IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `Friday `G' BENCH
BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM
ITA no.4811/Del/2012
Assessment year:2009-10
Shri Sandeep Jain V/s . Income-tax Officer,
655/4, Katra Neel Gali, W ard 29(3),
Ghanteshwar, Chandni Chowk, New Delhi
Tilak Bazar, Delhi
[PAN : AGFPJ 1342 R]
(Appellant) (Respondent)
Assessee by Shri G.S. Kohli, AR
Revenue by Dr. Deepak Sehgal, DR
Date of hearing 20-11-2012
Date of pronouncement 23-11-2012
ORDER
A.N.Pahuja:- This appeal filed on 10.09.2012 by the assessee against an order
dated 30.08.2012 of the ld. CIT(A)-XXV, New Delhi, raises the following
grounds:-
1. "The learned Assessing Officer as well as CIT(A) were not
justified in disallowing the claim of ``21,57,429/- under the head
"commission".
2. The learned CIT(A) was not justified in confirming an action of
the learned Assessing Officer for an application of section
40(a)(ia) in respect of claim of ``21,57,429/- under the head
"commission".
The payment was related to "discount" where the proviso
40(a)(ia) is not applicable.
3. That without prejudice to para-2 that since no payment was
payable at the end of the year related to the concerned claim,
therefore, the proviso 40(a)(ia) was not applicable.
2 ITA no.4817/Del./2012
4. That the appellant craves his right to amend, delete or add
any grounds of appeal at or before the time of hearing."
2. Facts, in brief, as per relevant orders are that e-return declaring
income of ``3,90,010/- filed on 29th September, 2009 by the assessee, engaged
in the business of financing, was selected for scrutiny with the service of a notice
u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the `Act'). In
this case, an AIR information was received that the assessee received
commission of `97,601/- during the year under consideration from Kotak
Mahindra Bank Ltd..During the course of assessment proceedings, the
Assessing Officer (A.O. in short) noticed that the assessee claimed to have
received commission of `94,985/- during the year from the bank and further
claimed commission expenses of ``21,57,429/-, without deducting tax at source
thereon. There is nothing to suggest as to whether or not any query was raised
by the AO regarding non-deduction of tax at source from payment of the said
amount of commission nor the reasons for payment of the huge commission are
evident from the assessment order. In any case, the AO disallowed the said
amount in terms of provisions of sec. 40(a)(ia) of the Act, tax having not been
deducted at source from the said payment.
3. On appeal, the ld. CIT(A) upheld the conclusion of the AO in the following
terms:-
"5.2 The assessee is in appeal against the order of the
Assessing Officer and it is submitted that the Assessing Officer is
not justified to make the disallowance of the commission payments
as actually the same are not the commission payments but the
discounts etc. given to various parties/clients. It is also submitted
that the provisions of section 40(a)(ia) is not applicable as the
commission has already been paid without making TDS and the
provisions are applicable only when the commissions are payable
and the assessee also tried to rely on various case laws in support
of the claim but it is seen the facts of the cases are different and
distinguishable from the facts of the case of the assessee.
3 ITA no.4817/Del./2012
5.3 I have considered the order of the Assessing Officer
and the submissions of the assessee and I do not find any merit in
the submissions of the assessee as the assessee has failed to
make TDS u/s 194H for the commissions payments to various
parties and as such the Assessing Officer is justified to make the
disallowance u/s 40(a)(ia). The assessee also failed to prove that it
is not a commission payment but the discounts and as such failed
to controvert the findings of the Assessing Officer. The assessee
also failed to submit any details or any evidence to show that the
provisions of section 40(a)(ia) is not attracted and as such the
assessee has failed to controvert the findings of the Assessing
Officer. After considering all the facts and circumstances of the
case, I am of the view that there is no merit in the submissions of
the assessee as the assessee has failed to submit any details or
evidence against the addition made by the Assessing Officer and
accordingly, the addition/disallowance made by the Assessing
Officer is confirmed."
4. The assessee is now in appeal before us against the aforesaid
findings of the ld. CIT(A).While referring to page 6 and 7 of the paper book, the
ld. AR contended that the assessee paid commission/discount to various parties
in the process of arranging loans for various loanees out of commission received
from the banks. The amount was in the nature of discount and could not be
treated as commission, since no services were rendered by the recipients to the
assessee. While referring to decision dated 27.5.2011 of the ITAT in DCIT Vs.
Surendra Buildtech Pvt. Ltd. in I.T.A. nos.4554 & 4854/D/2010 as also decision
of Hon'ble Allahabad High Court in Jagran Prakashan Ltd. Vs. DCIT (TDS), 345
ITR 288 and Ahmedabad Stamp Vendor Association Vs. Union of India, 257 ITR
202(Guj) affirmed by Hon'ble Apex Court in 348 ITR 378, the ld. AR vehemently
argued that the provisions of section 40(a)(ia) of the Act are not applicable in the
instant case. Even otherwise, no amount was payable as on 31.3.2009 and thus,
in terms of decisions in Jaipur Vidyut Vitran Nigam Ltd. Vs. DCIT, 123 TTJ
888(jaipur) and ; in K. Srinivas Naidu 131 TTJ 17(Hyderabad ) , no disallowance
could be made, the ld. AR added.
4 ITA no.4817/Del./2012
5. On the other hand, the ld. DR supported the findings of the ld.
CIT(A).
6. We have heard both the parties & gone through the facts of the
case. As is apparent from the aforesaid facts, the AO disallowed the claim for
deduction of an amount of ``21,57,429/- on account of commission, having
recourse to provisions of sec.40a(ia) of the Act, tax having not been deducted at
source at the time of payment of the amount. There is nothing to suggest as to
whether or not any query was raised by the AO regarding the nature of the
amount or for non-deduction of tax at source from payment of the said amount of
commission nor any reply seems to have been filed before the AO and nor even
any reasons for payment of the huge commission are evident from the
assessment order. On appeal, though the assessee raised a plea that the
amount was not commission but discount, the ld. CIT(A) without ascertaining the
nature of amount, rejected the said plea on the ground that the assessee failed
to prove that it was not a commission payment but discount. Accordingly, the ld.
CIT(A) upheld the disallowance, the assessee having failed to submit any details
or evidence to show that the provisions of section 40(a)(ia) were not attracted.
Indisputably, the assessee received an amount of `35,67,665/- [pg. 5 of PB] from
four parties viz. M/s Development Credit Bank Ltd.,Kotak Mahindra Bank Ltd.,
Reliance Capital Ltd., and Cholamandlam DBS Finance Ltd. on account of
commission. Though total receipts are stated to be `44,25,143/-, a copy of the
relevant profit & loss account or any details as to the nature of this amount or
nature of services rendered to the aforesaid parties, who have paid commission,
is not evident from the impugned order nor has been submitted before us. The
assessee also claimed deduction of an amount of `21,57,429/- towards
commission[though an amount of``21,55,929/- on account of rebate/discount to
various parties, numbering sixty is mentioned on pg.6 & 7 of PB] without
deduction of tax at source. The evidence and relevant details as to the nature of
this amount i.e as to whether the amount is towards rebate/discount or
commission, is not available in the paper book nor the ld. CIT(A) seems to have
5 ITA no.4817/Del./2012
ascertained. However, in a brief synopsis[pg.2 of the PB] filed before us , it is
stated that the assessee has only shared/parted with the commission to allure
the loanee to bring some more customers or similar cases and thus, it was only
an amount to the loanee which resulted in reduction of filing fee charged by the
banker in granting loan to the loanees. Even this statement is not supported by
any evidence nor the ld. CIT(A) recorded any findings on this plea made by the
assessee before him. The provisions of section 194 H of the Act ,invoked by the
AO & the ld. CIT(A) deal with tax deducted at source on payments made on
account of commission or brokerage. These are not applicable to trade discounts
as held by the Hon'ble Gujarat High Court in Ahmedabad Stamp Vendors
Association vs. Union of India [2002] 257 ITR 202,subsequently approved by
Hon'ble Apex Court in 348 ITR 378(SC). Hon'ble Gujarat High Court observed at
page 215 of the ITR that to fall within the definition of `commission or brokerage'
as contained in Explanation to section194 H of the Act, 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. Thus,the element of agency has to
be there in case of all services or transactions contemplated by Explanation (i) to
section 194H of the Act. Hon'ble Gujarat High Court also analysed the distinction
between commission and discount in the following words-
"At this stage, we may also make a reference to the distinction between
"commission" and "discount" as explained in law dictionaries and in judicial
pronouncements.
In Black's Law Dictionary, "Commission" and "Discount" are defined
and explained as under:
Commission:
The recompense, compensation or reward of an agent, salesman,
executor, trustee, receiver, factor, broker, or bailee, when the same is
calculated as a percentage on the amount of his transactions or on the
profit to the principal Weiner v. Swales 217Md.123 ; 141 A.2d 749,
6 ITA no.4817/Del./2012
750. A fee paid to an agent or employee for transacting a piece of
business or performing a service. Frayer v. Currin App. 280 SC 241;
312 S.E. 2d 16, 18. Compensation to an administrator or other
fiduciary for the faithful discharge of his duties.
Discount:
In a general sense, an allowance or deduction made from a gross sum
on any account whatever. In a more limited and technical sense, the
taking of interest in advance.
A deduction from an original price or debt, allowed for paying
promptly or in cash. Method of selling securities (e.g., treasury bills)
which are issued below face value and redeemed at face value . . .
To purchase an instrument or other right to the payment of money,
usually for an amount less than the face amount or value of the right."
6.1 Hon'ble Gujarat High Court also referred to the decision in Harihar Cotton
Pressing Factory v. CIT [1960] 39 ITR 594(Bom.), explaining the distinction
between the two expressions commission and discount in the following words
(head note) :
"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 service 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
of recompense or reward for such services. `Rebate', on the other
hand, is a remission or a payment back and of the nature of a
deduction from the gross amount. It is sometimes spoken of as a
discount or a 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
7 ITA no.4817/Del./2012
made later and in case of persons who have continuous dealings with
one another it is nothing unusual to do so."
6.2 In the light of view taken in the aforesaid decisions, for a payment to fall
within the category of commission, there must be a relationship of principal and
agent. The commission is a compensation to an agent for services to be
rendered. It is an allowance or reward made to agents. This is calculated on a
percentage basis on the amount of the transaction or the profits to the principal.
On the other hand,discount is an abatement of cost, where it is given at the time
of sale. It is not for services rendered by the purchaser, so as to constitute
commission or brokerage. Such discount even including cash discount for prompt
payment has been treated consistently for sales tax purposes as abatement of
cost, so that sales tax becomes leviable only on the net amount as was decided
in Dy. CST v. Advani Oerlikon Pvt. Ltd. [1980] 45 STC 32 (SC) and Dy. CST v.
Kerala Rubber and Allied Products [1993] 90 STC 170 (SC).In CIT vs.Singapore
Airlines Ltd.,180 taxman128(Del) it was observed that when the transaction is
one that between principal-to-principal, the difference in price would only be
discount falling outside the purview of provisions of section 194H of the Act.
6.3 In the instant case before us, as is apparent from a mere glance at the
impugned order, the ld. CIT(A) did not investigate the plea made by the
assesseee as to nature of transaction i.e. as to whether the amount of
`21,57,429/- is in the nature of commission or rebate/discount nor such a plea
seems to have been taken before the AO. The ld. AR on behalf of the assessee
though made such a plea before us, but relevant material in support of such plea
was not brought on record. Even with regard to his alternate plea as per ground
no.3 that no amount was payable at the end of the year , there is no material
before us nor such a plea seems to have been taken before the lower authorities.
Even a copy of the relevant balancesheet has not been placed before us. Thus,
complete facts have not been placed before us. Recently in CIT vs.J.B. Roy in
ITA nos.. 1114 of 2005 and 235, 238, 410, 411, 413, 436, 438 to 440 of 2006,
8 ITA no.4817/Del./2012
Hon'ble jurisdictional High Court held vide their order dated 11.10. 2012 that the
Tribunal should not hesitate to order a deeper investigation into the facts in order
to elicit the truth and in doing so, it has the power to remit the matter to the
income tax authorities. In view of the foregoing, especially when the ld.
CIT(A) have not examined the plea as to whether the amount of
` 21,57,429/- is towards commission or rebate/discount nor relevant
material has been placed before us by the ld. AR on behalf of the
assessee, we consider it fair and appropriate to set aside the order
of the ld. CIT(A) and restore the matter to his file for deciding the
aforesaid issue, afresh in accordance with law in the light of our
aforesaid observations and various judicial pronouncements,
including those referred to above and of course, after allowing
sufficient opportunity to both the parties. Needless to say that while
redeciding the appeal, the ld. CIT (A) shall pass a speaking order,
keeping in mind, inter alia, the mandate of provisions of sec. 250(6)
of the Act, bringing out clearly as to whether the amount of
` 21,57,429/- is towards commission or rebate/discount .It may be
clarified that the ld. CIT(A) is free to undertake any independent
enquiries, if found necessary ,in the facts and circumstances of the
case. W ith these observations, ground nos. 1 t0 3 in the appeal are
disposed of.
7 No additional ground having been raised in term of residuary ground no. 4 in
the appeal, accordingly, this ground is dismissed.
8. No other plea or argument was made before us.
9 ITA no.4817/Del./2012
9. In the result, appeal is allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(C.M. GARG) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Assessee
2. Income-tax Officer,W ard 29(3),New Delhi
3. CIT concerned.
4. CIT (A)-XXV, New Delhi
5. DR, ITAT, 'Friday `G' Bench, New Delhi
6. Guard File.
By Order,
Deputy/Asstt.Registrar
ITAT, Delhi
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