Case Law Details
Ketan Sahebrao Purkar Vs ITO (ITAT Pune)
The issue involved in the present appeal is whether on the facts and circumstances of the case, the appellant is liable to deduct tax at source u/s 194H in respect of expenditure claimed to have been debited to Profit & Loss Account under head “commission”. Without delving into the issue whether relationship between the appellant and the recipient of the commission is in the nature of principal to principal, the material facts to be noted is that the appellant had received sale proceeds net of the expenditure like transport, labour, adat, loading and unloading charges etc.. In other words, the appellant neither paid nor credited such income to the account of the payee. In an identical facts, the Hon’ble Jurisdictional High Court in the case of Super Religare Laboratories Ltd. (supra) held that there is no obligation to deduct tax at source u/s 194H of the Act.
Keeping in view of the above decision of the Hon’ble Jurisdictional High Court (supra), ITAT hold that the assessee is not under obligation to deduct TDS in such commission expenditure.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 12, Pune [‘the CIT(A)’] dated 07.03.2022 for the assessment year 2012-13.
2. Briefly, the facts of the case are that the appellant is an individual engaged in the business of trading of onions. The Return of Income for the assessment year 2012-13 was filed on 05.02.2013 declaring total income of Rs.5,23,249/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-2(2), Nashik (‘the Assessing Officer’) vide order dated 24.02.2015 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.19,52,419/- after making disallowance of commission expenditure of Rs.14,29,170/- for non-deduction of tax at source. The brief facts of the case are as under :-
The Tax Auditor in his report had reported that the appellant had not deducted TDS on the commission expenditure of Rs.14,29,170/-. Based on this information, the Assessing Officer had called upon the appellant to explain as to why the provisions of section 40(a)(ia) of the Act should not be invoked in respect of commission expenditure of Rs.14,29,170/-. The appellant had submitted that the transactions between the assessee and the parties to whom the commission expenditure is stated to have been paid were undertaken on principal to principal basis, therefore, the question of deduction of tax deducted at source does not arise. It was further submitted that by inadvertence the gross receipts of the sale were shown instead of showing the net sale proceeds. However, the Assessing Officer had not accepted the above contention, accordingly, disallowed the commission expenditure of Rs.14,29,170/-.
3. Being aggrieved by the above addition, an appeal was preferred before the ld. CIT(A) contending that the transactions were undertaken on principal to principal basis, which does not come within the purview of section 194H of the Act. Without prejudice to the above, it is submitted that the payees of commission had already offered such income in their income-tax return and also filed the copies of certificates from the Accountant in terms of first proviso to sub-section 1 of section 201 of the Act. However, the ld. CIT(A) while rejecting the contention of the appellant that the transactions were undertaken on principal to principle basis granted part relief in terms of second proviso to section 40(a)(ia) of the Act.
4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
5. The ld. AR submits that the appellant had only received the net sale proceeds from the buyers of the onions and he had not received the entire gross receipts. The appellant had debited commission expenditure to the Profit & Loss Account and the gross sale proceeds were credited to Profit & Loss Account, but the appellant had received only net of the commission expenditure. Thus, he submits that there is neither credit to the parties’ account on account of commission expenditure nor actual payment by the appellant. Therefore, the question of deduction of TDS in terms of provisions of section 194H of the Act does not arise. In support of this proposition, he also placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs. Super Religare Laboratories Ltd., 133 com 313 (Bombay).
5. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities.
6. I heard the rival submissions and perused the material on record. The issue involved in the present appeal is whether on the facts and circumstances of the case, the appellant is liable to deduct tax at source u/s 194H in respect of expenditure claimed to have been debited to Profit & Loss Account under head “commission”. Without delving into the issue whether relationship between the appellant and the recipient of the commission is in the nature of principal to principal, the material facts to be noted is that the appellant had received sale proceeds net of the expenditure like transport, labour, adat, loading and unloading charges etc.. In other words, the appellant neither paid nor credited such income to the account of the payee. In an identical facts, the Hon’ble Jurisdictional High Court in the case of Super Religare Laboratories Ltd. (supra) held that there is no obligation to deduct tax at source u/s 194H of the Act. The relevant paragraph of the said decision of the Hon’ble Jurisdictional High (supra) is reproduced hereunder :-
“5. Under section 194H, the obligations is on any person who is responsible for paying any income by way of commission or brokerage to deduct tax at source at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier. In this case, admittedly, respondent has not been paying any money to the collection centres. Respondent was only receiving payment from the collection centres. As noted earlier, the collection centres collect money from the patient and pays a reduced amount to respondent and keeps the difference for itself as its margin. As the section is applicable only to a person who is responsible for paying to deduct tax at the time of credit to the account of the payee or at the time of payment and as respondent does not perform any act of paying, there is no obligation on the company to deduct tax at source. We fail to understand appellant’s arguments as to how respondent was to deduct TDS when it was not making any payment. Mr. Suresh Kumar was unable to explain how respondent should have deducted TDS and paid with the treasury when respondent was not making any payment. Even the Assessing Officer, who the appellant wishes to support, does not say anything on this. The Assessing Officer’s order is contrary to sense.”
8. Keeping in view of the above decision of the Hon’ble Jurisdictional High Court (supra), I hold that the assessee is not under obligation to deduct TDS in such commission expenditure.
9. In the result, the appeal filed by the assessee stands allowed.
Order pronounced on this 12th day of April, 2023.
