The Deputy Commissioner Of Income Tax (Tds), Jaipur v. The Branch Manager, National Agriculture Cooperative Marketingfederation Of India Ltd. Sahkar Bhawan, B.s. Road, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 108 / 2011 The Deputy Commissioner of Income Tax (TDS), Jaipur ----Appellant Versus The Branch Manager, National Agriculture Cooperative MarketingFederation of India Ltd. Sahkar Bhawan, B.S. Road, Jaipur. ----Respondent Connected With D.B. Income Tax Appeal No. 167 / 2012 The Commissioner of Income Tax, (T.D.S.), Jaipur ----Appellant Versus M/s Rajasthan State Cooperative Marketing Federation Limited, Jaipur ----Respondent D.B. Income Tax Appeal No. 168 / 2012 The Commissioner of Income Tax (TDS), Jaipur ----Appellant Versus M/s Rajasthan State Cooperative Marketing Federation Limited, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat, Mr. K.D. Mathur For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana Mr. Anant Kasliwal _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH 25/07/2017 1. In all these appeals common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of these appeals, the appellants have assailed thejudgment and order of the Tribunal whereby Tribunal has allowedthe appeal preferred by the assessee reversing the order passedby the AO as well as CIT(A). 3.This court while admitting the appeals framed followingsubstantial questions of law:- 3.1Appeal No.108/2011 admitted on 10.4.2012 “1. Whether in the facts and circumstances of thecase the ITAT was justified in law and has not actedperversely in holding that the payments made by theassessee to the societies were not liable todeductions u/s 194H of the Income Tax Act. 2. Whether in the facts and circumstances of thecase the ITAT was justified in law in deleting theaddition made u/s 201(1) and consequent to thesame the demand of interest u/s 201(A) of the Act?” 3.2Appeals No.167/2012 & 168/2012 admitted on 25.9.2012 “1. Whether the Tribunal was legally justified inholding that the society/administrative charges paidto the societies on purchase of agricultural producewere not in the nature of ‘commission’, liable for TDSu/s 194H and consequently deleting the demandraised u/s 201(1), (1A) of the Act? 2. Whether the findings of the Tribunal are perversein deleting the demand raised u/s 201(1), (1A)thereby holding that no TDS was to be deducted u/s194H specifically when there was a principal agentrelation between the primary societies and theassessee who were procurement agents ofagricultural produce for and on behalf of the assesseeas per the agreement? 4.Counsel for the appellant Mr. Mathur contended that Tribunalhas committed serious error in allowing the appeal preferred bythe assessee inasmuch as AO while considering the matter in parano.3.3 observed as under:- ”The submissions made by the assesseedeductor have been considered. Before dealingwith the reply of the assessee deductor, it wouldbe appropriate to have a look at the agreementbetween NAFED and State Level agency RAJFEDfor price support operations. Some of therelevant clauses of the agreement for Rabiseason, 2007 are reproduced hereunder- PURPOSE WHEREAS THE NAFED is desirous of appointing aSupporter for the procurement and delivery ofmustard seed on its behalf and whereas theRAJFEED has agreed to act as Supporter ofNAFED in the Rajasthan for the said purpose andin the said manner hereinafter mentioned. DESCRIPTION OF THE WORK ”The submissions made by the assesseedeductor have been considered. Before dealingwith the reply of the assessee deductor, it wouldbe appropriate to have a look at the agreementbetween NAFED and State Level agency RAJFEDfor price support operations. Some of therelevant clauses of the agreement for Rabiseason, 2007 are reproduced hereunder- PURPOSE WHEREAS THE NAFED is desirous of appointing aSupporter for the procurement and delivery ofmustard seed on its behalf and whereas theRAJFEED has agreed to act as Supporter ofNAFED in the Rajasthan for the said purpose andin the said manner hereinafter mentioned. DESCRIPTION OF THE WORK The Supporter shall be required to procuremustard seed I the various mandies fo the Stateidentified for the purpose from the farmersthrough the Primary Co-operative MarketingSocieties/OilseedsGrowersSociety/TribalSociety of the respective areas under the PriceSupport Scheme. The stocks to be procuredshall conform to the prescribed quality/gradespecifications and packed in the gunniessupplied by NAFED/arranged by the Supporteron behalf of NAFED into a standard weight of 85kgs net and stitched properly. The Supportershall ensure timely payment to the farmers forthe stocks procured after obtaining properreceipt and NAFED shall ensure timely paymentto Supporter.” 4.1He also contended that while considering the clause “servicecharges” on page no.23 and “purchase tax” on page no.24 readsas under:- SERVICE CHARGES “The Supporter shall be paid service charges @ 2% to beshared with the marketing society on the value of nakedseeds on satisfactory performane of the work and afterscrutiny of the bills. In case services of Primary Societieswherever not existing or defaulter have not beenutilized, service charges @ 1% is to be paid to StateLevel Supporter (SLS). Service charges will be releasedto SLS only after satisfactory completion of the MSPoperation and all required documents / WRs arefurnished to NAFED. PURCHASE TAX Since there isno actual purchase and salebetween NAFED and SLS/societies/Union atMandi/village level societies, amount of purchasetax applicable at first point, if any, shall be paidby NAFED branch as per provisions in therespective Sale Tax Act/Rules of the concernedState. 4.2AO while considering the same in para no.4 held as under:- “4. Apart from RAJFED, the procurement work forthe assessee deductor in the period underconsideration was done by another state levelagency, namely, Rajasthan State Co-operativeOilseed Growers’ Fed. Ltd., commonly known asTilam Sangh. Certain inquiries were made by thisoffice from Tilam Sangh vide letter dated08.04.2009. Tilam Sangh was required to explainas to how purchase and transfer of procuredgoods is accounted for in its books of account. Itwas also required to clarify as to how commissionearned on procured goods is accounted for in itsbooks of account. The Managing Director of TilamSangh replied vide letter no.26 dated 15.04.2009that- (i)Thesupporteri.e.StatelevelAgency/Societies procures the commodity in thename and on behalf od NAFED as per prescribedquality/grade specifications. The material soprocured is deposited in the concernedWarehouses in the name of NAFED. Hence,there is no actual purchase and salebetweenNAFEDandStateLevelAgency/Societies. (ii) The commission earned on procured goods isshown under the head of Other Income receiptsin the Profit & Loss A/c. It is clear from the above reply that M/s TilamSangh has clearly admitted that there is noactual sale and purchase between NAFED andTilam Sangh. Further, M/s Tilam Sangh has notaccounted for the goods transferred to NAFED intheir turnover and has shown commission earnedon procured goods under the head ‘OtherIncome.” (i)Thesupporteri.e.StatelevelAgency/Societies procures the commodity in thename and on behalf od NAFED as per prescribedquality/grade specifications. The material soprocured is deposited in the concernedWarehouses in the name of NAFED. Hence,there is no actual purchase and salebetweenNAFEDandStateLevelAgency/Societies. (ii) The commission earned on procured goods isshown under the head of Other Income receiptsin the Profit & Loss A/c. It is clear from the above reply that M/s TilamSangh has clearly admitted that there is noactual sale and purchase between NAFED andTilam Sangh. Further, M/s Tilam Sangh has notaccounted for the goods transferred to NAFED intheir turnover and has shown commission earnedon procured goods under the head ‘OtherIncome.” 5.Taking into consideration the definition of Principal & Agentas defined u/s 182 of the Indian Contract Act which reads asunder:- “Principal and agent has been defined in theIndian Contract Act, 1872. As per Section 182of the India Contract Act, the definition ofprincipal and agent is as under- “An ‘agent’ is a person employed to do any act foranother or to represent another in dealings withthird persons. The person for whom such act isdone, or who is so represented, is called the‘Principal’.” 5.1And rightly directed the society to deduct the TDS observingas under:- 6.1. I have considered the submissions of the ld.AR. The assessee deductor has satisfied me inrespect of all the societies, except in the case ofTilam Sangh, that the income received fromNAFED has been offered by them for taxation andthe return of income has been filed by them forassessment year 2006-07 to assessment year2008-09, corresponding to financial year 2005-06 to financial year 2007-08. However, despiterepeated requested during the course of theproceedings, the assessee deductor failed tofurnish certificate from Tilam Sangh that theincome received by it has been offered fortaxation. Thus no demand u/s 201(1) of the Actis raised in case of payments made to thesocieties for financial year 2005-06 to financial year 2007-08 (corresponding to assessment year2006-07 to assessment year 2008-09), except inthe case of M/s Tilam Sangh. No return of incomeby any society for assessment year 2009-10corresponding to financial year 2008-09 has beenfiled and the assessee deductor has not beenable to satisfy me that commission incomereceived by these societies from NAFED has beenoffered for taxation, therefore, provisions ofsection 201(1) are applicable in respect offinancial year 2008-09.” 5.2He contended that CIT (A) while considering matter upheldthe order of the AO and has rightly observed in favour of thedepartment. 5.3However, tribunal has seriously committed error in allowingthe appeal. 5.4Counsel for the appellant has relied upon the decision ofDelhi High Court in Delhi Milk Scheme vs. Commissioner ofIncome Tax and Deputy Commissioner of Income Tax reported in(2008) 301 ITR 373 (Delhi) wherein Delhi High Court whileconsidering the transaction of principal and agent after taking intoconsideration the word ‘commission’ in para no.8 & 9, 11 & 12 hasheld in favour of the department. “8. The expression 'commission' has been defined inthe Explanation to Section194Hof the Act asfollows: Commission or brokerage 194-H. xxx xxx xxx Explanation. - For the purposes of this section, - (i) 'commission of brokerage' includes any paymentreceived or receivable, directly or indirectly, by aperson acting on behalf of another person forservices rendered (not being professional services)or for any services in the course of buying or sellingof goods or in relation to any transaction relating to any asset, valuable article or thing, not beingsecurities; (ii) to (iv) xxx xxx xxx “8. The expression 'commission' has been defined inthe Explanation to Section194Hof the Act asfollows: Commission or brokerage 194-H. xxx xxx xxx Explanation. - For the purposes of this section, - (i) 'commission of brokerage' includes any paymentreceived or receivable, directly or indirectly, by aperson acting on behalf of another person forservices rendered (not being professional services)or for any services in the course of buying or sellingof goods or in relation to any transaction relating to any asset, valuable article or thing, not beingsecurities; (ii) to (iv) xxx xxx xxx 9. On the other hand, the word 'discount' had comeup for consideration in Harihar Cotton PressingFactoryv.CommissionerofIncomeTax,MANU/MH/0014/1960: [1960]39ITR594(Bom) . Inthat decision, it was held that a discount or adrawback is another word for a rebate which is aremission or a payment back and of the nature of adeduction from the gross amount. In other words, itincludes a refund to the purchaser of a thing orcommodity of a portion of the price paid by him. 11. On the facts of the case, it is quite clear that themilk and milk products are not sold by the assessedto the concessionaires. On the contrary, unsold milkis taken back by the assessed from theconcessionaires, without any price reduction.Therefore, whichever way one looks at the matter,from the point of view of the definition of the word'commission', as appearing in the Explanation toSection 194Hof the Act or from the meaning of theword 'discount', the transaction between theassessed and the concessionaires is a principal toagent transaction and not a principal to principaltransaction. 12. The Tribunal has found, as a matter of fact, thatthe milk booths are owned by the assessed; theassessed has a right to enter the milk booth andtake charge thereof any time without assigning anyreason or without any intimation to theconcessionaires; unsold milk is taken back by theassessed from the concessionaires; cash collection isdaily handed over to the assessed by theconcessionaires; the concessionaires only render aservice to the assessed for selling milk to thecustomers; and finally ownership of the goods doesnot pass from the assessed to the concessionairesinasmuch as there is no sale of the milk or milkproducts to the concessionaires. No material hasbeen brought on record to controvert these findingsof fact.” 6.Counsel for the respondent Mr. Jhanwar and Mr. Kasliwalcontended that tribunal while considering the subject para 7 & 7.1observed as under:- “7. After hearing both the parties as well asconsidering the above submissions and orders ofthe authorities below and also the paper bookfiled by the ld. AR, it is noted that Section 194His applicable where any person pays any incomeby way of commission or brokerage. Explanationprovides that commission or brokerage includesany payment received or receivable, directly orindirectly, by a person acting on behalf ofanother person for any services in course ofbuying or selling of goods. The provision ofsection 194H is not applicable on the societiescommission reflected by the societies in theresale bills for the reasons stated here under:- (a) The transaction between the assessee andthe societies is on principal to principal basis andnot on principal and agent relationship. (b) The societies while procuring the goods fromthe ‘Mandi’ no where disclose that the purchasesare made by them for or on behalf of theassessee. This is also evident from the auctionregister of Krishi Upaj Mandi Samitee wherename of the societies are mentioned as apurchasing party. The name of the assessee nowhere appears in this register. (a) The transaction between the assessee andthe societies is on principal to principal basis andnot on principal and agent relationship. (b) The societies while procuring the goods fromthe ‘Mandi’ no where disclose that the purchasesare made by them for or on behalf of theassessee. This is also evident from the auctionregister of Krishi Upaj Mandi Samitee wherename of the societies are mentioned as apurchasing party. The name of the assessee nowhere appears in this register. (c) After purchase of goods by the societies butbefore delivery of the same to the specifiedwarehouse of the assessee, if there is anyshortage/ pilferage or damage to the goods it ison account of the societies and not of theassessee. It becomes the property of theassessee only after goods are deposited in thewarehouse. (d) The societies declare the gods which arementioned in there VAT Invoice (in whichsocieties commission is reflected) as sales inthere books of accounts and the assesseedeclare the same as purchase in its books ofaccounts. Thus the transaction is of purchaseand sales and not a payment of commission. Thesocieties commission is thus only the disclosedmargin of profit of the societies. It is just likeprofit plus agreement/arrangement for purchaseof goods. (e) In the VAT Invoice raised by the societiesthey separately disclose the naked cost of thegoods purchased by them, the Mandi Tax paid bythem, the expenses incurred by them forbringing the goods to the specified warehouse ofthe assessee and their profit margin named associetiescommission/charges.Allthese components are separately disclosed in VATInvoice as per the requirement of thegovernment as per PSS/MIS Scheme. On theentire total of the above items, VAT is chargedas par the applicable rates. Section 2(36) of theRajasthan VAT Act 2003 which define ‘salesprice’ also specifies that the amount paid orpayable to a dealer as consideration for sale ofany goods inclusive of any statutory levy or anysum charged for any thing done by the dealer inrespect of the goods or services rendered at thetime of or before the delivery thereof would betaken as sales price. Thus assessee onlypurchases the goods from the societies whereinthe margin of profit of the societies wherein themargin of profit of the societies is separatelydisclosed as societies commission/charges. 7.1 From the above it is held that the societiescommission/charge mentioned in the VATInvoice of the societies, selling goods to theassessee, is not a payment of the commission asenvisaged in section 194H and therefore, thereis no liability on the assessee to deduct tax atsource on such payment of purchase price whichincludes the payment of societies charges. Veryrecently the Hon’ble Punjab & Haryana HighCourt in the case of CIT (TDS) Vs. AssistantManager (Accounts), Food Corporation of India,326 ITR 106 on identical facts has observed asunder:- 7.1 From the above it is held that the societiescommission/charge mentioned in the VATInvoice of the societies, selling goods to theassessee, is not a payment of the commission asenvisaged in section 194H and therefore, thereis no liability on the assessee to deduct tax atsource on such payment of purchase price whichincludes the payment of societies charges. Veryrecently the Hon’ble Punjab & Haryana HighCourt in the case of CIT (TDS) Vs. AssistantManager (Accounts), Food Corporation of India,326 ITR 106 on identical facts has observed asunder:- “The assessee in the present case is FoodCorporation of India which is engaged inprocurement of food grains for the Central Pool.The food grains is procured through the StateAgencies and directly as well. Proceedings wereinitiated u/s 201 of the Income-tax Act, 1961with the allegation that the assessee had failedto deduct tax at source on the interest, rent andtransportation charges paid by it to variousagencies. The order came to be passed by theITO (TDS) on Feb. 25,2005, raising a demand ofRs. 12,34,814/-. The order was upheld by theCommissioner of Income tax (Appeals). Infurther appeal before the Tribunal, the plea setup by the assessee was accepted. It was noticedthat in the invoices raised by various Stateagencies who procured food grains on behalf ofthe assessee, the cost of wheat has been shownapart from the cost on account of otherincidental expenses incurred by the procurementagencies. VAT had also been charged. It was notevident from there that the expenses so incurredby the procurement agencies were on behalf of the assessee rather it was found to be part ofthe cost at which the food grains were to betransferred by the procurement agencies to theassessee. With these facts, it was found that asthe assessee had not paid any amount to theprocurementagenciesonaccountoftransportation, interest or storage charges assuch, accordingly there was no liability fordeduction of tax. The contention of the learned Counsel for theRevenue that in fact all these factors had beentaken care of while fixing the price at which thefood grain was to be filed to the assessee,carries no weight. If expenses incurred by aperson on account of transportation, interest,storage etc. are added to the cost of the goods,it cannot be inferred that the person who isbilled had paid certain amount on account ofthose services separately as the same becomespart of the commodity so sold. Placing reliance on the above decision and thefacts and circumstances discussed in foregoingparagraphs, we are of the view that the findingof lower authorities that society commissioncharged in the sale bills by these societies is apayment of commission by assessee in terms ofsection 194H is not correct as per law andaccordingly the issue is decided against theRevenue. Thus Ground No.1 of all the appeals ofthe assessee are allowed.” 6.1It was further contended that this transaction is on principalto principal basis. They have relied upon the following decisions:- 6.2 In M.S. Hameed & ors. vs. Director of State Lotteries & orsreported in 249 ITR 186 wherein Kerala High Court held asunder:- “That if the face value of the ticket was Re.1notwithstandingthecircumstancesthepetitioners received it for 72 paise. The State,released a ticket, receiving 72 paise. Thepetitioners may sell the ticket so obtained at anyprice of their choice. The transaction could notbe described as one whereby because ofinvestment of 72 paise the petitionerssimultaneously made a profit of 28 paise. Under 6.1It was further contended that this transaction is on principalto principal basis. They have relied upon the following decisions:- 6.2 In M.S. Hameed & ors. vs. Director of State Lotteries & orsreported in 249 ITR 186 wherein Kerala High Court held asunder:- “That if the face value of the ticket was Re.1notwithstandingthecircumstancesthepetitioners received it for 72 paise. The State,released a ticket, receiving 72 paise. Thepetitioners may sell the ticket so obtained at anyprice of their choice. The transaction could notbe described as one whereby because ofinvestment of 72 paise the petitionerssimultaneously made a profit of 28 paise. Under section 194G, the responsibility for deduction oftax is on the person responsible for paying anyincome by way of commission, remuneration orprize to any person who purchased or sold orstocked lottery tickets. The deduction is to be atthe time of credit of such income to the accountof the payee or at the time of payment of suchincome. Therefore, the demand of tax is to beshown as one on the income of the personconcerned. Since there was neither payment incash or by cheque and the Government nevercredited any income to the petitioner’s account,nor was any payment made to the agent at thetime of purchase of the ticket, section 194G hadno application. Since no payment was made inview of the mandate of the section, no deductionwas envisaged. Accordingly, the petitioners werenot liable to be covered under section 194G ofthe Act and instructions issued for deduction oftax at source were to be set aside.” 6.3 In Ahemdabad Stamp Vendors Association vs. Union of India(2002) 257 ITR 202 wherein Gujarat High Court held as under:- “13. There is no dispute about the fact that thelicensed vendor has to pay the price of thestamp papers less the discount at the ratesprovided in Appendix III to the Rules, whichrates vary from 0.5 per cent to 4 per cent It isnot that the stamp vendor collects the stamppapers from the Government, sells them to theretail customers and then deposits the saleproceeds with the Government less the discount.The liability of the stamp vendor to pay the priceless the discount is not dependent upon orcontingent to sale of the stamp papers by thelicensed vendor. The licensed vendor would notbe entitled to get any compensation or refund ofthe price if the stamp papers were to be lost ordestroyed. 14. As regards Mr. Naik's submission that Rules24 and 25 of the Rules, enabling the licensedvendor to deliver any stamps in his possessionby merely making an application for leave to doso without resigning his licence and to exchangeany stamps for which there is no immediatedemand for other stamps of the like aggregatevalue, are inconsistent with the contract of sale,it does prima facie seem attractive but on closerscrutiny it cannot be accepted. The reason is 14. As regards Mr. Naik's submission that Rules24 and 25 of the Rules, enabling the licensedvendor to deliver any stamps in his possessionby merely making an application for leave to doso without resigning his licence and to exchangeany stamps for which there is no immediatedemand for other stamps of the like aggregatevalue, are inconsistent with the contract of sale,it does prima facie seem attractive but on closerscrutiny it cannot be accepted. The reason is that the licensed vendor after purchasing thestamps on payment of full price less discount isnot permitted to go out to sell the stamp papersin the open market in bulk even to anotherlicensed vendor. Hence when the licensed vendoris to cease carrying on his business or to resignhis licence or even in any other eventuality if hewants to reduce his stock, the rules envisagingonly retail sale of stamp papers to customershad to make provisions for such contingencies.It was in order to make the prohibition againstsale except in accordance with the rulesefficacious that Rule 24 enables the licensedvendor to deliver up any stamps in hispossession either on an application for leave todo so or on resigning his licence, but as againstthe discount between 0.5 per cent to 4 per centobtained by him at the time of purchasing thestamp papers, the Government is to deduct 10per cent of the full value of the stamps sodelivered up in contingencies like resignation bythe licensed vendor or revocation of the licencefor any fault on the part of the licensed vendoror on application for leave to return any stampsin his possession. It is only in limitedcircumstances like expiration of the licence orrecall of stamps by the Government or in eventof death of the licensed vendor or on revocationof the licence for any cause other than fault onthe part of the licensee that the deduction at thetime of repurchase would be equivalent to thediscount which was given to the vendor.Similarly, in view of the stringent restrictionsimposed by the Government on the sale ofstamp papers, Rule 25 provides that a licensedvendor may be permitted to exchange anystamps which are fit for use but for which thereis no immediate demand, for other stamp papersof a like aggregate value. 15. The crucial question is whether ownership inthe stamp papers passes to the stamp vendorwhen the treasury officer delivers stamp paperson payment of price less discount. The rulesthemselves contemplate that what the licensedvendor does, while taking delivery of the stamppapers from the Government offices, ispurchasing the stamp papers. Clause (b) of Sub-rule (2) of Rule 24 indicates that the discountwhich the licensed vendor had obtained from theGovernment was on purchase of the stamppapers. The stringency of the restrictionscontained in the rules is not on account of thefact that the ownership over the stamp papers isnot transferred to the licensed vendors when they deliver the stamp papers on payment ofprice less discount, but the stringency of theconditions is on account of the nature of thestamp papers as such stamp papers are used intransactions relating to valuable properties forthe purpose of creating, transferring andextinguishing the interest in valuable properties.Judicial notice can be taken of the fact about theimportant, if not paramount, role being playedby stamp papers in our legal system. 16. The doubt, if any, on the controversy athand may also be cleared by reference to entry84 in Schedule I to the Gujarat Sales Tax Act,1969. If these licensed stamp vendors weremere agents of the State Government, no salestax would have been leviable when the stampvendors sell the stamp papers to the customersbecause it would be "sale" by the Governmentthrough the stamp vendors. However, entry 84has been specifically provided in Schedule I tothe Gujarat Sales Act for exempting sale ofstamp papers by the licensed vendors. Therelevant entry reads as under : 16. The doubt, if any, on the controversy athand may also be cleared by reference to entry84 in Schedule I to the Gujarat Sales Tax Act,1969. If these licensed stamp vendors weremere agents of the State Government, no salestax would have been leviable when the stampvendors sell the stamp papers to the customersbecause it would be "sale" by the Governmentthrough the stamp vendors. However, entry 84has been specifically provided in Schedule I tothe Gujarat Sales Act for exempting sale ofstamp papers by the licensed vendors. Therelevant entry reads as under : SCHEDULE1 [See section 5] Goods,the sale or purchase of which is free from all taxesSr. Description of goods Conditions and exceptions No. subject to which exemption is grantedxxx 84.Stamp papers sold by vendors duly authorised under the provisions of the Bombay Stamp Act, 1958 (Bom LX of 1958), or the Indian Stamp Act, 1899 (2 of 1899). The very basis of enacting the provision by theState Legislature for giving exemption fromsales tax in respect of sale of stamp papers bythe licensed vendors was the fact that the saleof stamp papers by the licensed vendors to thecustomers would have been otherwise exigibleto sales tax. The question of levy of sales taxwould arise only because the licensed vendorsthemselves sell the stamp papers on their ownand not as agents of the State Government. Had they been treated as agents of the StateGovernment, the question of levy of sales tax onsale of stamp papers by them would not arise. 17. Applying the aforesaid definitions and thejudicial pronouncements to the facts of thepresent case and in backdrop of the aforesaidrules, it is clear that although the Governmenthas imposed a number of restrictions on thelicensed stamp vendors regarding the manner ofcarrying on the business, the stamp vendors arerequired to purchase the stamp papers onpayment of price less the discount on theprincipal to principal basis and there is nocontract of agency at any point of time. 18. It is also not possible to accept thecontention of Mr. Naik for the Revenue that thedefinition of "commission or brokerage" ascontained in the Explanation to Section 194Hisso wide that it would include any paymentreceivable, directly or indirectly, for services inthe course of buying or selling of "goods andthat, therefore, the discount availed of by thestamp vendors constitutes commission orbrokerage within the meaning of Section194H.If this contention were to be accepted, alltransactions of sale from a manufacturer to awholesaler or from a wholesaler to a semiwholesaler or from a semi-wholesaler to aretailer would be covered by Section194H. Tofall within the aforesaid Explanation, thepayment received or receivable, directly orindirectly, is by a person acting on behalf ofanother person (i) for services rendered (notbeing professional services), or (ii) for anyservices in the course of buying or selling ofgoods, or (iii) in relation to any transactionrelating to any asset, valuable article or thing.The element of agency is to be there in case ofall services or transactions contemplated byExplanation (i) to Section194H. If a car dealerpurchases cars from the manufacturer by payingprice less discount, he would be the purchaserand not the agent of the company, but in thecourse of selling cars, he may enter into acontract of maintenance during the warrantyperiod, with the customer (purchaser of the car)on behalf of the company. However, suchservices rendered by the dealer in the course ofselling cars does not make the activity of sellingcars itself an act of agent of the manufacturerwhen the dealings between the company andthe dealer in the matter of sale of cars are on"principal to principal" basis. This is just an illustration to clarify that a service in the courseof buying or selling of goods has to besomething more than the act of buying or sellingof goods. When the licensed stamp vendors takedelivery of stamp papers on payment of fullprice less discount and they sell such stamppapers to retail customers, neither of the twoactivities (buying from the Government andselling to the customers) can be termed as theservice in the course of buying or selling ofgoods. 19. In view of the above discussion, we upholdthe contention urged on behalf of the petitioner'sassociation that the discount made available tothe licensed stamp vendors under the provisionsof the Gujarat Stamps Supply and Sales Rules,1987, does not fall within the expression"commission"or"brokerage"underSection194Hof the Income Tax Act, 1961. Theimpugned communication dated March 14, 2002,from the Income Tax Officer, TDS 4,Ahmedabad, to the Senior Treasury Officer,Ahmedabad, is, therefore, quashed and setaside, and so also the consequential instructionsdated March 19, 2002 (annexure "D" to thepetition), issued by the Senior Treasury Officer,Ahmedabad, to the secretary of the petitioner'sassociation are quashed and set aside. 6.4 In Kerala State Stamp Vendors Association & ors. vs. Officeof the Accountant General & ors. (2006) 282 ITR 7 (Ker) whereinKerala High Court observed as under:- “3. In order to appreciate the contentions, theprovisions of Section 194Hof the Act have to bereferred to. Therefore, the said section isextracted hereunder for easy reference : Section194H. Commission or brokerage-Anyperson, not being an individual or an HUF, who isresponsible for paying, on or after the 1st day ofJune, 2001, to a resident, any income by way ofcommission (not being insurance commissionreferred to in Section 194D) or brokerage, shall,at the time of credit of such income to theaccount of the payee or at the time of paymentof such income in cash or by the issue of acheque or draft or by any other mode, whicheveris earlier, deduct Income Tax thereon at the rateof five per cent. “3. In order to appreciate the contentions, theprovisions of Section 194Hof the Act have to bereferred to. Therefore, the said section isextracted hereunder for easy reference : Section194H. Commission or brokerage-Anyperson, not being an individual or an HUF, who isresponsible for paying, on or after the 1st day ofJune, 2001, to a resident, any income by way ofcommission (not being insurance commissionreferred to in Section 194D) or brokerage, shall,at the time of credit of such income to theaccount of the payee or at the time of paymentof such income in cash or by the issue of acheque or draft or by any other mode, whicheveris earlier, deduct Income Tax thereon at the rateof five per cent. It is clear from Section194Hthat what issubject to deduction of Income Tax at source isonly "commission" or "brokerage". In thedecision above referred, the Gujarat High Courttook the view that "commission" or "brokerage"arises only in an agency business and, therefore,the Court proceeded to examine whether thelicensed stamp vendors are agents of theGovernment or not. After analysing theprovisions of the Stamp Rules of Gujarat, theCourt held that the stamp vendors are not"agents" of the Government, though under theRules they have to be licenced and are subjectto strict discipline in regard to purchase and saleof stamps from Government. Based on thisfinding the Court held that discount allowed tostamp vendors does not constitute "commission"or "brokerage" to attract TDS on it underSection194Hof the Act. Though standingcounsel pointed out that s. 194H provides forTDS on any payments for any service renderedin the course of buying and selling of goodswhatever be the nature of payment, whether itbe paid as discount or otherwise, I do not thinkthe section contemplates discount granted bythe seller to the buyer as "commission orbrokerage". What is provided under Rule 39 ofthe Stamp Rules is a discount to the stampvendor at the time of sale of stamp paper to himby the Treasury. In other words, the stampvendor pays for the stamp paper, its face valueas reduced by the discount allowed to him underRule 39 of the Rule section The short question iswhether this discount can be treated as"commission"or"brokerage"underSection194Hof the Act for the purpose ofdeduction of tax at source. It is clear from thedefinition of "commission and brokerage" ascontained in Explanation to Section194Hthatthe commission or brokerage that attracts TDSis the one paid for "services rendered in thecourse of sale" which obviously can be theservices rendered by a third party like a brokeror an agent and cannot be the buyer as thebuyer is not rendering any service exceptbuying. Therefore, obviously payments to thirdparties involved in sale or purchase such as acommission agent or a broker is covered bySection194Hof the Act. Discount granted onsale of stamp paper to the licensed stampvendors by the Treasury, therefore, cannot betermed as "commission or brokerage" to attractTDS. I am in complete agreement with thefindings of the Gujarat High Court that stamp vendors cannot be treated as "agents" of theGovernment in marketing stamp papers.Standing counsel argued that the definition ofcommission or brokerage is an inclusivedefinition and it can take in discount alsobecause sale and purchase of goods are alsocovered by Section194H. No doubt, payment ofcommission or brokerage in relation to sale orpurchase of goods also would attract deductionof tax at source under Section 194Hof the Act.However, such situation arises only when thereis involvement of services of a third party onpayment other than the seller and the purchaserof goods or when the recipient of the benefitmarkets goods as "agent" of the owner and notas independent dealer. As already stated adiscount given on price by the seller to thepurchaser cannot be termed as "commission" or"brokerage" for services rendered in the courseof buying and selling of goods as the act ofbuying does not constitute rendering of anyservice. Counsel for the petitioners referred tovarious similar transactions involving licensing ofdealers, payment of commission and pricecontrol. For example, marketing of medicines' iscontrolled by Drug Price Control Orderprescribed under the Drugs and Cosmetics Act,1940. So also the sale of petroleum products iscontrolled by Petroleum Control Orders. Similarlyration articles are distributed by the Statethrough licenced dealers on commission basis.In all these cases, the relevant marketing rulesprovide for fixed commission to dealers.However, the IT Department has no case thatcommission paid to drug dealers or petrol pumpsor ration dealers in the form of discount attractTDS under Section194Hof the Act. So much so,the discount given on sale of stamp by theTreasury to the stamp vendor is outside thescope of TDS provisions under Section 194Hofthe Act. Wherever the legislature wanted to levytax on trade discount, they specifically providedfor the same which is clear from provisions ofSection194Hof the Act which provides fordeduction of tax on discount paid to lotterydealers in the form of commission. In thecircumstances, discount paid to the stampvendors is not intended to be covered bySection194Hof the Act. These writ petitionsare, therefore, allowed vacating the impugnedinstructions issued by the IT Department fordeduction of tax at source on discounts paid tostamp vendors with direction to the TreasuryOfficers to refund the amounts withheld from petitioners and other stamp vendors underinterim orders of this Court, within three weeksfrom the date of production of copy of thisjudgment.” 6.5 In Commissioner of Income Tax (TDS) vs. AssistantManager (Accounts) Food Corpn. of India (2010) 326 ITR 106(Punjab & Haryana) wherein Punjab & Haryana High Court held asunder:- petitioners and other stamp vendors underinterim orders of this Court, within three weeksfrom the date of production of copy of thisjudgment.” 6.5 In Commissioner of Income Tax (TDS) vs. AssistantManager (Accounts) Food Corpn. of India (2010) 326 ITR 106(Punjab & Haryana) wherein Punjab & Haryana High Court held asunder:- “2. The assessee in the present case is FoodCorporation of India which is engaged inprocurement of food grains for the Central pool.The food grains is procured through the Stateagencies and directly as well. Proceedings wereinitiated under Section 201 of the Income TaxAct, 1961, with the allegations that the assesseehad failed to deduct tax at source on the interest,rent and transportation charges paid by it tovarious agencies. The order came to be passedby the Income Tax Officer (TDS) on 25-2-2005,raising a demand of Rs. 12,34,814. The orderwas upheld by the Commissioner (Appeals). Infurther appeal before the Tribunal, the plea setup by the assessee was accepted. It was noticedthat in the invoices raised by various Stateagencies who procured food grains on behalf ofthe assessee, the cost of wheat has been shownapart from the cost on account of other incidentalexpenses incurred by the procurement agencies.VAT had also been charged. It was not evidentfrom there that the expenses so incurred by theprocurement agencies were on behalf of theassessee rather it was found to be part of thecost at which the food grains were to betransferred by the procurement agencies to theassessee. With these facts, it was found that asthe assessee had not paid any amount to theprocurementagenciesonaccountoftransportation, interest or storage charges assuch, accordingly, there was no liability fordeduction of tax. 3. The contention of learned Counsel for therevenue that in fact all these factors had beentaken care of while fixing the price at which thefood grain was to be billed to the assessee,carries no weight. If expenses incurred by aperson on account of transportation, interest,storage, etc., are added to the cost of the goods,it cannot be inferred that the person who is billedhad paid certain amount on account of those 6.6 In Chief Treasury Officer vs. Union of India & ors. (2013)355 ITR 484 (All) wherein Allahabad High Court holding as under:- “6. Considered the respective submissions of thelearned counsel for the parties and perused the-record. Section194Hcame in the Statute Bookby the Finance Act, 2001 w.e.f. 1.6.2001. Thesection provides for deduction of tax at source inrespect of payment of 'commission or brokerage'.For the purposes of this section 'commission orbrokerage' has been defined in the Explanation-(i) to Section194H. The said Explanation readsas follows: (i) "commission or brokerage" includes anypayment received or receivable, directly orindirectly, by a person acting on behalf of anotherperson for services rendered (not beingprofessional services) or for any services in thecourse of buying or selling of goods or in relationto any transaction relating to any asset, valuablearticle or thing, not being securities. 7. The words "by a person acting on behalf ofanother person" the element of agency must bepresent in all such services or transactions inorder to fall within the expression commissionand brokerage under this Act. To find out as towhether the relation of licensed stamp vendorsvis a vis the petitioner, is of principal and agentor it is sale of stamp paper etc. on principal toprincipal basis, it is necessary to have a look tothe relevant statutory provision i.e. the U.P.Stamp Rule, 1942 which governs relationship ofthe petitioner with stamp vendor.” 6.7 In Bharti Airtel Ltd. vs. Commissioner of Income Tax & anr.(2015) 372 ITR 33 (Karn) wherein Karnataka High Court holdingas under:- 63. It was contended by the revenue that, in theevent of the assessee deducting the amount andpaying into the department, ultimately if the 6.7 In Bharti Airtel Ltd. vs. Commissioner of Income Tax & anr.(2015) 372 ITR 33 (Karn) wherein Karnataka High Court holdingas under:- 63. It was contended by the revenue that, in theevent of the assessee deducting the amount andpaying into the department, ultimately if the dealer is not liable to tax it is always open to himto seek for refund of the tax and, therefore, i