CIT vs. Intervet India Pvt. Ltd. (Bom); ITA No. 1616 of 2011 dated 01/04/2014:
The assessee was engaged in the business of manufacture and trading of pharmaceutical products. The assessee gave incentives to its distributors/dealers/ stockists under different schemes. In the relevant year, i.e. A. Y. 2005-06, the incentive so given of Rs. 70,67,089/- was disallowed by the Assessing Officer u/s. 40(a)(ia) of the Income-tax Act, 1961, treating the same as commission, on the ground that the assessee has not deducted tax at source u/s. 194H of the Act. CIT(A) and the Tribunal deleted the addition holding that the payment was not commission and the provisions of sections 194H and 40(a)(ia) were not applicable.
On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:
“i) The assessee had undertaken sales promotion scheme viz., product discount scheme and product campaign under which the assessee had offered an incentive on case to case basis to its stockists/ dealers/agents. An amount of Rs. 70,67,089/- was claimed as deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the assessee and the distributors/ stockists was that of principle to principle and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributors/ stockists were the persons to whom the product was sold, no services were offered to the assessee and what was offered to the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee’s products.
ii) The distributors/stockists were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting the sales target, and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to section 194H of the Act. The contention of the Revenue in regard to the application of Explanation (i) below section 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Explanation (i) below section 194H would amount to reading the said provision in abstract. The application of the provision is required to be considered to the relevant facts of every case.
iii) We are satisfied that in the facts of the present case that as regards sales promotional expenditure in question, the provisions of Explanation (i) below section 194H of the Act are rightly held to be not applicable as the benefit which is availed by the dealers/ stockists of the assessee is appropriately held to be not a payment of any commission in the concurrent findings as recorded by the CIT(A) and the Tribunal.
iv) We do not find that the appeal gives rise to any substantial question of law. It is accordingly dismissed.”
II. REPORTED:
1. Business Expenditure: Disallowance: Ss. 40(a)(ia), 40A(3) and 194C(2): A. Ys. 2005-06 and 2009-10: ONGC acquiring lands from farmers and others: Land losers forming society for enabling to survive by way of alternate means of plying vehicles on rent to the ONGC: Society receiving amounts from ONGC and distributing to farmers/members: Payments not expended by society and would not come within the meaning of expenditure either u/s. 40(a)(ia) or section 40A(3): No disallowance can be made: ITO vs. Ankleshwar Taluka ONGC and Land Loser Travellers Co-operative Society; A. Y. 2005-06; 362 ITR 87 (Guj): CIT vs. Ankleshwar Taluka ONGC and Land Loser Travellers Co-operative Society; A. Y. 2009-10; 362 ITR 92 (Guj):
ONGC acquired lands in a particular area from farmers and other persons. Land losers formed the assessee society to enable them to earn a source of livelihood by means of plying vehicles on rent to ONGC. The assessee society received the amounts from ONGC on behalf of the members and distributed the same amongst the members. ONGC deducted the tax at source on such payment to the assessee society.
A. Y. 2005-06:
In the A. Y. 2005-06, the assessee society received Rs. 2,57,62,253 and distributed the same to the members. The Assessing Officer was of the view that the society was a sub-contractor and that it ought to have deducted tax at source on payments made to each of the farmers u/s. 194C(2) and disallowed the whole of the amount of Rs. 2,57,62,253/- u/s. 40(a)(ia) of the Income-tax Act, 1961. He made a further addition of Rs. 51,47,250/- being 20% of the said amount by way of disallowance u/s. 40A(3) on the ground that the said amount was paid to the members in cash. The Commissioner (Appeals) deleted the addition. He held that there was no element of works contract in terms of the provisions of section 194C in the activities performed by the society and, accordingly, set aside the disallowance u/s. 40(a)(ia). He also held that there was no case for disallowance u/s. 40A(3) as no expenditure was incurred by the society in distributing the rentals to the members. The Tribunal concurred with the findings of the Commissioner (Appeals) and dismissed the appeal filed by the Revenue.
In appeal before the High Court, the Revenue raised the question of disallowance u/s. 40(a)(ia) but did not raise the question of disallowance u/s. 40A(3) of the Act. The Gujarat High Court upheld the decision of the Tribunal and held as under:
“i) In the light of the concurrent findings of fact recorded by the Tribunal upon appreciation of evidence on record, the reasoning adopted by the Tribunal was just and reasonable.
ii) Thus, it was not possible to state that there was any infirmity in the order of the Tribunal so as to give rise to any question of law, much less, a substantial question of law so as to warrant interference.” A. Y. 2009-10: In this year, the assessee society had received an amount of Rs. 3.79 crore from ONGC and the same was distributed by the assessee society to its members. The Assessing Officer made an addition of 20% of the said amount by way of disallowance u/s. 40A(3) of the Act, on the ground that the assessee had paid these amounts to its members in cash. The Tribunal deleted the addition.
On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:
“The view of the Commissioner (Appeals) and the Tribunal that the payments were not expended by the assessee and that, therefore, would not come within the meaning of expenditure (be it based on section 40(a)(ia) or section 40A(3) of the Act) was to be confirmed.”
