Tube Investments of India Ltd. vs Assistant Commissioner of Income Tax

Prabha Sridevan, J.—In the appeal, the following questions of law are raised:

(1) Whether in the facts and circumstances of the case, the Tribunal was right in setting aside the matter back to the respondent, when per se, the legal position was well settled and the material facts were on record with which the issue could have been decided by the Tribunal ?

(2) Whether in the facts and circumstances of the case, the trade incentive given to the dealers would partake the character of commission or brokerage so as to attract the provisions of Section 194H of the IT Act, 1961?

(3) Whether in the facts and circumstances of the case, the Tribunal is right in stating that the price at which the dealers sell the goods will alone determine the real relationship existing between the appellant company and the dealers ?

The assessee is the manufacturer inter alia, of bicycles. It appoints dealers, for sale of the bicycles. Survey u/s 133A was conducted and an order was passed, wherein the AO had treated the trade incentive, being given by the assessee to its dealers, as coming within the scope of Section 194H. According to the assessee, the trade incentive did not partake the character of commission or brokerage and therefore, tax is not deductable at source and that it was more in the nature of discount, which is actually a reduction in the bill value. According to the assessee, the relationship between the appellant and the dealer is that of a principal and principal and not principal and agent. On appeal, the CIT(A) accepted the case of the assessee. The CIT(A), applying the law laid down in Ahmedabad Stamp Vendors Association Vs. Union of India (UOI), held that the discount given by the "appellant company" falls within the term "discount" and not "commission". Against that, the Revenue filed an appeal before the Tribunal. Before the Tribunal, the contention of the Revenue was that the trade incentive was a post-sale incentive and subjected to TDS; this incentive did not result in abatement of price; the fact that the dealers sold the goods in the brand name of the manufacturer and the fact that the assessee had the power to terminate the agreement would indicate the nature of the relationship between the assessee and his dealers. The Tribunal called upon the assessee to furnish a copy of the trade incentive scheme. The assessee submitted that, no such scheme had been framed and that the trade incentive would vary, according to the business circumstances. The Tribunal wanted to know, whether the dealers were selling the goods at the same price at which they were billed or higher prices were charged. On the next day of hearing, the assessee produced one invoice, which was not sufficient for the Tribunal to determine the issue. The Tribunal, then referred to the judgment of Gujarat High Court in Ahmedabad Stamp Vendors Association v. Union of India (supra) which was relied on by the CIT(A) for allowing the appeal. The said para in that decision is extracted here:

...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 the 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. When the 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 (buying from the Government and selling to the customers) can be termed as the service in the course of buying or selling of goods.

Thereafter, the Tribunal remitted the matter to the file of the AO with a direction to re-examine the issue, after verifying the sale price.

Learned Counsel for the assessee submitted that the sale price cannot be the sole determinant of the nature of the relationship between assessee and its dealers. He further submitted that the observation of the Tribunal that the price at which the dealers sell the goods will alone determine the real relationship between the manufacturer and the dealers is not correct.

The learned senior standing counsel appearing for the Revenue submitted that the matter had only been remanded to the AO, to re-examine the issue and in these circumstances, there was no necessity to interfere with nor did any substantial question of law and she also submitted that if, in fact, the assessee had given a discount, which had resulted in abatement in price, then the sales-tax records would reveal the said fact and it was always open to the assessee to produce documents, which they had relied on.

Learned Counsel for the assessee, in response, submitted that he was never called upon to produce the said documents and at a belated stage, the Revenue wants to rake up issues which were never questioned earlier.

The CIT(A) had dealt with the rival contentions in detail and while coming to his conclusion, appears to have proceeded on the assumption that it was a discount and that it is evident from the simple agreements between the company and the dealers and had held that therefore the discount given by the appellant company falls within the term ''discount''.

The question to be decided is whether it was a discount. In order to do it, the CIT(A) had assumed it was a ''discount'', in fact he was putting the cart before the horse. It was, in these circumstances, the Tribunal had observed that the price would be one of the determinants. It is not correct to take one sentence of the order of the Tribunal and question the wisdom of Tribunal as though the Tribunal had observed that on the basis of the price alone the nature of the relationship between parties could be determined. Following the Gujarat High Court judgment (cited supra), the Tribunal had observed that if the dealers were selling the goods at the price for which they are purchasing from the company, then trade incentive would amount to commission only. We should read the whole order in its entirety and not tear one sentence out of context. Therefore, we are not answering the question of law since the matter has been remanded to the file of the AO. The AO shall independently examine the issue, namely, whether the trade incentive was a discount and to prove this, if any other evidence available to the assessee, it is open to the assessee to produce the same before the AO.

Tax case appeal is disposed of accordingly. No costs. Consequently, connected miscellaneous petition is closed.