Greenstar Fertilizers Limited vs. ACIT - (Income Tax Appellate Tribunal) (27 Jun 2023)

For applicability of TDS obligation under Section 194H of IT Act, there should exist agency relationship between the payer and the payee

MANU/IX/0256/2023

Direct Taxation

The grievance of the assessee in captioned appeals is demand raised under Section 201(1) / (1A) of Income Tax Act, 1961 (IT Act) for want of tax deduction at source (TDS) on certain payments in terms of Section 194H of the Act. These payments are in the nature of rebates given by the assessee to its dealers / distributors. It is submitted that, the transactions were carried out on principal-to-principal basis and there was no agency relationship between the assessee and its customers. Therefore, the assessee was not obligated to deduct TDS on the impugned payments.

For applicability of TDS obligation under Section 194H, there should exist agency relationship between the payer and the payee. The payee should act as on agent for the assessee. From the fact, it emerges that the assessee sells its products through network of dealers / distributors under a commercial agreement. As per the terms, the risk and rewards of sale transaction pass on to these dealers at the point of time of sale only.

The assessee merely regulates business terms for the purpose of sale. Nevertheless, the sale happens on principal-to-principal basis only. The assessee provides rebates to dealers depending on market conditions. Fixed rebates are generally reduced from the invoice and only net sale consideration is shown in the financial statements. Variable rebates are based on sales quantity or on achievement of sales targets. However, the dealers / distributors do not act on behalf of the assessee rather they act on independent basis subject to business terms laid down by the assessee. The risk and reward of goods get transferred at the time of sale by assessee to these dealers. The documents as placed on record substantiate all these facts.

The decision of Hon'ble Supreme Court in the case of CIT vs. Ahmedabad Stamp Vendors Association supports the case of the assessee. In this case, Hon'ble Court held that discount given to stamp vendors for purchasing stamps in bulk quantity was in the nature of cash discount in transaction of sale and, therefore, Section 194H would have no application to that transaction. In view of decision of Supreme Court, present Tribunal held that, there was no obligation on assessee to deduct TDS on rebates given on transaction of sale. Accordingly, impugned demand, for both the years, stands deleted. Appeals allowed.

Tags : TDS ASSESSMENT DEMAND