ITO, New Delhi V. M/s. The Exchange Agencies, Delhi

ITA 5190/DEL/2010

• Counselvise Citation: 519020114 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: LALITHA KRISHNAMURTHY

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `H NEW DELHI BEFORE SHRI A.D. JAIN AND SHRI T.S. KAPOOR ITA NOS. 760 (DEL)2012 & 5190(DEL)2010 ASSESSMENT YEARS: 2008-09 & 2007-08 THE INCOME TAX OFFICER, M/S. THE E XCHANGE AGENCIES, WARD 20(2), NEW DELHI. V. 13, ALIPUR R OAD, CIVIL LINES, DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SURENDER PAL, SR. DR RESPONDENT BY: MS. LALIT HA KRISHNAMURTHY, CA ORDER PER A.D. JAIN, J.M. ITA NO. 760 (DEL)2012: THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2008-09 CONTENDING THAT THE LEARNED CIT(A) HAS ERRED IN DEL ETING THE ADDITION OF ` 39,87,964/- MADE BY THE AO U/S 40(A)(IA) OF THE I.T . ACT DUE TO NON- DEDUCTION OF TDS U/S 194-H OF THE I.T. ACT FROM THE TRADE DISCOUNT-CUM- COMMISSION PAID TO THE DEALERS BY THE ASSESSEE. 2. THE ASSESSEE IS A FIRM DERIVING INCOME FROM DIST RIBUTION OF BREAD MANUFACTURED BY BRITANNIA INDUSTRIES LTD. DURING THE YEAR, IT CLAIMED BREAD DEALER DISCOUNT OF ` 40,19,868/-, GIVEN TO VARIOUS DEALERS, INCLUDING AN ITA 760(DEL)2012 2 AMOUNT OF ` 19,67,646/- REIMBURSED FROM BRITANNIA INDUSTRIES LT D. THE AO TREATED THE SAID DISCOUNT AS COMMISSION TO DEALERS AND DISALLOWED SUCH PAYMENTS U/S 40(A)(IA) OF THE I.T. ACT SINCE NO TDS HAD BEEN MADE ON THE INCENTIVE/DISCOUNT PAID TO THE DEALERS. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AMOUNTING TO ` 39,87,964/-. AGGRIEVED THEREBY, THE DEPARTMENT IS IN APPEAL. 4. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED BEFORE US THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION CORRECTLY MADE BY THE AO, IGNORING THE FACT THAT NO TDS HAD BEEN MADE BY THE ASSESSEE U/S 194-H OF THE ACT FROM THE TRADE DISCOUNT-CUM-COMMISSION P AID TO THE DEALERS; THAT THE LD. CIT(A) WRONGLY OVER-LOOKED THE FACT THAT TH E ONUS OF SUBSTANTIATING THE CLAIM OF DEDUCTION WAS ON THE ASSESSEE AND THE ASSESSEE WAS NOT ABLE TO DISCHARGE THIS ONUS; THAT IT HAS NOT BEEN CONSIDERE D THAT THE ASSESSEE HAD SHOWN PAYMENTS MADE IN CASH BUT HAD NOT FILED ANY E VIDENCE TO SUPPORT THE CLAIM; AND THAT AS SUCH, THE ORDER OF THE LD. CIT(A ) BE CANCELLED AND THAT PASSED BY THE AO BE REVIVED BY ALLOWING THE APPEAL FILED BY THE DEPARTMENT. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, HAS STRONGLY SUPPORTED THE IMPUGNED ORDER, CONTENDING THAT THE A O HAD WRONGLY MADE ITA 760(DEL)2012 3 THE ADDITION ON A MIS-PLACED ASSUMPTION THAT THE TR ADE DISCOUNT ALLOWED BY THE ASSESSEE ON BREAD SALE TO DEALERS WAS COMMISSIO N, LIABLE TO TAX U/S 194-H OF THE ACT; THAT THE AMOUNT DEBITED THERE, IN FACT, WAS THE TRADE DISCOUNT ALLOWED ON BREAD SALES OF THE ASSESSEE FIRM TO ITS DEALERS AND NOT COMMISSION; THAT THEREFORE, THE ASSESSEE WAS NOT LI ABLE TO DEDUCT TAX AT SOURCE ON THE SALES; THAT THE DISCOUNT IS ALLOWED A S PER THE COMPANY POLICY ISSUED FROM TIME TO TIME; THAT SINCE THE TRADE DISC OUNT ALLOWED IS TO BE FOR EACH VARIETY OF BREAD FOR THE PURPOSE OF CALCULATIN G THE TRADE DISCOUNT ON THE DAILY SUPPLY MADE TO THE DEALERS, THE ASSESSEE MAIN TAINS A MONTHLY DEALER- WISE CARD, CONTENDING DETAILS OF THE NUMBER OF BREA DS SUPPLIED TO THE DEALERS; THAT THE DEALERS SIGNED THE CARD ON A DAIL Y BASIS; THAT SINCE THE RATE OF TRADE DISCOUNT VARIES FROM TIME TO TIME, THE DISCOU NT ALLOWED AT THE END OF THE MONTH IS CALCULATED AND ADJUSTED AT THE TIME OF SETTLEMENT OF DEALERS ACCOUNT AGAINST THE SIGNATURE OF THE DEALER ON THE CARD; THAT THE DEALERS ARE NOT THE AGENTS OF THE ASSESSEE AND THEY ACT INDEPEN DENTLY; THAT IT IS ONLY THAT THE DEALERS PURCHASE BREAD FROM THE ASSESSEE; THAT THE DISCOUNT IS ALLOWED TO THE DEALERS ONLY ON THE PURCHASES MADE BY THEM AND NOT ON ACCOUNT OF ANY SERVICES RENDERED BY THEM; THAT NO PRINCIPAL AGEN T RELATIONSHIP EXISTS BETWEEN THE ASSESSEE AND THE DEALERS AND SO, THE PR OVISIONS OF SECTION 194-H OF THE ACT ARE NOT AT ALL ATTRACTED, THE PAYMENT NO T BEING A COMMISSION OR ITA 760(DEL)2012 4 BROKERAGE PAYMENT; THAT SINCE IT IS ONLY A DISCOUNT WHICH IS BEING ALLOWED BY THE ASSESSEE TO THE DEALERS ON PURCHASES, ON A PRIN CIPAL TO PRINCIPAL BASIS, THERE IS NO REQUIREMENT TO MAKE TDS; THAT THE LD. C IT(A) HAS DULY TAKEN INTO ACCOUNT THE SAID FACTUAL MATRIX OF THE CASE AND HAS CORRECTLY APPRECIATED THE LEGAL POSITION WHILE RIGHTLY DELETING THE ADDITION WRONGLY MADE; AND THAT THEREFORE, THERE BEING NO FORCE THEREIN, THE APPEAL FILED BY THE DEPARTMENT BE DISMISSED. 6. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE QUESTION IS AS TO WHETHER THE LD. CIT(A) HAS CO RRECTLY DELETED THE ADDITION MADE BY THE AO U/S 40(A)(IA) OF THE ACT. SECTION 40 (A)(IA) OF THE ACT PROHIBITS DEDUCTION IN COMPUTING INCOME CHARGEA BLE AS PROFITS AND GAINS OF BUSINESS OR PROFESSION, INTER ALIA, ANY COMMISSI ON OR BROKERAGE, PAYABLE TO A RESIDENT OR THE AMOUNTS PAYABLE TO A CONTRACTO R OR SUB-CONTRACTOR , BEING RESIDENT, FOR CARRYING OUT ANY WORK, ON WHICH, THE TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B OF THE ACT AND SUCH TAX HAS N OT BEEN DEDUCTED. 7. SECTION 194-H OF THE ACT PROVIDES TO THE EFFECT THAT ANY FIRM RESPONSIBLE FOR PAYING COMMISSION OR BROKERAGE TO A RESIDENT SHALL DEDUCT INCOME TAX THEREON. EXPLANATION (IA) TO SECTION 1 94-H DEFINES COMMISSION OR BROKERAGE AS FOLLOWS:- SECTION 194-H ITA 760(DEL)2012 5 EXPLANATION:- FOR THE PURPOSES OF THIS SECTION - - (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED(NOT BEING PRO FESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SEL LING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. 8. THE AFORE-QUOTED EXPLANATION (I) OF SECTION 194 H OF THE ACT MAKES IT AMPLY CLEAR THAT EXISTENCE OF A PRINCIPAL AGENT R ELATIONSHIP IS THE SINE-QUA- NON TO DEEM A PAYMENT TO BE COMMISSION OR BROKERAGE PAYMENT. IN THE PRESENT CASE, THERE IS NO SUSTENANCE OF A CONTRACT OF AGENCY BETWEEN THE ASSESSEE AND THE DEALERS, THE ASSESSEE AND THE DIST RIBUTION AGENT ON A PRINCIPAL TO PRINCIPAL BASIS. THE ASSESSEE FIRM I S A DISTRIBUTOR FOR BRITANNIA. THE DEALERS PURCHASE BREAD FROM THE DISTRIBUTOR, I. E., THE ASSESSEE. IN FACT, THE TRADE DISCOUNT ALLOWED IS THE BREAD DISTRIBUTIO N COST. IT IS THE DISCOUNT ALLOWED BY BRITANNIA AND ON SALE TO ITS DISTRIBUTOR THIS, IN TURN, PASSED ON BY THE ASSESSEE TO THE DEALERS. THE DISCOUNT ALLOWED IS VERIFIABLE FROM THE MONTHLY CARD ISSUED TO THE DEALERS. THE ASSESSEE H AD FILED A COPY OF THE TRADE DISCOUNT ALLOWED BEFORE THE AO. THIS CONTAI NED THE NAMES AND ADDRESSES OF THE PARTIES TO WHOM THE DISCOUNT HAD B EEN ALLOWED AND THE COPY OF THE MONTHLY CARD ISSUED TO THE DEALERS. CONFI RMATION AND MONTHWISE DETAILS OF THE DISCOUNT ALLOWED TO MAJOR BREAD DEAL ERS AND CONFIRMATION FROM BRITANNIA INDUSTRIES LTD. WERE ALSO FURNISHED BEFOR E THE AO. THE AO, ITA 760(DEL)2012 6 HOWEVER, ERRONEOUSLY DID NOT CONSIDER THIS DOCUMENT ARY EVIDENCE. THE LD. CIT(A), HOWEVER, CORRECTLY TOOK THIS EVIDENCE INTO CONSIDERATION. 9. THE PAYMENT NOT BEING COMMISSION OR BROKERAGE, W ITHIN THE MEANING OF EXPLANATION (IA) TO SECTION 194-H OF THE ACT, TH E PROVISIONS OF SECTION 40(A)(IA) ARE NOT AT ALL ATTRACTED. THE ASSESSEE WAS NOT LIABLE TO MAKE TDS ON THE DISCOUNT GIVEN AND THE LD. CIT(A) HAS CORREC TLY TAKEN THIS POSITION INTO ACCOUNT. THE DISALLOWANCE U/S 40(A)(IA) OF T HE ACT HAS RIGHTLY BEEN HELD TO BE UNSUSTAINABLE AND HAS RIGHTLY BEEN DELET ED. 10. IN VIEW OF THE ABOVE, FINDING NO ERROR WHATSOEV ER IN THE ORDER OF THE LD. CIT(A), WE HEREBY CONFIRM THE SAME. 11. CONSEQUENTLY, THE APPEAL OF THE DEPARTMENT IN I TA NO. 760 (DEL)2012 IS DISMISSED. ITA NO. 5190(DEL)2010: 12. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDER DATED 25.08.2010 PASSED BY THE LD. CIT(A )-XXII, NEW DELHI. 13. THE ISSUE INVOLVED HEREIN IS IDENTICAL WITH THA T IN ITA NO. 760 (DEL)2012, FOR THE ASSESSMENT YEAR 2008-09 IN THE ASSESSEES CASE. OUR OBSERVATIONS MADE WHILE DECIDING ITA NO. 760 (DEL)2 012 ARE, THEREFORE, MUTATIS MUTANDIS, SQUARELY APPLICABLE TO THE PRESEN T APPEAL ALSO. IN ITA 760(DEL)2012 7 ACCORDANCE THERE-WITH, FINDING NO MERIT IN THE GROU NDS RAISED BY THE DEPARTMENT, THE SAME ARE REJECTED. 14. CONSEQUENTLY, THE APPEAL OF THE DEPARTMENT IN I TA NO. 5190(DEL)2010 IS DISMISSED 15. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTME NT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.04.2012. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20.04.2012 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR