THE COMMISSIONER OF INCOME-TAX V. M/S ACER INDIA PVT LTD

ITA/159/2019

AI Insights

The case involves two Income Tax Appeals (ITAs) filed by the Revenue against M/s. Acer India Pvt. Ltd., challenging the orders passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeals were related to the non-deduction of taxes on payments made to distributors for price protection and special price clearance discounts, and the applicability of section 194H of the Income Tax Act, 1961. The main legal contention was whether the payments made to distributors constituted 'commission' under section 194H, which the ITAT and CIT(A) had found not to be the case, supporting the assessee's position that the relationship was of 'Principal to Principal'.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 740263 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 26-06-2023
• Assessment Year: misc
• Other Referred Cases: Bharti Airtel Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: T SURYANARAYANA; TANMAYEE RAJKUMAR
• Assessee Lawyers: E I SANMATHI; K V ARAVIND
• Keywords: Commission or brokerage; Income tax appeal; Principal to agent; Principal-to-Principal; Price Protection; Special Price Clearance Discounts
• Section: 201(1); 201(1A); 194H; 260-A

Judgement Text

" - 1 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26TH DAY OF JUNE, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 159 OF 2019 C/W INCOME TAX APPEAL NO. 157 OF 2019 IN I.T.A. No.159 OF 2019 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX TDS, 4TH FLOOR, HMT BHAVAN NO.59, BELLARY ROAD GANGANAGAR BENGALURU-560 032 2. THE ASST. COMMISSIONER OF INCOME-TAX(TDS) CIRCLE-(1), 4TH FLOOR HMT BHAVAN NO.59, BELLARY ROAD GANGANAGAR BENGALURU-560 025 …APPELLANTS (BY SHRI. E.I. SANMATHI, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) AND: M/S. ACER INDIA PVT. LTD., NO.13, 6TH FLOOR EMBASSY HEIGHTS MARGATH ROAD NEXT TO HOSMAT HOSPITAL Digitally signed by YASHODHA N Location: HIGH COURT OF KARNATAKA - 2 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 BENGALURU-560 001. PAN: BLRAO 1844D …RESPONDENT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.10.2018 PASSED IN ITA NO.1940/BANG/2018, FOR THE ASSESSMENT YEAR 2012-2013 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 1940/BANG/2018 DATED 05.10.2018 FOR ASSESSMENT YEAR 2012-2013 ANNEXURE-C CONFIRMNG THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE-1(1), BENGALURU AND ETC. IN I.T.A. No.157 OF 2019 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX TDS, 4TH FLOOR, HMT BHAVAN NO.59, BELLARY ROAD GANGANAGAR BENGALURU-560 032 2. THE ASST. COMMISSIONER OF INCOME-TAX(TDS) CIRCLE-(1), 4TH FLOOR HMT BHAVAN NO.59, BELLARY ROAD GANGANAGAR BENGALURU-560 032 …APPELLANTS (BY SHRI. E.I. SANMATHI, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) AND: M/S. ACER INDIA PVT. LTD., NO.13, 6TH FLOOR EMBASSY HEIGHTS MARGATH ROAD NEXT TO HOSMAT HOSPITAL BENGALURU-560 025 - 3 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 PAN: BLRAO 1844D …RESPONDENT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.10.2018 PASSED IN ITA NO.1941/BANG/2018, FOR THE ASSESSMENT YEAR 2015-2016 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 1941/BANG/2018 DATED 05.10.2018 FOR ASSESSMENT YEAR 2015-2016 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE-1(1), BENGALURU AND ETC. THESE ITAs, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT These two appeals are by the Revenue challenging the common order dated 05.10.2018 passed by the ITAT1, ‘A’ Bench, Bangalore. 2. ITA No.159/2019 has been filed challenging order passed in ITA No.1940/Bang/2018 for the assessment year 2012-13 and ITA No.157/2019 has been filed challenging the order passed in ITA No.1941/Bang/2019 for the assessment year 2015-16. 1 Income Tax Appellate Tribunal - 4 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 3. Heard Shri.E.I.Sanmathi, learned Standing Counsel for the appellant-Revenue and Shri.T.Suryanarayana, learned Senior Advocate for the respondent-Assessee. 4. Following two questions have been framed by this Court for consideration in these appeals. “1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in holding that the provisions of section 194H are not attracted in the case of assessee with regard to payments towards supply of manpower and non-deduction of taxes on payments made to distributors towards price protection and special price clearance discounts even when the assessing authority rightly held that assessee was liable to deduct tax on such activities as it attracted section 194H of the Act? 2. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in law in confirming the order of the CIT(A) cancelling the order passed under section 201(1) and 201(1A) of the Act by erroneously holding that the relationship between the assessee and the distributor is that of Principal to Principal and not that of Principal to Agent by relying on the decision of this Hon’ble Court in case of Bharthi Airtel Ltd. (reported in 52 Taxman.com 31 (2014)) which has not reached finality.?” - 5 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 5. At the outset, Shri Suryanayaraya, submitted that question No.1 relates to payment made by the assessee to M/s Manpower Agencies. This question does not arise for consideration in this appeal because the Revenue has not challenged the order passed by the CIT(A)2 in assessee’s favour before the ITAT. This factual matrix is not disputed by Shri Sanmathi. Therefore only second question remains for consideration. 6. It was argued by Shri Sanmathi that assessee has paid money to the distributors. Therefore, it amounts to ‘commission’. The A.O.3 has held that payment made by the assessee is commission. The said finding has been reversed by the CIT(A) and confirmed by the ITAT. 7. In reply, Shri Suryanarayana submitted that assessee is a manufacturer of computers and peripherals. It supplies it’s product to the distributors. Distributors sell the product at their risk to the dealers. According to him, in order to ensure that sale of product is not adversely affected 2 Commissioner of Income Tax(Appeals) 3 Assessing Officer - 6 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 by unfavourable market changes, the assessee had suggested the distributors to sell the products at the price less than the actual price mentioned in the invoices raised by the assessee. He submitted that such contingencies arise on several occasions due to festival discounts, sudden change in the market value, introduction of similar products etc. In substance, he submitted that assessee supplies computers and peripherals and the distributor is liable to pay the full value. Subsequent sale by the distributor to any other individual or company or agents is the transaction which the distributor does entirely at his risk. With these submissions, he supported the order4 passed by the CIT(A)5 and prayed for dismissal of these appeals. 8. We have carefully considered rival submissions and perused the records. 9. The transactions between the assessee and the distributor is not in dispute. It is also not in dispute that 4 Ref: paras 6.6 & 6.7 5 Commissioner of Income TaxParas 6.6 & 6.7 - 7 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 distributor is liable for making payment of full invoice value. The CIT(A) has recorded submissions made on behalf of the assessee that reduction in price by the distributor is to overcome unfavourable market changes and special occasions on which discount is given to the purchasers of computers and peripherals. It is relevant to note that decision to sell the products at lesser price than the invoice price is taken after the products reach the distributor and after invoices are raised by the assessee. 10. It was contended by Shri Suryanarayana that in order to see that the distributor does not suffer any loss by virtue of the decision taken by the assessee post supply and raising the invoices, the assessee reimburses the discount given by the distributor. The CIT (A), in our opinion, has rightly recorded that distributors are required to place the purchase order as per clause 2.1 of the agreement and assessee reserves right to accept or reject any order. 11. The inventory risk after acquiring the product is that of the distributor. Payment from the distributor to - 8 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 assessee has no link with the further sales made by the distributor. 12. The commission or brokerage is described in explanation to Section 194H of the Income Tax Act, 1961 and it reads as follows: “Commission or brokerage. 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: - 9 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.—For the purposes of this section,— (i) \"commission or brokerage\" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) the expression \"professional services\" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) the expression \"securities\" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iv) where any income is credited to any account, whether called \"Suspense account\" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.” 13. In view of the factual findings recorded by the CIT(A) that payment from the distributor to the assessee has no link with the further sale made by the distributor and - 10 - NC: 2023:KHC:22068-DB ITA No. 159 of 2019 C/W ITA No. 157 of 2019 same having been confirmed by the ITAT which is the last fact finding authority based on the decision of this Court in Bharti Airtel Ltd. Vs. DCIT6, we find no merit in these appeals. Hence, the following: ORDER i) The appeals are dismissed; ii) Question No.1 does not arise for consideration; iii) Question No.2 is answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE YN List No.: 2 Sl No.: 38 6 (2014) 52 taxman.com 31 KAR. "