Case Law Details
When there is direct sale transaction between two principals and there is no principal agent relationship, provisions of section 194H are not applicable
Section 194H of the Income Tax Act, 1961(for short ‘the Act’) deals with the deduction of tax at source on commission or brokerage.
Before Mumbai ITAT, recently in, DCIT vs. Cox & Kings (I) Ltd. & vice-versa [ITA No.5583/Mum/2015 and ITA No.5440/Mum/2015, decided on 06.10.2017], brief facts were that the assessee was in the business of tours and travels and in the course of such business it also engaged itself in trading in foreign currency. During the assessment proceedings the AO called for the details of transactions in the business of trading in foreign exchange. In response, the assessee furnished foreign exchange trading account wherein an amount of 51,13,680/- was debited towards commission payment. The AO called upon the assessee to furnish details of tax deducted at source on such payments. From the details submitted by the assessee he found that the assessee had not deducted tax at source on an amount of 19,09,775/-. When called upon to explain the reason for non deduction of tax at source on such amount, it was submitted by the assessee that the payment was not in the nature of commission but premium paid separately to RMCs (Restricted Money Changers) at Goa for purchase of foreign currency by the assessee from them and which they, in turn have purchased from foreign tourists. It was submitted, RMCs requested for reimbursement at card rate, i.e. the rate at which they paid to the tourists in order to keep track of profits earned by them on stock sold to the assessee. The AO was not convinced with the explanation of the assessee. He opined, though, the assessee has claimed to have entered into such transactions with RMCs on principal to principal basis however the facts indicate a principal and agent relationship as the so called premium is debited under the head commission which is over and above the purchase price. Since, the assessee had not deducted tax at source on such payment, the AO disallowed the amount of 19,09,775/- under section 40(a)(ia) of the Act. The assessee challenged the disallowance before the CIT(A).
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