DCIT (TDS) Vs Novartis Healthcare Private Limited (ITAT Mumbai)
Stockist Discounts Held Not Commission, No TDS Under Section 194H; ESOP TDS Liability Arises Only on Exercise, Not on Grant; Delayed MSME Payment Interest Not Subject to TDS Under Section 194A; Pharma Distribution Model Treated as Principal-to-Principal; No Assessee-in-Default Status Without Actual Commission or Interest Payment
The appeal arose from a TDS survey conducted under section 133A(2A) to verify tax deduction compliance by a pharmaceutical company engaged in manufacturing and trading of drugs. Based on the survey, the Assessing Officer treated the company as an “assessee in default” under sections 201 and 201(1A) on three counts: (i) non-deduction of tax under section 194H on margins/discounts allowed to stockists, (ii) non-deduction of tax under section 192 on Employee Stock Ownership Plans (ESOPs), and (iii) non-deduction of tax under section 194A on interest for delayed payments to MSMEs. The Commissioner (Appeals) deleted all additions relating to sections 194H and 192 but upheld the addition relating to MSME interest.
On the issue of discounts to stockists, the Tribunal examined whether the relationship between the company and its stockists was that of principal-to-agent or principal-to-principal. The Revenue contended that the company exercised extensive control over pricing, margins, territories, reporting, and logistics, thereby rendering the stockists agents and the discounts as commission attracting section 194H. The Tribunal rejected this contention, holding that the transactions were pure sales. It noted that GST was charged on sales invoices, title in goods passed to stockists, stockists bore storage and sales risks, and income was offered by them as trading profits in their own tax returns. The Tribunal held that regulatory controls inherent to the pharmaceutical industry did not alter the character of the transaction. Since the company did not make any payment of commission but merely received sale consideration, section 194H was held inapplicable.
