INCOME TAX ACT, 1961

Tax deduction at source - Under section 194H -Non deduction of tax under section 194 H

Assessee-company was engaged in business of manufacture and sale of beer for the business purpose assessee appointed certain distributors. Assessing Officer noticed that assessee had given certain incentives to its distributors in form of free issue of goods under trade scheme, free gift of beer bottles on sponsorships and promotions and also early payment discount -Assessing Officer raised demand from assessee under section 201on the ground that aforesaid incentives were in nature of commission on which provisions of section 194H. Held : It was noted that assessees giving free bottles of beer on sale of specified quantities was nothing but a sale incentive by way of trade discount and free gifts of beer bottles on sponsorships and promotions was sales promotion cost for assessee-company and so was incentive travel for distributors and early payment discount was, it was nothing but a cash discount for timely payment of bills by distributors to assessee-company and in order to invoke provisions of section 194H, it was necessary that there must exist relationship of principal and agent between parties as it was only in such a situation that payments made can partake character of commission -Since, in instant case, by no stretch of logic incentives given by assessee to distributors could constitute commission, impugned demands raised on assessee under section 2012 were to be quashed.

Income tax Act 1961 Section 194H read with section 201

Case Law Analysis :Bhopal Sugar Industries Ltd. v. STO AIR 1977 SC 1275

Decision : In favour of assessee.
A.Y. : 2002-03 to 2005-06

Foster's India (P) Ltd. v. ITO