Case Law Details
ITO Vs Tarun Sales (ITAT Delhi)
Since no dealer or sub-dealer was appointed either by Bharat Sanchar Nigam Ltd. (BSNL) or by the assessee, for the purpose of marketing the products and/or service of the Bharat Sanchar Nigam Ltd., the entire sales were to customers, either directly or through shopkeepers, who rendered services to the customers. Moreover, the entire sales were in cash. No commission was paid by the assessee to the customers. Then, Section 194H of the Act does not cover such discounts as under consideration herein and that being so, obviously the provisions of Section 40(a)(ia) of the Act was wrongly applied. Accounting-wise, the face value of the recharge coupon was debited to the purchase account, whereas the commission given by BSNL was credited to the commission account. At the time of sale, on the other hand, the face value of the recharge coupon was credited to the sales account and the cash receipts was debited to the cash account. The discount offered was debited to the discount account. When purchasing the SIM cards and recharge coupons from BSNL, the assessee had to deposit the money in advance. Undisputed, it is to customers directly and to petty shopkeepers, that the SIM cards and recharge coupons were sold in cash. The customers and shopkeepers were offered discount on the face value of the SIM cards. Apropos the recharge coupons, on the other hand, a small margin was kept by the assessee out of the commission/discount offered by BSNL. Then, activation charges were given by BSNL to the assessee on new connections, and a major portion thereof was given to the customers as discount.
As discussed, it was on the basis of the mistaken presumption of existence of relationship of principal and agent, that the discount offered by the assessee to its customers was considered by the assessing officer as commission. This, however, is not so, to reiterate it was only discounts offered to the customers, on a principal to principal basis, on which, no TDS was either required to be made or was actually made.
Full Text of the ITAT Order is as follows:-
This is an appeal by the department against the order dated 2-12-2013 of learned Commissioner (Appeals), Rohtak.
2. The grievance of the department in this appeal relates to the deletion of addition of Rs. 75,47,717 and Rs. 4,80,270 (totaling Rs. 80,27,987) made by the assessing officer on account of dis allowance of discount and activation charges under section 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
3. Facts of the case in brief are that the assessee filed the return of income on 26-9-2010 declaring an income of Rs. 2,25,560 which was processed as such. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the assessing officer asked the assessee to file complete details, clearly stating the name, address, PAN of the persons to whom activation scheme amounting to Rs. 4,80,270 and discount amounting to Rs. 75,47,717 were paid. He also asked the assessee to explain as to why tax at source on those payments was not deducted and deposited and that as to why those amount be not added to the income under section 40(a)(ia) of the Act. The assessing officer did not find merit in the submissions of the assessee and made the addition of Rs. 80,27,987 by observing in para 5 of the impugned order as under:
“5. The replies filed by the assessee in the course of assessment proceedings have been considered. In the course of assessment proceedings it has been observed that the assessee is not issuing any invoice of cash memo to the customer/retailers to whom he has sold coupons and Sim cards purchased from BSNL. In fact; the assessee has produced the daily collection report of the staff which is not supported by any invoices/cash memos issued to various customer/retailers. Assessee is agent of BSNL and carrying out various activities which include sale of prepaid coupons/Sim cards on behalf of BSNL. The assessee has taken the assistance of various retailers in performing these activities. The assessee also part with a part of consumer/service charges received from BSNL to the retailers. The assessee has reflected such payments under the head “activation scheme and discount” amounting to Rs. 4,80,270 and Rs. 75,47,717 in the profit and loss account respectively. In the course of assessment proceedings the assessee was time and again asked to furnish the details of name/addresses/PANs of the retails to whom the assessee has paid activation scheme and discount amounting to Rs. 4,80,270 and Rs. 75,47,717 respectively. But assessee furnished the daily collection report in support of its contention. The daily collection report has been prepared by his own staff and its genuineness, as such, cannot be ascertained.
Since the assessee has failed to give any reliable and sustainable evidence in support of his contention that he has actually parted with this money to this extent to various customers/retailers, the entire amount of Rs. 4,80,270 and Rs. 75,47,717, totaling Rs. 80,27,987 shown under the head “activation scheme and discount” respectively is added to the returned income of the assessee on account of nonproduction of any reliable and sustainable evidence in support of his contention.”
4. Being aggrieved the assessee carried the matter to the learned Commissioner (Appeals) who deleted the addition by following the order of the ITAT dated 22-2-2013 in assessee’s own case.
5. Now the department is in appeal. The learned Departmental Representative strongly supported the order of the assessing officer and reiterated the observations made in the assessment order.
6. In his rival submissions the learned Counsel for the assessee stated that an identical issue having similar facts has already been adjudicated by the ITAT in ITA No. 3523/Del/2011 for the assessment year 2008-09 vide order dated 22-2-2013 in assessee’s own case. Therefore, the learned Commissioner (Appeals) was fully justified in deleting the addition made by the assessing officer.
7. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issued having similar facts had already been adjudicated in assessee’s own case for the preceding year by the ITAT Delhi Bench ‘H’, New Delhi in ITA No. 3523/Del/2011 wherein relevant findings have been given in paras 15 to 25 of the order dated 22-2-2013 which read as under:
“15. We have heard the parties and have perused the material on record. The assessee paid discount of Rs. 66,57,565 and activation scheme of Rs. 6,25,600. Both these amounts, total amounting to Rs. 77,31,395 were claimed in the Profit & Loss Account. The stand of the assessee has been that discount/activation charges were not paid in cash to any retailer. Rather, they were in the nature of trade discount given at the time of sale. The sales were recorded at the maximum retail price and the discount regarded as discount was the retailer’s margin. There was no agreement in existence between the assessee and the customers. The assessee, during the year, was an authorized franchisee of Bharat Sanchar Nigal Ltd. (i.e. BSNL) vide agreement dated 12-1-2007 (copy at pages 17- 36 of the assessee’s paper book-“APB for short)”. Under the agreement, the assessee was to provide services to walk-in customers. It was to distribute all types of authorized telecom services. No dealer or sub-dealer was appointed. The discount/commission was allowed as per the agreement. This position remains undisputed. The retailers simply bought SIM cards/recharge coupons from the assessee at a discounted price. These were sold in the market with no specific obligation towards the distributor.
16. The Assessing Officer, however, concluded that the assessee was having the same relationship with the dealers/retailers, as the one of BSNL with the dealers/retailers; that it was a case of collection of money from the customers for various services to be provided/already provided by BSNL and, as such, it was in the nature of payment to an agent for collection of money on behalf of BSNL; that the assessee had shown the expense as ‘commission’ in its Profit & Loss Account; that therefore, even though the payments were covered under section 194H of the IT Act, no TDS had been deducted thereon. It was on this basis that the assessing officer made the disallowance. The learned Commissioner (Appeals) deleted the same.
17. The question is as to whether the learned Commissioner (Appeals) correctly deleted the disallowance, holding that there was no principal to agent relationship between assessee and the customers. Now, undoubtedly, the ‘commission’ in question was, in fact, ‘Discount’. It was only that there being no head of ‘discount’ in ITR-4, the depiction was of ‘commission’ in column No.23 of the Profits & Loss Account. Thus, however, by itself does not lead to the conclusion that it was ‘commission’ rather than ‘discount’. As per the agreement between the BSNL and the assessee:–
“The Franchisee shall provide BSNL services to walk-in-customers. It shall also establish, through its sale-force, direct contact with prospective customers and register as many new BSNL customers as possible subject to a minimum number fixed by BSNL. Franchisee shall also distribute all types of authorized telecom services for marketing to its Franchisees and cash card (prepaid) to its retailers.
No dealer/sub-dealer was either appointed by BSNL on the assessee. The assessee is allowed commission/discount as per Annexure-B and section-III of the said agreement.”
18. Since no dealer or sub-dealer was appointed either by Bharat Sanchar Nigam Ltd. (BSNL) or by the assessee, for the purpose of marketing the products and/or service of the Bharat Sanchar Nigam Ltd., the entire sales were to customers, either directly or through shopkeepers, who rendered services to the customers. Moreover, the entire sales were in cash. No commission was paid by the assessee to the customers. Then, Section 194H of the Act does not cover such discounts as under consideration herein and that being so, obviously the provisions of Section 40(a)(ia) of the Act was wrongly applied. Accounting-wise, the face value of the recharge coupon was debited to the purchase account, whereas the commission given by BSNL was credited to the commission account. At the time of sale, on the other hand, the face value of the recharge coupon was credited to the sales account and the cash receipts was debited to the cash account. The discount offered was debited to the discount account. When purchasing the SIM cards and recharge coupons from BSNL, the assessee had to deposit the money in advance. Undisputed, it is to customers directly and to petty shopkeepers, that the SIM cards and recharge coupons were sold in cash. The customers and shopkeepers were offered discount on the face value of the SIM cards. Apropos the recharge coupons, on the other hand, a small margin was kept by the assessee out of the commission/discount offered by BSNL. Then, activation charges were given by BSNL to the assessee on new connections, and a major portion thereof was given to the customers as discount.
19. As discussed, it was on the basis of the mistaken presumption of existence of relationship of principal and agent, that the discount offered by the assessee to its customers was considered by the assessing officer as commission. This, however, is not so, to reiterate it was only discounts offered to the customers, on a principal to principal basis, on which, no TDS was either required to be made or was actually made.
20. In ‘ITL Tours & Travels’ (supra), where the assessee was taking airlines tickets, the discount given to intermediaries was held not to be commission, since it was deal on a principal to principal basis and there was no element of agency involved. No TDS was held to be done under section 194H of the Act.
21. In ‘Surndra Buildtech (supra), the assessee was in the real estate business. It received commission from builders for booking flats. Portion of such commission was paid to buyers of flats. It was held that this was like giving a discount to buyers and was not commission and so section 194H of the Act did not apply.
22. In ‘Ahmedabad Stamp Vendors Association’ (supra) it was held by the Hon’ble Gujarat High Court that where licensed stamp vendors take delivery of stamp papers on payment of full price less discount and they sell such stamp papers to retail customers, neither of the two activities, i.e., buying from the Government and selling to the customers, can be termed as service in course of buying and selling of goods; and that so the discount made available to the license stamp vendors was outside the expression ‘commission’ or brokerage under section 194H of the It Act and as such, no TDS is required to be made from the discount.
23. The SLP filed by the Department was dismissed by the Hon’ble Supreme Court vide Order dated 6-9-2012 (copy at page 48 of the case laws paper book filed by the assessee), holding that the discount given to the stamp vendors was for purchasing the stamps in bulk quantity and the discount was in the nature of cash discount, due to which the transaction was a sale and consequently, Section 194H of the IT Act had no application.
24. No decision to the contrary has been brought to our notice.
25. In view of the above, finding no merit therein, the grievance sought to be raised by the Department is rejected.”
8. Since the facts involved in the year under consideration are identical to the facts involved in the preceding year of the assessee’s case. So, respectfully following the aforesaid referred to order dated 22-2-2013 in ITA No. 3523/Del/2011 for the assessment year 2008-09 in assessee’s own case, we do not see any merit in this appeal of the department.
9. In the result, the appeal of the department is dismissed.
HEADING OF CASE LAW ON SECTION 194H IS MISLEADING AND CONTRARY TO THE RATIO DECIDENDI. SECTION 194H IS NOT ATTRACTED ON PRINCIPAL TO PRINCIPAL DEALINGS.