Case Law Details
Nokia India Pvt. Ltd. Vs DCIT (ITAT Delhi)
No Disallowance for non deduction of TDS u/s 194H /194J in absence of principal-agent relationship and technical services
Conclusion: Disallowance under Section 40(a)(ia) for non deduction of TDS u/s 194H and 194J on account of trade offers amounting to INR 834,92,63,976 provided by assessee to its distributors (HCL Info systems Ltd as well as other distributors) was not justified as there was absence of a principal-agent relationship thus, benefit extended to distributors could not be treated as commission under Section 194H and also, AO had not given any reasoning or finding to the extent that there was payment for technical service liable for withholding under Section 194J.
Held: Assessee company was incorporated in 1995 and it was a wholly owned subsidiary of Nokia Corporation, Finland. The company was primarily engaged in the business of trading and manufacturing of mobile handsets, spare parts and accessories. In addition to this activity, the company also undertook contract software development for its Associated Enterprises. AO made disallowance of the trade offers amounting to INR 834,92,63,976 provided by the assessee to its distributors (HCL Info systems Ltd as well as other distributors) under Section 40(a)(ia) in the final assessment order. It was held from Clause 2, 7, 8, 9, 14 and 19 of the “Agreement for the Supply of Cellular Mobile Phones” between HCL and the assessee, it was noted that relationship between assessee and HCL was that of principal to principal and not that of principal to agent. The discount which was offered to distributors was given for promotion of sales. This element could not be treated as commission. There was absence of a principal-agent relationship and benefit extended to distributors could not be treated as commission under Section 194H of the Act. As regards to applicability of Section 194J, AO had not given any reasoning or finding to the extent that there was payment for technical service liable for withholding under Section 194J. Marketing activities had been undertaken by HCL on its own. Merely making an addition under Section 194J without the actual basis for the same on part of the AO was not just and proper. The contention that discounts were given by way of debit notes and the same were not adjusted or mentioned in the invoice generated upon original sales made by the assessee, did not seem tenable after going through the invoice and the debit notes. In fact, there was clear mentioned about the discount for sales promotion. Thus, on both the account the addition made by the Assessing Officer did not sustain.
FULL TEXT OF THE ITAT JUDGEMENT
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