The Asstt. Commissioner of Income Tax, TDS Circle, Ahmedabad V. M/s. Intas Pharmaceuticals Ltd., Ahmedabad

ITA 1197/AHD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2705 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-05-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 15-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Recovery proceedings; TDS
• Section: 271(1)(c); 133A; 194C; 201(1); 201; 191; 48; 13; 22; 131; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORESHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1269/AHD/2017 2011-12 INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, OFF. NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 38006 PAN NO. AAACI5120L ACIT TDS CIRCLE, AHMEDABAD 2. 1270/AHD/2017 2012-13 INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, OFF. NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 38006 PAN NO. AAACI5120L ACIT TDS CIRCLE, AHMEDABAD 3. 1271/AHD/2017 2013-14 INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, OFF. NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 38006 PAN NO. AAACI5120L ACIT TDS CIRCLE, AHMEDABAD 4. 1184/AHD/2017 2011-12 THE ACIT, TDS CIRCLE AHMEDABAD M/S. INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, OFF: NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 380009 PAN NO. AAACI5120L 5. 1185/AHD/2017 2012-13 THE ACIT, TDS CIRCLE, AHMEDABAD M/S. INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, OFF: NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 380009 PAN NO. AAACI5120L 6. 1197/AHD/2017 2013-14 THE ACIT, TDS CIRCLE, AHMEDABAD M/S. INTAS PHARMACEUTICALS LTD. 203, CHINUBHAI CENTRE, 2 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 OFF: NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD- 380009 PAN NO. AHMI00350A ASSESSEE BY : SHRI VARTIK CHOKSHI, AR REVENUE BY : SHRI VIRENDRA OJHA CIT DR / DATE OF HEARING : 02.09.2020 / DATE OF PRONOUNCEMENT : 26.11.2020 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: IN THIS BUNCH OF APPEALS THREE APPEALS HAVE BEEN F ILED BY THE ASSESSEE AND THREE APPEALS HAVE BEEN FILED BY THE REVENUE FO R A.YS. 2011-12 TO 2013- 14 WHICH ARE ARISING FROM THE SEPARATE ORDERS OF TH E LD. CIT(A)-7& 8, AHMEDABAD DATED 14.03.2017, 20.03.2017, 24.03.2017, IN THE ASSESSMENT PROCEEDINGS UNDER SECTION 201(1)/201(1A) OF THE INC OME TAX ACT, 1961 (IN SHORT THE ACT). FIRST WE TAKE UP ITA NO. 1269/AHD/2017 A.Y. 2011-12( ASSESSEES APPEAL):- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE IMPUGNED ORDE R U/S. 201(1) / 201(1A) IS PASSED BEYOND THE TIME LIMIT STIPULATED UNDER SECT ION 201 (3) OF THE ACT; IT IS TIME BARRED AND NEEDS TO BE QUASHED. ASSUMING BUT NOT ACCEPTING AND WITHOUT PREJUDICE T O THE ABOVE, THE LEARNED CIT(A) FURTHER ERRED IN NOT APPRECIATING THAT EVEN ON THE BASIS OF LOGIC GIVEN BY THE ASSISTANT COMMISSIONER OF INCOME TAX, TDS C IRCLE, AHMEDABAD, THAT TIME LIMIT IS TO BE DECIDED BASED ON THE FINA NCIAL YEAR IN WHICH THE STATEMENT IS FILED, IS ACCEPTED, ONLY FOR THE STAT EMENT RELATING TO FOURTH QUARTER OF F.Y. 2010-11, WHICH WAS FILED IN MAY 20 11 (IN F.Y. 2011-12), THE A.O CAN PASS ORDER U/S 201 OF THE ACT UP TO 31.03. 2014 I.E. WITHIN TWO YEARS FROM END OF F.Y. 2011-12. 3 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER PASSED BY THE AS SISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE, AHMEDABAD, WHEREIN THE APP ELLANT COMPANY WAS HELD AS ASSESSE-IN-DEFAULT FOR NOT DEDUCTING TAX AT SOURCE U/S. 194H OF THE ACT IN RELATION TO CERTAIN PAYMENTS IN THE NATURE OF SELLING AND MARKETING EXPENSE BY TREATING THE SAME AS COMMISSION PAID TO THE DOCTORS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE RE-CHARACTERIZATION OF THE PAYMENTS TOWARDS SELLING AND MARKETING EXPENSE AS COMMISSION IN THE HANDS OF THE DOCTORS, IN ORDER TO DRAG THEM WITHIN THE PROVISIONS OF CHAPTE R - XVIIB, IGNORING THE PRIMARY PURPOSE OF SUCH PAYMENTS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE PAYMENTS FOR EXPENSE S IN THE NATURE OF SELLING AND MARKETING, INCURRED FOR THE BENEFITS OF THE DO CTORS, DIRECTLY OR INDIRECTLY, SHALL BE TREATED AS THE COMMISSION IN THE HANDS OF DOCTORS, BASED ON THE FOLLOWING INCORRECT UNDERSTANDING / INTERPRETATION OF FACTS: THAT THESE DOCTORS WERE ACTING AS AGENTS OF THE APPELLANT COMPANY SINCE THIS EXPENDITURE WAS BEING INCURRED ON THEM IN EXPE CTATION OF CERTAIN RETURNS FROM THESE DOCTORS IN THE FORM OF PRESCRIBI NG OF THE COMPANY'S MEDICINES LEADING TO INCREASED BUSINESS. THAT INCENTIVES GIVEN TO DOCTORS BY WAY OF GRAN TS, REIMBURSEMENT OF THEIR TRAVEL EXPENSE, BEARING THEIR COST OF PARTICIPATION IN CONFERENCES, ETC. GOES BEYOND THE PALE OF MERE SALES PROMOTION AND MARKETI NG AND TAKES THE COLOR OF COMMISSION. THAT FOR THE APPLICABILITY OF PROVISIONS OF SEC TION 194H, THE RELATIONSHIP BETWEEN THE PAYER AND PAYEE NEED NOT BE NECESSARILY OF PRINCIPAL-AGENT. THAT THE COMMISSION WOULD INCLUDE ANY PAYMENT, RECEIVED OR RECEIVABLE, WHETHER DIRECTLY OR INDIRECTLY, BY THE DOCTORS. 5. WITHOUT PREJUDICE TO GROUND NO. 2 TO 4 ABO VE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO SEGREGATE THE PAYMENTS MADE T O / FOR DOCTORS, DIRECTLY OR INDIRECTLY, IN RESPECT OF REIMBURSEMENT OF EXPENSE S ON REGIONAL CONFERENCES AND SCIENTIFIC CONFERENCES AND TREAT THE SAME AS C OMMISSION LIABLE TO IDS U/S. 194H OF THE ACT. 6. WITHOUT PREJUDICE TO GROUND NO. 2 TO 4 ABO VE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE ENTIRE EXPENDITURE FOR FIELD PARTICIPATION (DEBITED UNDER THE HEAD SALES PROMOTION EXPENSES A ND MARKETING 4 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 DEVELOPMENT AND PROMOTIONAL EXPENSES) AS COMMISSIO N LIABLE TO IDS UNDER THE PROVISIONS OF SECTION 194H OF THE ACT. 7. WITHOUT PREJUDICE TO GROUND NO. 2 TO 4 ABO VE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT ENTIRE EXPENDITURE INCU RRED ON MEETING AND TRAVELLING (DEBITED UNDER THE HEAD MARKETING DEVEL OPMENT AND PROMOTIONAL EXPENSES) AS COMMISSION LIABLE TO IDS UNDER THE PR OVISIONS OF SECTION 194H OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENDITURE HAVE BEEN INCURRED BY THE APPELLANT MAINLY ON VARIOUS KIND O F FIELD MEETINGS ORGANIZED FOR PRODUCT PROMOTION AND TRAVELLING REL ATING TO SAID MEETINGS. 8. WITHOUT PREJUDICE TO GROUND NO. 2 TO 4 AB OVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT 20% OF PRODUCT PROMOTIO N EXPENDITURE AS COMMISSION LIABLE FOR TDS UNDER SECTION 194H, BEIN G EXPENDITURE RELATING TO DOCTORS. 9. WITHOUT PREJUDICE TO GROUND NO. 2 TO 4 ABO VE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT 20% OF MR EXPENSES AS L IABLE FOR TDS UNDER PROVISIONS OF SECTION 194H OF THE ACT ON THE GROUN D THE SAID EXPENSES ARE RELATING TO DOCTORS. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DISMISSING THE GROUNDS RELATING TO IN TEREST U/S. 234A/234B/234C/234D OF THE ACT AND INITIATION OF P ENALTY U/S. 271(1)(C) OF THE ACT, WHICH WERE NOT EVEN RAISED BY THE APPELLA NT IN ITS APPEAL AND THEREBY FURTHER ERRED IN IGNORING THE ACTUAL GROUN DS RELATING TO INTEREST U/S. 201(1A) OF THE ACT AND INITIATION OF PENALTY U/S. 271C OF THE ACT, WHICH WERE ACTUALLY RAISED BY THE APPELLANT. 11. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE GROUNDS OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. FIRST, WE TAKE UP THE ISSUE RAISED BY THE ASSESS EE IN GROUND NOS. 2 TO 9 IN THE MEMO OF APPEAL. THE INTERCONNECTED ISSUE RAI SED IS THAT THE LD. CIT-A ERRED IN HOLDING THAT THE EXPENSES INCURRED UNDER T HE HEAD SALES PROMOTION, MARKETING DEVELOPMENT, PROMOTIONAL EXPENSES AND MR EXPENSES ARE SUBJECT TO TAX DEDUCTION AT SOURCE UNDER SECTION 194H OF TH E ACT. 5 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANU FACTURING &TRADING OF PHARMACEUTICALS. THE ASSESSEE IN THE YEAR UNDER CON SIDERATION HAS INCURRED EXPENSES UNDER VARIOUS HEAD AS DETAILED UNDER: SALES PROMOTION EXPENSES INCURRED FOR DOCTORS AND O THERS BY INTAS PHARMACEUTICALS LTD. S. NO. LEDGER HEAD F.Y. 2010-11 (IN LACS OF RS.) 1. REGIONAL CONFERENCE 455.4 2. SCIENTIFIC CONFERENCE 1832.2 3. SALES PROMOTION EXPS 2281.3 4. MARKETING DEVELOPMENT & PROMOTIONAL EXPS 6097.0 5. PRODUCT PROMOTIONAL EXPS 4000.8 6. CAMP EXPS 54,4 7. ACADEMIC WORKSHOPS 27.9 8. M R EXPS 5020.5 9. TRAVELLING EXPS - TOTAL 19769.5 5. THERE WAS A SURVEY ACTION UNDER SECTION 133A OF THE ACT DATED 10 TH OCTOBER 2013 CARRIED OUT AT PREMISES OF THE ASSESSE E. DURING THE COURSE OF SURVEY AND AFTER SURVEY PROCEEDING, IT WAS DISCOVER ED BY THE AO THAT THE EXPENSES AS LISTED ABOVE WERE INCURRED FOR THE FOLL OWING PURPOSES: I. TO PROVIDE THE ACCOMMODATION/ TRAVEL FACILITY TO TH E DOCTORS FOR PARTICIPATION IN VARIOUS CONFERENCE/ WORKSHOP/ CAMP S ETC. II. DISTRIBUTION OF VARIOUS ARTICLES/ GIFTS/ OTHER FACI LITIES TO THE STOCKIEST/ FIELD STAFF/ DISTRIBUTORS AND DOCTORS. 6. DURING SURVEY, VARIOUS EMAIL CORRESPONDENCE AND VOUCHERS WERE FOUND WHICH WERE ALSO EVIDENCING THAT THE AFORESAID EXPEN SES WERE REPRESENTING THE FACILITIES/ SERVICES SUCH AS TRAVEL/ ACCOMMODATION/ EQUIPMENT PROVIDED TO THE 6 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 STOCKIEST/ FIELD STAFF/ DISTRIBUTORS AND DOCTORS. T HIS FACT WAS ALSO ADMITTED BY SHRI JAYESH SHAH, GENERAL MANAGER FINANCE AND ACCOU NTS AND SHRI RAJNIKANT PATEL GENERAL MANAGER MARKETING IN THE STATEMENTS F URNISHED UNDER SECTION 133A AND UNDER SECTION 131(1) OF THE ACT DATED 10.1 0.2013 AND 06.12.2013 RESPECTIVELY. 7. THE REASONING BY THE ASSESSEE FOR THE AFORESAID EXPENSES WAS SUBMITTED THAT THE DOCTORS, STOCKIEST /DISTRIBUTORS AND FIELD STAFF PROVIDE EXTRA BUSINESS TO IT (ASSESSEE) OR HELP IN GETTING LARGER CUSTOMER BA SE. 8. HOWEVER, THE AO WAS OF THE VIEW THAT THESE EXPEN SES ARE IN THE NATURE OF COMMISSION AND LIABLE TO TAX DEDUCTION @ 10 % UN DER SECTION 194H OF THE ACT BUT THE ASSESSEE HAS FAILED TO DO SO. ACCORDING LY, THE AO ISSUEDTHE SHOW CAUSE NOTICE DATED 5.3.2014 PROPOSING THE ASSESSEE AS ASSESSEE IN DEFAULT UNDER SECTION 200(1)/201(1A) OF THE ACT FOR NON-DEDUCTION OF TDS UNDER SECTION 194H OF THE ACT. 9. THE ASSESSEE IN RESPONSE TO SHOW CAUSE NOTICE VI DE LETTER DATED 13.3.2014 SUBMITTED THAT NONE OF THE PAYMENT MENTIO NED IN SHOW CAUSE AREIN THE NATURE OF COMMISSION AS ENVISAGED UNDER SECTION 194H OF THE ACT. THE ASSESSEE FURTHER MADE SUBMISSION WITH RESPECT TO EA CH ITEM OF EXPENSES COVERED IN THE SHOW CAUSE NOTICE WHICH IS AS FOLLOW S: 1. REGIONAL AND SCIENTIFIC CONFERENCE: UNDER THIS HEAD, THERE WERE TWO TYPES OF THE EXPENS ES. FIRST ONE WAS THE PAYMENT TOWARDS CONTRIBUTION TO THE VARIOUS MED ICAL ASSOCIATION FOR CONDUCTING THE CONFERENCE WHEREIN THE ASSESSEE USED TO ADVERTISE 7 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 ITS PRODUCTS. THESE PAYMENT WERE MADE DIRECTLY TO T HE MEDICAL ASSOCIATION AFTER DEDUCTING TAX @2% UNDER SECTION 1 94C OF THE ACT. OTHER TYPE OF EXPENSE INCLUDED UNDER THIS HEAD WAS TOWARDS THE HOTEL ACCOMMODATION, CONVEYANCE AND TRAVELING FACIL ITY PROVIDED TO THE INDIVIDUALS PARTICIPATING IN THE CONFERENCE WHO ARE THE STAFF OF VARIOUS BRANCHES AND THE HEAD OFFICE OF THE ASSESSE E COMPANY. THE ASSESSEE CLAIMED THAT THESE EXPENSES WERE IN NATURE OF REIMBURSEMENT. HENCE THE SAME IS NOT LIABLE FOR DED UCTION OF TAX UNDER CHAPTER XVII-B OF THE ACT. 2. SALES PROMOTION EXPENSES THE ASSESSEE SUBMITTED THAT SALES PROMOTION EXPENSE S INCLUDE PAYMENT: I. TOWARDS MARKET RESEARCH ASSIGNMENTS FOR NEW MEDICIN E LAUNCHED BY THE ASSESSEE. THESE PAYMENTS WERE MADE TO MEDICAL EXPERTS FOR PROVIDING THE EXPERT OPINION RE LATED TO PRODUCTION OF PARTICULAR MEDICINE. II. PAYMENT TOWARDS STAFF MEETING AND PARTICIPATION IN SEMINAR & EDUCATIONAL PROGRAM,STAFF PERFORMANCE AWARD CEREMON Y, TOUR PACKAGE FOR STOCKIEST, DISCOUNT ON BULK PURCHASE OF MEDICINE TO APOLLO HOSPITAL. THE ASSESSEE FURTHER SUBMITTED THAT THE PAYMENT TO WARD RESEARCH ASSIGNMENT WAS MADE AFTER DEDUCTING TAX @ 10% WHERE AS THE TAXWAS DEDUCTED @ 2 % ON THE PAYMENTS MADE TO TRAVEL PARTNER FOR ST AFF MEETING, AWARD CEREMONY, STOCKIEST TOUR ETC. FURTHER THERE WAS NO TAX DEDUCTED ON DISCOUNT 8 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 PROVIDED TO APOLLO AND EXPORT CC ACCOUNT AS THESE E XPENSES WERE NOT SUBJECT TO THE CHAPTER XVII-B OF THE ACT. 3. MARKETING DEVELOPMENT AND PROMOTIONAL EXPENSE: THE ASSESSEE SUBMITTED THAT THE MARKETING DEVELOPME NT EXPENSES INCLUDE THE PAYMENTS: (I) TOWARDS WORK ASSIGNMENT TO MEDICAL EXPERTS FOR THEI R EXPERT OPINION WITH RESPECT TO ITS OWN MEDICINE AVAILABLE IN MARKET. (II) FOR PARTICIPATION IN VARIOUS HEALTH AWARENESS CONFE RENCES ORGANIZED BY THE VARIOUS MEDICAL ASSOCIATION. (III) TOWARD TRAVELING AND MEETING EXPENSES OF MARKETING EXECUTIVES, FIELD PERSON, PMT AND HO EXECUTIVE. (IV) TOWARDS GIFT AND ARTICLES GIVEN TO CARRY FORWARDING AGENCIES (CFA), STOCKIEST, DISTRIBUTORS, FIELD STAFF, PURCHA SE OF MEDICALS BOOKS AND JOURNALS. THE ASSESSEE FURTHER SUBMITTED THAT THE PAYMENT TO WARD WORK ASSIGNMENT WAS MADE AFTER DEDUCTING TAX @ 10% WHERE AS THE TAX WAS DEDUCTED @ 2% ON THE PAYMENTS MADE TO CONFERENCE OR GANIZER AND TRAVEL PARTNER FOR STAFF MEETING. BUT THERE WAS NO TDS LIA BILITY ON PAYMENT MADE FOR THE DISTRIBUTION OF BOOKS & JOURNALS AND GIFT & ART ICLES ETC. TO STOCKIEST, DISTRIBUTER, CFA AND FILED STAFF. 4. PRODUCT PROMOTION EXPENSES: THE ASSESSEE SUBMITTED THAT EXPENDITURE INCURRED U NDER THIS HEAD INCLUDES FOR THE DISTRIBUTION OF SOME ARTICLES LIKE SURGICAL EQUIPMENT, MOMENTUM ETC. WHICH WERE GIVEN TO MEDICAL FRATERNIT Y MEMBER BY THE FIELD STAFF WHILE MEETING FOR THE PROMOTION OF NEW PHARMA CEUTICALS PRODUCTS. 9 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 ACCORDINGLY THE ASSESSEE CLAIMED THAT THE PAYMENT O F THIS NATURE DOES NOT ATTRACT THE PROVISION OF TAX DEDUCTION UNDER CHAPTE R XVII-B OF THE ACT. 5. CAMP EXPENSES: THE ASSESSEE SUBMITTED THAT IT ORGANIZED MEDICAL C AMPS FOR PUBLIC AND PAYMENT UNDER THIS HEAD INCLUDES PAYMENT FOR LABORA TORY CHARGES AND REIMBURSEMENT TO FIELD STAFF FOR CAMP ORGANIZATION RELATED EXPENSES. THE ASSESSEE CLAIMED THAT THE PAYMENT MADE TO LABORATOR Y WAS PAID AFTER DEDUCTING TAXES @ 2% UNDER SECTION 194C OF THE ACT. 6. ACADEMIC WORK SHOP: THE ASSESSEE SUBMITTED THAT IT ORGANIZED CME FOR M EDICAL FRATERNITY WHERE SOME DOCTORS DELIVER LECTURES ABOUT PARTICULA R MEDICINE OR DISEASE. THESE WORKSHOP HELD AT LOCAL HOTEL FOLLOWED BY LUNC H OR DINNER ETC. THE ASSESSEE CLAIMED THAT THE NATURE OF PAYMENT UNDER T HE HEAD DOES NOT REQUIRE DEDUCTION OF TAX UNDER THE PROVISION OF THE ACT. 7. MR EXPENSES: THE ASSESSEE SUBMITTED THAT UNDER THE HEAD MR EXPE NSES, THE TA/DA OF THE FIELD STAFF HAS BEEN DEBITED. HENCE THE SAME DO ES NOT ATTRACT THE PROVISION OF TAX DEDUCTION UNDER CHAPTER XVII-B OF THE ACT. 8. TOUR AND TRAVEL: THE ASSESSEE SUBMITTED THAT THE PAYMENT TO TRAVEL AGENCIES INCLUDING CAR HIRING WAS MADE AFTER DEDUCTING TAXES @ 2% UNDER SE CTION 194C OF THE ACT. 10 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 IN VIEW OF THE ABOVE SUBMISSION, THE ASSESSEE CONT ENDED THAT THE SALES PROMOTION EXPENSES ARE NOT IN NATURE OF COMMISSION AND SIMILARLY THE PAYMENT MADE TO DOCTORS OR FACILITY PROVIDED TO DOCTORS ARE PART OF IT BUSINESS PROMOTION EXPENSES. THE ASSESSEE CLAIMED THAT THE P ROVISION OF SECTION 194H OF THE ACT I.E. TDS ON COMMISSION EXPENSES ARISE WH ERE PAYMENT IS MADE TO INTERMEDIARIES OR FACILITATOR FOR BUYING AND SELLIN G OF GOODS/SERVICES IN MONETARY TERM AND SUCH PAYMENT BECOME THE INCOME OF THE RECIPIENT. A PAYMENT TO BE CALLED IN THE NATURE OF COMMISSION MU ST HAVE CONTRACTUAL OBLIGATION AND HAVING RELATIONSHIP OF PRINCIPLE AND AGENT WHEREAS IN THE PRESENT CASE, THERE NO SUCH OBLIGATION ON DOCTOR OR ON ASSESSEE. FURTHERMORE THE PAYMENT WERE MADE IN KINDS AND NOT IN MONETARY TERMS WHICH NEVER BECAME THE INCOME OF THE RECIPIENT. 9. HOWEVER, THE AO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT THE EXPENSES AS DISCUSSED ABOVE HAS B EEN INCURRED BY THE ASSESSEE ON THE DOCTORS AND OTHER STAKEHOLDERS SUCH AS STOCKIEST, DEALERS AND FIELD STAFF AS EVIDENT FROM THE EMAILS BETWEEN THE MARKETING MANAGER AND OTHER STAFF OF THE COMPANY. THIS FACT W AS ALSO ADMITTED BY THE ASSESSEE IN THE STATEMENT RECORDED DATED 10.10. 2013 AND 06.12.2013 AS WELL IN THE SUBMISSIONS DATED 10.12.2013 AND 12.03.2014.ACCORDINGLY, IT IS TRANSPIRED THAT THERE WAS THE RELATIONSHIP OF PRINCIPAL- AGENT BETWEEN THE ASSESSEE AND THE ST AKEHOLDER I.E. DOCTORS, DEALERS, STOCKIEST AND THE FIELD STAFF. AS SUCH THE PARTICULAR DRUGS WERE PRESCRIBED BY THE DOCTORS AT THE INSTANCE OF THE AS SESSEE WHICH RESULTED INCREASE IN SALES OF THE COMPANY. THUS, SUCH EXPENS ES WERE INCURRED FOR THE SERVICES RENDERED BY THE DOCTORS BY PRESCRIBING THE PARTICULAR DRUGS. 11 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 ACCORDINGLY, SUCH EXPENSES AS DISCUSSED ABOVE PARTA KE THE CHARACTER OF THE COMMISSION AND THEREFORE THE SAME ARE SUBJECT T O TDS UNDER SECTION 194H OF THE ACT. 11. THE AO, WHILE INVOKING THE PROVISIONS OF SECTIO N 194H OF THE ACT ON THE EXPENSES AS DISCUSSED ABOVE TO FACILITATE THE D OCTOR AND OTHER STAKEHOLDERS ALSO MADE THE REFERENCE TO FOLLOWING RULES AND REGU LATIONS, HAVING BEARING ON THE PROFESSION OF THE DOCTORS: I. THE MEDICAL COUNCIL OF INDIA GUIDELINES ON INDUSTRY PHYSICIAN RELATIONSHIP: BRAKING THE CONSPIRACY OF S ILENCE. II. INDIA MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUE TTE AND ETHICS) REGULATION 2009. III. CODE OF PHARMACEUTICAL MARKETING PRACTICES 2007 PRESCRIBED BY THE ORGANIZATION OF PHARMACEUTICAL PRODUCERS OF INDIA. IV. INTERNATIONAL FEDERATION OF PHARMACEUTICAL MANUFACT URERS ASSOCIATION CODE OF PHARMACEUTICAL MARKETING PRACTI CES (IFPMA 2000). 12. THE CRUX OF THE ABOVE IS THAT THE GIFTS TO THE DOCTORS WAS DISCOURAGED IN THE AFORESAID RULES AND REGULATIONS AS IT IS AN UNE THICAL PRACTICE FOR BOTH THE PHARMACEUTICAL INDUSTRIES AS WELL AS THE DOCTORS. 13. IN VIEW OF THE ABOVE, THE AO HELD THE ASSESSEE AS ASSESSEE IN DEFAULT UNDER SECTION 201(1)/201(1A) OF THE ACT FOR NOT DED UCTING TDS UNDER THE PROVISIONS OF SECTION 194HOF THE ACT BY OBSERVING A S UNDER: 12 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 7.7 THE ASSESSEE HAS STATED THAT THE GIFT ARTICLES ENLISTED IN THE SALES PROMOTION EXPENSES HAVE BEEN PROVIDED TO DOCTORS, AS WELL AS OTHER STAKE HOLDERS IN THE COMPANY SUCH AS STOCKIEST, FIELD STAFF ETC. THE PRI NCIPAL OFFICER OF THE COMPANY WAS ASKED TO DESCRIBE THE PROCEDURE OF ARRIVING AT THE NAMES TO WHICH ARTICLES TO SUCH STOCKIESTS AND FIELD STAFF ARE TO BE DISTRIBUTED AN D THE NAMES OF RECIPIENTS OF SUCH GIFT ARTICLES IN STATEMENT DATED 10.10.2013 AND 06. 12.2103. THE ASSESSEE COULD NOT FURNISH ANY REPLY IN THIS REGARD. EVEN, IF SUCH ART ICLES HAVE BEEN PROVIDED TO OTHER STAKEHOLDERS IN THE COMPANY SUCH AS FIELD STAFF OR STOCKIEST ETC, THEN THE SAME FORM PART OF CITHER SALARY OR, COMMISSION OF THE SAID PE RSONS (AS THE SAME IS BELIEVED TO HAVE BEEN DISTRIBUTED TO THE SAID PERSON IN LIEU OF HIS CONTRIBUTION TOWARDS INCREASE IN THE SALES OF THE COMPANY) LIABLE FOR DEDUCTION O F TDS U/S 394H (OR 192) OF THE ACT. 7.8 ON THE BASIS OF THE FACTS OF THE CASE, LEGAL PR OVISIONS OF THE ACT, THE ASSESSEES REPLY, MATERIAL PLACED ON RECORD AND DIS CUSSION IN THE PRECEDING PARAGRAPHS, IT IS HELD THAT: THE ASSESSEE COMPANY HAS INCURRED EXPENSES AS MENTI ONED IN THE SHOW CAUSE NOTICE DATED ON DOCTORS. THE SAID EXPENSES HAVE BEEN INCURRED ON DOCTORS FOR PROVIDING GIFTS/ARTICLES/TRAVEL/ACCOMMODATION/REGISTRATION IN CONFERENCES ETC. THE DOCTORS HAVE PROVIDED SERVICES IN RETURN TO THE COMPANY BY PRESCRIBING THE DRUGS MANUFACTURED BY THE ASSESSEE COMPANY. ONE STE P FURTHER, THE FUTURE OUTCOME IN TERMS OF QUANTITY AND AMOUNT/VALUE OF DRUGS TO B E PRESCRIBED BY THE DOCTORS (IN CONSEQUENCE TO THE GIFTS/SERVICES PROVIDED TO THE D OCTOR BY THE ASSESSEE COMPANY) IS PROJECTED. THERE IS PROPER QUANTIFICATION OF THE GIFT/SERVICE PROVIDED BY THE ASSESSEE COMPANY TO THE DOCTOR AND THE SALES OF THE PHARMACEUTICAL P REPARATIONS OF THE ASSESSEE COMPANY AS A RESULT OF SERVICE RENDERED BY THE DOCT OR (PRESCRIBING DRUGS OF THE ASSESSEE COMPANY). THE GIFTS/SERVICES HAVE BEEN PROVIDED TO THE DOCTOR S IN LIEU OF THE SERVICES OF PRESCRIBING THE DRUGS MANUFACTURED BY THE ASSESSEE COMPANY. THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND T HE DOCTOR IS THAT OF 'PRINCIPAL AND AGENT'. VARIOUS STUDIES HAVE SUGGESTED THAT GIFTING TO DOCT ORS INFLUENCE THEIR PRESCRIPTION HABITS IN FAVOUR OF THE PHARMACEUTICAL COMPANY PROV IDING GIFTS. THE SERVICES RENDERED BY THE DOCTOR AND PAYMENT THE REOF FALLS WITHIN THE DEFINITION OF 'COMMISSION' AS SUGGESTED BY THE ACT AND VARIOUS CASE LAWS. 13 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 THE RATIONALE GIVEN BY THE ASSESSEE FOR JUSTIFYING THE EXPENSES AS ESSENTIAL FOR BRAND BUILDING IS CONSIDERED UNFORTUNATE IN THE WAKE OF ' UNETHICAL' TAG ATTACHED TO SUCH ACTIVITY BY BOTH THE MEDICAL COUNCIL OF INDIA (DOCT OR'S FRATERNITY) AND CODE OF ETHICS LAID DOWN BY THE VARIOUS PHARMACEUTICAL ASSOCIATION S/ORGANIZATIONS AND IS UNACCEPTABLE. 8. HENCE, THE ASSESSEE WAS LIABLE FOR DEDUCTING TDS @ 10% U/S 194H OF THE ACT W.R.T. THE BELOW MENTIONED EXPENSES BUT HAS FAI LED TO DO SO. S.NO. LEDGER HEAD F.Y.2010-11 (IN LACS OF RS.) 1 REGIONAL CONFERENCE 455.4 2 SCIENTIFIC CONFERENCE 1832.2 3 SALES PROMOTION EXPS 2281 .3 4 MARKETING DEVELOPMENT & PROMOTIONAL EXPS 6097.0 5 PRODUCT PROMOTIONAL EXPS 4000.8 6 CAMP EXPS 54.4 7 ACADEMIC WORKSHOPS 27.9 8 M R EXPS 5020.5 9 TRAVELLING EXPS - TOTAL 19769.5 THEREFORE, THE ASSESSEE IS TREATED AS ASSESSEE IN DEFAULT U/S 201(1) /201(1A) OF THE ACT FOR NOT DEDUCTING TDS U/S 194H OF THE ACT OVER EXPENSES IN THE NATURE OF COMMISSION AMOUNTING TO RS. 19769.5 LAKHS. COMMISSION EXPENDITURE AMOUNT (IN INR) TDS U/S 201(1) R.W.S. 194H @ 10% (IN INR) INTEREST U/S 201(1A) (IN INR) @ 1% * 48 19769.5 LAKHS 19,76,95,000 9,48,93,600 9. ACCORDINGLY, THE ASSESSE COMPANY IS LIABLE TO PA Y DEMAND OF RS. 29,25,88,600/- (ROUNDED OFF) U/S. 201(1)/201(1A) O F THE INCOME TAX ACT, 1961. THE ASSESSEE IS ALSO LIABLE FOR PENALTY U/S. 271C OF THE ACT. PENALTY PROCEEDINGS ARE BEING INITIATED SEPARATELY. ISSUE DEMAND NOTICE AND CHALLANS ACCORDINGLY. 14 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 14. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE P REFERRED AN APPEAL BEFORE THE LEARNED CIT-(A). 15. THE ASSESSEE BEFORE LEARNED CIT(A) BESIDES REIT ERATING THE SUBMISSION MADE BEFORE THE AO CLAIMED THAT THE EMAILS CORRESPO NDENCE OR OTHER DOCUMENTS ON WHICH THE AO IS RELIED OR REFERRED IN HIS/HER ORDER PERTAIN TO F.Y. 2013-14. ACCORDINGLY, THE CONCLUSION DRAWN ON THE BASIS SUCH DOCUMENT WHICH ARE RELATED TO DIFFERENT PERIOD IS VOID. MORE OVER, THE EXPENSES INCURRED AS PER THE ALLEGED DOCUMENT WERE NOT PAID DIRECTLY TO DOCTORS. AS SUCH THE AMOUNTS WERE PAID TO ORGANIZER OF CONFERENCE/MEETIN GS/EDUCATION PROGRAM AFTER DEDUCTING THE DUE TAXES UNDER CHAPTER XVII-B OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT THE AO WITHOUT CO NSIDERING AND EXAMINING THE CONTENTION AND DETAIL SUBMITTED BY IT (THE ASSESSEE) HELD THAT THE ENTIRE PROMOTIONAL EXPENSES AS DISCUSSED ABOVE ARE IN THE NATURE OF COMMISSION WHICH IS WRONG AND BASELESS. 16. THE ASSESSEE ALSO CLAIMED THAT THE AO HAS NOT E VEN CONSIDERED THE DIRECTION OF THE LEARNED ADDITIONAL CIT FOR THE DED UCTION OF TAX AT SOURCE PROVIDED IN AN ORDER PASSED UNDER SECTION 144A OF T HE ACT. IT WAS DIRECTED UNDER SECTION 144A OF THE ACT THAT THE ABOVE EXPENS ES INCURRED CANNOT BE HELD AS COMMISSION WITHOUT DETAILED VERIFICATION. ACCORD INGLY THE AO WAS DIRECTED TO EXAMINE THE NATURE OF EXPENSES AND DECIDE THE MA TTER AFTER VERIFICATION OF DETAILS. 17. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS BEEN ENGAGED IN THE BUSINESS OF PHARMACEUTICALS FOR MORE THAN 30 YEARS AND NOW O PERATING THROUGH 30 15 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 REGIONAL OFFICES IN INDIA AND ALSO SELLING ITS PROD UCT IN USA, EUROPEAN COUNTRIES, AFRICA AND AUSTRALIA OCEANIA. BEING A PH ARMACEUTICAL COMPANY AND TO GET LARGE AMOUNT OF MARKET SHARE IT HAS TO SET U P AN EXTENSIVE NETWORK OF SELLING, DISTRIBUTING AND PRODUCT PROMOTION. TO ACH IEVE THE SAME IT HAS INCURRED VARIOUS EXPENSES IN ORDER TO DEVELOP RELAT IONSHIP AND LARGE NETWORK. HENCE, IN SUCH CIRCUMSTANCES THE REJECTION OF ITS C ONTENTION AND EXPLANATIONS WITHOUT HAVING PROPER CONSIDERATION AND MAKING HUGE DEMAND IS UNREASONABLE. 18. THE ASSESSEE ALSO CLAIMED THAT THE AO DOES NOT POSES THE POWER TO RE- CLASSIFY OR RE-CHARACTERIZE THE NATURE OF PAYMENT U NDER CHAPTER XVIB OF THE ACT. 19. THE LEARNED CIT(A) AFTER CONSIDERING ASSESSMENT ORDER AND SUBMISSION MADE BY THE ASSESSEE OBSERVED AS UNDER: 6.2.6 A PERUSAL OF THE ORDER SHOWS THAT AFTER BEIN G CONFRONTED WITH THE CONTENT OF THE EMAIL CORRESPONDENCES BETWEEN THE MD AND CFO OF THE APPELLANT COMPANY AND MEDICAL REPRESENTATIVES AND THEIR STATEMENTS RECORD ED DURING THE SURVEY PROCEEDINGS, IT HAS BEEN ACKNOWLEDGED BY THE APPELL ANT THAT VARIOUS SALES PROMOTION EXPENSES WERE ALSO INCURRED ON DOCTORS IN THE FORM OF GIFTS AND FACILITIES AND WERE DEBITED UNDER VARIOUS HEADS, IN THE ORDER; THE AO HAS CITED VARIOUS EMAIL CORRESPONDENCES BETWEEN THE FIELD EXECUTIVES OF THE APPELLANT COMPANY AND SENIOR OFFICERS OF THE COMPANY TO BRING FORTH INSTANCES TO SHOW THAT VARIOUS EXPENSES WERE INCURRED BY THE APPELLANT ON DOCTORS BY WAY OF PAYM ENTS MADE FOR TAXIES, HOTEL ACCOMMODATION, AIR-TICKETS, REGISTRATION OF DOCTORS AT CONFERENCES, ETC. IT WAS VERY CLEAR THAT THESE DOCTORS WERE ACTING AS 'AGENTS' OF THE APPELLANT COMPANY SINCE THIS EXPENDITURE WAS BEING INCURRED ON THEM IN EXPECTATION OF CERTAIN RETURNS FROM THESE DOCTORS IN THE FORM OF PRESCRIBING OF THE COMPANY'S MEDICINES LEADING TO INCREASED BUSINESS. THUS, IN MY VIEW, SINCE COMMISSION IS A PAYMENT MADE FOR SOMETHING RECEIVED IN RETURN, AND IS A FORM OF INCENTIVE, IN THIS CASE, PAYMENTS INCURRED ON DOCTORS IN EXCHANGE OF INCREASED BUSINESS FOR THE A PPELLANT WOULD DEFINITELY FELL UNDER THE CATEGORY OF COMMISSION, AND PROVISIONS OF SECTION 194H WOULD BE ATTRACTED. IN THIS REGARD, IT WOULD BE PERTINENT TO MENTION THAT THE CONTENTION OF THE APPELLANT THAT THE STATEMENT OF THE MD AND CFODOES NOT REFLECT THE VIEW OF THE 16 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 APPELLANT COMPANY CANNOT BE ACCEPTED SINCE SHRI JAY ESHBHAI, THE CFO AND SHRI RAJ NIKANT PATEL, THE MD HAD IN THEIR STATEMENTS U/S. 1 31 OF THE ACT MENTIONED THEIR JOB PROFILES AND ALSO THE FACT THAT THEY WERE RESPONSIB LE TO DECIDE VARIOUS GIFTS UNDER THE HEADS 'SALES PROMOTION'. PERUSAL OF ALL THE EVIDENCES MENTIONED BY THE AO IN HIS ORDER, THE DISCUSSION BY THE AO AND THE SUBMISSION MADE BY THE APPELLANT THAT TH E CONDITIONS REQUIRED FORA PAYMENT TO BE CONSIDERED AS COMMISSION WERE DEFINIT ELY PRESENT IN THE PAYMENT MADE BY THE APPELLANT 20. IN VIEW OF THE ABOVE THE LEARNED CIT(A) FOR EAC H HEAD OF EXPENSE HELD AS UNDER: 1. REGIONAL AND SCIENTIFIC CONFERENCE: THE LEARNED CIT (A) HELD THAT THE PARTICIPATION CH ARGES OR CONTRIBUTION MADE FOR CONFERENCES WERE NOT PAID ONLY FOR PARTICI PATION. BUTSUCH PAYMENT WAS MADE FOR GETTING INCREASED BUSINESS FORM THE DO CTORS WHICH IS EVIDENT FROM THE EMAILS, VOUCHER AND STATEMENT OF MD & CFO. ACCORDINGLY, THE LD. CIT-A DIRECTED THE AO TO SEGREGATE THE PAYMENT MADE TO DOCTORS OR ON BEHALF OF THE DOCTORS SEPARATELY AND TREAT THE SAME AS COM MISSION FOR THE PURPOSE OF SECTION 194H OF ACT BUT GIVE THE CREDIT OF 2% OF TD S DEDUCTED BY THE ASSESSEE. WITH RESPECT TO REIMBURSEMENT EXPENSES, THE LEARNE D CIT-A DIRECTED TO FIND WHETHER THE REIMBURSEMENTS MADE TO DOCTOR, IF YES, THEN TREAT THE SAME AS COMMISSION UNDER SECTION 194H OF THE ACT. THUS, THE CIT(A) PROVIDED RELIEF FOR THE PAYMENT MADE TO THE PARTIES OTHER THAN DOCT ORS. 2. SALES PROMOTION EXPENSES: WITH RESPECT TO VARIOUS EXPENSES UNDER THIS HEAD T HE LEARNED CIT (A) HELD AS UNDER: 17 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 (I) PAYMENT MADE FOR WORK ASSIGNMENT IN ORDER TO OBTAIN EXPERT OPINION ARE WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS AND THAT TOO AFTER DEDUCTION OF TAXES. THUS CONTENTION OF ASSESS EE WAS ALLOWED. (II) PAYMENT MADE FOR MEETING OF ASSESSEE STAFF, ORGANIZ ATION OF FUNCTIONS OR TOUR FOR STOCKIEST,AWARD FUNCTION FOR STAFF AND EXPENSES MADE FOR EXPORT WHICH ARE NOT IN THE NATUR E OF COMMISSION. (III) PARTICIPATION EXPENSES PAID TO OR FOR DOCTORS ARE I N THE NATURE OF COMMISSION AND THEREFORE LIABLE FOR TDS UNDER SECTI ON 194H OF THE ACT BUT AFTER PROVIDING THE CREDIT FOR 2% OF TA XES ALREADY DEDUCTED BY THE ASSESSEE. 3. MARKETING DEVELOPMENT AND PROMOTION EXPENSES WITH RESPECT TO VARIOUS EXPENSES UNDER THIS HEAD T HE LEARNED CIT(A) HELD AS UNDER: (I) PAYMENT TOWARD WORK ASSIGNMENT WAS MADE AFTER DEDUC TING TAXES. HENCE NO FURTHER DEDUCTION IS REQUIRED. (II) PAYMENT TOWARD MEETING AND TRAVELING, GIFT TO CFA, GIFT TO STAFF/STOCKIEST, MEDICAL BOOKS & JOURNALS, EXPORT C ENTER COST ARE NOT IN THE NATURE OF COMMISSION. HENCE THERE IS NO REQUIREMENT FOR THE DEDUCTION OF TDS. (III) PARTICIPATION EXPENSES ARE INCURRED FOR OR ON BEHAL F OF THE DOCTORS, HENCE THE SAME ARE IN NATURE OF COMMISSION . THEREFORE THE DEMAND RAISED BY THE AO FOR THE SAME WAS CONFIR MED BUT AFTER PROVIDING CREDIT FOR 2% OF TAXES ALREADY DEDU CTED BY THE ASSESSEE. 18 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 4. PRODUCT PROMOTION EXPENSES: WITH RESPECT TO VARIOUS EXPENSES UNDER THIS HEAD T HE LEARNED CIT(A) HELD THAT THE REASON AND NATURE OF GIFT AND TO WHOM IT WAS GIVEN WAS NOT VERIFIABLE. FURTHERMORE, IT WAS QUITE POSSIBLE THAT GIFT WERE GIVEN TO DOCTORS. ACCORDINGLY, THE LD. CIT-A RESTRICTED THE DEMAND RA ISED UNDER THIS HEAD TO THE EXTENT OF 20%, TREATING THE SAME AS COMMISSION UNDE R SECTION 194H OF THE ACT. 5. CAMP EXPENSES, ACADEMIC WORKSHOP: THE LD. CIT-A HELD THAT THE EXPENDITURES UNDER THI S HEAD WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE AND THEREFORE THERE WAS NO PAYMENT IN THE NATURE OF COMMISSION EXPENSES. 6. MR EXPENSES: IT WAS NOTED BY THE AO THAT EXPENSES UNDER THIS HE AD INCLUDES PAYMENT MADE DIRECTLY OR INDIRECTLY TO DOCTORS. BUT AT THE SAME TIME CONSIDERING LARGE WORK FORCE OF THE ASSESSEE THROUGHOUT THE COUNTRY I T WAS HELD BY THE LD. CIT- A THAT THE ENTIRE EXPENSES CANNOT BE CLASSIFIED AS COMMISSION. THEREFORE, DEMAND UNDER THIS HEAD WAS RESTRICTED UP-TO 20% OF EXPENSES OF RS. 5020.5 LAKH ONLY. THUS THE LD. CIT-A ALLOWED THE APPEAL OF THE ASSESSEE IN PART. 21. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) BO TH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF THE ORDER OF THE AO BY THE LD. CIT- A WITH RESPECT TO THE PAYMENTS TOWARDS SELLING AND MARKETING, REGIONAL AN D SCIENTIFIC CONFERENCES, PRODUCT PROMOTION AND MR EXPENSES. ON THE CONTRARY, THE REVENUE IS IN APPEAL FOR THE RELIEF EXTENDED BY THE LD. CIT-A WIT H RESPECT TO THE ITEMS OF THE EXPENSES AS DISCUSSED ABOVE. 19 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 22. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUN NING FROM PAGES 1 TO 7 AND SUBMITTED THAT THERE IS NO RELATIONSHIP OF PRIN CIPLE AND AGENT BETWEEN THE ASSESSEE AND THE STAKEHOLDERS I.E. DOCTORS/STOCKIES T/DEALERS AND FIELD STAFF WHICH IS MANDATORY TO ATTRACT THE PROVISIONS OF SEC TION 194H OF THE ACT. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED ON T HE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LIMITED REPORTED IN 108 TAXMAN.COM 5 41 WHEREIN IT WAS HELD AS UNDER: 14. ON A PERUSAL OF THE AFORESAID PROVISION OF SEC TION 194H, IT IS CLEAR THAT ANY PERSON, NOT BEING AN INDIVIDUAL OR HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING BY WAY OF COMMISSION OR BROKERAGE SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT OF SUCH INCOME IN CASH WHICHEVER IS EARLIER, IS LIABLE TO DEDUCT TAX. EXPL ANATION (1) TO SECTION 194H DEFINES 'COMMISSION OR BROKERAGE' WHICH INCLUDES ANY PAYMEN T RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR A NY SERVICES IN THE COURSE OF BUYING AND SELLING OF GOODS OR IN RELATION TO ANY T RANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. ON THE FACTS OF THE PRESENT CASE, AS PER THE TRIPARTITE AGREEMENT ENTERED INTO BETWEEN T HE ASSESSEE AND THE DEALER, THERE IS NO SERVICE PROVIDED BY THE DEALER TO THE ASSESSE E IN THE COURSE OF BUYING OR SELLING GOODS, INASMUCH AS, THE ASSESSEE DIRECTLY SELLS GOO DS TO THE DEALER AND THE DEALER MAKES THE PAYMENT AFTER COLLECTING IT FROM THE CONS UMERS AND, THEREFORE, IT IS A TRANSACTION ON PRINCIPAL TO PRINCIPAL BASIS AND, TH EREFORE, THE PAYMENT MADE BY THE DEALER IS NOT LIABLE FOR ANY DEDUCTION OF TAX BY TH E ASSESSEE COMPANY. THEREFORE, IN THE FACTS OF THE CASE, THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT CANNOT BE APPLIED AS THE DEALER CANNOT BE SAID TO BE A COMMISSION AGE NT OF THE ASSESSEE COMPANY. THE LD. AR FURTHER CONTENDED THAT THERE WAS NO ELE MENT OF INCOME IN THE EXPENSES INCURRED BY THE ASSESSEE FOR THE STAKEHOLD ERS AS ALLEGED BY THE AO. AS SUCH THE ALLEGATION OF THE AO IN THE ORDER IS TH AT THE EXPENSES AS DISCUSSED ABOVE HAVE BEEN INCURRED BY THE ASSESSEE TO EXTEND THE BENEFIT TO THE STAKEHOLDERS. EVEN, IF THE ALLEGATION OF THE AO IS ASSUMED TRUE, THEN ALSO THE PROVISIONS OF SECTION 194H OF THE ACT CANNOT BE APP LIED AS THERE WAS NO ELEMENT OF INCOME IN THE HAND OF STAKEHOLDERS. 20 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 23. IN NONE OF THE CASE, THE ACCOUNT OF THE STAKEHO LDERS HAS BEEN CREDITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. LIKEWISE THE RE WAS ALSO NO ARRANGEMENT THAT THE ASSESSEE HAS GIVEN CASH TO THE STAKEHOLDER S BY BOOKING THE EXPENSES IN ITS BOOKS OF ACCOUNTS. 24. THE ASSESSEE WAS SUPPLYING THE GOODS DIRECTLY T O THE STOCKIEST AND NOT TO THE DOCTORS. FURTHERMORE, THERE WAS NO ARRANGEMENT OF ANY TYPE BETWEEN THE DOCTORS AND THE STOCKIEST. 25. THE CIRCULARS REFERRED BY THE AO IN HIS ORDER M AY BE RELEVANT TO MAKE THE DISALLOWANCE OF THE EXPENSES UNDER THE PROVISIO NS OF SECTION 37 OF THE ACT BUT THE SAME CAN BE DONE IN THE ASSESSMENT PROCEEDI NGS UNDER SECTION 143(3)/147/ 263 OF THE ACT. AS SUCH, THE QUESTION W HETHER SUCH EXPENSES ARE ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT CANNOT BE RAISED IN THE TDS PROCEEDINGS UNDER CHAPTER XVII OF THE ACT. 26. THE LEARNED AR ALSO CONTENDED THAT THE PROVISIO NS OF TDS PRESUPPOSES THAT INCOME SHOULD BE CREDITED IN THE ACCOUNT OF TH E PAYEE BUT IN THE CASE ON HAND THE STAKEHOLDERS AS ALLEGED BY THE AO WERE NOT THE PAYEE. 27. THE ASSESSEE WITH RESPECT TO MANY EXPENSES AS D ISCUSSED IN THE ORDER OF THE AO HAS DEDUCTED THE TDS AND THE BENEFIT OF THE TDS WAS AVAILED BY THE RESPECTIVE PARTIES UNDER THE PROVISIONS OF SECTION 199 OF THE ACT AND NOT BY THE STAKEHOLDERS. THEREFORE, THERE IS NO QUESTION O F TDS ON THE EXPENSES AS DISCUSSED ABOVE. THE LEARNED AR IN SUPPORT OF HIS C ONTENTION RELIED ON THE 21 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 ORDER OF MUMBAI TRIBUNAL IN THE CASE OF INDUSTRIAL DEVELOPMENT BANK OF INDIA VS. ITO REPORTED IN 107 ITD 45 WHERE IT WAS HELD AS UNDER: THE LIABILITY OF TAX DEDUCTION AT SOURCE IS IN THE NATURE OF A VICARIOUS OR SUBSTITUTIONARY LIABILITY, WHICH PRESUPPOSES EXISTE NCE OF A PRINCIPAL OR PRIMARY LIABILITY. CHAPTER XVII-B IS TITLED COLLECTION AND RECOVERY OF TAX - DEDUCTION OF TAX AT SOURCE. THIS TITLE ALSO INDICATES THAT THE NATU RE OF TAX DEDUCTION AT SOURCE OBLIGATION IS OBLIGATION FOR COLLECTION AND RECOVER Y OF TAX. UNDER THE ACT, TAX IS ON THE INCOME AND IT IS IN THE HANDS OF THE PERSON WHO RECEIVES SUCH INCOME, EXCEPT IN THE CASE OF DIVIDEND DISTRIBUTION TAX WHICH IS LEVI ED UNDER SECTION 115-O, A SECTION OUTSIDE THE CHAPTER PROVIDING FOR COLLECTION AND RE COVERY MECHANISM AND SET OUT UNDER A SEPARATE CHAPTER DETERMINATION OF TAX IN C ERTAIN SPECIAL CASES - SPECIAL PROVISION RELATING TO TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES. A PLAIN READING OF SECTION 190 AND SECTION 191, WHICH ARE F IRST TWO SECTIONS UNDER THE CHAPTER XVII, AND OF SECTIONS 199, 202 AND 203(1), WOULD SHOW THIS UNDERLYING FEATURE OF THE TAX DEDUCTION AT SOURCE MECHANISM. S ECTION 190 MAKES IT CLEAR THAT THE SCHEME OF TAX DEDUCTION AT SOURCE IS ONE OF THE METHODS OF RECOVERING THE TAX DUE FROM A PERSON AND IT IS NOTWITHSTANDING THE FAC T THAT THE TAX LIABILITY MAY ONLY ARISE IN A LATER ASSESSMENT YEAR. THE TAX LIABILITY IS OBVIOUSLY IN THE HANDS OF THE PERSON WHO EARNS THE INCOME, AND TAX DEDUCTION AT S OURCE MECHANISM PROVIDES FOR METHOD TO RECOVER SUCH TAX LIABILITY. THEREFORE, TH IS TAX DEDUCTION AT SOURCE LIABILITY IS A SORT OF SUBSTITUTIONARY LIABILITY. SECTION 191 FURTHER MAKES THIS POSITION CLEAR WHEN IT LAYS DOWN THAT IN A SITUATION TDS MECHANISM IS NOT PROVIDED FOR A PARTICULAR TYPE OF INCOME OR WHEN THE TAXES HAVE NO T BEEN DEDUCTED AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII, INC OME-TAX SHALL BE PAYABLE BY THE ASSESSEE DIRECTLY. THIS PROVISION, THUS, SHOWS THAT TAX DEDUCTION LIABILITY IS A VICARIOUS LIABILITY AND THE PRINCIPAL LIABILITY IS OF THE PERSON WHO IS TAXABLE IN RESPECT OF SUCH INCOME. SECTION 199 MAKES IT EVEN M ORE CLEAR BY LAYING DOWN THAT THE CREDIT FOR TAXES DEDUCTED AT SOURCE CAN ONLY BE GIVEN TO THE PERSON FROM WHOSE INCOME THE TAXES ARE SO DEDUCTED. THEREFORE, WHEN T AX DEDUCTOR CANNOT ASCERTAIN BENEFICIARIES OF A CREDIT, THE TAX DEDUCTION MECHAN ISM CANNOT BE PUT INTO SERVICE. SECTION 202 LAYS DOWN THAT TAX DEDUCTION AT SOURCE PROVISIONS ARE WITHOUT ANY PREJUDICE TO ANY OTHER MODE OF RECOVERY FROM THE AS SESSEE, WHICH AGAIN POINTS OUT TO THE TAX DEDUCTION LIABILITY BEING VICARIOUS LIAB ILITY IN NATURE. SECTION 203(1) THEN LAYS DOWN THAT FOR ALL TAX DEDUCTIONS AT SOURCE, TH E TAX DEDUCTOR HAS TO FURNISH TO THE PERSON TO WHOSE ACCOUNT SUCH CREDIT IS GIVEN OR TO WHOM SUCH PAYMENT IS MADE OR THE CHEQUE OR WARRANT IS ISSUED WHICH PRESUPPOS ES THAT AT THE STAGE OF TAX DEDUCTION THE TAX DEDUCTOR KNOWS THE NAME OF PERSON TO WHOM THE CREDIT IS TO BE GIVEN, THOUGH WHETHER BY WAY OF CREDIT TO THE ACCOU NT OF SUCH PERSON OR BY WAY OF CREDIT TO SOME OTHER ACCOUNT. THIS AGAIN SHOWS THAT TAX DEDUCTION AT SOURCE LIABILITY IS A VICARIOUS LIABILITY TO PAY TAX ON BEHALF OF TH E PERSON WHO IS TO BE BENEFICIARY OF THE PAYMENT OR CREDIT, WITH A CORRESPONDING RIGHT T O RECOVER SUCH TAX PAYABLE FROM THE PERSON TO WHOM CREDIT IS AFFORDED OR PAYMENT IS MADE. THUS, THE WHOLE SCHEME OF TAX DEDUCTION AT SOURCE PROCEEDS ON THE ASSUMPTI ON THAT THE PERSON WHOSE LIABILITY IS TO PAY AN INCOME KNOWS THE IDENTITY OF THE BENEFICIARY OR THE RECIPIENT OF THE INCOME. IT IS A SINE QUA NON FOR A VICARIOUS TA X DEDUCTION LIABILITY THAT THERE HAS 22 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 TO BE A PRINCIPAL TAX LIABILITY IN RESPECT OF THE R ELEVANT INCOME FIRST, AND A PRINCIPAL TAX LIABILITY CAN COME INTO EXISTENCE WHEN IT CAN B E ASCERTAINED AS TO WHO WILL RECEIVE OR EARN THAT INCOME BECAUSE THE TAX IS ON T HE INCOME AND IN THE HANDS OF THE PERSON WHO EARNS THAT INCOME. THEREFORE, TAX DEDUCT ION AT SOURCE MECHANISM CANNOT BE PUT INTO PRACTICE UNTIL IDENTITY OF THE P ERSON IN WHOSE HANDS IT IS INCLUDIBLE AS INCOME CAN BE ASCERTAINED. [PARA17] IT WAS ALSO CONTENDED THAT THERE WAS NO ONE-TO-ONE IDENTIFICATION BETWEEN THE EXPENSES INCURRED AND THE BENEFIT AVAIL ED BY THE DOCTORS/OTHER STAKEHOLDERS OUT OF SUCH EXPENSES. THEREFORE IT CAN NOT BE SAID THAT THE EXPENSES WERE INCURRED BY THE ASSESSEE TO EXTEND TH E BENEFIT TO THE DOCTORS AND OTHER STAKEHOLDERS. 28. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE AO IN HIS ORDER HAS GIVEN A CLEAR-CUT FINDING THAT THERE WAS THE RE LATIONSHIP OF PRINCIPLE AND AGENT BETWEEN THE ASSESSEE AND THE STAKEHOLDERS. AS PER THE LEARNED DR THE WHOLE OF THE BUSINESS OF THE ASSESSEE WAS BASED ON THE PRESCRIPTION OF THE DOCTORS FOR THE PARTICULAR DRUGS AND THEREFORE THE ASSESSEE HAS INCURRED SUCH EXPENSES TO EXTEND THE BENEFIT TO THE STAKEHOLDERS. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE STAND OF THE AUTHORITIES B ELOW BY REITERATING THE FINDINGS CONTAINED IN THE RESPECTIVE ORDERS WHICH W E HAVE ALREADY ADVERTED TO IN THE PRECEDING PARAGRAPH. THEREFORE, WE ARE NOT R EPEATING THE SAME FOR THE SAKE OF BREVITY. 29. BOTH THE LEARNED AR AND THE DR VEHEMENTLY SUPPO RTED THE ORDER OF THE RESPECTIVE AUTHORITIES BELOW TO THE EXTENT FAVORABL E TO THEM. 30. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) AND THE 23 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE PRECEDI NG DISCUSSION, WE NOTE THAT THE AO HAS ALLEGED THAT THE EXPENSES, AS DISCUSSED AFORESAID, HAS BEEN INCURRED BY THE ASSESSEE TO EXTEND THE BENEFIT DIRE CTLY OR INDIRECTLY TO THE PERSONS ASSOCIATED WITH IT (THE ASSESSEE). SUCH PER SONS ARE THE DOCTORS, DEALERS, STOCKIEST AND FIELD STAFF. ACCORDINGLY THE AO WAS OF THE VIEW THAT SUCH EXPENSES PARTAKE THE CHARACTER OF THE COMMISSI ON AND THEREFORE THE SAME ARE LIABLE FOR THE PROVISIONS OF TDS UNDER SECTION 194H OF THE ACT. HOWEVER, THE LEARNED CIT(A) PARTLY CONFIRMED THE ORDER OF TH E AO BY HOLDING THAT THE EXPENDITURES INCURRED BY THE ASSESSEE TO EXTEND THE BENEFIT TO THE DOCTORS ARE SUBJECT TO THE DEDUCTION OF TDS UNDER THE SECTION 1 94H OF THE ACT. AS SUCH, THE LEARNED CIT(A) DELETED THE DEMAND OF TDS RAISED BY THE AO ON THE EXPENSES INCURRED BY THE ASSESSEE PERTAINING TO THE OTHER STAKEHOLDERS I.E. DEALERS, STOCKIEST AND THE FIELD STAFF AND EXPORTS COST CENTER ETC. 31. BEFORE, COMING TO THE SPECIFIC ISSUE WE NOTE TH AT THE FOLLOWING CONDITIONS MUST BE SATISFIED FOR THE APPLICABILITY OF THE PROVISIONS OF SECTION 194H OF THE ACT: PAYMENT IS PAID/CREDITED ON OR AFTER 1-6-2001. THE PAYER MUST BE A PERSON SPECIFIED. THE PAYMENT MUST BE IN THE NATURE OF 'COMMISSION OR BROKERAGE' AS EXPLAINED SUBSEQUENTLY. THE PAYEE MUST BE ANY RESIDENT. THE QUANTUM OF PAYMENT DURING THE FINANCIAL YEAR MU ST EXCEED THE SPECIFIED MONETARY LIMITS. 32. THE NEXT QUESTION ARISES WHAT IS 'COMMISSION OR BROKERAGE'. UNDER EXPLANATION (I)TO SECTION 194H OF THE ACT, TH E EXPRESSION 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYMENT RECEIVED OR RECE IVABLE, DIRECTLY OR 24 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVIC E IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, OTHER THAN SECURITIES. 33. THE DEFINITION OF 'COMMISSION OR BROKERAGE' AS CONTAINED IN THE ABOVE EXPLANATION TO SECTION 194H OF THE ACT CANNOT BE INTERPRETED SO WIDELY AS TO INCLUDE ANY PAYMENT RECEIVABLE, DIRECT LY OR INDIRECTLY, FOR SERVICES IN THE COURSE OF BUYING OR SELLING OF GOOD S. TO FALL WITHIN THE EXPLANATION, THE PAYMENT RECEIVED OR RECEIVABLE , DIRECTLY OR INDIRECTLY, IS BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON, (I) FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVI CES), OR (II) FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS, OR (III) IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSE T, VALUABLE ARTICLE OR THING. 34. THE ELEMENT OF AGENCY HAS TO BE THERE IN THE CA SE OF ALL SERVICES OR TRANSACTIONS CONTEMPLATED BY THE SAID EXPLANATION A S HELD BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LIMITED (SUPRA) AND ALSO HELD IN CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION V. UNION OF INDIA [2002] 124 TA XMAN 628 (GUJ.) WHICH WAS AFFIRMED BY THE HONBLE SUPREME COURT, WHEREIN IT WAS HELD AS UNDER: IT WAS ALSO NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE REVENUE THAT THE DEFINITION OF COMMISSION OR BROKERAGE AS CONTAINED IN EXPLAN ATION 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 GOOD S AND THAT, THEREFORE, THE DISCOUNT AVAILED OF BY THE STAMP VENDORS CONSTITUTES COMMISS ION OR BROKERAGE WITHIN THE MEANING OF SECTION 194H. TO FALL WITHIN THE EXPLANA TION, THE PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, IS BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON (I) FOR SERVICES RENDERED (NOT BEING PROFESSIONAL S ERVICES), OR (II) FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS, OR (III) IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING. T HE ELEMENT OF AGENCY IS TO BE THERE 25 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 IN CASE OF ALL SERVICES OR TRANSACTIONS CONTEMPLATE D BY EXPLANATION (I) TO SECTION 194H. IN VIEW OF THE ABOVE, THE CASE LAWS REFERRED BY TH E LEARNED CIT(A) OF THE BOMBAY TRIBUNAL IN THE CASE OF SKOL BREWERIES L TD VS. ACIT REPORTED IN 29 TAXMAN.COM 111 CANNOT BE APPLIED IN THE CASE ON HAND WHEREIN IT WAS HELD THAT THERE WAS NO NECESSITY FOR HAVING THE PRINCIPA L AND AGENT RELATIONSHIP. 35. THUS, IN ORDER TO ATTRACT DEDUCTION OF TAX AT S OURCE UNDER SECTION 194H OF THE ACT, A COMMISSION PAYMENT MUST HAVE BEEN REC EIVED BY A PERSON WHO IS ACTING ON BEHALF OF ANOTHER. IN OTHER WORDS, HE MUST BE ACTING AS AN AGENT OF ANOTHER PERSON. WHERE A DISTRIBUTORSHIP/DEALERSH IP ARRANGEMENT IS ON PRINCIPAL-TO-PRINCIPAL BASIS AND NOT PRINCIPAL-TO-A GENT BASIS, ANY INCENTIVE GIVEN UNDER SALES PROMOTION SCHEMES (CALLED BY DIFF ERENT NAMES LIKE DISCOUNT, BONUS, PREMIUM, ETC.) CANNOT BE TREATED A S COMMISSION AND SUBJECTED TO DEDUCTION OF TAX AT SOURCE UNDER THE P ROVISIONS OF SECTION 194H OF THE ACT. 36. IN HOLDING SO, WE ALSO DRAW SUPPORT AND GUIDANC E FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. MOTH ER DAIRY INDIA LTD. [2012] 18 TAXMANN.COM 49/206 TAXMAN 157 (DELHI ) WHEREIN IT WAS HELD AS UNDER: IT IS A WELL-SETTLED PROPOSITION THAT IF THE PROPE RTY IN THE GOODS IS TRANSFERRED AND GETS VESTED IN THE CONCESSIONAIRE AT THE TIME OF TH E DELIVERY, THEN HE IS THEREAFTER LIABLE FOR THE SAME AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIPAL AND NOT AS AN AGENT OF THE DAIRY. THE CLAUSES OF TH E AGREEMENTS SHOW THAT THERE IS AN ACTUAL SALE, AND NOT MERE DELIVERY OF THE MILK A ND THE OTHER PRODUCTS TO THE CONCESSIONAIRE. WE ALSO FIND THAT THERE BEING NO RELATIONSHIP OF A PRINCIPAL AND AGENT BETWEEN ASSESSEE AND RETAILERS, TRADE INCENTIVES PA ID BY ASSESSEE TO RETAILERS 26 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 THROUGH DEL CREDERE AGENTSIN ORDER TO BOOST ITS SAL E COULD NOT BE TREATED AS COMMISSION FOR PURPOSE OF SECTION 194H OF THE ACT A S HELD BY HONBLE ANDHRA PRADESH AND TELANGANA HIGH COURTS IN CASE OF CIT V. UNITED BREWERIES LTD. [2016] 387 ITR 150 (T& AP). THE RELE VANT EXTRACT READS AS UNDER: TRANSACTIONS OF SALE OF BEER BY ASSESSEE TO APBCL AND SALE OF BEER BY APBCL TO RETAIL TRADERS WERE INDEPENDENT OF EACH OTHER, AND WERE ON A PRINCIPAL TO PRINCIPAL BASIS. NO SERVICES WERE RENDERED BY THE RETAIL DEAL ERS TO THE ASSESSEE, AND THE INCENTIVE GIVEN BY THE ASSESSEE, TO THE RETAILERS A S TRADE DISCOUNT, WERE ONLY TO PROMOTE THEIR SALES. IN THE ABSENCE OF RELATIONSHIP OF A PRINCIPAL AND AGENT, AS THERE WAS NO DIRECT RELATIONSHIP BETWEEN THE ASSESSEE AND THE RETAILER, THE DISCOUNT OFFERED BY THE ASSESSEE TO THE RETAILERS COULD ONLY BE TREATED AS SALE PROMOTION EXPENSES, AND NOT AS COMMISSION, AS NO SERVICES WER E RENDERED BY THE RETAILERS TO THE ASSESSEE. SECTION 194H WAS NOT APPLICABLE IN SU CH CASE. INDEED, IN THE GIVEN FACTS AND CIRCUMSTANCES, THER E IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS INCURRED THE EXPENSES AS DISCUSSED ABOVE TO EXTEND THE BENEFIT ITS STAKEHOLDERS IN ORDER TO ACHIEVE HI GH AMOUNT OF TURNOVER. BUT THE DEBATE RIGMAROLES WHETHER SUCH BENEFIT IS IN TH E NATURE OF COMMISSION OR BROKERAGE AS ENVISAGED UNDER THE PROVISIONS OF SECT ION 194H OF THE ACT. TO RESOLVE THE CONTROVERSY, WE HAVE TO SEE WHETHER THE RE EXIST ANY AGENCY RELATIONSHIP BETWEEN THE ASSESSEE AND THE STAKEHOLD ERS SUCH AS DOCTORS/STOCKIEST/DISTRIBUTORS AND THE FIELD STAFF. 37. REGARDING THE BENEFIT EXTENDED TO THE DOCTORS, WE NOTE THAT THE DOCTOR WAS NOT BOUND TO PRESCRIBE THE MEDICINE AS SUGGESTE D BY THE ASSESSEE. IT IS BECAUSE THERE WAS NO LEGAL COMPULSION ON THE PART O F THE DOCTOR TO PRESCRIBE THE PARTICULAR MEDICINE AS SUGGESTED BY THE ASSESSE E. AS SUCH THE DOCTOR WAS NOT ACTING AS AN AGENT OF THE ASSESSEE. THE PRINCIP AL-AGENT RELATIONSHIP IS A RELATIONSHIP THAT ARISES FROM SITUATIONS IN WHICH O NE ENTITY (THE PRINCIPAL) HAS POWER OVER ANOTHER (THE AGENT). THE AGENT IS ACTING IN THE PLACE OF THE PRINCIPAL 27 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 FOR SPECIFIC OR GENERAL PURPOSES. IN DOING SO, THE AGENT IS EXPECTED TO CARRY OUT THE PRINCIPAL'S WISHES. THE PRINCIPAL IS THE PARTY WHO AUTHORIZES THE OTHER TO ACT IN THEIR PLACE, AND THE AGENT IS THE PERSON WHO HAS THE AUTHORITY TO ACT ON BEHALF OF THE PRINCIPAL. 38. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSMEN T PROCEEDINGS ARE DIFFERENT WITH THE PROCEEDINGS UNDER THE CHAPTER XVII RELATIN G TO THE DEDUCTION OF TAX AT SOURCE OF THE ACT. THEREFORE THE QUESTION WHETHER I T WAS THE UNETHICAL PRACTICE ADOPTED BY THE ASSESSEE TO EXTEND THE BENEFIT TO TH E DOCTORS IN ORDER TO ACHIEVE HIGH TURNOVER OF ITS PRODUCTS IS NOT RELEVANT. HERE , THE ISSUE IS LIMITED TO THE EXTENT WHETHER THE ASSESSEE IS LIABLE SUBJECT TO TH E PROVISIONS OF TDS ON THE COMMISSION AS SPECIFIED UNDER SECTION 194HOF THE AC T. AS WE HAVE ALREADY HELD THAT, THE EXISTENCE OF THE AGENCY RELATIONSHIP BETWEEN THE ASSESSEE AND THE DOCTOR IS MISSING IN THE PRESENT CASE WHICH IS COMP ULSORY TO INVOKE THE PROVISIONS OF SECTION 194H OF THE ACT, THEREFORE, I N OUR CONSIDERED VIEW THE PROVISIONS OF SECTION 194H OF THE ACT CANNOT BE APP LIED. 39. REGARDING THE BENEFIT EXTENDED TO THE OTHER STA KEHOLDERS I.E. STOCKIEST, DEALERS AND FIELD STAFF, WE NOTE THAT THE AO HAS NO T BROUGHT ANYTHING ON RECORD SUGGESTING THAT THERE EXISTED ANY AGENCY RELATIONSH IP BETWEEN THE ASSESSEE AND THE OTHER STAKEHOLDERS. THUS, IN THE ABSENCE OF SUC H EVIDENCE, WE HOLD THAT THE PROVISIONS OF SECTION 194H OF THE ACT CANNOT BE APP LIED. IT IS ALSO PERTINENT TO NOTE THAT IN NORMAL BUSINESS PRACTICE BUSINESS ORGA NIZES VARIOUS FUNCTIONS AND TOUR AND EXTEND GIFT ETC. FOR THEIR DISTRIBUTOR, RE TAILER AND MARKETING PERSONAL IN ORDER TO ENCOURAGE THEM FOR BETTER PERFORMANCE WHIC H HELP THE BUSINESS IN ACHIEVING LARGER TURNOVER AND BRAND VALUE. THESE EX PENSES ARE INCURRED EXCLUSIVELY FOR PURPOSES OF BUSINESS AND PRODUCT PR OMOTION. BY NO MEANS 28 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 THESE CAN BE CLASSIFIED AS COMMISSION AS ENVISAGED UNDER SECTION 194H OF THE ACT. 40. IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT TAX UNDER SECTION 194H OF THE ACT IS TO BE DEDUCTED AT SOURCE, (A) EITHER AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE, OR (B) AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER. UNDER EXPLANATION (IV) TO SECTION 194H OF THE ACT REQUIRES THAT WHERE ANY INCOME IS CREDITED TO ANY ACCOUNT, WHETHE R CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCO UNT OF THE PAYER, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCO ME TO THE ACCOUNT OF THE PAYEE FOR PURPOSES OF DEDUCTION OF TAX AT SOURCE. T HE CONTROVERSY ARISES IN THE GIVEN FACTS AND CIRCUMSTANCES WHETHER THE STAKE HOLDERS ARE THE PAYEES AS CONTEMPLATED UNDER EXPLANATION (IV) TO SECTION 1 94H OF THE ACT. THE ANSWER STANDS IN NEGATIVE. UNDISPUTEDLY, THE PAYEES IN THE PRESENT FACTS AND CIRCUMSTANCES ARE NOT THE STAKEHOLDERS BUT THE OTHE R PARTIES.THUS, WE ARE OF THE VIEW THAT, THERE CANNOT BE ANY QUESTION OF DEDU CTING THE TDS UNDER THE PROVISIONS OF SECTION 194H ACT OF THE ACT IN THE PR ESENT FACTS AND CIRCUMSTANCES. IN HOLDING SO WE DRAW SUPPORT AND GU IDANCE FROM THE ORDER OF MUMBAI TRIBUNAL IN THE CASE OF INDUSTRIAL DEVELO PMENT BANK OF INDIA (SUPRA) WHICH HAS BEEN REPRODUCED SOMEWHERE IN THE PRECEDI NG PARAGRAPH. THUS, IN VIEW OF THE ABOVE DETAILED DISCUSSION AND AFTER CONSIDERING THE FACTS IN TOTALITY, THE GROUNDS OF APPEAL OF THE ASS ESSEE ARE ALLOWED WHEREAS THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 29 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 41. THE ASSESSEE IN GROUND NO. 1 HAS CHALLENGED THE VALIDITY OF THE ORDER FRAMED UNDER SECTION 201(1)/201(1A) OF THE ACT ON T HE GROUND THAT IT IS BARRED BY TIME. 42. AT THE OUTSET, WE NOTE THAT THE ASSESSEE HAS SU CCEEDED ON THE GROUND RAISED BY IT ON MERIT AS DISCUSSED ABOVE, THEREFORE , WE DO NOT FIND ANY REASON TO ADJUDICATE THE ISSUE RAISED BY THE ASSESSEE CHAL LENGING THE VALIDITY OF THE ASSESSMENT ORDER. HENCE, WE DISMISS THE SAME AS INF RUCTUOUS. 43. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS . 10 AND 11 ARE EITHER CONSEQUENTIAL OR GENERAL IN NATURE, THEREFORE NO SE PARATE ADJUDICATION IS REQUIRED. HENCE, WE DISMISSED THE SAME AS INFRUCTUO US. 44. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. COMING TO THE ITA NO. 1184/AHD/2017(A.Y.2011-12) RE VENUES APPEAL:- 45. THE ISSUE RAISED BY THE REVENUE HAS ALREADY BEE N DISPOSED OF BY US ALONG WITH THE APPEAL FILED BY THE ASSESSEE BEARING ITA NO. 1269 TO 1271/AHD/2017 VIDE PARAGRAPH NUMBER 44 OF THIS ORDE R. AS SUCH, THE GROUND OF APPEAL OF THE REVENUE HAS ALREADY BEEN DISMISSED . FOR THE DETAILED DISCUSSION, PLEASE REFER THE RELEVANT PARAGRAPH. HE NCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 46. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NOS. 1270&1271/AHD/2017(ASSESSEES APPEAL) AND 1185&1197/AHD/2017 (REVENUES APPEAL):- 47. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AN D THE REVENUE ARE IDENTICAL TO THAT OF THE GROUND WHICH HAVE ALREADY BEEN DEALT BY US IN ITA NO. 30 ITA NOS. 1269,1270,1271,11184,1185&1197/AHD/2017 AY: 2011-12 TO 2013-14 1269/AHD/2017 FOR A.Y. 2011-12 AND IN THE ABSENCE O F ANY CHANGED IN THE CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS. HENCE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENU E IS DISMISSED. 48. IN THE COMBINED RESULT, THE APPEALS FILED BY TH E ASSESSEE ARE PARTLY ALLOWED WHEREAS THE APPEALS FILED BY THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN THE COURT ON THE 26/11/2020 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) VICE PRESIDENT ( WASEEM AHMED ) ACCOUNTANT MEMBER AHMEDABAD; DATED 26/11/2020 TANMAY, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. S3. !! ' # / CONCERNED CIT 4. ' # ( ) / THE CIT(A)- 5. &'() **+ , , / DR, ITAT, AHMEDABAD. 6. ),- ./ / GUARD FILE. / BY ORDER, & * //TRUE COPY // / ! ( DY./ASSTT.REGISTRAR) ! '# $, &' / ITAT, AHMEDABAD 1. DATE OF DICTATION 05.10.2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.10.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 23.10.2020 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26 .11.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE OR DER