M/S. MAHESH ENTERPRISES, MUMBAI V. THE ITO WD 22(1)1, MUMBAI

ITA 180/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0889 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-01-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A R BAJWARE
• Assessee Lawyers: K SHIVARAM
• Section: 143(3); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI J.SUDHAK AR REDDY, AM I.T.A.NO.180/MUM/2008 (ASSESSMENT YEAR: 2005-06) M/S. MAHESH ENTERPRISES, T.M.GOSHER & CO.,C.AS 12, SHIVAJI FORT CO-OP.HSG.SOC. LTD., N.S.MANKIKAR MARG, SION(E) MUMBAI-400 022. PAN:AABBP0973M VS. THE INCOME TAX OFFICER, WARD-22(1)(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR.K.SHIVARAM RESPONDENT BY : MR. A.R.BAJWARE, DR O R D E R PER R.V.EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE PERTAINS TO THE ASSESSMENT YEAR 2005-06 AND THE ON LY GROUND TAKEN IS AGAINST THE DISALLOWANCE OF THE PAYMENT OF RS.8,04,944/- MADE BY THE ASSESSEE IN COMPUTING THE PROFITS OF THE BUSINESS. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E SALE OF KURTA, CHURIDAR ETC. IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER APPEAL, THE ASSESSEE DEBITED A SUM OF RS.8,04 ,944/- AS ROYALTY. WHILE COMPLETING THE ASSESSMENT UNDER SECT ION 143(3) OF THE INCOME TAX ACT, THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD NOT DEDUCTED ANY TAX FROM THE ROYALTY PAYMENT AS REQUIRED BY SECTION 194J. HE THEREFORE PROPOSED TO DISALLOW THE PAYMENT BY INVOKING SECTION 40(A)(IA). THE ASSESSEE RESPONDED BY FURNISHING THE FACTS RELATING TO THE CLAIM. THE ASSESSEE HAD A ITA NO.180/M/08 2 SALES COUNTER IN AKBARALLYS DEPARTMENTAL STORES (HE REINAFTER REFERRED TO AS ADS) IN FOUNTAIN AND CHEMBUR. THE AS SESSEES PRODUCTS WERE BEING SOLD FROM THAT COUNTER. EVERY F IFTEEN DAYS, ADS WOULD SUBMIT THE DETAILS OF COLLECTION MADE AND ON THE BASIS OF THESE DETAILS, THE ASSESSEE WOULD PREPARE A BILL ON ADS AND ADS WOULD RETAIN DISCOUNT @ 20% ON THE CASH SAL ES AND 22% ON THE CREDIT CARD SALES AND REMIT THE BALANCE TO THE ASSESSEE. THESE FACTS WERE BROUGHT TO THE NOTICE O F THE ASSESSING OFFICER BY THE ASSESSEE BY LETTER DATED 7 .9.2007. IT WAS EXPLAINED THAT THE DISCOUNT GIVEN TO ADS WAS BE ING TERMED AS ROYALTY IN THE ACCOUNTS THOUGH IT WAS NOT ACTUAL LY ROYALTY. IT WAS REITERATED THAT WHAT WAS GIVEN WAS ONLY DISCOUN T AND THEREFORE SECTION 194J WAS NOT APPLICABLE. IT WAS F URTHER EXPLAINED THAT THE DISCOUNT WAS GIVEN TO ADS FOR TH E FOLLOWING SERVICES:- (A) SPACE OF 150 SFT.(APPROXIMATE) PROVIDED BY ADS FREE OF COST AT PROMINENT PLACES (B) PROVIDING ELECTRICITY, GENERAL DECORATION, DISP LAY, TELEPHONE FACILITIES, SECURITY ETC. (C) PROVIDING PACKING MATERIAL, CARRY BAGS AND OTHE R STAFF SERVICES SUCH AS DELIVERY, CHECKING OF GOODS ETC. (D) THE BRAND NAME OF AKBARALLYS ALSO HELPS IN ACH IEVING THE SALES. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES EXPLANATION. HE TOOK THE VIEW THAT THE PAYMENT MADE BY THE ITA NO.180/M/08 3 ASSESSEE TO ADS FOR THE AFORESAID SERVICES FALLS EI THER UNDER SECTION 194C OR UNDER SECTION 194H. IT MAY BE NOTED THAT SECTION 194C REFERS TO PAYMENTS TO CONTRACTORS AND SECTION 194H COVERS COMMISSION OR BROKERAGE. THE ASSESSING OFFICER ALSO CALLED FOR A COPY OF THE AGREEMENT ENTERED INT O WITH ADS, IN RESPONSE TO WHICH THE ASSESSEE FILED AN AGREEMENT D ATED 1 ST MARCH, 1982. FROM CLAUSE (6) THEREOF THE ASSESSING OFFICER NOTED THAT THE PARTIES TO THE AGREEMENT HAD DESCRIB ED THE PAYMENT AS COMMISSION. THE ASSESSING OFFICER THEREF ORE HELD THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX FROM T HE PAYMENT AND HAVING FAILED TO DO SO, SECTION 40(A)(IA) WAS A TTRACTED. HE ACCORDINGLY DISALLOWED THE PAYMENT. 4. THE ASSESSEE APPEALED AGAINST THE DISALLOWANCE A ND MADE DETAILED SUBMISSIONS BEFORE THE CIT(A) WHO HELD THA T THE PAYMENT REPRESENTED COMMISSION AND THEREFORE THE AS SESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE SAME AS TH E ASSESSEE HAD NOT DEDUCTED THE TAX. 5. IT IS AGAINST THE AFORESAID DISALLOWANCE THAT TH E ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. THE CONTE NTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE ARE BASICALLY THAT THE PAYMENT REPRESENTED DISCOUNT AND IT WAS NEITHER COMMISSION NOR BROKERAGE, THAT THE AGREEMENT DATED 1 ST MARCH, 1982 WAS NOT IN OPERATION FOR THE YEAR UNDER APPEAL, THAT THE ASSES SEE HAD ACTUALLY SOLD THE GOODS TO AKBARALLYS FOR DISCOUNT AND THEREFORE ADS CANNOT BE CONSIDERED AS THE ASSESSEES AGENT SO THAT THE ITA NO.180/M/08 4 PAYMENT CAN BE CALLED COMMISSION, THAT DISCOUNT AND COMMISSION WERE TWO DIFFERENT CONCEPTS, THAT THE DE SCRIPTION OF THE DISCOUNT AS ROYALTY IN THE ASSESSEES BOOKS OF ACCOUNT WAS NOT CONCLUSIVE AND THAT IN THESE CIRCUMSTANCES THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FROM THE PAYMENT TO AD S. IT WAS ACCORDINGLY CONTENDED THAT SECTION 40(A)(IA) WAS NO T APPLICABLE AND THE DISALLOWANCE WAS NOT JUSTIFIED. HE SUBMITTE D THAT EVEN IF THE PAYMENT IS CONSIDERED TO BE ROYALTY, SECTION 194J COVERED ROYALTY PAYMENTS ONLY W.E.F. 13.7.2006 AND WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL. IN SUPPORT OF THESE SUBM ISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CONTENTS OF THE PAPER BOOK CONSISTING OF 30 PAGES. IN SUPPORT OF HIS CONTENTION THAT DISCOUNT AND COMMISSION ARE DIF FERENT IN NATURE, HE REFERRED TO THE JUDGEMENT OF THE KERALA HIGH COURT IN KERALA STATE STAMP VENDORS ASSOCIATION VS. O/O. ACC OUNTANT GENERAL & OTHERS, (2006) 282 ITR 7. IN SUPPORT OF H IS CONTENTION THAT THE GOODS WERE SOLD TO AKBARALLYS AT A DISCOUNT AND SINCE THE ASSESSEE HAS SHOWN THE SAME AS SALES IN ITS SALES TAX RETURNS, THE SAME WAS BINDING ON THE INCOME-TAX AUTHORITIES, THE LEARNED COUNSEL FOR THE ASSESSEE R EFERRED TO THE JUDGEMENT OF THE MADRAS HIGH COURT IN CIT VS. ANAND HA METAL CORPORATION, (2005) 273 ITR 262. IT WAS THUS CONTEN DED THAT THE DISALLOWANCE WAS NOT IN ACCORDANCE WITH LAW AND FAC TS. 6. ON BEHALF OF THE DEPARTMENT, MR. A.R.BAJWARE, LE ARNED SENIOR D.R. SUBMITTED THAT THIS IS A CASE TO WHICH SECTION 194H ITA NO.180/M/08 5 OF THE ACT CLEARLY APPLIED SINCE THE PAYMENT REPRES ENTED COMMISSION AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX FROM THE SAME IF THE PAYMENT HAD TO BE ALLOWED AS A DEDU CTION. HE SUBMITTED THAT THE ASSESSEES CONTENTION THAT THE A GREEMENT DATED 1 ST MARCH, 1982 DID NOT OPERATE FOR THE YEAR UNDER AP PEAL WAS ERRONEOUS AND THAT THE AGREEMENT CONTINUED TO O PERATE FOR THE YEAR UNDER APPEAL IN THE ABSENCE OF ANYTHING TO SHOW THAT IT CEASED TO OPERATE. HE DREW OUR ATTENTION TO THE R ELEVANT CLAUSE IN THE AGREEMENT WHICH SAYS THAT IT CANNOT BE REVOK ED EXCEPT BY NOTICE AND IN THE ABSENCE OF ANY SUCH NOTICE ISSUED BY THE PARTIES, THE CONTENTION THAT THE AGREEMENT DID NOT OPERATE FOR THE YEAR UNDER APPEAL WAS WITHOUT ANY FACTUAL OR LE GAL BASIS. HE ALSO SUBMITTED THAT THERE WAS NOTHING IN THE CONDUC T OF THE PARTIES TO SHOW THAT THE AGREEMENT HAD BEEN GIVEN A GOBY. THE LEARNED SENIOR D.R. THUS CONTENDED THAT THE CHARACT ER OF THE PAYMENT WAS, AS DESCRIBED BY THE PARTIES, IN CLAUS E (6) OF THE AGREEMENT NAMELY COMMISSION. HE FURTHER POINTED OU T THAT THE INVOICE DATED 31.03.2005 (PAGE 26 OF THE PAPER BOOK ) WHICH WAS SUPPOSED TO HAVE BEEN SENT BY THE ASSESSEE TO AKBAR ALLYS DESCRIBING THE TRANSACTION AS SALES AND SHOWING DIS COUNT PAYMENT TO ADS WAS A POST-FACTO DOCUMENT DRAWN UP A FTER THE SALES WERE MADE BY ADS AND THIS CANNOT BE TAKEN AS REFLECTIVE OF THE TRUE NATURE OF THE TRANSACTION OR PAYMENT. THE LEARNED SENIOR DR FURTHER CONTENDED THAT ADS NEVER HELD ANY STOCK ON BEHALF OF THE ASSESSEE UNDER THE ARRANGEMENT AND PO INTED OUT ITA NO.180/M/08 6 TO CLAUSE 9(C) OF THE AGREEMENT DATED 1 ST MARCH, 1982 AND CLAUSE 19 THEREOF TO SUBMIT THAT THE TITLE TO THE G OODS REMAINED WITH THE ASSESSEE AND DID NOT PASS TO ADS WHICH WOU LD HAVE BEEN THE CASE IF THE TRANSACTION HAD BEEN A SALE OF GOODS TO ADS. IT WAS THUS CONTENDED BY HIM THAT ADS IN TRUTH AND SUBSTANCE ACTED AS THE ASSESSEES AGENT RENDERING S ERVICES INCIDENTAL TO THE SALE FOR WHICH COMMISSION WAS PAI D AND THEREFORE THE ASSESSEE WAS LIABLE TO DEDUCT TAX UND ER SECTION 194H. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX, SECTION 40(A)(IA) WAS ATTRACTED AND THE PAYMENT TO ADS WAS RIGHTLY DISALLOWED. 7. IN HIS BRIEF REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO CLAUSE 22 OF THE AGREEMENT W HICH PROVIDED THAT THE INTENTION OF THE PARTIES WAS NOT TO CREATE ANY TENANCY OR SUB-TENANCY OR ANY SUCH RIGHTS OF ANY NA TURE WHATSOEVER IN FAVOUR OF THE ASSESSEE AND THAT THE I NTENTION WAS MERELY TO PERMIT AND ALLOW THE ASSESSEE TO CONDUCT, MANAGE AND CARRY ON SALES OF THE GOODS IN THE PREMISES OF ADS FOR AND ON BEHALF OF THE ADS. IT IS THEREFORE SUBMITTED THA T SECTION 194H DID NOT APPLY. 8. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL SUBMISSIONS. WE MAY STRAIGHT AWAY RULE OUT THE APPL ICABILITY OF SECTION 194C WHICH COVERS PAYMENTS TO CONTRACTORS FOR PURPOSES OF TAX DEDUCTED AT SOURCE. SECTION 194J WH ICH COVERS PAYMENT OF FEES FOR PROFESSIONAL OR TECHNICAL SERVI CES AND ITA NO.180/M/08 7 INCLUDES ROYALTY WITHIN ITS FOLD IS ALSO RULED OUT SINCE ROYALTY WAS BROUGHT INTO THE FOLD OF THE SECTION BY TAXATIO N LAWS AMENDMENT ACT, 2006 WITH EFFECT FROM 13.07.2006, TH E DATE WHICH FALLS SUBSEQUENT TO THE YEAR UNDER APPEAL. T HE DESCRIPTION OF THE PAYMENT AS ROYALTY IN THE PROFIT AND LOSS ACCOUNT IS NOT DECISIVE AS RIGHTLY SUBMITTED ON BEH ALF OF THE ASSESSEE ON THE STRENGTH OF THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING C O. LTD., VS. CIT(CENTRAL), 82 ITR 363. THE TRUE NATURE OF THE PA YMENT HAS TO BE GATHERED FROM THE TERMS OF THE AGREEMENT, IF ANY , ENTERED INTO BETWEEN THE PARTIES AS WELL AS THEIR CONDUCT A ND ALL THE SURROUNDING CIRCUMSTANCES. THE ASSESSEE ITSELF HAS NOT BEEN CONSISTENT IN ITS DESCRIPTION OF THE PAYMENT IN ITS ACCOUNTS AS WE SEE FROM THE PROFIT AND LOSS ACCOUNTS FOR THE YE ARS ENDED 31.03.2001 TO 31.03.2004, COMPILED IN THE PAPER BOO K. FOR THE YEARS ENDED 31.03.2002 AND 31.03.2003, THE ASSESSEE HAS DESCRIBED THE PAYMENT AS ROYALTY. FOR THE YEAR ENDE D 31.03.2001, THE PAYMENT HAS BEEN DESCRIBED AS COMMI SSION AND FOR THE YEAR ENDED 31.03.2004 IT HAS BEEN DESCR IBED AS DISCOUNT. NOTHING THEREFORE CAN BE GLEANED FROM THE ACCOUNTS OF THE ASSESSEE WHICH WOULD THROW LIGHT ON THE TRUE NA TURE OF THE PAYMENT. WE HAVE TO THEREFORE FALL BACK ON THE A GREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND AKBARALLYS ON 1 ST MARCH, 1982. BEFORE WE LOOK AT THE AGREEMENT, IT IS NECESS ARY TO EXAMINE THE ASSESSEES PLEA THAT THE AGREEMENT WAS NOT IN ITA NO.180/M/08 8 OPERATION DURING THE ACCOUNTING YEAR UNDER APPEAL. THIS PLEA WAS TAKEN BEFORE THE ASSESSING OFFICER ALSO IN A SO MEWHAT DIFFERENT FORM. IN ITS LETTER DATED 16.7.2007 TO TH E ASSESSING OFFICER (PAGE 22 OF THE PAPER BOOK) THE ASSESSEE SU BMITTED THAT IT HAD ENTERED INTO ROYALTY AGREEMENT LONG BACK AND THEREAFTER THE TERMS OF THE SAID AGREEMENT ARE MUTUALLY AGREED YEAR AFTER YEAR AND NO SEPARATE AGREEMENT HAS BEEN EXECUTED. IN THIS LETTER AS WELL AS IN THE LETTERS DATED 24.01.2007 A ND 7.9.2007, THE ASSESSEE HAS ATTEMPTED TO EXPLAIN THE PAYMENT M ADE TO ADS EITHER AS ROYALTY OR AS DISCOUNT. IN THE LETTER DATED 24.01.2007, THE ASSESSEE STATED THAT THE AMOUNT WAS BEING CLAIMED AS ROYALTY FOR HAVING A SALES COUNTER IN THE DEPARTMENTAL STORES AND ALSO EXPLAINED THE FACILITI ES PROVIDED BY ADS FOR WHICH THE ROYALTY WAS BEING PAID. IN ITS L ETTER DATED 7.9.2007 TO THE ASSESSING OFFICER, THE ASSESSEE APP EARS TO HAVE CHANGED ITS VERSION REGARDING THE NATURE OF ITS PAY MENT. IN THIS LETTER, A COPY OF WHICH IS AT PAGE 23 OF THE PAPER BOOK, THE ASSESSEE HAS DESCRIBED THE PAYMENT AS DISCOUNT AND HAS STATED THAT IT IS ACTUALLY NOT ROYALTY. AGAIN THE ASSESSEE HAS GONE ON TO EXPLAIN THAT THE DISCOUNT WAS PAID TO ADS FOR THE S AME FACILITIES PROVIDED BY THEM. THE ARGUMENT BEFORE THE TRIBUNAL AS WELL AS BEFORE THE CIT(A) WAS HOWEVER THAT THE PAYMENT WAS ONLY A DISCOUNT AND NOT A COMMISSION. 9. ADVERTING TO THE ARGUMENT THAT THE AGREEMENT DAT ED 1 ST MARCH, 1982 DID NOT OPERATE DURING THE YEAR UNDER A PPEAL, WE ITA NO.180/M/08 9 FIND THAT THE SAME IS NOT BORNE OUT BY THE FACTUAL POSITION. CLAUSE 3 OF THE AGREEMENT PROVIDES THAT IT SHALL CO MMENCE TO OPERATE FROM 15.2.1982 AND SHALL CONTINUE UNTIL DET ERMINED BY EITHER PARTY BY GIVING SIXTY DAYS NOTICE IN WRITING . CLAUSE 17 ALSO PROVIDES FOR CERTAIN OTHER SITUATIONS UNDER WH ICH THE AGREEMENT CAN BE TERMINATED BY ADS. THERE ARE FIVE SITUATIONS CONTEMPLATED BY THIS CLAUSE UNDER WHICH ADS WILL HA VE THE RIGHT TO TERMINATE THE AGREEMENT. THESE TWO CLAUSES EXCLUSIVELY PROVIDED FOR TERMINATION OF THE AGREEMENT AND NO EV IDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT EITHER OF THESE CLAUSES WERE ACTIVATED BY THE PARTIES. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE OR ADS GAVE SIXTY DAYS NOTICE TO TERMI NATE THE AGREEMENT AS CONTEMPLATED BY CLAUSE 3. THERE IS ALS O NO EVIDENCE TO SHOW THAT ADS TERMINATED THE AGREEMENT FOR BREACH BY THE ASSESSEE OF THE CONDITIONS PRESCRIBED BY CLA USE 17. THEREFORE THE ASSESSEE IS NOT RIGHT IN SAYING THAT THE TERMS OF THE AGREEMENT ARE MUTUALLY AGREED YEAR AFTER YEAR W ITHOUT ENTERING INTO A SEPARATE AGREEMENT OR THAT THE WRIT TEN AGREEMENT DATED 1.3.1982 DID NOT OPERATE FOR THE YE AR UNDER APPEAL. IN OUR FINDING, THE AGREEMENT CONTINUED TO OPERATE EVEN FOR THE YEAR UNDER APPEAL. 10. TURNING NOW TO THE NATURE OF THE PAYMENT MADE T O ADS, THE CONTENTION OF THE DEPARTMENT PUT FORTH BEFORE U S IS THAT CLAUSE (6) OF THE AGREEMENT REFERS TO THE PAYMENT A S COMMISSION AND THEREFORE IT IS NOT FOR ANYBODY ELSE ITA NO.180/M/08 10 TO SAY THAT IT IS NOT SO. THIS CLAUSE PROVIDES THAT IN CONSIDERATION OF THE ADS ALLOWING THE ASSESSEE TO C ARRY ON THE BUSINESS OF THE GOODS, THE ASSESSEE SHALL PAY A CO MMISSION OF 12.5% ON THE GROSS SALES WITH A MINIMUM COMPENSATIO N OF RS.24,000/- PER ANNUM. THE CLAUSE FURTHER PROVIDES THAT THE COMMISSION AND MINIMUM COMPENSATION ARE SUBJECT TO REVISION AND SUCH REVISED COMMISSION AND COMPENSATION WOULD BE PAYABLE BY THE ASSESSEE TO ADS. APPARENTLY THE PART IES HAVE INVOKED THE LATTER PART OF THE CLAUSE AND HAVE REVI SED THE COMMISSION TO 20% ON CASH SALES AND 22% ON CREDIT C ARD SALES. AS RIGHTLY POINTED OUT BY THE LEARNED SENIOR DR, TH E PARTIES THEMSELVES HAVE UNDERSTOOD THE PAYMENT AS COMMISSIO N AND IT WOULD REQUIRE VERY STRONG EVIDENCE, WHICH IS NOT PR ESENT IN THE CASE, TO HOLD THAT THE TRUE NATURE OF THE PAYMENT I S SOMETHING ELSE. 11. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERR ED TO PAGE 18 OF THE PAPER BOOK WHICH IS A CERTIFICATE ISSUED ON 23.10.2007 BY THE ADS TO THE EFFECT THAT THEY HAD PURCHASED GO ODS FROM THE ASSESSEE FOR RS.38,07,328/- ON WHICH DISCOUNT OF RS .8,04,527/- WAS PAID TO THEM. THIS PAPER HAS BEEN CERTIFIED BY THE ASSESSEE TO HAVE BEEN FILED BEFORE THE ASSESSING OFFICER AS INDEXED IN THE PAPER BOOK. BUT WHEN WE LOOK AT THE ASSESSMENT ORDE R, WE FIND THAT IT HAS BEEN PASSED ON 10.09.2007, MORE THAN A MONTH BEFORE THE DATE OF THE CERTIFICATE. THE CERTIFICATE COULD NOT HAVE BEEN FILED BEFORE THE ASSESSING OFFICER. WE HOWEVER DO FIND THAT ITA NO.180/M/08 11 THIS HAS BEEN SUBMITTED BEFORE THE CIT(A). BE THAT AS IT MAY, NO CREDIBILITY CAN BE ATTACHED TO THE CERTIFICATE SINC E IT IS ONLY THE OPINION OF ADS THAT WHAT THEY HAVE RECEIVED FROM TH E ASSESSEE IS A DISCOUNT WHICH GOES CONTRARY TO THE TERMS OF T HE WRITTEN AGREEMENT WHICH HAS NOT BEEN SHOWN TO HAVE BEEN ABA NDONED OR TERMINATED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT DISCOUNT PAYMENT IS NOT COMMISSION AND THERE IS A D IFFERENCE BETWEEN THE TWO AS HELD BY THE KERALA HIGH COURT IN THE JUDGEMENT CITED SUPRA. THERE CAN BE NO QUARREL WITH THE PROPOSITION THAT BOTH ARE DIFFERENT IN NATURE. IN T HE COURSE OF THE JUDGEMENT, IT HAS BEEN OBSERVED THAT A DISCOUNT GIVEN ON PRICE BY THE SELLER TO THE PURCHASER CANNOT BE TERM ED AS COMMISSION OR BROKERAGE FOR SERVICES RENDERED IN T HE COURSE OF BUYING AND SELLING OF GOODS AS THE ACT OF BUYING DO ES NOT CONSTITUTE RENDERING OF ANY SERVICES. THAT TAKES US TO THE QUESTION WHETHER THE ASSESSEE SOLD THE GOODS TO AKB ARALLYS AS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE. IT MAY BE RECALLED THAT HE ALSO DREW OUR ATTENTION TO THE FAC T THAT THE ASSESSEE HAS BEEN ASSESSED TO SALES TAX ON THE GROS S SALES OF RS.38,09,433/-. IN OUR OPINION, THIS ONLY SHOWS THA T THE ASSESSEE HAS SOLD THE GOODS BUT IT DOES NOT PROVE T HE FURTHER CONTENTION THAT THE GOODS WERE SOLD TO ADS ON WHICH DISCOUNT WAS GIVEN. THE INVOICE SENT BY THE ASSESSEE TO AKBA RALLYS BASED ON THE SALES REPORT SENT BY ADS TO THE ASSESSEE AL SO DOES NOT ITA NO.180/M/08 12 PROVE THAT THE ASSESSEE SOLD THE GOODS TO ADS. IN FACT, THE TERMS OF THE AGREEMENT DATED 1 ST MARCH, 1982 IS ONLY AN AGREEMENT FOR PAYMENT OF COMMISSION AND IT DOES NOT PROVIDE ANYWHERE THAT ADS HAD PAID FOR THE GOODS FROM THE A SSESSEE AND WOULD BE SELLING IT TO THE PUBLIC IN TURN. THE SALES REPORT SENT BY ADS TO THE ASSESSEE, IN OUR OPINION, CAN ON LY BE TAKEN AS A REPORT OF THE SALES MADE FROM THE ASSESSEES C OUNTER IN THE PREMISES OF ADS AND IT DOES NOT ESTABLISH THAT THE ASSESSEE SOLD THE GOODS TO ADS. THERE IS FURTHER EVIDENCE IN THE AGREEMENT ITSELF TO FORTIFY THIS CONCLUSION. THE LEARNED SEN IOR DR HAS APTLY POINTED OUT TO CLAUSE 9(C) OF THE AGREEMENT WHICH P ROVIDES THAT THE ASSESSEE SHALL AT ITS OWN COST AND EXPENSES PUR CHASE THE GOODS AND STORE THE SAME AT ITS OWN RISK AND WILL N OT HOLD ADS RESPONSIBLE FOR ANY DAMAGE OR LOSS DUE TO THEFT, FI RE, BURGLARY, EARTHQUAKE, RIOTS, CIVIL COMMOTION ETC. OR OTHERWIS E. IN ADDITION TO THIS SUB-CLAUSE, THERE ARE OTHER SUB-CLAUSES IN CLAUSE 9 WHICH SUPPORT THE CONTENTION OF THE LEARNED SENIOR DR. SUB- CLAUSE (D) PROVIDES THAT THE ASSESSEE SHALL STOCK A ND SELL THE GOODS MANUFACTURED BY REPUTED CONCERNS OF A STANDAR D ACCEPTABLE TO ADS AND SHALL ALSO SELL THE MERCHANDI SE AT COMPETITIVE PRICES, WHICH SHALL BE SUBJECTED TO CHE CK BY THE OFFICERS OF THE ADS. THIS SUB-CLAUSE IS INCONSISTEN T WITH THE CLAIM OF THE ASSESSEE THAT IT HAD SOLD THE GOODS TO ADS. SUB- CLAUSE (F) PROVIDES THAT THE ASSESSEE SHALL PROMPTL Y ATTEND TO COMPLAINTS OF ANY CUSTOMER OF ADS IN RESPECT OF THE GOODS SOLD ITA NO.180/M/08 13 BY THE ASSESSEE AND SHALL EITHER REPLACE THE MERCHA NDISE AS DESIRED BY THE ADS OR SHALL REFUND FULL OR PART OF THE MONIES PAID BY THE CUSTOMER. THIS SUB-CLAUSE IS ALSO INCON SISTENT WITH THE THEORY THAT THE GOODS HAD BEEN SOLD TO ADS. THI S SUB-CLAUSE IS CONSISTENT ONLY WITH THE POSITION THAT IT WAS TH E ASSESSEE WHO SOLD THE GOODS TO THE CUSTOMER IN THE PREMISES OF A DS. ONE MORE IMPORTANT CLAUSE REFERRED TO BY THE LEARNED CI T DR IS CLAUSE 19. THIS CLAUSE PROVIDES FOR ONE OF THE CONS EQUENCES IN THE EVENT OF TERMINATION OF THE AGREEMENT. IT SAYS THAT IF ON TERMINATION THE ASSESSEE DOES NOT REMOVE THE STOCK AND MATERIALS FROM THE PREMISES OF ADS AS UNDERTAKEN IN THE AGREEMENT, ADS IS ENTITLED TO REMOVE THE STOCK AND MATERIALS BELONGING TO THE ASSESSEE FROM THE PREMISES AND THE ASSESSEE SHALL NOT HOLD ADS RESPONSIBLE FOR ANY DAMAGE OR LO SS. THE ADS SHALL ALSO HAVE THE RIGHT TO DISPOSE IT OFF OR AT T HEIR OPTION CHARGE FOR WAREHOUSING SUCH STOCKS AND MATERIALS. T HE ADS IS ALSO AUTHORISED TO BREAK OPEN THE LOCK TO REMOVE TH E GOODS. THE LEARNED SENIOR DR IS RIGHT IN RELYING ON THIS CLAUS E TO CONTEND THAT THE TITLE TO THE GOODS NEVER PASSED TO ADS WHI CH WOULD HAVE BEEN THE CASE IF THE CONTENTION OF THE ASSESSE E THAT IT IS A SALE TO ADS IS CORRECT. THIS CLAUSE READ WITH CLAUS E 9(C) NEGATIVES THE ASSESSEES CONTENTION THAT IT SOLD TH E GOODS TO ADS AND WHAT WAS PAID WAS ONLY A DISCOUNT. IF THERE IS NO SALES, THERE CAN BE NO DISCOUNT ON SALES. FOR THE SERVICES RENDERED BY ADS TO THE ASSESSEE, COMPENSATION WAS PAID IN THE F ORM OF A ITA NO.180/M/08 14 COMMISSION @ 20% IN RESPECT OF THE CASH SALES AND 2 2% IN RESPECT OF THE CREDIT CARD SALES. 13. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THE INCOME TAX AUTHORITIES WERE RIGHT IN HOLDING THAT THE AMOU NT OF RS.8,04,944/- PAID TO ADS REPRESENTED COMMISSION WI THIN THE MEANING OF SECTION 194H OF THE ACT AND SINCE NO TAX WAS DEDUCTED THEREFROM AS REQUIRED BY THE SECTION, THE PAYMENT OF COMMISSION CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF SECTION 40(A)(IA). 14. NO OTHER POINT WAS ARGUED BEFORE US. IN THE RES ULT, THE ASSESSEES APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- (J.SUDHAKAR REDDY ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 30 TH JULY, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CITY-XXII,MUMBAI. 4. THE CIT(A)-XXII, MUMBAI 5. THE DR B BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI