ASUS India Pvt. Ltd. Vs ACIT (ITAT Mumbai)
Conclusion: Disallowance made by AO under section 40(a)(ia) for non deduction of TDS on discount/rebate allowed to dealers/distributors on sale of products was not justified as there was no element of work as defined under clause (iv) of Explanation to section 194C and AO had not brought on record any material for deduction of TDS under section 194H that the dealers/distributors were simply acting as intermediaries to facilitate sale of products to end users so as to infer a principal–agent relationship.
Held: Assessee imported certain electronic goods such as notebooks, tablets, pad–phones, mobile phones and accessories and sold them in India through dealers/distributors who, in turn, sell them to end users. AO made disallowance under section 40(a)(ia) for the expenditure on account of discount given to the dealers/distributors under the conditional discount scheme. It was held that the rebate/discount given by assessee to dealers would not come either within the purview of section 194C or section 194H, therefore, would not require deduction of tax at source. A reading of section 194C would suggest that in respect of any payment made to a contractor/sub–contractor for carrying out any work, including supply of labour, would be subject to deduction of tax at source at the appropriate rate. In the present case, assessee had entered into a sale contract, simpliciter, for sale of its products to dealers/distributors. Certainly, the transaction between assessee and the dealers/distributors could not be termed as a contract for work. Assessee simply sold its products to dealers/distributors who, in turn, sell them to the end users. Therefore, there was no element of work as defined under clause (iv) of Explanation to section 194C. Therefore, under no circumstances, section 194C would be applicable to the discount/rebate. Assessee was simply selling its products to dealers/distributors who in turn sell them to end users. There was no contract of sale between assessee and end users so as to conclude that the dealers/distributors act as intermediary between assessee and the end users to facilitate sale of products. At least, the Department had not brought on record any material to establish the fact that the dealers/distributors were simply acting as intermediaries to facilitate sale of products to end users so as to infer a principal–agent relationship. Thus, the rebate/discount given to the dealers/distributors would not attract the provisions of section 194H. The aforesaid statement of AO made it clear that he himself was not sure whether it was a payment for carrying out any work or was in the nature of commission / brokerage for any service rendered by another party in the course of buying and selling a product. That being the case, no disallowance under section 40(a)(ia) could be made.
FULL TEXT OF THE ITAT JUDGEMENT
Aforesaid appeals by the assessee arise out of two separate orders, both dated 30th January 2020, passed by the learned Commissioner of Income Tax (Appeals)–16, Mumbai, for the assessment years 2016–17 and 2017–18.
2. The issues involved in the present appeal is basically related to disallowances made under section 40(a)(ia) of the Income Tax Act, 1961 (for short “the Act”) on account of expenditure claimed by way of sales rebate / discount given to the dealers / distributors.
3. Brief facts are, the assessee, a resident company, is engaged in the business of importing and trading in electronic goods, such as, notebooks, tablets, pad–phones, mobile phones and accessories. For the impugned assessment year, the assessee filed its return of income on 30th November 2016, declaring total income of r 17,90,29,340. In the course of assessment proceedings, the Assessing Officer while verifying the audited accounts of the assessee noticed that the assessee has claimed the following adjustment against the gross sales.
Sales Rs. 178,78,77,006
Less: Sales Return Rs. 25,08,87,210
Sales Rebate Rs. 71,04,23,345 _Rs. 96,13,10,555
Net Sales Rs. 1672,65,66,452
4. Insofar as the amount of sales return is concerned, the Assessing Officer accepted the claim. However, insofar as the sales rebate is concerned, the Assessing Officer called upon the assessee to furnish the break–up of such rebate granted to the dealers/distributors with supporting details. After verifying the details furnished by the assessee, he noted that the sales rebate comprise of the following:–
