ITL TOURS AND TRAVELS P. LTD, MUMBAI V. ITO 1(2)(1), MUMBAI

ITA 5746/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4736 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 16-08-2010
• Assessment Year: misc
• Appeal Filed On: 28-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE SHRI S V MEHROTRA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) ITL TOURS AND TRAVELS PVT LTD. 10, NAZMI BUILDING, RAGHUNATH DADAJI ST. ( D N ROAD), FORT, MUMBAI-400001 PAN: AABC12337L APPELLANT VS INCOME TAX OFFICER WARD 1(2)(1) 5 TH FL, AAYAKAR BHAVAN, M K ROAD, CHURCHGATE, MUMBAI-400002 RESPONDENT APPELLANT BY : SHRI KIRIT SHETH RESPONDENT BY : SHRI SHRAVAN KUMAR O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 7.10.2009 OF CIT(A)-II FOR THE ASSESSME NT YEAR 2006-07. ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 2 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN THIS APPEAL: THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF ` .47,78,949 U/S 40(A)(IA) 4. THE ASSESSEE IS IN THE BUSINESS OF BOOKING DOME STIC AND INTERNATIONAL AIRLINE TICKETS. THE ASSESSEE IS A MEMBER OF IATA UNDER AN AGREEMENT. THE ASSESSEE EARNED TH E COMMISSION ON BOOKING THE TICKETS FOR THE PASSENGE R FROM VARIOUS AIRLINES. THE AIRLINES DEDUCT THE TDS ON THESE EARNINGS OF THE ASSESSEE. THE ASSESSEE HAS BEEN B OOKING TICKETS FROM DIRECT CUSTOMERS WHO PURCHASE THE TICK ETS DIRECTLY FROM THE ASSESSEE IN THEIR OWN NAME ALSO THROUGH T HE INTERMEDIARIES WHO APPROACHES THE ASSESSEE TO BOOK TICKETS IN THE NAME OF THE PASSENGERS INTENDED TO TRAVEL. TH E ISSUE IN THIS APPEAL IS REGARDING THE INCOME OF THESE INTERM EDIARIES EARNED FROM THE ASSESSEE IN THE PROCESS OF BOOKING TICKETS FOR THIRD PARTIES. THE AO DISALLOWED THE DEDUCTION CLA IMED BY THE ASSESSEE ON ACCOUNT OF DISCOUNT GIVEN TO THE INTERM EDIARIES U/S 40(A)(IA) FOR NON-DEDUCTION OF TDS. THE ASSESS EE CLAIMED TO HAVE GIVEN AN AMOUNT OF ` .1,35,52,861/- AS HANDLING CHARGES/DISCOUNT TO THE INTERMEDIARIES. THOUGH THE ASSESSEE DEDUCTED THE TDS OF ` .5,94,784/- BUT OUT OF THE TOTAL TAX DEDUCTED, THE ASSESSEE PAID ONLY AN AMOUNT OF ` .3,74,563/- TO THE ACCOUNT OF THE GOVERNMENT. ACCORDINGLY, THE AO DISALLOWED AN AMOUNT OF ` .46,78,949/- AS AN CORRESPONDING ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 3 AMOUNT ON THE ACCOUNT OF TAX DEDUCTED AND NOT DEPO SITED O F ` .2,20,221/-. 5. ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE AO. 6. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE WHILE BOOKING THE TICKETS THROUGH INTERMEDIARIES IS PASSING ON THE PART OF ITS EARNIN G IN THE FORM OF HANDLING CHARGES. HE HAS FURTHER POINTED OUT T HAT THE ASSESSEE PASSED ON PART OF ITS EARNING TO ALL TYPES OF CUSTOMERS IRRESPECTIVE OF THE FACT WHETHER THEY COM E DIRECTLY OR THROUGH SOME INTERMEDIARY. THE HANDLING CHARGES ARE IN THE NATURE OF DISCOUNT AND THE SAME VARIES ACCORDING TO THE AIRLINE TO AIRLINE AND THE SECTOR IT RELATES. IT ALSO VARI ES FROM TIME TO TIME EVEN IN RESPECT OF SOME AIRLINES AND SOME SECT OR. HE HAS FORCIBLY CONTENDED THAT THE DISCOUNT OFFERED TO THE DIRECT CUSTOMERS AND THE INTERMEDIARIES IS THE SAME AND I N THE CASE OF CANCELLATION OF THE AIR TICKETS SAME TREATMENT I S GIVEN TO ALL TYPES OF CUSTOMERS. THUS, THERE IS A COMMERCIAL PAR ITY IN RESPECT OF ALL TYPES OF BOOKING OF AIR TICKERS. HE HAS REFERRED THE INVOICES RAISED BY THE ASSESSEE TO THE DIRECT C USTOMERS AS WELL AS THE INTERMEDIARIES AT PAGES 10 TO 67 OF THE PAPER BOOK. THUS, THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE HANDLING CHARGES ARE IN THE NATURE OF D ISCOUNT AND NOT IN THE NATURE OF ANY COMMISSION PAID O R CREDIT ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 4 GIVEN BY THE ASSESSEE TO THE INTERMEDIARIES THEN N O TDS IS REQUIRED TO BE DEDUCTED UNDER SECTION 194-H. HE HA S SUBMITTED THAT IT IS ONLY SALE OF TICKETS AND NOT C ONTRACT OF AGENCY BETWEEN THE ASSESSEE AND THE INTERMEDIARIES. HE HAS POINTED OUT THAT THE ASSESSEE IS DEBITING THE ACCOU NT OF THE INTERMEDIARIES WITH THE NET AMOUNT AS PER THE INVOI CES RAISED AND NO CREDIT IS GIVEN ON ACCOUNT OF ANY COMMISSION OR BROKERAGE. THEREFORE, WHEN THE ASSESSEE IS NOT PA YING ANY BROKERAGE OR COMMISSION THEN NO TDS IS REQUIRED TO BE DEDUCTED UNDER SECTION 194-H. HE HAS FURTHER CONTE NDED THAT MERELY BECAUSE THE ASSESSEE DEDUCTED THE TDS DOES N OT CHANGE THE NATURE OF TRANSACTION AND THE CONTRACT B ETWEEN THE ASSESSEE AND THE INTERMEDIARIES. 7. ON THE OTHER HAND, THE DR HAS SUBMITTED THAT TH E ASSESSEE IS PASSING THE COMMISSION INCOME TO THE INTERMEDIARIES AND CALLING THE SAME AS DISCOUNT BUT THE NATURE OF THE CHARGES PAID TO THE INTERMEDIARIES IS OF CO MMISSION. THEREFORE, THESE CHARGES ARE NOT ACTUAL DISCOUNT BE CAUSE THE DISCOUNT IS GIVEN TO THE CUSTOMERS AND NOT TO THE INTERMEDIARIES. IT IS NOTHING BUT COMMISSION GIVEN TO THE INTERMEDIARIES THOUGH THERE IS NO WRITTEN AGREEMENT BETWEEN THE PARTIES WHICH IS OTHERWISE NOT ESSENTIAL FOR EA RNING COMMISSION HE HAS RELIED UPON THE ORDERS OF THE AU THORITIES BELOW. ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 5 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. THE AO HAS CONSIDERED THIS ISSUE IN PARAG RAPHS 3.2 OF HIS ORDER AS UNDER : 3.2 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS. HOWEVER, THE FACT REMAINS THAT THE INTERMEDIARIES ARE BRINGING BUSINESS TO THE ASSESSE E AND IN RETURN THE ASSESSEE IS PASSING OUT SOME HANDLING CHARGES TO THEM. THE ASSESSEE HAS PREFERRED TO CALL THESE CHARES AS DISCOUNT. HOWEVER , WHATEVER MAY BE THE NOMENCLATURE THESE CHARGES ARE PAID TO INTERMEDIARIES FOR BRINGING BUSINESS AN D IS THUS IN NATURE OF COMMISSION. THESE CHARGES ARE NOT ACTUALLY DISCOUNT BECAUSE DISCOUNT IS GIVEN T O CUSTOMERS, WHEREAS THE INTERMEDIARIES ARE NOT THE CUSTOMERS OF THE ASSESSEE BUT LINKED WITH CUSTOMER. THUS, THE PAYMENT TO INTERMEDIARIES IS NOTHING BUT COMMISSION EVEN THOUGH ASSESSEE MAY HAVE NOT SIGNED ANY AGREEMENT. IN ANY CASE IT IS NOT ESSENTIAL FOR COMMISSION AGENT TO SIGN ANY AGREEMENT. CONDUCT OF THE ASSESSEE IN DEDUCTING TAX AT SOURCE ALSO INDICATES THAT THE ASSESSEE ITS ELF CONSIDERS THE PAYMENT TO BE IN NATURE OF COMMISSION 9. FROM THE ABOVE FINDINGS OF THE AO IT IS CLEAR TH AT THE INTERMEDIARIES ARE BOOKING THE TICKETS FROM THE AS SESSEE. THEREFORE, THE INTERMEDIARIES ARE NOT WORKING AS AG ENT OF THE ASSESSEE FOR DOING ASSESSEES BUSINESS RATHER THE INTERMEDIARIES ARE BRINGING THE BUSINESS TO THE ASS ESSEE AS RECORDED BY THE AO AND THE ASSESSEE IS PASSING OUT SOME HANDLING CHARGES. THUS, THE ASSESSEE, IN FACT, GIVI NG SOME DISCOUNT TO THE INTERMEDIARIES FOR GETTING BUSINESS . IT IS NOT A TRANSACTION BETWEEN THE PRINCIPAL AND THE AGENT BU T IT IS A TRANSACTION BETWEEN THE PRINCIPAL AND PRINCIPAL. IN ORDER TO BRING THE SERVICES OR TRANSACTION WITHIN THE EXPRES SION ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 6 COMMISSION AND BROKERAGE UNDER SECTION 194-H, THE E LEMENT OF AGENCY MUST BE PRESENT. WHEN THERE IS NO CONTRAC T OF AGENCY AT ANY POINT OF TIME BETWEEN THE ASSESSEE AN D THE INTERMEDIARIES AND THE DISCOUNT MADE AVAILABLE TO T HE INTERMEDIARIES DOES NOT FALL WITHIN THE TERM COMMIS SION OR BROKERAGE, THEN , SUCH DISCOUNT ALLOWED BY THE ASS ESSEE IS NOT LIABLE FOR DEDUCTION UNDER SECTION 194-H. THO UGH THE ASSESSEE HAS DEDUCTED THE TDS, BUT MERE DEDUCTION OF TDS DOES NOT ALTER THE NATURE OF TRANSACTION AND RELAT ION BETWEEN THE ASSESSEE AND THE INTERMEDIARIES WHICH IS OTHERW ISE APPARENT AND NOT DISPUTED. IN THE CASE OF AHMEDAB AD STAMP VENDORS ASSOCIATION V/S UNION OF INDIA REPORTED IN 257 ITR 202 (GUJ), THE HON.GUJARAT HIGH COURT AT PAGE 215 O F THE REPORT HAS HELD AS UNDER : APPLYING THE AFORESAID DEFINITIONS AND THE JUDICI AL PRONOUNCEMENTS TO THE FACT OF THE PRESENT CASE AND IN BACKDROP OF THE AFORESAID RULES, IT IS CLEAR TH AT ALTHOUGH THE GOVERNMENT HAS IMPOSED A NUMBER OF RESTRICTIONS ON THE LICENSED STAMP VENDORS REGARDIN G THE MANNER OF CARRYING ON THE BUSINESS, THE STAMP VENDORS ARE REQUIRE TO PURCHASE THE STAMP PAPERS ON PAYMENT OF PRICELESS THE DISCOUNT ON THE PRINCIPAL TO PRINCIPAL BASIS AND THERE IS NO CONTRA CT OF AGENCY AT ANY POINT OF TIME. IT IS ALSO NOT POSSIBLE TO ACCEPT THE CONTENTION OF MR. NAIK FOR THE REVENUE THAT THE DEFINITION OF COMMISSION OR BROKERAGE AS CONTAINED IN THE EXPLANATION TO SECTION 194H IS SO WIDE THAT IT WOU LD INCLUDE ANY PAYMENT RECEIVABLE, DIRECTLY OR INDIRECTLY, FOR SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS AND THAT, THEREFORE, THE DISCOUNT AVAILED OF BY THE STAMP VENDORS CONSTITUTES COMMISSION OR BROKERAGE WITHIN THE MEANING OF ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 7 SECTION 194H. IF THIS CONTENTION WERE TO BE ACCEPTED, ALL TRANSACTIONS OF SALE FROM A MANUFACTURER TO A WHOLESALER OR FROM A WHOLESALER T O A SEMI WHOLESALER OR FROM A SEMI-WHOLESALER TO A RETAILER WOULD BE COVERED BY SECTION 194H. TO FALL WITHIN THE AFORESAID EXPLANATION, THE PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, I S BY A PERSON ACTING ON BEHALF OF ANOTHER PERSONS (I) FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) , OR(II) FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS, OR (III) IN RELATION TO ANY TRANS ACTION RELATING TO ANY ASSETS, VALUABLE ARTICLE OR THING. THE ELEMENT OF AGENCY IS TO BE THERE IN CASE OF ALL SERVICES OR TRANSACTIONS CONTEMPLATED BY EXPLANATION (I) TO SECTION 194H. IF A CAR DEALER PURCHASE CARS FROM THE MANUFACTURER BY PAYING PRICES LESS DISCOUNT, HE WOULD BE THE PURCHASER AN D NOT THE AGENT OF THE COMPANY, BUT IN THE COURSE OF SELLING CARS, HE MAY ENTER INTO A CONTRACT OF MAINTENANCE DURING THE WARRANTY PERIOD, WITH THE CUSTOMERS (PURCHASER OF THE CAR) ON BEHALF OF THE COMPANY. HOWEVER, SUCH SERVICES RENDERED BY THE DEALER IN THE COURSE OF SELLING CARS DOES NOT MAKE THE ACTIVITY OF SELLING CARS ITSELF AN ACT OF AGENT OF THE MANUFACTURER WHEN THE DEALINGS BETWEEN THE COMPANY AND THE DEALER IN THE MATTER OF SALE OF CARS ARE ON PRINCIPAL TO PRINCIPAL BASIS. THIS IS JUST AN ILLUSTRATION TO CLARIFY THAT A SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS HAS TO BE SOMETHING MORE THAN THE ACT OF BUYING OR SELLING OF GOODS. WHEN THE LICENSED STAMP VENDORS TAKE DELIVERY OF STAMP PAPERS ON PAYMENT OF FULL PRICES LESS DISCOUNT AND THEY SELL SUCH STAMP PAPERS TO RETAIL CUSTOMERS, NEITHER OF THE TWO ACTIVITIES OF BUYING FROM THE GOVERNMENT AND SELLING TO THE CUSTOMERS) CAN BE TERMED AS THE SERVICE IN THE COURSE OF BUYING OR SELLING OF GOODS 10. EVEN OTHERWISE AS PER THE EXPLANATION TO SECTIO N 194H THE COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RE CEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY FOR ACTING ON BEHALF OF THE ANOTHER PERSON FOR SERVICES RENDERED. WHEN THE INTE RMEDIARIES ARE NOT ACTING ON BEHALF OF THE ASSESSEE BUT ONLY ACTING TO ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 8 BOOK THE TICKERS FROM THE ASSESSEE ON BEHALF OF THE PASSENGERS THEN THE TRANSACTIONS BETWEEN THE ASSESS EE AND INTERMEDIARIES ARE NOT AS PRINCIPAL TO AGENT TRAN SACTIONS. MOREOVER WHEN THE DISCOUNT ALLOWED/GIVEN BY THE ASS ESSEE TO THE INTERMEDIARIES IS ALSO ALLOWED TO THE PASSENGER DIRECTLY TO BOOK THE TICKETS TO THE ASSESSEE AND THE ASSESSEE I S RECORDING THE TRANSACTION IN ITS BOOKS OF ACCOUNT ON NET AMOU NT OF THE INVOICE THEN IT IS NOT A CASE OF COMMISSION OR BRO KERAGE PAID OR PAYABLE BY THE ASSESSEE TO THE INTERMEDIARIES. ACCORDINGLY, THE PROVISIONS OF SECTION 194H ARE NOT APPLICABLE TO THE TRANSACTION IN THE PRESENT CASE. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE DISALLOWANCE MADE BY HE AO U/S 40(A)(IA) IS DELETED . 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON 9.9.2010 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 9 TH SEPT 2010 SRL:7910 ITA NO. 5746/MUM/2009 (ASSESSMENT YEAR 2006-07) 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI