“Trade discount scheme” would amount to Commission liable for deduction of tax at source u/s 194H of the Act. ?
Contractual payments made to M/s United Breweries Ltd, Bangalore and M/s Millenium Breweries Industries Ltd, Bangalore would amount to payment of Royalty liable for deduction u/s 194J of the Act, and not u/s 194C of the Act. ?
IN THE ITAT VISAKHAPATNAM BENCH
United Breweries Ltd.
Income-tax Officer, Ward -6 (1), Visakhapatnam
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NOS. 103 TO 105 (VIZ.) OF 2014
[ASSESSMENT YEARS 2008-09 TO 2010-11]
AUGUST 10, 2015
K. Gopal, Adv. for the Appellant. Smt. D. Komali Krishna, Sr. AR for the Respondent.
B.R. Baskaran, Accountant Member – The assessee has filed these three appeals challenging the common order dated 31.1.2014 of the ld CIT(A)-Visakhapatnam and they relate to the assessment years 2008-09, 2009-10 & 2010-2011, respectively.
2. Since common grounds are urged in all these appeals, they were heard together and are being disposed of by this common order for the sake of convenience. Grounds of appeal filed for AY 2008-09 read as under:
|“(1)||The Order of C.I.T.(A) Dt:31-01-2014 confirming partly, the order passed by I.T.O., T.D.S., Ward-6(1), Visakhapatnam Dt:29-10-2010 U/s.201 & 201(1 A) of the Income tax Act is illegal and unjust.|
|(2)||The C.I.T.(A) is not justified in upholding the application of provisions of section 194H of the IT Act by the assessing officer (I.T.O., T.D.S.) to payments effected by appellant to retail dealers through Del-credere Agents, as commission paid to Del-credere Agents in the light of the evidences produced before the Department to show that the payments made were actually incentives provided to Retail Dealers, to place orders, on A.P. Beverages Corporation Ltd, of the products (Beer) supplied by the appellant.|
|(3)||The C.I.T.(A), is not justified in holding that the impugned payments made under the head Trade Scheme Discount would amount to commission and they fall within purview of section 194H and thereby concluding that there is obligation to deduct T.D.S. under Section 194H and further confirming that the assessee deductor would be liable to pay Demand raised Rs. 1,03,99,771/- u/s.201(l) even if the Tax Deductees have paid the tax on their regular Incomes.|
|(4)||The C.I.T.(A) failed to take into consideration, the principles laid down by Allahabad High Court in Jagaran Prakasan (2012) (21 Taxation 489) and the decision of I.T.A.T. Calcutta in the case of Rama Krishna Vedanta Math v. I.T.O., Ward-15(l), Calcutta and thereafter failed to reject the claim of the I.T.O., T.D.S. in enforcing the liability U/s.201, without bringing on record evidence by the Department to establish that the revenue would incur loss on account of lapse by the Tax Deductor.|
|(5)||The Lower Authorities, in the light of evidences brought on record to show that no arrears of taxes were due from the tax deductees in respect of relevant assessment year, particularly in the light of evidence brought on record to show that Tax deductees have filed IT Returns and paid taxes on the incomes admitted.|
|(6)||The C.I.T.(A) is not justified in treating the contractual payments made to M/s. United Breweries Ltd., Bangalore and M/s. Millennium Breweries Industries Ltd., Bangalore on which T.D.S. was deducted U/S.I94C of the IT Act, as payments made to the respective companies as Royalty payments and there after uphold the action of the Income tax Officer (T.D.S.) in determining short deduction of T.D.S. by applying provisions of section 194J of the IT Act.|
|(7)||The C.I.T.(A), while upholding the levy of Interest U/s.201(lA) of the IT Act by I.T.O., T.D.S., ought to have directed I.T.O., T.D.S., Ward-6(1) to restrict the levy of Interest U/s.201(lA) till the date of filing IT Returns by Tax Deductees, following the Boards Circular No.275/201/95 Dt:29-01 1997.”|
Identical grounds have been raised in other two years also except that the demand raised in those years varies. In effect, following two issues are urged in these two grounds:—
|(a)||Whether the Ld CIT(A) was justified in holding that the payments made to retail dealers under “Trade discount scheme” would amount to Commission liable for deduction of tax at source u/s 194H of the Act.|
|(b)||Whether the Ld CIT(A) was justified in holding that the contractual payments made to M/s United Breweries Ltd, Bangalore and M/s Millenium Breweries Industries Ltd, Bangalore would amount to payment of Royalty liable for deduction u/s 194J of the Act, even though the assessee has deducted tax u/s 194C of the Act.|
3. Facts in all the appeals being identical, we deal with the facts involved in ITA.No.103/Viz/2014 for the assessment year 2008-09. The assessee-company is engaged in manufacture and sale of Beer to Andhra Pradesh Beverages Corporation Ltd (APBCL) and is a group concern of M/s. United Breverages India Pvt. Ltd. The assessee’s earlier name was M/s United Millennium Breweries Pvt Ltd and it has since merged with M/s United Breweries Ltd. It has entered into an agreement called “Brewing and Distribution Agreement” with another Group Company. It is stated that the distillery unit was originally set up by M/s GMR Beverages & Industries Ltd and later it was acquired by United Millennium Breweries Pvt Ltd, which later got merged with M/s United Breweries Ltd. In the paper book, the “Brewing and Distribution agreement” dated 04-03-2005 entered between M/s Inertia industries Ltd and M/s GMR Beverages & Industries Ltd is enclosed in pages 24 to 40. It has been submitted that the said agreement was renewed by the present assessee company on identical terms.
3.1 The Department conducted a TDS survey in the premises of the assessee on 25.03.2010 to verify the compliance of the TDS provisions of the Act. From the information gathered during the survey, the AO noted that the assessee has not deducted TDS on the payments made under the head “Trade Schemes and discounts”. After examining the submission made, the assessing officer came to the conclusion that the assessee has committed default in terms of section 201(1) and also levied interest S.201(1A) as follows in respect of amount paid under Trade Schemes and Discounts:—
|A.Y.||Trade Scheme & Discounts||Non deduction TDS U/S.194H as per ITO u/s.201||TDS U/S.194H as per assessee||Levied interest u/s.201(1A)|
3.2 Besides, the AO also noted that the assessee-deductor has made certain payments by way of royalty for brand use, in respect of which the assessee-deductor has effected TDS in terms of section 194C, though it is required to deduct TDS in terms of section 194J of the IT. Act. The said payment was made in terms of Brewing and Distribution agreement, referred earlier. As a result, the assessee-deductor was held to be in default for short deduction under section 201(1) and levied interest u/s.201(lA) as follows:—
|A.Y.||Brand fee||Short deduction u/s.201(1)||Interest u/s.201(1A)|
4. The facts relating to the Non-deduction of TDS on payments made under Trade Discount Scheme have been discussed as under by Ld CIT(A):—
‘3.5 From the information gathered during the survey, the AO noted that the assessee- deductor has paid Rs. 10,32,37,0207- in F.Y.2007-08; Rs. l0,65,27,707/-in F.Y.2008-09; and Rs. 5,86,47,630/- in F.Y.2009-10 under the head ‘trade schemes and discounts’ without deduction of tax during the F.Y.2007-08. It was represented to the AO that these payments were made to retail sellers as trade discounts/cash discounts and was paid on the basis of their gross sales made from time to time. The AO felt that these payments are in the nature of commission and would attract the provisions of section 194H and as the assessee had not deducted TDS on these payments, had called upon the assessee to explain why the company should not be treated as assessee in default u/s.201(1). In response to the notice issued by the Department, the assessee-company had filed reply as under;-
“The expression ‘trade schemes’ refers to the additional incentive provided to the dealers for achieving certain targets, which normally is reflected as an additional trade discount. As you may be aware, normally the dealers are entitled to 2 types of discount viz., Cash discount and Trade discount. A cash discount as the name denotes, is the reduction in the selling price provided to the dealers for lifting excess quantity of stocks from the manufacturer. In these cases, an abatement is given in the selling price itself and this is reflected in the invoice. On the other hand, a trade discount allows the dealer who has achieved in excess of a target to avail additional quantity of the goods, as a reward for his performance, free of cost. . . . . . . .”
Under section 194H of the Act, TDS provisions are applicable at the time of payment of commission or brokerage. Admittedly here, the trade discount which is a rebate in the selling price does not constitute either the brokerage or partake the character of commission. Accordingly, we submit that the provisions of section 194H are not applicable to the trade discounts and rebates given by the company to its dealers. In our case, since the ascertainment of exact quantity sold arises subsequently trade discounts are paid to the retailers through our agents and booked in the accounts as ‘trade schemes’. This is nothing but a cash discount and no TDS provision is attracted on these payments”.
3.6 The AO after considering the explanation filed by the assessee felt that the discount is generally allowed as a reduction in the price and would be reflected in the invoice itself. But in the assessee’s case, the above discounts were not reflected in the invoices raised by the tax deductor. The AO also noted that the benefit of these ‘trade schemes’ has not been passed to the end users i.e., retail purchaser. Therefore, the AO came to the conclusion that what-ever be the nomenclature used by the tax deductor as the payments are made for the services rendered to the tax deductor in the course of selling of its goods the provisions of section 194H would be applicable. The AO, accordingly, found the assessee to be in default u/s.201(l) and u/s.201(lA) of the I.T.At for the amounts aforestated.
3.12 The assessee is a contract manufacturer for M/s. United Breweries Ltd and M/s. Millenium Beer Industries Ltd and manufactures beer as per the specifications given. As per the Brewing Agreement entered with the principals, the assessee is required to manufacture beer and dispose of to State Beverages Corporation under the Trade name and brand labels specified by the principal. The beer manufactured are sold to the APBCL as per Rate contract agreement entered with APBCL. Under the terms of such contract, the price for the beer supply with APBCL is fixed. The APBCL would procure from time to time depending on the demand for the supply of brands and the assessee is required to supply as per the rates agreed in the contract. It was clarified that the sales made to APBCL is recorded as sales turnover in the books of the assessee-company.
3.13 It was represented that to market the products and brands manufactured by the assessee, the assessee’s principal UBL had appointed del-credere agents who liaison with APBCL and retail dealers for the supply and transit of the assessee’s products. It was also represented that the del-credere agents are also required to market and promote the UBL’s brands in the specified territory. For the purpose commission is paid to the del-credere agent and its expenses reimbursed, and that there is no dispute on the payment of these commission and reimbursement of expenses. The following three parties were stated to have functioned as del-credere agents, and copies of acknowledgements of their returns of income were filed.
|(i)||M/s. Shriram Marketing, Ameerpet|
|(ii)||M/s. Vitari Distributors Pvt. Ltd.,|
|(iii)||M/s. Prayag Enterprises Pvt Ltd.,|
However, the assessee could not give complete information as to who were the del-credere agents during the relevant financial years. It is seen from the details filed in ITA No.360/2010-11 relating to A.Y.2008-09 one Anupama Distributors Pvt, Ltd has also functioned as del-credere agent.’
5. The assessee submitted before the tax authorities that it had implemented certain trade discount schemes to market the products manufactured by it. Under the scheme, certain discount was paid to the retail dealers through del-credere agents, depending upon the quantity of beer lifted by each retailer. It was represented that separate bank accounts were maintained in the name of the del-credere agents, into which the payments made by the assessee were deposited and from which disbursements were made to the various retailers. It was also represented that all the payments were made through account payee cheques and were debited under the head “trade scheme and discounts” in its books of account. It was further represented that the purpose of the payment was to induce the retail dealers to place orders for the assessee’s brands/products with APBCL. Accordingly it was contended that the said payments cannot be considered to be Commission payments, since the payments have been made on principal to principal basis. The assessee placed reliance on the decision rendered by Visakhapatnam bench of Tribunal in the case of Addl. CIT v. Pearl Bottling (P.) Ltd.  46 SOT 133 in this regard. The assessee also placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of CIT v. Jai Drinks Ltd.  336 ITR 383 and also hosts of other Tribunal decisions, all of which have been rendered in that context, i.e., it has been held that the existence of Principal Agent relationship is a mandatory requirement to treat the payments as Commission. The assessee contended that there is no principal agency relationship between the assessee and the retail dealers as the sales to them are effected to APBCL. Accordingly it was contended that the payment is not covered within the purview of ‘commission or brokerage’.
6. The Ld CIT(A), after examining the contentions of the assessee held as under:—
“3.25 I have considered the pleas raised. All the above decisions are not applicable to the facts of this case. In all the above cases the element of ‘discount’ was paid against the sale price, and the transaction clearly fall within the purview of ‘discount’. On the other hand, in the instant case, as already discussed, the impugned payments were not paid against the sale price and not adjusted against sales turnover. Next, as pleaded, it has to be seen whether the relationship of principal and agent exist between the payer and payee. In the instant case it has to be noted that the payments were made to its del-credere agents and they would be the payees and not the retail dealers. Such relationship of payer & payee would not change even if the claim that the payments were ultimately passed on to retail dealers were to be true. However, the assessee has not substantiated such claim. Being del-credere agents the relationship of principal and agent is clearly established. The del-credere agents have rendered the service of promoting the brands/products manufactured by the assessee inducing the retail dealers to place orders with APBCL for which the subject payments were said to be made. Thus the conditions prescribed in section 194H are satisfied requiring deduction of tax at source. The fact that the payments were made after lifting of goods from APBCL also confirms that it is in the nature of commission.”
The Ld CIT(A) went a step ahead and expressed the view that the relationship of principal and agent is not a mandatory requirement as per the definition given in sec. 194H of the Act. Accordingly, the Ld CIT(A) confirmed the order of the assessing officer. Being aggrieved, the assessee is in appeal before us.
7. The Ld A.R submitted that the assessee has made payments to the retail dealers under the Sales promotion scheme promoted by it with the name “Trade schemes and discount”. He submitted that the existence of “Principal- Agent relationship and provision of service by the agent to the principal on his behalf are two essential requirements to treat the payments as commission” He submitted that the retail traders are businessmen on their own right and hence there was no question of providing any service by them to the assessee. Hence the relationship between the assessee and retail dealers is “Principal to Principal” basis and hence impugned payment shall not fall in the category of Commission payments. He further submitted that the payments under Trade discount scheme have been disbursed by the assessee through its del-credere agents. He submitted that the del-credere agents have opened separate bank accounts for this purpose. He submitted that the said agents would collect the details of sales effected by each of the dealers and compute the incentive payable to the retail dealers as per the Scheme. On receipt of the said details, the assessee would transfer funds to the separate bank account of the del-credere agents, who in turn, would make payment to the concerned retail dealers. Accordingly, he submitted that the del-credere agents have acted as conduit only for disbursing the incentives to the retail dealers. Accordingly he submitted that the assessee has paid the amount under Trade discount scheme to the retail dealers on “Principal to Principal” basis and hence they cannot fall in the category of “Commission” payments. The Ld A.R also carried us through the documents placed in the paper book to explain the methodology followed by the assessee for disbursing the incentive payments under Trade discount scheme to the retail dealers.
8. In this regard, the ld A.R. placed reliance on certain case laws. He invited our attention to the decision rendered by Hon’ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association v. Union of India  257 ITR 202 In the above said case, Hon’ble Gujarat High Court has explained the difference between “agency” and “sales” and held that the discount received by the stamp vendors on purchase of stamp papers does not constitute commission attracting the provisions of section 194 H of the Act, since the stamp vendors deal with the government on principal to principal basis and they have provided services to the Government only in the course of buying and selling of goods. Ld A.R. submitted that the decision rendered by Hon’ble High Court has since been upheld by Hon’ble Supreme Court in the same case CIT v. Ahmedabad Stamp Vendors Association  348 ITR 378
9. Ld A.R., further placed reliance on the decision rendered by Pune Bench of ITAT in the case of Fosters India (P.) Ltd. v.ITO  29 SOT 32 (Pune) (URO). It is a case where the assessee therein was also manufacturer of Beer and it appointed distributors for marketing its products. Under sales promotion scheme, it paid incentive to its distributors, early payment discount and bond expenses. The said payments were considered to be Commission by tax authorities. The Tribunal held that they do not constitute commission so as to attract TDS under section 194H of the Act as there is no principal-agent relationship between the assessee and its distributors. The Tribunal also held that the property of the goods and risk attached thereto pass on to the distributors as soon as the goods are invoiced to the distributors and at that moment, the sales takes place. Hence, free gifts of goods on sponsorships and promotions are sales promotion costs of the assessee, early payment discount is nothing but cash discount for timely payment and both the payments do not constitute commission by any stretch of logic. The Ld A.R submitted that the Payment made to the distributors of the assessee under sales promotion scheme has been held to be not “Commission” in the above said case, even though there is direct relationship between the assessee therein and the distributors. The Ld A.R submitted that in the instant case, there is no direct relationship between the assessee herein and the retail dealers and hence the case of the assessee stands in a better footing, i.e., there cannot be any doubt that the payments made under Trade discount scheme falls under Sales promotion scheme and further they have been paid under Principal to Principal basis.
10. Ld A.R. also placed reliance on the decision rendered by Cochin Bench of the Tribunal in the case of Asstt. CIT (TDS)v. Al Hind Tours & Travel (P.) Ltd. 64 SOT 1 (Cochin), wherein, the Tribunal considered the issue whether the discount paid by an Airline agent to a retail customer or group customers would constitute commission. The Tribunal held that the retail customers and group customers were not providing any service to the assessee and were only getting flight tickets at a concession from the assessee. Hence such customers could not be considered as agents of the assessee and hence, the discount paid by the assessee cannot be considered as commission.
11. The Ld D.R, on the contrary, submitted that the assessee has made the payment under trade discount scheme to the del-credere agents and they have provided services to the assessee in connection with the promotion of sales. Hence, the said payments fall in the category of Commission liable for deduction u/s 194H of the Act. When it was pointed out that the assessee has deducted TDS u/s 194H of the Act on the payment made to del-credere agents for the services rendered by them and the impugned payment has been given to the retail dealers through them and not to the del-credere agents, the Ld D.R submitted that she is placing strong reliance on the orders passed by Ld CIT(A).
12. We heard the rival contentions on this issue and perused the record. Under the provisions of section 194H of the Act, the term “commission” is defined as under:—
‘Explanation – For the purposes of this section,-
(i) “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
The above said definition makes it clear that the payment received by a person for acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods etc. falls under the category of Commission or Brokerage. Provision of service by a person acting on behalf of another person signifies the existence of principal agent relationship between the payer and payee, since the agent acts on behalf of the principal. If the relationship between the payer and payee is in the nature of principal to principal, then it cannot be said to be a service provided by one person on behalf of another person and hence the said payment cannot fall under the definition of commission. Accordingly, we are unable to agree with the observation of the Ld CIT(A) that the provisions of section 194H does not provide that the relationship between the should be that of “principal to agent”.’
13. In the instant case, the assessee herein, supplies Beer to APBCL, a Government of Andhra Pradesh Undertaking, which in turn, sells Beer to various retail dealers. Hence, in effect, there is no direct relationship between the assessee and retail dealers. However, since the turnover of the assesee would be dependent upon the sales effected with the retail dealers, the assessee has promoted a sales promotion scheme, under which incentives are given to retail dealers upon achievement of certain targets in sales. Under this promotional scheme, the retail dealers will be motivated to purchase more quantity of beer manufactured by the assessee, which in turn would increase the turnover of the assessee. In order to market trade discount scheme and also in order to promote sales of its products, the assessee has appointed del-credere agents. There is no dispute with regard to the fact that the payment made to del- credere agents for the services provided by them to the assessee is treated as commission by the assessee and TDS has been deducted under section 194H of the Act from them. The incentives payable under the trade discount scheme was disbursed by the assessee to the retail dealers through del-credere agents who have opened separate bank accounts for the said purposes. Accordingly, it was submitted by the assessee that del-credere agents have acted as conduit for transferring incentives to the retail dealers and hence the Ld CIT(A) was not justified in holding that the payments have been made to del-credere agents.
14. At this juncture, we may gainfully refer to the decision rendered by the Hon’ble Supreme Court in the case of Bhopal Sugar Industries Ltd. v. STO AIR 1977 SC 1275, wherein the Hon’ble Apex Court has explained about “Contract of sale” and “Contract of Agency”. The head notes of the said judgment are extracted below:—
‘In a contract of sale, title to property in the goods passes on to the buyer on delivery of the goods for a price paid or promised. Once this happens the buyer becomes owner of the property and the seller has no vestige of title left in the property. Having regard to the complexities of modern times the concept of sale has undergone a change and made a departure from the old doctrine of laissez faire. Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as, fixing of price, submission of statement of accounts, area of sale and so on these restrictions would not per se convert a contract of sale into one of agency.
A contract of agency differs from a contract of sale in as much as an agent, after taking delivery of the property, does not sell it as his own but sells it as the property of the principal under his instructions and directions.
While interpreting the terms of an agreement, the court has to look to the substance rather than the form of the agreement. Use of words like “agent” or “agency”, “buyer” and “seller” is not sufficient to lead to the inference that the parties did in fact intend that the said status would be conferred. In certain trades, the word “agent” is often used without any reference to the law of principal and agent.’
Thus, the essence of “Contract of Agency” is that the agent does not sell the goods as his own but sells the same as the property of the Principal under his instructions and directors. Thus an agent always acts on behalf of his Principal only and the benefits of the activities done by the agent would be reaped by the principal. Furthermore, since the agent is not the owner of goods, loss, if any, suffered by the agent is to be borne by the Principal and the agent shall be indemnified by the principal. The payment received by the agent for the services rendered to the principal is understood as “Commission”. The Hon’ble Gujarat High Court has followed the above said decision of the Hon’ble Supreme Court (supra) in deciding the issue before it in the case of Ahmedabad Stamp Vendors Association (supra). Following observations made by Hon’ble Gujarat High Court are also relevant here:—
‘It is also not possible to accept the contentions of Mr. Naik for the Revenue that the definition of “commission or brokerage” as contained in the Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. If this contention were to be accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from semi wholesaler to a retailer would be covered by section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf of another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in a case of all services or transactions contemplated by Explanation (i) to section 194H. If a car dealer purchases cars from the manufacturer by paying price less discount, he would be the purchaser and not the agent of the company, but in the course of selling cars, he may enter into a contract of maintenance during the warranty period with the customer (purchaser of car) on behalf of the company. However, such services rendered by the dealer in the course of selling cars does not make the activity of selling cars itself an act of agent of the manufacturer when the dealings between the company and the dealer in the matter of sale of cars are on “principal to principal” basis. This is just an illustration to clarify that a service in the course of buying or selling of goods has to be something more than the act of buying or selling of goods. . . . .’
Thus, the “element of agency” is an essential requirement in order to characterize a payment made for services provided as “Commission”. We notice that the Ld CIT(A) has referred to the decision rendered by Hon’ble Bombay High Court in the case of Harihar Cotton Pressing Factory v. CIT  39 ITR 594, wherein the Hon’ble High Court has observed as under:—
‘The expression “commission” has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in discharging certain duties such as for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some services to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can be for a variety of services and is of the nature or recompense or reward for such services.
“Rebate”, on the other hand, is a remission or a payment back and of the nature of deduction from the gross amount. It is sometimes spoken of as a discount or draw- back. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealings with one another it is nothing unusual to do so.’
The decision rendered by Hon’ble Bombay High Court (supra) also clarifies that the “Commission” is in the nature of recompense or reward for the services rendered.
15. The assessee has contended before the Ld CIT(A) that the incentives paid by it under Trade discount scheme is in the nature of discount. However, the Ld CIT(A) has expressed a view in paragraph 3.15 to 3.17 of his order that the “discount” given by the assessee would go to reduce the price of the product and in the instant case, the assessee has sold to APBCL and there is no adjustment made in the sale price towards discount. The Ld CIT(A) appears to have entertained the view that the discount should necessarily be adjusted against sale price. However, the Hon’ble Bombay Court in the case of Harihar Cotton Pressing Factory (supra) has clarified that the “rebate” (akin to “discount”) need not be immediate, but can be handed back to the payer after receipt of payment also. Further, the Ld CIT(A) has also referred to the meaning of the term “Discount” explained by the CBDT in the context of Fringe Benefit Tax in para 3.16 of his order. The CBDT has clarified that the bonus points given to credit card customers are in the nature of deferred sales discount. The decision of Hon’ble Bombay High Court and the CBDT circular makes it clear that the discount need not be adjusted against the sale price and it may be paid separately. Accordingly, we are unable to agree with the view taken by ld CIT(A) that the discount should be shown as reduction in the selling price. It is pertinent to discuss this point here, since the assessee has explained that the incentives given under the Trade discount scheme is nothing but a discount/rebate given to the buyers of its products, ie., buyers who purchased the assessee’s products from APBCL.
16. We also notice that the co-ordinate bench of Visakhapatnam Bench has considered an identical issue in the case of Pearl Bottling (P.) Ltd. (supra). The assessee therein is a manufacturer of soft drinks. It has fixed Maximum Retail Price (MRP) for its products and they were sold at a discounted rate. The assessee supplied goods to its distributors, who in turn, would sell them to the retailers in the market. At the end of each month, the distributors raised a debit note upon the assessee in respect of discount offered by them to the retailers and got reimbursements. Besides the above, the assessee also offered additional discounts to the distributors to achieve certain targets. The Tribunal examined the issue whether the discount offered to retailers and also the promotional discount would constitute commission payment within the meaning of section 194H of the Act. The Tribunal held that the relationship between the assessee therein and its distributor is on “principal to principal” basis. Accordingly, the Tribunal held that the reimbursement of discount given to the retailers and also promotional discount given to the distributors do not constitute commission.
17. In the instant case, the assessee apparently paid incentives under its sales promotion scheme to the retail dealers. We have already noticed that the assessee has sold goods to APBCL and the retail dealers have purchased goods from APBCL. There should not be any dispute that the sale between the assessee and APBCL and the sale between APBCL and retail dealers was on “Principal to Principal” basis, since the property and risk attached with the goods got transferred from seller to buyer under both occasions. Further, it cannot also be said that retail dealers have provided any service to the assessee herein, since there is no direct connection between the assessee and retail dealers. The trade discount scheme was announced by the assessee in order to promote its sales and hence it is a sales promotion scheme only. Under the scheme, the assessee has disbursed the eligible amount of incentive or rebate or discount to the retail dealers through its del-credere agents. Hence the del-credere agents cannot be considered to “Payees” in these transactions as interpreted by Ld CIT(A), since they have acted only as conduits. The payment is actually made to the retail dealers. Accordingly, we are of the view that the payment made by the assessee under such scheme would constitute sales promotion expenses and it would not fall under the category of commission falling within the scope of section 194 H of the Act.
18. In view of above, we set aside the order of the ld CIT(A) on this issue and direct the AO to delete the demand raised in respect of this issue under section 201(1) and 201(1A) of the Act in respect of all the three assessment years under consideration.
19. The next issue relates to short deduction of tax on payments made under the head “Brand fee”. The facts relating to this issue are set out in brief. The assessee herein possessed manufacturing facility along with license for manufacture of beer. Since it did not own any “brand” and since the beer is generally sold under a brand name, it had entered into an agreement to manufacture beer on behalf of other companies, who owned brand names. The assessee herein manufactured beer under a contractual agreement entered with United breweries group of companies and it had sold the goods to APBCL under its own name. It has also paid Excise duty and sales tax under its own name. In effect, it has produced and marketed the beer on its own in the brand name of the Contractees. The submission made by the assessee before Ld CIT(A) in this regard reads as under:—
‘Under these arrangements, the assessee company had to manufacture the goods and supply it to the State Owned Marketing Corporation at the price agreed to by the main line companies. In other words, the entire production process up to the point of sale is part of a contractual agreement, where by the assessee produces under the brand name the goods conforming to the products specifications and supply the same to the State owned Marketing Corporations. Since the invoice is raised by the assessee company on all the State Owned corporations, the said price becomes part of the turnover of the assessee. In terms of the very same agreement the assessee company re-distributes the profit over and above the excess mark up price agreed to between the parties as partly under the head “service charges” and the balance under the head “brand fees”. In other words, the brand fees does not arise directly to the main line companies but arises as part of the manufacturing process.’
As per the agreement, the assessee shall produce and sell the goods as per the specifications given by the main line companies under their brand name. The purchase and sales are accounted as its own purchases and sales. However, the assessee is entitled to receive a fixed sum of Rs. 30/- per case of 12 bottles. The assessee would also get funds for payment of sales tax and excise duty. At the end of the year any profit over and above the amount of service charges worked out @ Rs. 30/- per case would be paid to the main line companies as “brand fee”. Hence, at the end of the year, the net profit of the assessee company would be the amount calculated @ Rs. 30/- per case only.
20. In respect of payment made by the assessee as “brand fee”, it had deducted tax at source u/s 194C of the Act by treating the same as Contract payment. However the assessing officer took the view that the “brand fee” is in the nature of royalty for use of brand name and hence the tax should be deducted u/s 194J of the Act. Since the rate at which the tax is required to be deducted u/s 194C is lower than the rate prescribed u/s 194J of the Act, the assessing officer treated the assessee as assessee in default in respect of short deduction of tax and raised demand u/s 201(1) and 201(1A) of the Act. The Ld CIT(A) confirmed the order of the AO in principle. However, since the assessee claimed that the payees have declared the brand fee as their income and paid tax thereon, the assessee claimed that the demand u/s 201(1) should not be raised as per the decision of Hon’ble Supreme Court rendered in the case of Hindustan Coca Cola Beverages (P.) Ltd. v. CIT  293 ITR 226 . The Ld CIT(A) held that the assessee cannot be considered to be in default u/s 201(1) of the Act for the F.Y 2007-08 and 2008-09 subject to verification. For the F.Y 2009-10 also, the Ld CIT(A) directed the AO to verify as to whether the recipient has admitted the payment as its income and delete the demand raised u/s 201(1) of the Act. With regard to the interest levied u/s 201(1A) of the Act, the Ld CIT(A) directed the AO to compute the interest up to the date of payment of tax by the deductees.
21. The Ld A.R submitted that though the nomenclature “brand fee” is used for making payment to the Contractees, yet the entire payment cannot be considered as “brand fees”. He submitted that the assessee is entitled to job work charges of Rs. 30/- per carton and all other profits are transferred to the Contractee. However, due to licensing requirements, the assessee had treated the production and sale of beers as its own activity of production and sales. Accordingly he submitted that the real owner of the profit is the Contractee and hence the transfer of their share of profit was business profit only. He submitted that the parties have given the name of “brand fee” for their convenience and the same cannot change the character of the payment. Accordingly he submitted that the tax authorities are not justified in treating the entire payment as “royalty” paid towards brand fee. He submitted that the contractees have deployed its resources and also deploying its employees to supervise the production at the plant of the assessee contractor, in order to ensure the quality of the products. The Contractee has also provided funds for payment of excise duty and sales tax. Hence major portion of profit should be attributable to the resources provided by the contractee companies and only a portion of the same may be attributed towards “brand fee”. The Ld A.R further submitted that the assessee has purchased materials for manufacturing beer on its own and produced the beer according to the specifications specified by the contractees. He submitted that the definition of the term “work” given in sec. 194C of the Act provides that the contract for manufacture would be considered as ‘work’, when the material is purchased from the customer who orders the product.
22. On the contrary, the Ld D.R submitted that the assessee is raising new contentions at the stage of the Tribunal. The Ld D.R submitted that the Ld CIT(A) has already set aside the matter to the file of the AO with regard to the demand raised u/s 201(1) of the Act and also directed to reduce the interest charged u/s 201(1A) of the Act.
23. We have heard rival contentions and perused the record. The assessee might have acted as contract manufacturer, but the facts remains that, for all practical purposes, it has declared itself to be the manufacture and has also sold the products under its invoice only. The financial statements prepared by it also vindicate the same. When, for all legal requirements, the assessee has claimed itself to be the manufacturer of beer and has sold it under its own name by using the brand name of main line companies, it is incomprehensible as to how the assessee could claim for the limited purpose of sec. 194J of the Act that it was a mere contract manufacturer manufacturing beers for others. It was not shown to us that the property and risk attached with the manufactured products always remained with the Contractee. Further, we notice that the assessee has claimed to have executed contract for others, whereas, on the payment of ‘brand fee’, it has deducted TDS u/s 194C of the Act treating the same as contract payment, as if it has entrusted the contract to the main line companies. Hence the payment made to the brand owners under brewing agreement cannot be a contract payment falling under the scope of sec. 194C of the Act. Though the Ld A.R tried to contend that the entire payment could not be considered as payment of royalty, yet no material was placed to substantiate the said contentions. If the contention of the Ld A.R that the amount transferred by way of “brand fee” was actually a transfer of business profits is to be accepted, it has to be shown that the property and risk attached with the products remained with the contractee. In any case, it is a new argument raised for the first time before the Tribunal and hence we are not inclined to appreciate the said contentions of Ld A.R. Accordingly, we are of the view that there is no infirmity in the action of the tax authorities in treating the payment of ‘brand fee’ as payment of royalty falling within the scope of sec. 194J of the Act.
24. We have already noticed that the ld CIT(A) has already set aside the matter relating to demand raised u/s 201(1) of the Act to the file of the AO with the direction to cancel the demand raised, if it is shown that the recipients have declared the same as their respective income. The Ld CIT(A) has also directed the AO to restrict the interest chargeable u/s 201(1A) of the Act till the date of payment of tax by the recipients. The above directions are in accordance with the provisions of the Act and also in accordance with the decision rendered by Hon’ble Supreme Court in the case of Hindustan Coca-cola beverages (P.) Ltd. (supra). Hence, we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue.
25. In the result, all the appeals filed by the assessee are partly allowed.