Ita/338/2016 Of The Commissioner Of Income Tax Chandigarh v. M/S Ocm India Ltd Amritsar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT |CHANDIGARH. ITA No. 338 of 2016(0&M)Date of decision: May 09, 2018 The Commissioner of Income Tax (TDS) Chandigarh .....- Appel Vs, M/s OCM India Limited G.T. Road, Chheharta, Amritsar ...eSspondent CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALACTING CHIEF JUSTICE) HON’ BLE MR. JUSTICE TEJINDER SINGH DHINDSA Present:Mr. Yogesh Putney, Sr. Standing Counsel for the appellant-I€VENUC. Ms. Radhika Suri, Sr. Advocate with Mr. Manpreet Singh,Advocate. Ajay Kumar Mittal, ACJ. 1. In view of the averments made in CM No.19108 CII of 2016,|the delay in refiling the appeal 1s condoned. The application stands allowed. 2 |The appellant-revenue has filed the instant appeal under Section|260A of the Income Tax Act, 1961 (in short, “the Act’) against the order|dated 12.6.2012, Annexure A.3, passed by the Income Tax Appellate|Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal’) in ITA|No.418(ASR)/2011 for the assessment year 2008-09, claiming following|substantial question of law:- “Whether the Hon’ble ITAT was right in confirming theorder of CIT(A) in reversing the order of the AssessingOfficer invoking the provisions of Section 194H of theIncome Tax Act, 1961 on the payment of turnoverdiscount of 44.57,52,494/-?” 3A few facts relevant for the decision of the controversy involvedas narrated in the appeal may be noticed. During inspection on 20.1.2009 ofthe office records of the respondent-assessee 1.e. M/s OCM India Limited,|GT Road, Chheharta, Amritsar, a company engaged in manufacturing and|sale of woolen articles, 1t was noticed that the assessee debited an amount of44.57,52,494/- to the account of Trade turnover discounts which had been)netted out from the gross turnover and did not appear an item of expense in|profit and loss account. The assessee pleaded before the Assessing Officer|that commission or brokerage arose on account of agency transactions which|did not attract TDS for the services rendered by the third party. The|Assessing Officer after considering the explanations of the assessee|concluded that the amount of)44,57,52,494/- being turnover discount wasdirectly or indirectly for the services rendered as per the inclusive definition|of the Explanation to Section 194H of the Act. The respondent company washeld liable to deduct the tax at source under Section 194H of the Act and ademand of|447.12,507/- on account of TDS and a further amount of46,59,751/- on account of interest charged under section 201(1A) of the Actwas raised. Aggrieved by the order, the respondent assessee filed appeal|before the Commissioner of Income Tax (Appeals), [CIT(A)]. Vide order|dated 18.4.2011, Annexure A.2, the CIT(A) allowed the appeal filed by the|assessee. Not satisfied with the order, the revenue filed appeal before the| Tribunal. Vide order dated 12.6.2012, Annexure A.3, the Tribunal dismissed| the appeal and upheld the order passed by the CIT(A). 4We have heard learned counsel for the parties. 5 _It would be apposite to refer to Section 194H and Explanation (1) thereto, the relevant portion thereof reads thus:- Tribunal. Vide order dated 12.6.2012, Annexure A.3, the Tribunal dismissed| the appeal and upheld the order passed by the CIT(A). 4We have heard learned counsel for the parties. 5 _It would be apposite to refer to Section 194H and Explanation (1) thereto, the relevant portion thereof reads thus:- “Any person, not being an individual or a Hindu undivided|family, who is responsible for paying, on or after the Ist day ofJune 2001, to a resident, any income by way of commission (notbeing 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 1ncash 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 tenper cent.family, who is responsible for paying, on or after the Ist day ofJune 2001, to a resident, any income by way of commission (notbeing 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 1ncash 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 tenper cent. Provided xxxxXXXXxXX .000 Explanation — For the purposes of this Section:- 1) “Commission or brokerage” includes any payment received|or receivable, directly or indirectly, by a person acting on behalfof another person for services rendered (not being professional|services) or for any services in the course of buying or selling ofgoods or in relation to any transaction relating to any asset,|valuable article or thing, not being securities. 1 tO 1V XXXXXX .0? On plain reading of Section 194H of the Act, it is clear that tax at source 1s tobe deducted by a person responsible for paying any income by way of|“Commission or brokerage’. The expression “Commission or brokerage”|referred to in this section derives its meaning from the Explanation appended|thereto. According to it, “CCcommission or brokerage” includes any paymenreceived or receivable directly or indirectly by a person acting on behalf of another person (1) for services rendered (not being professional services); or (11) for any services in the course of buying or selling of good, or (111) 1n|relation to any transaction relating to any asset valuable article or thing, not,being securities. In order to examine whether Explanation (1) to Section 194H_of the Act is attracted, necessarily, it 1s to be seen whether the assessee has,made any payment and, 1n case it 1s so, whether it 1s for service rendered by the payee to the assesseee. 6_Having crystallized the legal position, we proceed to examine|various pronouncements relied upon by learned counsel for the parties.|Learned Counsel for the revenue, on the strength of judgments in|Commissioner ofIncome Tax Vs. Director, Prasar Bharti|I2010] 325 TTR205(Ker)» Commissioner ofIncome Tax Vs. Idea Cellular Ltd.I2010]} 325ITR 148 (Delhi), Vodafone Essar Cellular Ltd. Vs. Assistant Commissionerof Income Tax (TDS)|[2011] 332 ITR 255 (Ker), Bharti Cellular LimitedVs. Assistant Commissioner of Income Tax,(2011) 244CTR (Cal) 1859Hindustan Coca Cola Beverages Private Limited Vs. Income Tax Officer(2005) 98 TTS (JP) assailed the decision of the tribunal. Jo|InPrasar Bharti’scase (supra), the assessee a fully ownedGovernment of India undertaking was engaged in telecast of news, various|sports, entertainments, cinemas and other programmes. Advertisements were|canvassed through agents appointed by Doordarshan. The agent canvassed|advertisements on behalf of Doordarshan under the agreement between them|and the advertisement charges recovered from the customers were also in|accordance with the tariff prescribed under the agreement. The agreement|contained a provision permitting advertising agencies to retain 15% of the|advertising charges payable by them to Doordarshan towards Commission|from out of the charges received for advertising services from customers. In Jo|InPrasar Bharti’scase (supra), the assessee a fully ownedGovernment of India undertaking was engaged in telecast of news, various|sports, entertainments, cinemas and other programmes. Advertisements were|canvassed through agents appointed by Doordarshan. The agent canvassed|advertisements on behalf of Doordarshan under the agreement between them|and the advertisement charges recovered from the customers were also in|accordance with the tariff prescribed under the agreement. The agreement|contained a provision permitting advertising agencies to retain 15% of the|advertising charges payable by them to Doordarshan towards Commission|from out of the charges received for advertising services from customers. In those circumstances, it was held that provisions of Section 194 of the Act andthe Explanation (1) thereto was attracted. It was not a case of trade discount|as 1S the present case 1n hand. S.InIdea Cellular Limited ’case (supra), the Delhi High Courtwas examining the issue where the assessee was providing cellular telephonenetwork by appointing distributors for selling prepaid SIM Cards. The|assessee had been allowing discount to the distributor which was held to be|constituting Commission and provisions of Section 194H of the Act and|Explanation appended thereto attracted. The distinguishing feature 1n the said|case was that the assessee was engaged in the business of providing Cellular|telephone network through a card called Subscriber Identification Module|(SIM). Pre-paid or post-paid connections were provided to the subscribers|through distributors called pre-paid market associates (PMAs) appointed by the assessee to whom assessee had offered discount to its distributors for the|prepaid calling services. The High Court reversing the judgment of the|Tribunal had concluded that in view of the nature of transaction therein, thediscount was infact in the nature of the Commission for the services rendered|by the agents for services provided by the assessee to the subscriber. In the|present case, the assessee had been deducting the trade discount allowedto |the dealers under the heading “turnover incentive’ and the same had been|reduced from the sale which 1s distinct from the facts of the case before the|Delhi High Court. 9Similar issue arose before the Kerala High Court in)VodafoneEssar Cellular Limited’scase (supra). The issue was adjudicated in favour ofthe revenue relying upon decision of the Delhi High Court inIdea CellularLimited’scase (supra). The Calcutta High Court in)Bharti Cellular Limited ’ case (supra) also expressed in favour of the revenue in view ofjudgments ofthe Delhi and Kerala High Courts. 10.Learned Counsel for the Assessee had cited judgments in|The|Bhopal Sugar Industries Limited Vs. Sales Tax Officer Bhopal, AIR 1977)SC 1275,|Ahemdabad Stamp Vendors Association Vs. Union of India5(2002) 257 ITR 202 (Guj.),Commissioner of Income Tax Vs. QatarAirways, (2011) 322 ITR 253 (Bomb.) andM.S. Hameed and others Vés.|Director ofState Lotteries and others, (2001) 249 ITR 186 (Kerla). 11.Heavy reliance was placed by learned Counsel for the assessee|1n|Ahemdabad Stamp Vendors Assoctiation’case (supra). The issue beforethe Gujarat High Court in the said case was whether tax at source was|required to be deducted under Section 194H of the Act where a licensed|vendor of stamp paper was collecting the stamp papers from the Government|and then depositing the value of the stamp papers less the discount with the|Government in terms of Gujarat stamps supply and sales Rules, 1987 (in|Short, 1987 Rules). It was held that the discount made available to the|licensed stamp vendors under the provisions of 1987 Rules, does not fall|within the expression “Commission or brokerage” under Section 194H of theAct. The relevant observations read thus:-. 11.Heavy reliance was placed by learned Counsel for the assessee|1n|Ahemdabad Stamp Vendors Assoctiation’case (supra). The issue beforethe Gujarat High Court in the said case was whether tax at source was|required to be deducted under Section 194H of the Act where a licensed|vendor of stamp paper was collecting the stamp papers from the Government|and then depositing the value of the stamp papers less the discount with the|Government in terms of Gujarat stamps supply and sales Rules, 1987 (in|Short, 1987 Rules). It was held that the discount made available to the|licensed stamp vendors under the provisions of 1987 Rules, does not fall|within the expression “Commission or brokerage” under Section 194H of theAct. The relevant observations read thus:-. “It 1s also not possible to accept the contention of Mr.Naik for the Revenue that the definition of “commissionor brokerage” as contained in the Explanation to section194H is so wide that it would include any paymentreceivable, directly or indirectly, for services in the courseof buying or selling goods and that, therefore, the discountavailed of by the stamp vendors constitutes commission orbrokerage within the meaning of section 194H. If thiscontention were to be accepted, all transactions of salefrom a manufacturer to a wholesaler or from a wholesaler. to a semi wholesaler or from a semti-wholesaler to aretailer would be covered by section 194H. To fall withinthe aforesaid Explanation, the payment received orreceivable, directly or indirectly, 1s by a person acting onbehalf of another person (1) for services rendered (notbeing professional services), or (11) for any services in thecourse of buying or selling of good, or (111) 1n relation to’any transaction relating to any asset, valuable article orthing. The element of agency is to be there in case of allservices or transaction contemplated by Explanation (1) to’section 194H. If a car dealer purchases cars from themanutacturer by paying price less discount, he would bethe purchaser and not the agent of the company, but 1n thecourse of selling cars, he may enter into a contract ofmaintenance during the warrant period, with the customer(purchaser of the car) on behalf of the company.However, such services rendered by the dealer in thecourse of selling cars does not make the activity of sellingcars itself an act of agent of the manufacturer when thedealings between the company and the dealer in thematter of sale of cars are on “principal to principal” basis.This is just an illustration to clarify that a service in thecourse of buying or selling of goods. When the licensedstamp vendors take delivery of stamp papers on paymentof full price less discount and they sell such stamp papersto retail customers, neither of the two activities (buyingfrom the Government and selling to the customers) can betermed as service in the course of buying or selling ofgood.| In view of the above discussion, we uphold thecontention urged on behalf of the petitioner’s associationthat the discount made available to the licensed stampvendors under the provisions of the Gujarat StampsSupply and Sales Rules, 1987, does not fall within theexpression “commission” or “brokerage” under section194H of the Income-tax Act, 1961. The impugned communication dated March 14, 2002, from the Income-tax Officer, TDS 4, Ahmedabad, to the Senior TreasuryOfficer, Ahmedabad, 1s, therefore, quashed and set aside,and so also the consequential instructions dated March 19,2002 (annexure “D” to the petition) issued by the SeniorTreasury Officer, Ahmedabad, to the secretary of thepetitioner’s association are quashed and set aside.” In view of the above discussion, we uphold thecontention urged on behalf of the petitioner’s associationthat the discount made available to the licensed stampvendors under the provisions of the Gujarat StampsSupply and Sales Rules, 1987, does not fall within theexpression “commission” or “brokerage” under section194H of the Income-tax Act, 1961. The impugned communication dated March 14, 2002, from the Income-tax Officer, TDS 4, Ahmedabad, to the Senior TreasuryOfficer, Ahmedabad, 1s, therefore, quashed and set aside,and so also the consequential instructions dated March 19,2002 (annexure “D” to the petition) issued by the SeniorTreasury Officer, Ahmedabad, to the secretary of thepetitioner’s association are quashed and set aside.” 12.Adverting to the factual matrix herein, admittedly, the assessee|debited an amount of=4.57,52,494/- to the account of “Trade TurnoverAccounts” which had been netted out from the gross turnover and did not,appear as expense in the profit and loss account. The Assessing Officer held|that the said amount being turnover discount was directly or indirectly for theservices rendered as per Explanation to Section 194H of the Act and thus|demand on account of TDS and interest under Section 201(1A) of the Act|was raised. On appeal before the CIT(A), the issue was whether the trade|turnover discount amounting to44,97,92,494/- was subject to TDS underSection 194H of the Act by treating 1t as commission/brokerage to its dealersso as to be covered under Explanation to Section 194H of the Act. The|CIT(A) recorded that the assessee had been debiting commission amounting|LO 41.84 crores paid to its commission agents appointed territory wise whichwere acting and procuring orders/effecting sales of 1ts products for and on its|behalf and getting commission varying from place to place and quality of theproduct to product. Thus the Assessing Officer was held to be not justified in attracting the provisions of Section 194H read with its Explanation to the|trade discount allowed by the assessee to its buyers/customers/direct trade|dealers without involvement of any inter-mediator/commission agents. The|relevant findings recorded by CIT(A) read thus:- ‘| have considered the appellant’s submissions and gone through|the A.O.’s assessment order under appeal together with the caselaw relied upon by both sides. The only disputed point to be|decided is as to whether the trade turnover discount amounting|£O 44.57,52,494/- are subject to TDS under Section 194-H bytreating 1t as commission/brokerage to its dealers alleged by theA.O. appellant’s commission agents and as such covered under|the Explanation given below Section 194-H or not. It is an|undenying fact that the A.O. has not carry out any independent|verification under Section 133(6) from the trade dealers so as to|confirm the appellant-company’s book version and or examiningas to whether the trade dealers are accounting for the turnover|discount in their books of accounts or not. The appellant-company has all along been arguing that this a part and parcel|for his consistent trade practice being followed year after year toallow trade discount to the trade dealers so as to boost its)turnover and this has been credited to the respective accounts ofthe trade dealers during the closing of the account books and on|the other hand, it has been debiting commission amounting to|41.84 crore paid to its commission agents appointed territory-wise which are acting and procuring orders/effecting sales ofappellant’s products for and on behalf of the appellant-principal|and getting commission varying from place to place and quality|of the product to product. Further, the A.O. has failed to|established and bought on record any living instance on the basisof which it can be safely inferred that trade discount is only a|sham arrangement and the payment has not been actually made|to the trade dealers, Neither, the A.O. has bought on record any|solid information coming to his possession which could led that|the trade discount is virtually a commission paid to the|intermediaries. On the contrary, it has been all along the|appellant’s contention that after the deal in a particular case 1s|over, it loses its right over the same and 1t becomes the absoluteproperty of the customer/buyer who was also paid trade discountso as to motivate towards appellant’s products in the open|market full of competition. It 1s a general trade phenomenon| amongst all the business community to enter into sale|transaction directly with the customer and also procure orders|through its commission agents. | am of the considered opinion|that the A.O. has not appreciated the entire state of affairs of theappellant company in its true business spirits and in the right|perspective. He has rather misled himself in inter-mixing the|two types of sales 1.e. direct sales and indirect sales through|commission agents. Further, I find force 1n the case laws relied|upon by the appellant, cited supra. Further, it 1s not the A.O.’s|case that the appellant-company has contravened the provisionsof Section 194-H in respect of commission of=| S4crores.debited by it to its profit & loss account. In the totality of facts|and peculiar circumstances of the case, it would be in the|interest of justice to hold that the A.O. 1s not justified in|attracting provisions of Section 194-H read with its Explanation|to the trade discount allowed by the appellant-company to|buyers/customers/direct trade dealers without involvement of|any inter-mediator/commission agents. Accordingly, the huge|demand of453,72,258/- created under Section 201(1) read withSection 201(1A) of the Income Tax Act, 1961 is hereby deleted|being unwarranted and not liable as per the provisions of Section194-H read with its Explanation, as the department has failed to.bring on record any solid documentary evidence to established|nexus and relationship between the appellant company principalwith that of the direct trade dealers as that of a commission|agents/contractors/intermediates.”’ 13.The said findings have been affirmed by the Tribunal with|following observations: 13.The said findings have been affirmed by the Tribunal with|following observations: “We have heard the rival contentions and perused the facts ofthe case. There 1s no dispute to the fact that the assessee had|debited the amount of44.57,52,494/- to turnover incentive and|the same has been reduced from the sales. The explanation of|the assessee that the discount 1s given under various schemes asmentioned hereinabove, has not been accepted by the AO for no| reasons. There 1s no material on record before the AQ that such|discount offer 1s a commission within the meaning of Section|194-H of the Act. No 1ota of evidence or document has been|placed on record by the assessing authority that the assessee haspaid or debited the commission in its account. The AO has reliedupon the decision in the case ofHindustan Coco ColaBeverages Pyt. Ltd. Vs. LTO ITAT (JP) (2005) 98 TTS (JP) Ialong with other decisions of various courts of law. The AO hasnot established how the present case is identical to the facts in|the case of.Hindustan Coco Cola Beverages Pyt. Ltd. Vs. ITO(supra). Since in the case ofHindustan Coco Cola beveragesPvt, Ltd. Vs. ITO(supra), the brief facts are that the assessee 1s acompany engaged in manufacture and distribution of non-alcoholic packed glass bottle and plastic crates. The said|company has been filing TDS return in respect of TDS of salary,contract/sub-contract and interest but no TDS return in respectof commission payment has been filed. A survey u/s 133 A of|the Act was conducted on 20[th]Dec., 2002 on business premises|for the purpose of verification regarding TDS being made by theassessee. During the course of survey, a trial balance showing|affairs of the company for the period between | Jan., 2002 to$%[th]Dec., 2002 was obtained. From this trial balance, it was|found that distributor commission has been debited by an|amount of=4,75,22,929/-. However, 1t was found that no TDSwas deducted and paid on corresponding credit entries or|commission payment whatsoever. The distributors of the said|company had admitted that they have been getting the|commission from the said assessee and there were many other|facts available before the ITAT, Jaipur Bench, while deciding|the issue against the assessee. The assessee 1n that case was alsomaintaining books of account, in which he has declared the|purchase and sale of the goods. It is in this background that the|decision against the assessee and in favour of the Revenue was|given by the ITAT, Jaipur Bench, reported in (2005)|98TTJS(Jp)1. There is no such material available in the presentcase. Also, there is nothing on record, how the cases relied upon| by the A.O. are identical to the facts of the present case. The Ld.Counsel for the assessee has relied upon the decisions of variouscourts of law before the Ld. CIT(A) and before us. In the facts|and circumstances of the case, we are of the view that the|assessee company has not contravened the provisions of Section|194-H of the Act and the AQO has decided the issue withoutconsidering the explanation of the assessee and, therefore, the|Ld. CIT(A) has rightly reversed the order of the Assessing|Officer. The Ld. CIT(A) has rightly deleted the demand of|453,72,258/- created under Section 201(1) read with Section|201(1A) of the Act and the assessee cannot be held to be|assessee 1n default. We find no infirmity in the order of the Ld.CIT(A) and the same is upheld. Thus, all the grounds of the|Revenue are dismissed.” | 14.In the present case, since concurrent finding has been recorded|by the CIT(A) as well as the Tribunal that the assessee had been debiting|trade discount allowed to its commission agents who were acting and_procuring orders/effecting sales of its products for and on its behalf, the|Assessing Officer was not justified 1n attracting the provisions of Explanationto Section 194H of the Act. Learned counsel for the appellant has not been|able to point out any error or illegality therein. 14.In the present case, since concurrent finding has been recorded|by the CIT(A) as well as the Tribunal that the assessee had been debiting|trade discount allowed to its commission agents who were acting and_procuring orders/effecting sales of its products for and on its behalf, the|Assessing Officer was not justified 1n attracting the provisions of Explanationto Section 194H of the Act. Learned counsel for the appellant has not been|able to point out any error or illegality therein. 145.In view of the above, substantial question of law stands|answered accordingly. Consequently, the appeal stands dismissed. May 09, 2018Whether speaking/reasoned Whether reportable (Ajay Kumar Mittal)Acting Chief Justice (Tejinder Singh Dhindsa) JudgeYesYes Yes