The ITO, Ward-6(3), Visakhapatnam, Visakhapatnam V. M/s Sri Vijaya Visakha Milk Producers CO. Ltd., Visakhapatnam

ITA 59/VIZ/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76541 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Assessee Lawyers: S RAMA RAO
• Keywords: Question of law
• Section: 143(3); 133A; 201(1); 12

Judgement Text

ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS.59 TO 61/VIZAG/2012 ASSESSMENT YEARS : 2008-09 TO 2010-11 RESPECTIVELY ITO WARD-6(3) VISAKHAPATNAM VS. M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.VPNSO4503C ITA NOS.71/VIZAG/2012 ASSESSMENT YEARS : 2008-09 DCIT CIRCLE-4(1) VISAKHAPATNAM VS. M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.VPNSO4503C ASSESSEE BY: SHRI S. RAMA RAO, ADVOCATE REVENUE BY: SHRI T.L. PETER, CIT(DR) DATE OF HEARING : 03.03.2014 DATE OF PRONOUNCEMENT : 07.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THESE ARE FOUR APPEALS BY DEPARTMENT AGAINST TWO S EPARATE ORDERS OF THE CIT(A), VISAKHAPATNAM. SINCE THE APPEALS BELON G TO THE SAME ASSESSEE AND ISSUES ARE COMMON, THE APPEALS ARE CLUBBED TOGE THER AND DISPOSED OF IN THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. W E WILL FIRST TAKE UP ITA NO.59 TO 61/VIZAG/2012. THE ONLY EFFECTIVE COMMON GROUND IN ALL THESE APPEALS IS AS UNDER: THE LD. CIT(A) IS NOT JUSTIFIED IN OBSERVING THAT T HE RELATION BETWEEN THE RETAILER/DISTRIBUTOR AND THE ASSESSEE IS THAT O F PRINCIPAL TO PRINCIPAL AND THERE EXISTS ONLY A CONTRACT OF SALE AND NOT CONTRA CT OF AGENCY. ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 2 2. BRIEFLY THE FACTS EMANATING FROM THE ASSESSMENT ORDER ARE, THE ASSESSEE A COMPANY IS IN BUSINESS OF SELLING OF MIL K AND MILK PRODUCTS. THE ASSESSEE WAS A ERSTWHILE COOPERATIVE DAIRY CONSISTI NG NUMEROUS COOPERATIVE MILK SOCIETIES AND SUBSEQUENTLY CONVERTED INTO A LI MITED COMPANY UNDER PART IX A SECTION 581ZA OF THE COMPANIES ACT, 1956 IN THE FINANCIAL YEAR 2005-06. ALL THE ERSTWHILE COOPERATIVE MILK SOCIETIES HAVE B ECOME SHAREHOLDERS OF THE ASSESSEE COMPANY. THE MODUS OPERANDI OF THE ASSESS EE IS THE COOPERATIVE MILK SOCIETIES COLLECT MILK FROM VARIOUS RYOTS AND THE SAME IS PROCESSED BY THE ASSESSEE. THE OBJECTIVE OF THE ASSESSEE IS PRO CUREMENT OF MILK AND MILK PRODUCTS FROM VARIOUS COOPERATIVE MILK SOCIETIES AN D SUPPLYING THE SAME TO BOOTH AGENTS SPREAD ACROSS THE DISTRICTS OF SRIKAKU LAM, VIZIANAGARAM, VISAKHAPATNAM, EAST GODAVARI & WEST GODAVARI. ASSE SSEE SELLS MILK AND MILK PRODUCTS THROUGH APPOINTED DISTRIBUTORS AND ALSO TH ROUGH RETAIL VENDORS. IN RESPECT OF MILK WHICH IS PERISHABLE COMMODITY BOOTH AGENTS ARE APPOINTED AT VARIOUS PLACES. FOR THE PURPOSE OF DISTRIBUTION OF MILK VARIOUS ZONES ARE CREATED WHICH IN TURN ARE SUB DIVIDED INTO ROUTES W HICH CONSIST OF SEVERAL BOOTHS MANAGED BY BOOTH AGENTS. MARKETING DIVISION RECEIVES INDENTS FROM THESE BOOTH AGENTS ON A DAILY BASIS OVER PHONES OR THROUGH CASH COLLECTION AGENTS. THESE INDENTS ARE CONSOLIDATED AND FED INT O THE SYSTEM WHICH GENERATES ROUTE WISE CONSOLIDATED STATEMENT WHICH A RE PASSED ON TO THE DISPATCH SECTION. THE DISPATCH MEMOS CONSIST OF RE TAIL POINTWISE DELIVERY DETAILS OF DIFFERENT VARIETIES OF MILK. MILK VANS GET LOADED WITH MILK AS PER THE DISPATCH MEMOS AND THE SAME IS DELIVERED TO THE VEN DOR AT VARIOUS RETAIL POINTS. ON THE WAY BACK THE VEHICLES COLLECTED CAS H FROM THESE VENDORS/BOOTH AGENTS AND THE SAME IS DEPOSITED IN T HE ACCOUNTS SECTION. THE ACCOUNTS SECTION PREPARES VENDORWISE CASH COLLE CTION DETAILS. BOOTH AGENTS COLLECT SALE PROCEEDS AS PER MAXIMUM RETAIL PRICE (MRP) AND THE SAME IS GIVEN TO CASH COLLECTION AGENTS WHEN THE VAN RET URNS. THUS THE COMPANY RECEIVES SALE PROCEEDS AS PER MRP ON DAILY BASIS WH ICH GOES ON FOR A PERIOD OF 15 DAYS. ON THE 16 TH DAY THE COMMISSION PAYABLE TO THE BOOTH AGENTS FOR THE PERIOD OF PREVIOUS 15 DAYS IS CALCULATED AT PRE SCRIBED RATES. THIS AMOUNT IS RETAINED BY THE RESPECTIVE BOOTH AGENTS FROM THE NEXT DAYS SALE PROCEEDS. THUS, THE AGENT/VENDOR GETS HIS COMMISSION AFTER OV ER 15 DAYS AND THE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 3 ASSESSEE CREDITS ONLY THE NET AMOUNT AS SALES. AS NOTED BY THE ASSESSING OFFICER, A SURVEY U/S 133A OF THE INCOME-TAX ACT WA S CONDUCTED IN CASE OF THE ASSESSEE TO VERIFY COMPLIANCE TO THE TDS PROVISIONS ON 4.8.2009. DURING THE COURSE OF SURVEY, THE ASPECT OF COMMISSION PAYMENT TO THE RETAIL VENDORS/BOOTH AGENTS AS WELL AS TAX DEDUCTION ON TH E SAID COMMISSION WERE EXAMINED. STATEMENTS OF SRI S.B. RAMANA, GENERAL M ANAGER (F&A) AND SRI RANGA RAO, SENIOR MANAGER (MARKETING) WERE RECORDED . THE STATEMENT RECORDED FROM THESE TWO OFFICIALS HAVE BEEN EXTRACT ED IN EXTENSO IN THE ORDER PASSED BY THE ASSESSING OFFICER U/S 201/201(1A) OF THE ACT. THE ASSESSING OFFICER ON EXAMINING THE STATEMENT OF SRI N. RANGA RAO NOTED THAT THE ASSESSEE TAKES AN APPLICATION FROM THE PERSONS WHO ARE INTERESTED IN GETTING APPOINTED AS VENDOR/AGENTS. ON ANALYZING THE APPLI CATION FORM, THE ASSESSING OFFICER NOTED THAT THE APPLICANT HAS TO A BIDE BY THE FOLLOWING CONDITIONS: 1. THE ALLOCATED RETAIL POINT SHOULD BE HELD FOR A PER IOD OF ONE YEAR OTHERWISE DEPOSIT WILL BE FORFEITED. 2. DAILY MILK SALES AMOUNT AND EMPTY CREATES SHOULD BE HANDED OVER TO THE ROUTE VEHICLE OTHERWISE RETAIL POINT WILL BE CA NCELLED AND DEPOSIT WILL BE FORFEITED. 3. THE SALES AT THE RETAIL POINT SHOULD NOT BE STOPPED WITHOUT INTIMATING TO THE COMPANY BEFORE 30 DAYS. 4. RETAIL POINT WILL BE CANCELLED IF IT IS FOUND OTHER BRAND MILK PACKETS ARE SOLD IN THAT RETAIL POINTS. FURTHER DEPOSIT AMOUNT WILL BE FORFEITED. 3. ON THE BASIS OF THE AFORESAID TERMS AND CONDITIO NS IMPOSED ON BOOTH AGENTS/VENDORS ON ANALYSIS OF THE DEPOSITION MADE B Y THE MARKETING MANAGER, SRI N. RANGA RAO THE ASSESSING OFFICER INF ERRED THAT THE RELATION BETWEEN THE ASSESSEE AND THE RETAIL VENDORS IS THAT OF PRINCIPAL AND AGENT. THE ASSESSING OFFICER REFERRING TO THE DEFINITION O F PRINCIPAL AND AGENT UNDER THE INDIAN CONTRACT ACT, 1872 HELD THAT A CONTRACT FOR AGENCY EXISTS IN CASE OF THE ASSESSEE AND THE ESSENCE OF SUCH CONTRACT IS AP POINTMENT OF AGENCY TO SELL. THE ASSESSING OFFICER ALSO HELD THAT THE AGEN T IN THIS CASE IS SELLING THE PROPERTY ON BEHALF OF THE PRINCIPAL AND THE PRINCIP AL CONTINUES TO BE THE OWNER OF THE GOODS TILL THEY ARE ULTIMATELY DELIVER ED TO THE CONSUMER. HE FURTHER WAS OF THE VIEW THAT THE ASSESSEE IMPOSED V ARIOUS RESTRICTIONS ON THE AGENTS LIKE NOT SELLING OF OTHER BRANDS OF MILK, HA NDING OVER OF ENTIRE SALE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 4 AMOUNT ON A DAILY BASIS, ETC. THE ASSESSING OFFICER THEREFORE PRIMA FACIE WAS OF THE VIEW THAT THE AMOUNT PAID TO THE VENDOR ON A FORTNIGHTLY BASIS ARE IN THE NATURE OF SALES COMMISSION AND ACCORDINGLY WITH IN THE PURVIEW OF SECTION 194H OF THE ACT. AS THE ASSESSEE HAS FAILED TO DED UCT TAX AT SOURCE ON PAYMENT OF SUCH COMMISSIONS, THE ASSESSING OFFICER DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY DEMANDS SHOULD NOT BE RAISED AGAI NST HIM U/S 201/201(1A) OF THE ACT. THE ASSESSEE IN ITS EXPLANATION SUBMITT ED THAT IT HAS NEVER CLAIMED ANY EXPENDITURE AS COMMISSION/DISCOUNT ON S ALE OF MILK AND MILK PRODUCTS IN ANY YEAR EXCEPT SALE MADE TO C&F AGENT. THE ASSESSEE SUBMITTED THAT THEY HAVE ONLY TAKEN INTO CONSIDERAT ION THE NET SALE PROCEEDS OF MILK AND MILK PRODUCTS INTO THE TRADING AND PROF IT & LOSS ACCOUNT. HENCE, THE TDS PROVISIONS U/S 194H OF THE ACT ARE NOT APPL ICABLE AS THERE IS NO PAYMENT OF COMMISSION. IT WAS SUBMITTED THAT IN SOM E UNITS MONEY IS COLLECTED DIRECTLY FROM THE RETAIL VENDORS OF THE U NITS AT HYDERABAD, RAJAHMUNDRY, KAKINADA, P. GANNAVARAM, TUNI, RAMAVAR AM, VIZIANAGARAM, SRIKAKULAM, JAIPUR, BHUBANESWAR WHERE THE QUANTUM O F SALES ARE LESS. WHEREAS IN THE CASE OF SOME OF THE RETAIL VENDORS I N VISAKHAPATNAM, BECAUSE OF VOLUME OF SALES, THEIR ACCOUNT IS MAINTAINED BY CREDITING TO THEIR ACCOUNT FOR THE AMOUNT PAID BY THEM BY DEBITING FOR THE MIL K SUPPLIED TO THEM AND THE ACCOUNT IS SETTLED PERIODICALLY IN EVERY 15 DAY S TO ASCERTAIN THE AMOUNT RECEIVABLE OR PAYABLE TO THE RETAIL VENDOR. HOWEVE R, THIS ARRANGEMENT IS MADE PURELY FOR THE PURPOSE OF CONVENIENCE AND THAT IS THE REASON WHY THE QUESTION OF PAYMENT BY WAY OF COMMISSION DOES NOT A RISE AS NO PAYMENT IS MADE TOWARDS COMMISSION TO ANY RETAIL VENDOR OR CLA IMED AS EXPENDITURE UNDER COMMISSION ACCOUNT FOR THE SALES MADE TO RETA IL VENDORS EXCEPT C&F AGENT IN THE BOOKS OF ACCOUNTS OF THE COMPANY. IN SUPPORT OF SUCH CONTENTION, THE ASSESSEE SUBMITTED STATEMENTS OF BO OTH AGENTS STATING THAT THEY ARE NOT PAID ANY COMMISSION AND THE DIFFE RENCE BETWEEN THE SALE AND PURCHASE PRICE WILL REMAIN AS MARGIN PAYABLE TO THEM, WHICH IS PAID FORTNIGHTLY. 4. THE ASSESSING OFFICER HOWEVER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HELD THAT IT IS NOT MATERIAL AS TO HOW THE ASSESSEE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 5 TREATED A TRANSACTION IN THE BOOKS OF ACCOUNTS. TH E TRUE NATURE OF TRANSACTION CAN ONLY BE KNOWN FROM THE ACTUAL CONDU CT OF THE PARTIES AND SUBSTANCE OF THE TRANSACTION. THEREFORE HE HELD TH AT IT IS IMMATERIAL WHETHER THE ASSESSEE CLAIMED ANY EXPENDITURE AS COMMISSION OR NOT. WHAT IS RELEVANT IS WHETHER THE AMOUNT PAID TO THE VENDORS ATTRACTS THE PROVISIONS OF SECTION 194H OR NOT. THE ASSESSING OFFICER RELYING UPON CBDT CIRCULAR NO.619 DATED 4.12.1991, WHEREIN IT IS STATED THAT EVEN RET ENTION OF COMMISSION, AMOUNTS TO CONSTRUCTIVE PAYMENT OF COMMISSION. TH E ASSESSING OFFICER HELD THAT THE ASSESSEE IS PAYING COMMISSION TO THE BOOTH AGENTS WITHOUT DEDUCTING TAX AT SOURCE AND THERE BY EVADING TAX BY NOT BRINGING THE INHERENT COMMISSION INTO THE BOOKS OF ACCOUNTS. THE ASSESSI NG OFFICER FURTHER HELD THAT NOTWITHSTANDING THE STATEMENT SUBMITTED BY THE AGENTS WHICH ARE OF ROUTINE NATURE AND ARE IN THE SAME FORMAT, THE ACTU AL TRANSACTION BETWEEN THE AGENTS AND THE COMPANY IS THAT OF SALE OF MILK ON COMMISSION BASIS WHICH FALLS WITHIN THE DEFINITION OF COMMISSION AS PER EX PLANATION (I) TO THE THIRD PROVISO TO SECTION 194H OF THE ACT. ACCORDINGLY, T HE ASSESSING OFFICER PASSED ORDER U/S 201/201(1A) RAISING DEMAND FOR THE ASSESS MENT YEARS UNDER DISPUTE AS UNDER: F.Y. DEMAND U/S 201(1) INTEREST U/S 201(1A) TOTAL 2009-10 RS.25,90,262/- RS.4,76,991/- RS.30,67,253/- 2008 - 09 RS.62,28,182/ - RS.16,41,790/ - RS.78,69,972/ - 2007-08 RS.51,08,225/- RS.19,40,141/- RS.70,48,366/- 5. BEING AGGRIEVED OF THE ORDERS PASSED AS AFORESAI D THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). IN COURSE OF HE ARING OF THE APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF PROCESSING AND SALE OF MILK PRODUCTS TO C&F AGENTS AND RETAIL VENDORS. IT WAS SUBMITTED THAT TH E ASSESSEE SELLS MILK TO THE RETAIL VENDORS AT CERTAIN PRICES BELOW THE MRP LEAVING SPECIFIC MARGIN TO THE RETAIL VENDORS. NO RESTRICTION IS IMPOSED ON T HE VENDOR TO SELL MILK AT MRP AS THEY HAVE LIBERTY TO SELL AT PRICE LESS THAN MRP AS THEY ARE OWNERS OF THE MILK ONCE THE SAME IS SOLD TO THEM BY THE ASSES SEE. IT WAS SUBMITTED THAT THESE VENDORS ARE NOT ENTITLED TO RETURN THE M ILK ONCE PURCHASED AND RECEIVED BY THEM FROM THE ASSESSEE. THE ASSESSEE C OLLECTED SECURITY DEPOSIT ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 6 FROM THESE VENDORS AS MOST OF THEM ARE STREET VENDO RS AND DO NOT HAVE PERMANENT ADDRESSES. THEY PAY THE AMOUNT DUE TO TH E ASSESSEE AND COLLECT MILK FROM TIME TO TIME. ASSESSEE ALSO DOES NOT CON SIDER OR RECORD MILK STOCK WHICH REMAINS WITH THE VENDOR AND SALE IS RECORDED AS SOON AS THE MILK PACKETS LEAVE THE FACTORY. IT WAS THEREFORE SUBMIT TED THAT THE BASIC REQUIREMENT OF PRINCIPAL AGENT RELATIONSHIP DOES NO T EXIST AS THE ASSESSEE CANNOT CONTROL OR DIRECT THE RETAIL VENDORS ONCE TH E MILK IS SOLD TO THEM. IT WAS SUBMITTED THAT TDS IS DEDUCTED FROM THE COMMISS ION PAID TO C&F AGENTS AS THE STOCK WITH C&F AGENT IS ACCOUNTED FOR AS ASS ESSEES STOCK. IT WAS SUBMITTED BY THE ASSESSEE THAT ASSESSING OFFICER IS NOT CORRECT IN STATING THAT THERE IS CONTRACT OF AGENCY BETWEEN RETAIL VENDORS AND THE ASSESSEE, WHEREAS THERE EXISTS ONLY A CONTRACT OF SALE BY WHICH THE T ITLE OF GOODS IS TRANSFERRED TO THE RETAIL VENDORS AND THEY BECOME THE OWNERS OF GOODS. HENCE, IT WAS SUBMITTED THAT THE TRANSACTION IS ON PRINCIPAL TO P RINCIPAL BASIS, THEREFORE PROVISIONS OF SECTION 194H OF THE ACT IS NOT APPLIC ABLE. IT WAS SUBMITTED BY THE ASSESSEE THAT WHILE THE ASSESSING OFFICER WAS R ELYING ON THE STATEMENT OF SRI N. RANGA RAO WHO IS THE PERSON LOOKING AFTER TH E PROCUREMENT SIDE AND AS SUCH IS NOT AWARE OF THE DISTRIBUTION LOGISTICS. I T WAS SUBMITTED THAT SRI N. RANGA RAO HAS MADE THE STATEMENT WITHOUT UNDERSTAND ING THE DIFFERENCE BETWEEN THE DISCOUNT ALLOWED AND THE COMMISSION PAI D. IT WAS SUBMITTED THAT THOUGH THE STATEMENT OF SRI S.B. RAMANA, G.M. WAS ALSO RECORDED DURING THE SURVEY, WHEREIN HE CLEARLY EXPLAINED THAT DISCO UNT ALLOWED TO THE RETAILERS IS IN THE NATURE OF MARGIN AND NOT COMMISSION THE S AME WAS TOTALLY OVER LOOKED BY THE ASSESSING OFFICER. THE CIT(A) ON THE BASIS OF SUBMISSIONS MADE CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. ON THE BASIS OF THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICE R AND THE SUBMISSIONS MADE BY THE ASSESSEE, THE CIT(A) WAS OF THE VIEW TH AT AS PER THE DEFINITION OF COMMISSION OR BROKERAGE U/S 194H OF THE ACT, THE RE ARE 3 SITUATIONS UNDER WHICH COMMISSION OR BROKERAGE ARISES, WHICH ARE: 1) THAT ANY PERSON SHOULD BE ACTING ON BEHALF OF AN OTHER PERSON AND SHOULD RECEIVE PAYMENT FOR RENDERING ANY SERVICES 2) PAYMENT SHOULD BE RECEIVED FOR ANY SERVICES IN T HE COURSE OF BUYING OR SELLING OF GOODS OR ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 7 3) IN RELATION TO TRANSACTION RELATING TO ANY ASSET . THE CIT(A) NOTED THAT IN CASE OF THE ASSESSEE THE T HIRD CONDITION DOES NOT EXIST. THEREFORE, IT IS REQUIRED TO BE SEEN WHETHE R THE OTHER TWO CONDITIONS EXIST. THE CIT(A) NOTED THAT THE FACT WHICH REQUIR ES EXAMINATION IS WHETHER THE RETAIL VENDORS ARE RENDERING ANY SERVICES ACTIN G ON BEHALF OF THE ASSESSEE OR WHETHER THEY ARE RENDERING ANY SERVICES IN THE C OURSE OF BUYING OR SELLING OF GOODS. THEREFORE, IT IS NECESSARY TO KNOW WHETH ER THE MILK VENDOR PURCHASE MILK FROM THE ASSESSEE OR THEY ONLY RENDER SERVICES BY AGREEING TO SELL THE MILK ON BEHALF OF AND AS PER THE DIRECTION S OF THE ASSESSEE. THE DIFFERENCE BETWEEN THE TWO, ACCORDING TO THE CIT(A) IS IN THE SECOND INSTANCE THERE IS AN ELEMENT OF AGENCY TO ATTRACT THE PROVIS IONS OF SECTION 194H. HE NOTED THAT THERE IS A DIFFERENCE BETWEEN A CONTRACT OF SALE AND A CONTRACT OF AGENCY. IN CASE OF CONTRACT OF AGENCY, THE AGENT I S AUTHORIZED TO SELL OR BUY ON BEHALF OF PRINCIPAL WHEREAS IN A CONTRACT OF SAL E THERE IS A TRANSFER OF TITLE OF GOODS FOR A PRICE PAID OR TO BE PAID. THE ESSEN CE OF AGENCY TO SELL IS THE DELIVERY OF GOODS TO A PERSON, WHO IS TO SELL THEM NOT AS HIS OWN PROPERTY BUT AS THE PROPERTY OF THE PRINCIPAL WHO CONTINUES TO B E THE OWNER OF THE GOODS AND WILL THEREFORE BE LIABLE TO ACCOUNT FOR THE SAL E PROCEEDS. THE ESSENTIAL FEATURES OF A CONTRACT OF AGENCY WILL BE THAT THE A GENCY WILL NOT HAVE ANY RIGHT ON THE GOODS. HE SIMPLY HAS TO SELL THE GOOD S AS PER THE INSTRUCTIONS OF THE PRINCIPAL. ANY LOSS OF GOODS IS THE RESPONSIBI LITY OF THE PRINCIPAL AND NOT OF THE AGENT. THE CIT(A) REFERRING TO A NUMBER OF DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS DIFFERENT HIGH COURTS AS A LSO DIFFERENT BENCHES OF THE TRIBUNAL INCLUDING THAT OF THE ITAT DELHI BENCH IN CASE OF ITO VS. MOTHER DAIRY FOOD PROCESSING LTD. OPINED THAT AS PER THE R ATIO LAID DOWN IN THE DECISIONS WHERE THE OWNERSHIP OF GOODS PASSES ON TO THE DISTRIBUTOR, THE TRANSACTION IS IN THE NATURE OF SALE AND THE PAYMEN T OR REDUCTION THERE ON WOULD BE IN THE NATURE OF TRADE DISCOUNT. APPLYING THE AFORESAID TEST TO THE FACTS OF THE ASSESSEES CASE, THE CIT(A) NOTED THE FOLLOWING FACTS: 1) THE MILK BOOTHS ARE NOT OWNED BY THE ASSESSEE. SOM ETIMES THE VENDORS DO NOT HAVE ANY BOOTHS AND THEY SELL THE PR ODUCTS EITHER OUT OF SOME MILK SHOPS OR PAN SHOPS ON THE FOOT PATH. THERE IS NO EQUIPMENT OR MATERIAL LIKE REFRIGERATOR OR ETC. GIV EN BY THE ASSESSEE TO THE VENDORS. ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 8 2) THE VENDORS ARE NOT AT THE SERVICES OF THE ASSESSEE THROUGH OUT THE DAY AS THERE ARE MANY PART TIME VENDORS THOSE WHO W ORK ONE HOUR IN THE MORNING AND ONE HOUR IN THE EVENING. IN CASE OF VENDORS WHO OWNED SHOPS THEY SELL MANY OTHER PRODUCTS IN ADDITI ON TO THE PRODUCTS OF THE ASSESSEE. 3) THE ASSESSEE DO NOT HAVE ANY RIGHT TO ENTER INTO TH E BUSINESS PREMISES OF THE VENDORS. 4) THE ASSESSEE DO NOT TAKE RETURN OF UNSOLD MILK AND THE SAME IS THE RESPONSIBILITY OF THE VENDOR. ONCE THE MILK IS GIV EN TO THE RESPECTIVE VENDOR AS PER THE INDENT THE SAME BECOMES THE PROPE RTY OF VENDOR. 5) ASSESSEE DOES NOT SHOW THE MILK DELIVERED TO THE VE NDOR AS ITS OWN STOCK. 6. FROM THE AFORESAID ANALYSIS OF FACTS, THE CIT(A) INFERRED THAT THE VENDORS ARE NOT BOUND BY THE INSTRUCTIONS OF THE AS SESSEE AND THE ASSESSEE HAS NO RESPONSIBILITY TOWARDS THE LOSS OR DAMAGE IF ANY CAUSED TO THE VENDOR. HE NOTED THAT THIS CHARACTERISTICS OF TRANSACTION C LEARLY SHOW THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE RETAIL VEN DORS IS ON PRINCIPAL TO PRINCIPAL BASIS AND THE OWNERSHIP OF GOODS GETS TRA NSFERRED TO THE VENDORS AS SOON AS THE GOODS ARE DELIVERED TO THEM. THE CIT(A ) ON GOING THROUGH THE STATEMENT OF SRI S.B. RAMANA RAO, THE G.M. NOTED TH AT HE HAS CLEARLY STATED THAT THE AMOUNT PAID TO THE RETAIL VENDORS IS IN TH E NATURE OF RETAILERS MARGIN AND NOT COMMISSION AND RETURN OF MILK ARE NOT ACCEP TED EXCEPT IN CASE OF MANUFACTURING DEFECT. THE CIT(A) THEREFORE HELD TH AT THE ASSESSING OFFICER HAS SIMPLY WENT BY THE NOMENCLATURE OF PAYMENT USED BY THE ASSESSEE AND THE WAY OF CALCULATION AS CERTAIN PERCENTAGE OF SAL ES. THE CIT(A) ON THE BASIS OF THE AFORESAID FACTS FINALLY CONCLUDED AS U NDER: IN VIEW OF THE FOREGOING FACTS AND ANALYSIS I AM OF THE CONSIDERED OPINION THAT THE RELATION BETWEEN THE RETAILER/DIST RIBUTOR AND THE ASSESSEE IS THAT OF PRINCIPAL TO PRINCIPAL AND THERE EXISTS ONL Y A CONTRACT OF SALE AND NOT CONTRACT OF AGENCY. THE TITLE OVER GOODS PASSES TO THE RETAILERS/BOOTH AGENTS AS SOON AS THE MILK IS DELIVERED TO THEM. THUS THE FORTNIGHTLY PAYMENTS MADE/ADJUSTED FROM THE SALE PRICE IS HELD TO BE NOT IN THE NATURE OF COMMISSION WITHIN THE PURVIEW OF SECTION 194H. AS SUCH PAYMENT IS NOT IN THE NATURE OF COMMISSION, I HOLD THAT THE ASSESSEE I S NOT LIABLE TO DEDUCT AT SOURCE U/S 194H ON THE SAID PAYMENTS/DEDUCTIONS. H ENCE AO IS DIRECTED TO DELETE THE DEMAND AND INTEREST RAISED U/S 201(1)/20 1(1A) FOR ALL THE FINANCIAL YEARS VIZ. F.YRS. 2009-10 2008-09 & 2007-08. 7. BEING AGGRIEVED OF THE AFORESAID ORDER THE DEPAR TMENT IS IN APPEAL BEFORE US. ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 9 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD AS WELL AS ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS PLACED BEFORE US BY THE PARTIES. THE LD. D.R. STRONGLY RELYING UPON THE REASONING OF THE ASSESSING OFFICER SUBMITTED BE FORE US THAT THE FACTS DISCUSSED BY THE ASSESSING OFFICER CLEARLY INDICATE THAT THE RETAIL VENDORS ARE ACTUALLY THE AGENTS OF THE ASSESSEE WHO ARE APPOINT ED ON CERTAIN TERMS AND CONDITIONS AS PER WHICH THE MILK SUPPLIED BY THE AS SESSEE HAS TO BE SOLD AT MRP. THE RETAIL VENDORS AFTER RETAINING THEIR COMM ISSION REMIT THE COST OF MILK TO THE ASSESSEE. THEREFORE RELATIONSHIP OF PR INCIPAL AND AGENT SUBSISTS BETWEEN THE ASSESSEE AND THE RETAIL VENDOR. IN THI S CONTEXT THE LD. D.R. PLACED STRONG RELIANCE ON THE STATEMENT RECORDED FR OM SRI N. RANGA RAO, WHEREIN HE HAS STATED THAT COMMISSION WAS PAID TO T HE RETAIL VENDORS. THE LD. A.R. ON THE OTHER HAND REFERRING TO THE REMAND REPORT OF THE ASSESSING OFFICER SUBMITTED THAT THE FACTS STATED THEREIN CLE ARLY VINDICATES THE ASSESSEES CLAIM THAT NO AGENCY EXISTS BETWEEN THE ASSESSEE AN D THE RETAIL VENDORS AND IT IS A CASE OF OUTRIGHT SALE OF MILK TO THE RETAIL VENDORS. THE LD. A.R PLACING STRONG RELIANCE ON A DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. MOTHER DAIRY INDIA LTD. (358 ITR 218) SUBMITTED THAT PRINCIPLES LAID DOWN THEREIN SQUARELY APPLIES TO THE ASSESSEES CASE. H ENCE, CIT(A)S ORDER HAS TO BE SUSTAINED. 9. HAVING HEARD THE AFORESAID PARTIES, WE ARE OF TH E VIEW THAT IT IS A PURELY FACTUAL ISSUE WHICH HAS TO BE DECIDED ON THE BASIS OF FACTS EMANATING FROM RECORD AS TO WHETHER A PRINCIPAL AGENT RELATIO NSHIP EXISTS BETWEEN THE ASSESSEE AND THE RETAIL VENDORS. IN THIS CONTEXT, I T WOULD BE NECESSARY TO LOOK INTO THE FACTS STATED IN THE REMAND REPORT SUB MITTED BY THE ASSESSING OFFICER WHICH HAS BEEN EXTENSIVELY DEALT WITH IN PA RA 2.9 OF THE CIT(A)S ORDER. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE T HE SAME HEREUNDER: 2.9 SRI M.K.SETHI, DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(L), VISAKHAPATNAM ALSO ATTENDED THE APPELLATE PROCEEDIN GS. HE WAS ASKED TO SUBMIT A FACTUAL REPORT ON THE ARGUMENTS MADE BY THE ASSESSEE. HE WAS ALSO ASKED TO CONDUCT DETAILED ENQUIRY WITH REGARD TO APPOINTMENT OF VENDORS, THE PROCEDURE OF ACCOUNTING FOR STOCK BY T HE VENDORS AND RETURN OF GOODS BY THE RETAIL VENDORS. HE WAS ALSO ASKED T O FURNISH COPY OF THE STATEMENT RECORDED FROM SRI S.V.RAMANA. VIDE REMAND REPORT ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 10 DTD.09.12.2011 IT IS SUBMITTED BY HIM THAT THE ASPI RANTS WILL APPROACH THE SUPERVISORS OF THE COMPANY REQUESTING HIM TO APPOIN T THEM AS VENDORS. SUPERVISOR WILL VISIT DIFFERENT AREAS AND SELECT VE NDORS FOR SELLING THE MILK. VENDORS ARE NOT GIVEN ANY APPOINTMENT LETTERS FROM THE COMPANY BUT ARE GIVEN AN IDENTIFICATION NUMBER FOR IDENTIFYING THE LOCALITY/ROUTE. IT IS FURTHER FOUND BY THE AO THAT THESE VENDORS ARE NOT MAINTAINING ANY KIOSKS EXCLUSIVELY FOR VIJAYA VISAKHA DIARY. THEY E ITHER SELL MILK ON FOOTPATH OR IN SMALL SHOPS. SO-FAR AS MAINTENANCE O F STOCK IS CONCERNED IT IS REPORTED BY DCIT THAT ONCE THE MILK IS RECEIVED BY VENDORS IT IS THEIR RESPONSIBILITY EVEN IF THE SAME IS SOLD OR NOT. VEN DORS DO NOT MAINTAIN ANY STOCK REGISTER AND EVEN IF THERE IS SOME SURPLUS MI LK LEFT OUT IT IS THEIR RESPONSIBILITY ONLY. THE COMPANY IS IN NO WAY CONCE RNED WITH THE UNSOLD MILK. EVEN IF THERE IS LEAKAGE IN MILK PACKETS THE COMPANY IS NOT ACCEPTING RETURN OF SUCH MILK PACKETS AND THE LOSS CAUSED IN THIS REGARD IS TO BE BORNE BY THE VENDORS ONLY. AS FAR AS THE SALE PRICE IS CONCERNED THE VENDORS STATED THAT THEY SELL MILK AT MRP AND GET A MARGIN OF RS.1/- PER LITRE. AO ALONG WITH THIS REPORT FORWARD THE COPIES OF STATEMENT RECORDED FROM THE VENDORS AND STATEMENT RECORDED FROM SRI S. V.RAMANA ON THE DATE OF SURVEY. 10. ON GOING THROUGH THE AFORESAID PARAGRAPH IT BEC OMES CLEAR THAT THERE IS NO FORMAL APPOINTMENT LETTER FROM THE COMPANY AP POINTING THE RETAIL VENDORS. IT IS ALSO A FACT THAT THE VENDORS ARE NO T MAINTAINING ANY SHOPS EXCLUSIVELY FOR THE SALE OF THE PRODUCT OF THE ASSE SSEE COMPANY. MOST OF THE RETAIL VENDORS ARE OPERATING FROM FOOT PATH OR ANY SMALL SHOPS. IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT ONCE MILK IS RE CEIVED FROM THE VENDORS, IT IS THEIR RESPONSIBILITY WHETHER IT IS SOLD OR NOT. THE ASSESSEE COMPANY IS NO WAY CONCERNED WITH THE UNSOLD MILK. EVEN IF THERE IS LEAKAGE IN MILK PACKETS, THE ASSESSEE IS NOT ACCEPTING RETURN OF SUCH MILK P ACKETS AND THE LOSS CAUSED IN THIS REGARD IS TO BE BORNE BY THE VENDORS ONLY. SO FAR AS THE SALE PRICE IS CONCERNED, THE ONLY CONDITION PUT BY THE ASSESSEE I S IT SHOULD NOT EXCEED THE MRP. APART FROM THAT THE SALE PRICE IS TOTALLY LEF T TO THE DISCRETION OF THE VENDORS AS THE COMPANY ONLY GIVES A MARGIN OF RS.1 PER LITRE. FROM THE FACTS STATED IN THE REMAND REPORT IT BECOMES ABSOLUTELY C LEAR THAT NONE OF THE ELEMENT OF PRINCIPAL AGENT RELATIONSHIP EXISTS IN C ASE OF THE ASSESSEE AND THE RETAIL VENDORS. RATHER, IT IS A CASE OF OUTRIGHT S ALE OF MILK BY THE ASSESSEE TO THE RETAIL VENDOR ON CERTAIN MARGIN ON MRP. THEREF ORE, THE MARGIN/DISCOUNT ALLOWED TO THE RETAIL VENDORS CANNOT BE TERMED AS C OMMISSION IN TERMS OF SECTION 194H OF THE ACT. THE HONBLE DELHI HIGH CO URT WHILE APPROVING THE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 11 DECISION OF THE ITAT DELHI BENCH IN CASE OF CIT VS. MOTHER DAIRY INDIA AND ANOTHER (SUPRA) WHILE CONSIDERING SIMILAR NATURE OF TRANSACTION HELD AS UNDER: IN THE COURSE OF THE ARGUMENTS BEFORE THE TRIBUNAL , THE REVENUE HAD RELIED UPON THE JUDGMENT OF THIS COURT IN DELHI MILK SCHEME V. CIT [2008] 301 ITR 373 (DELHI). IN THAT CASE, THE TRIBU NAL HAD HELD IN ITS ORDER DATED JANUARY 20, 2006, THAT THE SUMS PAID BY DMS TO ITS AGENTS, WHO WERE RENDERING SERVICES FOR SELLING PRODUCTS RE PRESENTED COMMISSION AND NOT DISCOUNT AND, CONSEQUENTLY, THE PROVISIONS OF SECTION 194H WERE ATTRACTED. THIS ORDER OF THE TRIB UNAL WAS UPHELD BY THIS COURT IN THE JUDGMENT CITED ABOVE. THE PRESENT ASSESSEE HAD SUBMITTED BEFORE THE TRIBUNAL THAT THIS JUDGMENT DI D NOT APPLY TO ITS CASE BECAUSE IN THE CITED CASE THERE WAS A FINDING RECORDED BY THE DEPARTMENTAL AUTHORITIES AS WELL AS THE TRIBUNAL TH AT THE AGREEMENTS, WHICH WERE FOUND IN THE COURSE OF SURVEY OF THE PRE MISES OF DMS WERE FOUND TO HAVE BEEN REDRAFTED AND THOSE REDRAFTED AG REEMENTS HAD BEEN PRODUCED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUNAL. THE TRIBUNAL, AFTER COMPARING THE TWO SETS OF THE AGREEMENTS, HAD OPINED THAT THE AGREEMENTS PRODUCED BEFORE ITSELF AND THE COMMISSIONER OF INCOME-TAX (APPEALS) WERE A N AFTERTHOUGHT. THE ASSESSEE THUS SUBMITTED THAT THE JUDGMENT OF TH IS COURT IN THE CASE OF DMS (SUPRA) WAS CLEARLY DISTINGUISHABLE ON FACTS . THE ASSESSEE'S SUBMISSION WAS ACCEPTED BY THE TRIBUNAL IN THE PRES ENT CASE IN ITS ORDER DATED DECEMBER 12, 2008. IN PARAGRAPHS 7 AND 8 OF THE IMPUGNED ORDER, THE TRIBUNAL HAS EXTRACTED THE RELE VANT PORTIONS FROM THE EARLIER ORDER DATED JANUARY 20, 2006, OF TH E TRIBUNAL IN THE CASE OF DMS IN WHICH A FINDING THAT DMS HAD FILED THE REDRAFTED AGREEMENTS BEFORE THE COMMISSIONER OF INCOME-TAX (AP PEALS), WHICH WERE DIFFERENT IN CRUCIAL ASPECTS FROM THE AGREEMENTS FOUND DURING THE SURVEY, WAS RECORDED. THE TRIBUNAL, IN THE PRES ENT CASE, AFTER NOTICING THE EARLIER ORDER OF THE TRIBUNAL HELD THAT , IN THE PRESENT CASE, THERE WAS NO REDRAFTING OF THE AGREEMENTS AND THE AGREEMENTS PLACED BEFORE IT WERE THE SAME AS WERE FOUND IN THE COURSE OF THE SURVEY AND THE TERMS OF THE AGREEMENT ENTERED INTO I N 1993 AND IN 2003 WERE IDENTICAL AND, THEREFORE, THE JUDGMENT OF THIS COURT IN THE CASE OF DMS (SUPRA) UPHOLDING THE ORDER OF THE TRIBUN AL DATED JANUARY 20, 2006, WOULD HAVE NO APPLICATION TO THE ASSESSEE'S CASE INASMUCH AS THE FACTS AND THE AGREEMENT ARE DIFFEREN T IN CRUCIAL ASPECTS. THUS, THE JUDGMENT OF THIS COURT IN THE CAS E OF DM.S (SUPRA) WAS HELD NOT APPLICABLE TO THE PRESENT CASE. IN RESPECT OF THE FINANCIAL YEAR 2004-05, RELEVANT FOR THE ASSESSMENT YEAR 11 2005-06, THE TRIBUNAL TOOK TH E SAME VIEW IN ITS ORDER DATED APRIL 19, 2010, IN I. T. A. NO. 4926(DE L.) OF 2009. THERE IS NO INDEPENDENT REASONING GIVEN IN ITS ORDER AND IT FOLLOWS THE VIEW ALREADY TAKEN BY THE TRIBUNAL IN RESPECT OF THE ASSE SSMENT YEAR 2004-05 (FINANCIAL YEAR 2003-04). THE REVENUE CHALLENGES THE AFORESAID ORDERS OF THE T RIBUNAL RELYING 12 UPON SECTION 194H OF THE ACT. IT IS NOT IN DISPUTE BEFORE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 12 US, IN ,THE PRESENT CASE, THAT THERE HAS BEEN NO RE DRAFTING OF THE AGREEMENTS AND THAT THE COPIES OF THE AGREEMENTS FOU ND DURING THE SURVEY ON DECEMBER 9, 2004, AND THE AGREEMENTS PROD UCED BEFORE THE ASSESSING OFFICER IN THE COURSE OF THE PROCEEDIN GS WHICH HAVE GIVEN RISE TO THE PRESENT APPEALS WERE THE SAME. TH ERE IS NO REFERENCE IN THE ORDERS PASSED BY THE ASSESSING OFFICE R UNDER SECTION 201(1)/(1A) TO ANY CHANGE IN THE TERMS BETWEEN THE AGREEMENTS FOUND DURING THE SURVEY AND THOSE PRODUCED BEFORE TH EM IN THE COURSE OF THE PROCEEDINGS UNDER SECTION 201(1)/(1A) . WE HAVE TO, THEREFORE, PROCEED ON THE BASIS OF THE TERMS OF THE A GREEMENT AS THEY HAVE BEEN DISCUSSED IN THE ORDERS OF THE INCOME -TAX AUTHORITIES AS WELL AS THE ORDERS OF THE TRIBUNAL//THE PRINCIPAL QUESTION THAT FALLS FOR CONSIDERATION IS WHETHER THE AGREEMENTS BETWEEN THE ASSESSEE AND THE CONCESSIONAIRES GAVE RISE TO A RELATIONSHIP OF PRINCIPAL TO PRINCIPAL OR RELATIONSHIP OF PRINCIPAL TO AGENT. ON A FAIR READING OF ALL THE CLAUSES OF THE AGREEMENT AS HAVE BEEN REFERRED TO IN THE ORDERS OF THE TRIBUNAL AS WELL AS THOSE OF THE INCOME-TAX A UTHORITIES, WE ARE UNABLE TO SAY THAT THE VIEW TAKEN BY THE TRIBUNAL I S ERRONEOUS. IT IS A WELL-SETTLED PROPOSITION THAT IF THE PROPERTY IN THE GOODS IS TRANSFERRED AND GETS VESTED IN THE CONCESSIONAIRE AT THE TIME OF THE DELIVERY THEN HE IS THEREAFTER LIABLE FOR THE SAME AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIPAL A ND NOT AS AN AGENT OF THE DAIRY. THE CLAUSES OF THE AGREEMENTS SHOW TH AT THERE IS AN ACTUAL SALE, AND NOT MERE DELIVERY OF THE MILK AND T HE OTHER PRODUCTS TO THE CONCESSIONAIRE. THE CONCESSIONAIRE PURCHASES THE MILK FROM THE DAIRY. THE DAIRY RAISES A BILL ON THE CONCESSIO NAIRE AND THE AMOUNT IS PAID FOR. THE DAIRY MERELY FIXED THE MRP A T WHICH THE CONCESSIONAIRE CAN SELL THE MILK. UNDER THE AGREEME NT THE CON- CESSIONAIRE CANNOT RETURN THE MILK UNDER ANY CIRCUM STANCE, WHICH IS ANOTHER CLEAR INDICATION THAT THE RELATIONSHIP WAS THAT OF PRINCIPAL TO PRINCIPAL. EVEN IF THE MILK GETS SPOILED FOR ANY REAS ON AFTER DELIVERY IS TAKEN, THAT IS TO THE ACCOUNT OF THE CONCESSIONAI RE AND THE DAIRY IS NOT RESPONSIBLE FOR THE SAME. THESE CLAUSES HAVE AL L BEEN NOTICED BY THE TRIBUNAL. THE FACT THAT THE BOOTH AND THE EQUIP MENT INSTALLED THEREIN WERE OWNED BY THE DAIRY IS OF NO RELEVANCE IN DECIDING THE NATURE OF RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONCESSIONAIRE. FURTHER, THE FACT THAT THE DAIRY CAN INSPECT THE BOO THS AND CHECK THE RECORDS MAINTAINED BY THE CONCESSIONAIRE IS ALSO NO T DECISIVE. AS RIGHTLY POINTED OUT BY THE TRIBUNAL THE DAIRY HAVIN G GIVEN SPACE, MACHINERY AND EQUIPMENT TO THE CONCESSIONAIRE WOULD NATURALLY LIKE TO INCORPORATE CLAUSES IN THE AGREEMENT TO ENSURE THAT ITS PROPERTY IS PROPERLY MAINTAINED BY THE CONCESSIONAIRE/ PARTICUL ARLY BECAUSE MILK AND THE OTHER PRODUCTS ARE CONSUMED IN LARGE QUANTI TIES BY THE GENERAL PUBLIC AND ANY DEFECT IN THE STORAGE FACILI TIES WHICH REMAINS UNATTENDED CAN CAUSE SERIOUS HEALTH HAZARDS. THESE ARE ONLY TERMS INCLUDED IN THE AGREEMENT TO ENSURE THAT THE SYSTEM OPERATES SAFELY AND SMOOTHLY. FROM THE MERE EXISTENCE OF THESE CLAUS ES IT CANNOT BE SAID THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONCESSIONAIRE IS THAT OF A PRINCIPAL AND AN AGENT. THAT QUESTION MUST BE DECIDED, AS HAS BEEN RIGHTLY DECIDED BY THE TRIBUNAL, ON THE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 13 BASIS OF THE FACT AS TO WHEN AND AT WHAT POINT OF TIM E THE PROPERTY IN THE GOODS PASSED TO THE CONCESSIONAIRE. IN THE C ASES BEFORE US, THE CONCESSIONAIRE BECOMES THE OWNER OF THE MILK AN D THE PRODUCTS ON TAKING DELIVERY OF THE SAME FROM THE DAIRY. HE TH US PURCHASED THE MILK AND THE PRODUCTS FROM THE DAIRY AND SOLD TH EM AT THE MRP. THE DIFFERENCE BETWEEN THE MRP AND THE PRICE WHICH H E PAYS TO THE DAIRY IS HIS INCOME FROM BUSINESS. IT CANNOT BE CATE GORIZED AS COMMISSION. THE LOSS AND GAIN IS OF THE CONCESSIONAI RE. THE DAIRY MAY HAVE FIXED THE MRP AND THE PRICE AT WHICH THEY S ELL THE PRODUCTS TO THE CONCESSIONAIRE BUT THE PRODUCTS ARE SOLD AND OWNERSHIP VESTS AND IS TRANSFERRED TO THE CONCESSIO NAIRES. THE SALE IS SUBJECT TO CONDITIONS, AND STIPULATIONS. THIS BY ITSELF DOES NOT SHOW AND ESTABLISH PRINCIPAL AND AGENT RELATIONSHIP . THE SUPERVISION AND CONTROL REQUIRED IN CASE OF AGENCY IS MISSING. IT IS IRRELEVANT THAT THE CONCESSIONAIRES WERE OPER ATING FROM, THE BOOTHS OWNED BY THE DAIRY AND WERE ALSO USING THE E QUIPMENT MID FURNITURE PROVIDED BY THE DAIRY. THAT FACT IS NOT DE TERMINATIVE OF THE RELATIONSHIP BETWEEN THE DAIRY AND THE CONCESSIONAI RES WITH REGARD TO THE SALE OF THE MILK AND OTHER PRODUCTS. THEY WER E LICENSEES OF THE PREMISES AND WERE PERMITTED THE USE OF TRIE EQU IPMENT AND FURNITURE FOR THE PURPOSE OF SELLING THE MILK AND OTH ER PRODUCTS. BUT SO FAR AS THE MILK AND THE OTHER PRODUCTS ARE CONCE RNED, THESE ITEMS BECAME THEIR PROPERTY THE MOMENT THEY TOOK DELIVERY OF THEM. THEY WERE SELLING THE MILK AND THE OTHER PRODUCTS IN THE IR OWN RIGHT AS OWNERS. THESE ARE TWO SEPARATE LEGAL RELATIONSHIPS. THE INCOME-TAX AUTHORITIES WERE NOT JUSTIFIED OR CORRECT IN LAW IN MIXING UP THE TWO DISTINCT RELATIONSHIPS OR TELESCOPING ONE INTO THE OTHER TO HOLD THAT BECAUSE THE CONCESSIONAIRES WERE SELLING THE MILK A ND OTHER PRODUCTS FROM THE BOOTHS OWNED BY THE DIARY AND WERE USING T HE EQUIPMENT AND FURNITURE IN THE COURSE OF THE SALE OF THE MILK AN D OTHER PRODUCTS, THEY WERE CARRYING ON THE BUSINESS ONLY A S AGENTS OF THE DIARY. WE MAY REFER TO THE JUDGMENT OF THIS COURT IN THE CAS E OF DELHI MILK SCHEME V. CIT [2008] 301 ITR 373 (DELHI). IN T HAT CASE, THE FACTS WERE DIFFERENT. UNDER THE TERMS OF THE AGREEMENT ENTE RED INTO BETWEEN DMS AND ITS CONCESSIONAIRES, THE MILK AND O THER PRODUCTS DID NOT BECOME THE PROPERTY OF THE CONCESSIONAIRES O N DELIVERY. THE UNSOLD MILK WAS TAKEN BACK BY THE DMS FROM THE CONC ESSIONAIRES. THE OWNERSHIP OF THE MILK AND OTHER PRODUCTS DID NO T PASS FROM DMS TO THE CONCESSIONAIRES INASMUCH AS THERE WAS NO SAL E OF THE MILK OR MILK PRODUCTS TO THEM. FURTHER, THE UNSOLD MILK WAS TO BE TAKEN BACK BY THE DMS FROM THE CONCESSIONAIRES. THE AGREEMENT A LSO PROVIDED THAT THE DAILY CASH COLLECTION OF THE CONCESSIONAIR ES WAS TO BE HANDED OVER TO DMS. ON THESE FACTS, IT WAS HELD BY THE TRI BUNAL THAT THE CONCESSIONAIRES ONLY RENDERED A SERVICE TO DMS FOR S ELLING MILK TO THE CUSTOMERS AND, THEREFORE, THE RELATIONSHIP BETWEEN D MS AND THE CONCESSIONAIRES WAS THAT OF A PRINCIPAL AND AN AGENT . THIS ATTRACTED ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 14 THE PROVISIONS OF SECTION 194H. THIS IS APART FROM T HE FACT, AS NOTICED EARLIER, THAT THE DMS REDRAFTED THE AGREEMENTS AND FILED THEM BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) A ND THE TRIBUNAL AND SUCH REDRAFTED AGREEMENTS WERE FOUND T O BE DIFFERENT FROM THE AGREEMENTS FOUND DURING THE SURVEY UNDER SE CTION 133A. THIS COURT, ON THE ABOVE FACTS HELD THAT SECTION 19 4H WAS ATTRACTED. AS ALREADY POINTED OUT, THE TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE PRESENT ASSESSEES AND THEIR CONCESSIONA IRES ARE DIFFERENT IN CRUCIAL ASPECTS. THEREFORE, THE JUDGMEN T OF THIS COURT IN THE CASE OF DELHI MILK SCHEME [2008] 301 ITR 373 (DE LHI) IS NOT APPLICABLE TO THE PRESENT CASES. WE ARE, THEREFORE, OF THE VIEW THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. THE APPE ALS OF THE REVENUE IN ITA NOS.1925 AND 313 OF 2011 ARE ACCORDIN GLY DISMISSED WITH NO ORDER AS TO COSTS. 11. THE LD. AR HAS DEMONSTRATED THE SIMILARITY OF F ACTS IN CASE OF THE ASSESSEE AND MOTHER DAIRY INDIA LTD. IN A TABULAR F ORM AS UNDER:- IN THE CASE OF MOTHER DAIRY IN THE CASE OF VISAKHA DAIRY 1. THE ACTIVITIES OF THE MOTHER DAIRY INCLUDE PROCUREMENT OF MILK. PROCESSING OF THE SAID MILK AND MILK PRODUCTS AND SALE OF MILK TO THE CUSTOMERS THROUGH VARIOUS VENDORS. 1. THE ACTIVITIES OF THE ASSESSEE ARE EXACTLY THE SAME AS THAT OF MOTHER DAIRY 2. THE SALES ARE EFFECTED THROUGH RETAIL VENDORS CHOSEN FOR THE PURPOSE FROM THEIR SPECIFIED POINTS KNOWN AS BOOTHS. 2. THE ASSESSEE ALSO SELLS THE MILK AND MILK PRODUCTS IN THE SAME PROCESS. 3. THE SALE PRICE TO THE ULTIMATE CONSUMER IS FIXED BY MOTHER DAIRY AND REDUCED PRICE IS COLLECTED FROM THE CONCESSIONARIES/VENDORS 3. THE ASSESSEE ALSO FIXES THE MAXIMUM RETAIL PRICE AND PROVIDES CONCESSIONAL RATE WHILE SUPPLYING THE PRODUCTS TO THE CONCESSIONAIRES. THE COMPANY ENTERS INTO AN AGREEMENT WITH THE CONCESSIONAIRES AND SPECIFY THE CONDITIONS FOR SALE OF MILK TO THE ULTIMATE CONSUMER. 4. ACCORDING TO THE AGREEMENT, THE CONCESSIONAIRES CAN SELL THE MILK AT THE MRP FIXED AND CANNOT SELL THE MILK AT PRICE HIGHER THAN THE MRP. 4. IN THE CASE OF ASSESSEE ALSO, SIMILAR PROVISION EXISTS BETWEEN THE ASSESSEE AND CONCESSIONAIRES. 5. THE MILK AND PRODUCTS ARE SUPPLIED AT THE POINT OF SALE 5. IN THE CASE OF ASSESSEE ALSO, IT SHALL BE THE RESPONSIBILITY OF THE ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 15 CALLED BOOTH TO THE CONCESSIONAIRES AND THE CONCESSIONAIRES ARE RESPONSIBLE FOR THE SALE OF MILK TO THE CONSUMER. CONCESSIONAIRES TO SELL THE MILK ONCE SUCH MILK IS SUPPLIED AT THE BOOTH. IN FACT, THE STOCK REMAINING WITH THE VENDORS AS ON THE LAST DAY OF THE YEAR WERE NOT CONSIDERED IN THE ASSESSEES BOOKS. 6. THE SALE POINT THAT IS THE BOOTH IS CONSTRUCTED BY THE MOTHER DAIRY AT ITS OWN COST AND ALSO EQUIPS THE BOOTH WITH MACHINERY AND FURNITURE 6 IN THE CASE OF ASSESSEE, IT IS THE RESPONSIBILITY OF CONCESSIONAIRES TO HAVE THEIR OWN POINTS OF SALE AND THE ASSESSEE DOES NOT SPEND ANY AMOUNT ON ESTABLISH IN BOOTH. 7. THE MOTHER DAIRY WOULD HAVE A KEY TO OPEN THE BOOTH AND PROVIDES A DUPLICATE KEY TO THE CONCESSIONAIRES. IT HAS ALSO A RIGHT TO CHECK AT ANY TIME THE MILK OR OTHER PRODUCTS SOLD. 7. IN THE CASE OF THE ASSESSEE, IT DOES NOT ARISE AS THE ASSESSEE PROVIDE THE BOOTH OR EQUIPMENT. IT HAS NO RIGHT TO CHECK THE MILK OR MILK PRODUCTS AS ONCE MILK IS SUPPLIED THE ASSESSEES OWNERSHIP CEASES TO EXIST. 8. IN CASE OF MOTHER DAIRY SOME CONTROLS ARE PRESCRIBES TO IDENTIFY THE UNSOLD STOCK OF MILK/MILK PRODUCTS IN SOME CIRCUMSTANCES. MOTHER DAIRY GETS BACK SUCH UNSOLD STOCK. THE CONCESSIONAIRES WERE REQUIRED TO NOTIFY THE QUALITY OF UNSOLD MILK WITHIN 15 MINUTES OF CLOSING TIME IN THE PRESCRIBED REGISTER 8. AS FAR AS THE ASSESSEE IS CONCERNED NO SUCH LIMITATIONS ARE PLACED AS THE ASSESSEE MAKES IT CLEAR TO THE CONCESSIONAIRES THAT THE MILK ONCE SOLD IT WOULD NOT BE TAKEN BACK AND IT SHALL BE THE RESPONSIBILITY OF THEIR CONCESSIONAIRES TO DEAL WITH THE MILK ONCE SUPPLIED. 9. THE MOTHER DAIRY REFERS TO THE DIFFERENTIAL AMOUNT GAINED BY CONCESSIONAIRES AS COMMISSION 9. THE ASSESSEE DOES NOT MAKE ANY PAYMENT OF COMMISSION AND DOES NOT RECORD SUCH PAYMENTS IN ITS BOOKS. IT RECORDS THE SALE PRICE PAID BY THE CONCESSIONAIRES AS ITS RECEIPT. THEREFORE THE GAIN TO THE CONCESSIONAIRES DOES NOT REPRESENT PAYMENT OF COMMISSION BY THE ASSESSEE. 12. ON ANALYSIS OF THE FACTS OF THE ASSESSEES CASE VIS--VIS THE FACTS CONSIDERED BY THE HONBLE DELHI HIGH COURT, IN CASE OF MOTHER DAIRY (SUPRA) WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE DELHI HIGH COURT CLEARLY ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 16 APPLIES TO THE FACTS OF THE PRESENT CASE. RATHER, IN OUR VIEW, ASSESSEE STANDS IN BETTER FOOTING AS IN CASE OF MOTHER DAIRY SOME A MOUNT OF CONTROL IS EXERCISED OVER THE RETAIL VENDORS. EVEN OTHERWISE ALSO THE REMAND REPORT OF THE ASSESSING OFFICER CLEARLY PUTS IT BEYOND DOUBT THAT IT IS NOT A CASE OF AGENCY BUT SALE OF MILK BY THE ASSESSEE TO THE RETA IL VENDORS. THEREFORE, THE PROVISIONS OF SECTION 194H OF THE ACT WOULD NOT BE APPLICABLE TO THE ASSESSEES CASE. IN THE AFORESAID FACTS AND CIRCUMS TANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETIN G THE DEMAND RAISED BY THE ASSESSING OFFICER U/S 201 & 201(1A) OF THE ACT. ITA NO.71/VIZAG/2012: 13. THIS APPEAL OF THE DEPARTMENT ARISES OUT OF THE ORDER PASSED BY THE CIT(A) DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2008-09. THOUGH THE ASSESSEE HAS RAISED 5 GROUNDS, BUT THE SOLE ISS UE WHICH ARISES FOR CONSIDERATION IS IN RESPECT OF DELETION OF AN AMOUN T OF RS.5,39,06,822/- ADDED BY THE AO. 14. BRIEFLY STATED THE ASSESSING OFFICER ON THE BAS IS OF THE ORDER PASSED U/S 201/201(1A) OF THE ACT FOR THE IMPUGNED ASSESSMENT YEAR BY THE ITO WARD- 6(3), VISAKHAPATNAM NOTED THAT THE ASSESSEE HAS PAI D COMMISSION OF RS.5,39,06,822/- ON SALE OF MILK TO THE RETAIL VEND ORS WITHOUT DEDUCTING TAX AT SOURCE FOR WHICH AN ORDER HAS BEEN PASSED U/S 201/2 01(1A) OF THE ACT DEMAND TAX OF RS.51,08,225/- AND INTEREST OF RS.19, 40,000/-. ON THE BASIS OF THE ORDER PASSED U/S 201/201(1A) OF THE ACT, THE AS SESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING HIM TO EXP LAIN WHY THE SUM OF RS.5,39,06,824/- SHOULD NOT BE ADDED TO THE TOTAL I NCOME AS SALES SUPPRESSION ON WHICH TAX HAS NOT BEEN DEDUCTED AT S OURCE. THOUGH THE ASSESSEE EXPLAINED THAT TDS PROVISIONS ARE NOT ATTR ACTED AS THE PAYMENTS MADE ARE NOT IN THE NATURE OF COMMISSION, BUT THE A SSESSING OFFICER REJECTING SUCH EXPLANATION OF THE ASSESSEE DREW THE AMOUNT OF RS.5,39,06,822/- AS SUPPRESSION OF SALES AND ADDED IT TO THE INCOME OF THE ASSESSEE. ITA NOS.59,60,61 & 71/VIZAG/2012 M/S. SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VS KP 17 15. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) FOLLOWING HIS ORDER PASSED IN CASE OF THE ASSESSEES APPEAL AGAINST ORDER PASSED U/S 201/201( 1A) OF THE ACT HELD THAT THE ASSESSING OFFICER WAS NOT CORRECT IN ADDING THE PRESUMPTIVE COMMISSION OF RS.5,39,06,822/- AS SUPPRESSED SALE AND ACCORDIN GLY DELETED THE ADDITION. 16. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. AS CAN BE SEEN THE ASSESSING OFFICER HAS TREATED THE A MOUNT AS SUPPRESSED SALES OF THE ASSESSEE BY TREATING IT AS A COMMISSION PAID TO THE RETAIL VENDORS. THEREFORE, IN VIEW OF OUR DECISION IN ITA NO.59 TO 61/VIZAG/2012 HEREIN ABOVE, THE ADDITION MADE CANNOT SURVIVE. ACCORDING LY, WE UPHOLD THE DECISION OF THE CIT(A) BY DISMISSING THE GROUNDS RA ISED. PRONOUNCED IN THE OPEN COURT ON 7 TH MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 7 TH MARCH, 2014 COPY TO 1 ITO WARD-6(3), VISAKHAPATNAM 2 DCIT CIRCLE-4(1), VISAKHAPATNAM 3 SRI VIJAYA VISAKHA MILK PRODUCERS CO. LTD., VISAK HAPATNAM 4 THE CIT, VISAKHAPATNAM 5 THE CIT(A), VISAKHAPATNAM. 6 THE DR, ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM