Bhopal Sugar Industries Ltd v. M/S. United Breweries Ltd

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANANDTHE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHYITTA.Nos.633, 647 and 666 of 2015 COMMON JUDGMENT:(per Hon’ble Sri Justice Ramesh Ranganathan) These appeals, under Section 260-A of the Income Tax Act,1961 (for short “the Act”), are preferred by the Revenue against thecommon order passed by the Income Tax Appellate Tribunal in I.T.A.Nos.103, 104 and 105/Vizag/2014 dated 10.08.2015 for theassessment years 2008-09, 2009-10 and 2010-11. The respondent-assessee is engaged in the manufacture andsale of beer to the Andhra Pradesh Beverages Corporation Limited(APBCL). After a TDS survey was conducted in the premises of theassessee on 25.03.2010, an assessment order was passed. Theassessing officer held that the assessee had committed default interms of Section 201(1) of the Act, and levied interest under Section201(1A) of the Act in respect of the amounts paid under the tradeschemes and discounts. The assessee contended that, under Section194H of the Act, tax was required to be deducted at source at the timeof payment of commission/brokerage; trade discount was a rebategiven by the company to its dealer, which did not partake thecharacter of commission; and Section 194H of the Act was notapplicable. The assessing authority, however, held that discount isgenerally allowed as reduction in the price, and would be reflected inthe invoice itself; in the assessee’s case discounts were not reflectedin the invoices; whatever be the nomenclature, payments were madefor the services rendered to the tax deductor in the course of sale ofgoods; and Section 194H of the Act was applicable. In the appeal preferred thereagainst, the Commissioner ofIncome Tax (Appeals) held that the relationship of principal and agentwas not mandatory; payments were made by the assessee to their del- credere agents, and they would be the payees and not the retaildealers; the relationship of principal and agent was established; thedel-credere agents had rendered the service of promoting thebrands/products manufactured by the assessee, inducing the retaildealers to place orders with APBCL for which the subject paymentswere made; and the conditions prescribed in Section 194H of the Actwere satisfied requiring deduction of tax at source. Aggrieved thereby,the respondent-assessee carried the matter in appeal to the Tribunal. In the order under appeal the Tribunal, after extracting Section194H of the Act, held that the definition of “commission or brokerage”made it clear that the payment received by a person for acting onbehalf of another for services rendered or for any services in thecourse of buying or selling of goods etc fell under the category of“commission or brokerage”; provision of service, by a person acting onbehalf of another person, signified the principal- agent relationshipbetween the payer and payee, since the agent acts on behalf of theprincipal; it cannot be said to be a service provided by one person onbehalf of another person, and the said payment cannot fall under thedefinition of “commission”; in the case on hand, the asessee suppliedbeer to APBCL, a Government of Andhra Pradesh undertaking, which,in turn, sold beer to various retail dealers; in effect there was no directrelationship between the assessee and the retail dealers; however,since the turnover of the assessee would depend upon the saleseffected with the retail dealers, the assessee had promoted a salespromotion scheme under which incentives were given to retail dealersupon achievement of certain targets in sales; by this scheme retaildealers were motivated to purchase more quantity of beermanufactured by the assessee, which in turn would increase theturnover of the assessee; in order to market the trade discount scheme,and also in order to promote sales of its products, the assessee hadappointed del-credere agents; there was no dispute that paymentmade to del-credere agents, for the services provided by them to the assessee, was treated as commission by the assessee; TDS had beendeducted, under Section 194H of the Act, from them; the incentivespayable under the trade discount scheme was disbursed by theassessee to the retail dealers through del-credere agents who hadopened separate bank accounts for the said purpose; and the del-credere agents had only acted as a conduit for transferring incentivesto the retail dealers. Placing reliance on the judgment of the Supreme Court in Bhopal Sugar Industries Ltd. vs. STO[[1]], the Tribunal held that theessence of a “Contract of Agency” was that the agent did not sell thegoods as his own, but sold the same as the property of the principalunder his instructions and directions; an agent always acts on behalf ofhis principal, and the benefits of the activities of the agent would bereaped by the principal; since the agent was not the owner of thegoods, the loss, if any, suffered by the agent was to be borne by theprincipal, and the agent was required to be indemnified by theprincipal; and the payment received by the agent for the servicesrendered to the principal is understood as “Commission”. After referring to the judgment of the Gujarat High Court in thecase of Ahmedabad Stamp Vendors Association vs. Union of India[[2]],the Tribunal held that the “element of agency” was anessential requirement in order to characterise a payment made forservices provided as “commission”. The Tribunal relied on thejudgment of the Bombay High Court in Harihar Cotton Processing Factory vs. CIT[[3]]and held that commission was in the nature ofrecompense or reward for the services rendered, and expressed itsinability to agree with the view of the Commissioner of Income Tax(Appeals) that the discount should be shown as a reduction in theselling price. The Tribunal also relied on the order of the VisakhapatnamBench of the Tribunal in Additional Commissioner of Income Tax vs. Pearl Bottling (P) Ltd.[[4]]wherein discounts offered to retailers,and also promotional discount, were held not to be “commission” asthe relationship between the assessee therein and its distributor wason a principal to principal basis. The Tribunal held that, since theassessee had sold the goods to APBCL and the retail dealers hadpurchased the goods from APBCL, the sale between the assesseeand APBCL, and the sale between APBCL and retail dealers, was ona principal to principal basis; the retail dealers had not provided anyservices to the assessee, since there was no direct connectionbetween the assessee and retail dealers; the trade discount schemewas announced by the assessee in order to promote its sales; underthe said scheme, the assessee had disbursed the eligible amount ofincentive or rebate or discount to the retail dealers through its del-credere agents; payment was actually made to the retail dealers; and,as such, the payment constituted sales promotion expenses and didnot fall within the category of “commission” attracting Section 194H ofthe Act. Before us Sri K. Raji Reddy, learned Senior Standing Counselfor Income Tax, would reiterate the very same submissions as wereurged by the Revenue before the Tribunal. As has been noted by theTribunal, in the order under appeal, the Explanation to Section 194H ofthe Act defines “commission or brokerage” to include any paymentreceived directly or indirectly by a person acting on behalf of anotherperson for services rendered, or for any services in the course ofbuying or selling of goods, or in relation to any transaction relating toany asset, valuable articles or thing, not being securities. Paymentreceived by a person from another, for services rendered, constitutes“commission” under the Explanation to Section 194H of the Act. From the facts noted by the Tribunal, in the order under appeal,it is evident that beer was sold by the respondent-assessee to APBCL,and APBCL had, in turn, sold the beer, purchased by them from therespondent-assessee, to retail dealers. Both these transactions were From the facts noted by the Tribunal, in the order under appeal,it is evident that beer was sold by the respondent-assessee to APBCL,and APBCL had, in turn, sold the beer, purchased by them from therespondent-assessee, to retail dealers. Both these transactions were independent of each other, and were on a principal to principal basis. No services were rendered by the retail dealer to the respondent-assessee, and the incentive given by the respondent-assessee, to theretailers as trade discount, was only to promote their sales. TheTribunal rightly held that in the absence of relationship of a principaland agent, and as there was no direct relationship between therespondent-assessee and the retailer, the discount offered by therespondent-asessee to the retailers could only be treated as salespromotion expenses, and not as commission, as no services wererendered by the retailers to the respondent-assessee. An appeal under Section 260-A of the Act would lie only on asubstantial question of law. Save perversity, or a finding based on noevidence, the findings of fact recorded by the Tribunal would not giverise to a substantial question of law. The findings of the fact recordedby the Tribunal cannot be said to suffer from any such infirmity. Theorder of the Tribunal does not also suffer from any error of lawnecessitating interference in proceedings under Section 260-A of theAct. We see no reason, therefore, to interfere with the order of theTribunal in the exercise of our jurisdiction under Section 260A of theAct. The appeals fail and are, accordingly, dismissed. Themiscellaneous petitions pending, if any, shall also stand dismissed.There shall be no order as to costs. _____________________________ RAMESH RANGANATHAN, J Date: 16.06.2016JSU ___________________________________ M. SATYANARAYANA MURTHY, J THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY ITTA.Nos.633, 647 and 666 of 2015 JSU Date:16.06.2016 [1]AIR 1977 SC 1275[2]257 ITR 201 (Guj.)[3]1960(39)ITR 594[4]46 SOT 133