DCIT (TDS) Vs Novartis Healthcare Private Limited (ITAT Mumbai)
No TDS applies to stockist margins, unexercised ESOPs, or statutory interest paid to MSME vendors
Material Facts
The Revenue filed appeals and the assessee filed Cross Objections against separate orders of the Addl./JCIT(A), Mumbai, arising from proceedings under Sections 201(1) and 201(1A) of the Income Tax Act for Assessment Years 2015-16 and 2017-18. Three common issues were involved:
1. Whether trade margins/discounts earned by stockists and distributors on purchase and resale of pharmaceutical products attracted TDS under Section 194H as commission.
2. Whether TDS under Section 192 was deductible at the stage of grant/accounting recognition of Employee Stock Option Plans (ESOPs)/Employee Stock Benefit Plans (ESBPs).
3. Whether interest on delayed payments to MSMEs attracted TDS under Section 194A, resulting in the assessee being treated as an assessee in default under Section 201(1) with consequential interest under Section 201(1A).
The Assessing Officer held that the stockists’ margins represented commission, that ESOP expenditure attracted TDS at the stage of grant, and that delayed payment interest payable under the MSMED Act constituted interest under Section 2(28A) requiring deduction of tax under Section 194A.
Procedural History
The first appellate authority examined the agreements with stockists, the ESOP provisions and the provisions relating to delayed payment interest under the MSMED Act. It decided all three issues in favour of the assessee. The Revenue challenged those findings before the ITAT, while the assessee filed Cross Objections on the MSME interest issue.
