the main contention was that the purchases by dealers was on principal to principal basis. The AO examined the terms and conditions as contained in the agreement entered into with the dealers and after considering them concluded that since as per the agreement the assessee company had rights to take back the stock from the dealer on its own desire/ discretion, the goods were never sold to the dealers on outright basis and the ownership of the goods all times remained vested with the company. He concluded that the dealer merely acted as an agent and a link between the company and the ultimate customer and the relationship between the company and the dealer was that of agency. Therefore, the incentives in the shape of minimum/ maximum percentage of sales as well as monthly minimum guarantee amount provided to the dealer fell in the category of ‘commission’, on which the assessee company during the year under consideration was liable to deduct TDS u/s 194H of the I.T. Act on payment to the dealers. He, accordingly. Treated the sum of Rs. 11,80,80,824/- as commission and computed the short deduction of TDS at Rs. 1,33,78,557/- and interest u/s 201(1A) thereon of Rs. 40,13,580/-. Finally, on reconciliation of the amounts, the total short deduction was computed at Rs. 1,33,81,671/- u/s 194H and consequent interest u/s 201(1A) at Rs. 40,49,714/- aggregating to Rs. 1,74,31,385/-.
3. Ld. CIT(A) allowed the assessee’s appeal, inter alia, observing that action of AO in invoking provisions of section 194H of the Act was not justified, as there was no payment for any services to a person acting on behalf of other or for any services in the course of buying or selling or in relation to any asset, valuable article or thing.
4. Being aggrieved with the order of ld. CIT(A), the department is in appeal before the Tribunal and the assessee has filed cross objections.
The Department has taken following grounds of appeal: “On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred-
In holding that the transaction between the assesses and the dealers is a principal to principal transaction and not principal to agent transaction.
2. In holding that the payments made by the assesses to its dealers for selling readymade garments is not commission as defined under section 194H of the LT. Act 1961.
3. In not correctly appreciating the terms of the agreement and conduct of the parties in holding that the relationship between the assesses and the dealers is that of principal to principal.
4. The appellant craves leave to add, alter or amend any of the Grounds of appeal at the time of hearing.
6. In the cross objection, the assessee has taken following grounds of cross objections:
“1. That the AO/TDS officer has in view of the facts and circumstances of the case, erred in law and on facts in treating the assessee as 'assessee in default' in view of the provisions of Section 201 (1) r.w.s. 191 of the IT Act as there is no finding by the AO 1 TDS officer as to failure of deductees asessees to pay the tax liability.
2. That without prejudice. the AO has in view of the facts and circumstances of the case, erred in law and on facts in treating the assessee as "Assessee in Default" on account of the alleged non deduction of TD without considering the fact that the taxes have already been paid by the recipients in respect of such amounts.
That without prejudice, the interest charged by the AO is illegal, bad in law and highly excessive and the interest can b charged till the date taxes paid by the deductees - assessees.
That the AO has in view of the facts and circumstances of the case, erred on facts and in law in not following the circular No. 275/201/95-IT(B) dt 29 January , 1997 issued by the CBDT and various other judicial pronouncements.
As per the noting of the Registry the cross objection is time barred by 390 days. The assessee has filed a petition for condonation of delay in which it is, inter alia, submitted that on the correct advice of advocate appointed subsequent to CA, who was earlier handling the case, the assessee filed the cross-objection. Affidavit has also been filed in support of the condonation petition. Ld. counsel relied on the order of ITAT Mumbai (Special Bench) in the cases of All Cargo Global Logistics Ltd. Vs. DCIT 137 ITD 26 (Spl.
Bench), wherein in para 7.4.1 of its order the Tribunal has observed as under: “7.4.1 The Ld. Counsel has submitted that this ground could not be raised earlier as the assessee was not properly advised in the proceedings before the lower authorities, and it did not have the services of an advocate at his command. On perusal of record, this submission is found to be correct. The question is one of law and not one of fact. Therefore, it could be that a proper ground could not be raised in absence of services of an advocate although the denial of the deduction had been disputed. This constitutes a reasonable cause in the light of the decision in the case of Shaik Ibrahim (supra). Thus, we find that there are reasons to hold that the assessee could not take up this ground before lower authorities for bona-fide reasons”.
7.1. Ld. counsel also relied on the decision of Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. Mst. Katiji & Others 167 ITR 471 (SC), wherein it has been held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred.
We have heard both the parties. We condone the delay in filing the cross-objection, because the main contention in the condonation petition is that on the correct advice of advocate, the assessee filed cross objection and all grounds raised
in cross objection are legal in nature and are duly supported by decisions of various High Courts and Hon’ble Supreme Court. Thus, the assessee was prevented by reasonable cause from filing the cross objection on account of proper legal advice being not given to it.
9. We first proceed to decide the cross-objection filed by assessee.
Ld. counsel for the assessee referred to proviso to section 201 inserted by the Finance Act, 2012 w.e.f. 1.7.2012, which reads as under:
201. [(1) Where any person, including the principal officer of a company, - (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (lA) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, And the person furnishes a certificate to this effect from an accountant in such may be prescribed ] Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good sufficient reasons, has failed to deduct and pay such tax.]
Ld. counsel submitted that this proviso has been held to be retrospective in operation in the following cases: - Jagran Prakashan Ltd. Vs. DCIT (TDS) 345 ITR 288 (Alld.) “From the above, it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as. an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax. It is relevant to notice here that Explanation to Section 191 is confined only to the amount of tax which was required to be deducted”. - ACIT Vs. Bharti Airtel Ltd. 42 ITR (T) 469 (Hyderabad-Trib.) “As submitted by the learned counsel for the assessee before us, although the first proviso to S. 201(1) has been inserted in the statute with effect from 1.7.2012, the same being clarificatory in nature is applicable with retrospective effect, thereby covering the year under consideration, as rightly held by the learned CIT(A), and the Learned Departmental Representative has not raised any contention to dispute or controvert the position. We, therefore, find no infirmity in the impugned order of the learned CIT(A), giving limited relief to the assessee by relying on the first proviso to S.201(1), which is applicable to the year under consideration and upholding the same, we dismiss the appeal preferred by the Revenue”. - Allahabad Bank Vs. ITO (TDS & Survey) – to 454/Agra/2011 “The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose' of the matter by way of a speaking order. We direct so. As regards all other issues, on facts and in law, these issues will be required to be dealt with only in the event of there being a tax demand under section 201 (1) and 201(1A) after implementing the above directions. These issues are left open for the time being as these issues are in fructuous at this stage”.
Ld. counsel submitted that issue on merits may be kept open and the matter may be restored to AO for examining the facts in the light of proviso, because if the dealers have paid due taxes on the receipt from the assessee company then the assessee company cannot be deemed to be an assessee in default.
We have considered the submissions of both the parties and have perused the record of the case. We are in agreement with the submissions of ld. counsel that before going into the merits, it will be proper to restore the matter to AO for examining whether in the light of the proviso, the dealers have paid due taxes or not on the receipts from assessee-company. In this regard what-ever necessary information is available with the assessee has to be furnished before AO so that he may make necessary verifications. To the extent it is found that dealers have paid due taxes on the receipts from assessee, the assessee cannot be treated as ‘assessee in default’. We may clarify that issue on merits is left open.
In the result, C.O. preferred by the assessee is allowed for statistical purpose and the department’s appeal is dismissed as being infructuous. Order pronouncement in open court on 20/09/2016.