By K. B. Bhujle
Advocate
40. CIT vs. OCM India Ltd.; 408 ITR 369
(P&H): Date of order: 9th May, 2018 A. Y. 2008-09
Section 194H – TDS – Commission –
Definition – Manufacture and sale of woolen articles – Trade discounts allowed
to agents who procured orders and sold goods on behalf of assessee – Not
commission – Consistent trade practice followed by assessee – Concurrent
finding by appellate authorities – No liability to deduct tax at source
The assessee
manufactured and sold woolen articles. During inspection of the office records
of the assesee it was found that the assessee debited an amount of Rs.
4,57,52,494, to the account of trade turnover discounts which had been netted
out from the gross turnover and did not appear as an item of expense in the
profit and loss account. The assessee submitted before the Assessing Officer
that the commission or brokerage arose on account of agency transactions which
did not attract deduction of tax at source for the services rendered by the
third party. The Assessing officer held that the amount being turnover discount
was directly or indirectly for the services rendered according to the inclusive
definition of the Explanation to section 194H of the Act and that the assessee
was liable to deduct the tax at source. A demand of Rs. 47,12,507 on account of
TDS and a further amount of Rs. 6,59,751 on account of interest charged u/s.
201(1A) was raised.
The Commissioner
(Appeals) held that the assessee had been debiting commission which amounted to
Rs. 1.84 crore to its commission agents appointed territory-wise who acted and procured
orders or effected sales of the assessee’s products for and on its behalf and
got commission which varied from place to place and quality of the product to
product and therefore, the Assessing officer was not justified in invoking the
provisions of section 194H read with its Explanation to the trade discount
allowed by the assessee to its buyers, customers and direct trade dealers
without involvement of any intermediator or commission agents. Accordingly, he
held that the assessee was not liable under the provisions of section 194H read
with its Explanation and deleted the demand of Rs. 53,72,258. The findings were
affirmed by the Tribunal which held that there was no material on record before
the Assessing officer that such discount offer was a commission within the
meaning of section 194H.
On appeal by the
Revenue, the Punjab and Haryana High Court upheld the decision of the Tribunal
and held as under:
“i) On a plain reading of section 194H, it is
clear that tax at source is to be deducted by a person responsible for paying
any income by way of “commission or brokerage”. The expression “commission or
brokerage” referred to in this section derives its meaning from the explanation
appended thereto. According to it, “commission or brokerage” includes any
payment received or receivable directly or indirectly by a person acting on
behalf of another person (a) for services rendered (not being professional
services), or (b) for any services in the course of buying or selling of goods,
or (c) in relation to any transaction relating to any asset, valuable article
or thing, not being securities. In order to examine whether Explanation (i) to
section 194H of the Act is attracted, necessarily, it is to be seen whether the
assessee has made any payment and, in case it is so, whether it is for services
rendered by the payee to the assessee.
ii) Since concurrent findings had been recorded
by the Commissioner (Appeals) and the Tribunal that the assessee had been
debiting trade discount allowed to its commission agents who were acting and
procuring orders or effecting sales of its products for and on its behalf, the
Assessing Officer was not justified to have invoked the provisions of the
Explanation to section 194H. The Department had not been able to show any error
or illegality therein.”
