Skol Breweries Ltd. v. Asstt. CIT

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The Tax Publishers2013 TaxPub(DT) 0973 (Mum-Trib) : (2013) 142 ITD 0049 : (2013) 153 TTJ 0257 : (2013) 084 DTR 0271 : (2013) 028 ITR (Trib) 0465 Income Tax Act, 1961 --Capital or revenue expenditure --Club membership fees Allowed in earlier year as revenue expenditure--During assessment proceeding it was noted by assessing officer that assessee had incurred expenditure of club membership fees which includes towards entrance fee, subscription and other services of clubs. However, assessing officer disallowed treating if as not revenue expenditure which was upheld by DRP. *Held :* Not justified. Since similar disallowance made by assessing officer for assessment years 2004-05 to 2006-07 had been deleted by (I)(A) and Revenue had accepted order of (I)(A) therefore, following rule of consistency, as facts are identical claim of assessee could not be treated as capital in nature. It is clear from the details that the expenditure is only towards entrance fee, subscription arid other services of the club. The assessing officer allowed the expenditure incurred for the services availed from the club and has not doubted the payment of the entrance fee and service charges for the club membership. Therefore, there is no discrepancy in the details of the expenditure which is towards entrance fee and subscription of membership and not for any resort. [Para 6.3] Similar disallowance made by the assessing officer for the assessment year 2004-05 to 2006-07 has been deleted by the Commissioner (Appeals) and the Revenue has accepted the order of the Commissioner (Appeals). The assessing officer has not brought out on record that there is a change in the facts and circumstances with respect to the claim of the assessee for the assessment year under consideration to that of earlier years 2004-05 to 2006-07. Though, principle of res-judicata is not applicable in the matter of income-tax, however, rule of consistency has to be followed as the facts are identical. Since there is no difference in the facts and circumstances with respect to the claim of the assessee for the assessment year under consideration vis-a-vis to the assessment year 2004-05 to 2006-07 and when the order of the Commissioner (Appeals) has been accepted by the Revenue for the assessment year 2004-05 to 2006-07, then the claim of the assessee cannot be disallowed for the assessment year under consideration. [Para 6.4] Income Tax Act, 1961, Section 37(1) Income Tax Act, 1961 --TDS --Under section 194HIncentive/benefits to distributors by way of credit notes--During assessment proceedings assessing officer found that as regards sale price disconsits worth 57,01,01,930 assessee-company had no where stated that nature of cost incurred as discount on sale, but it had been mentioned as 'incentives' given to distributors as and by way of credit notes. Assessing officer further observed that cash discount and volume/bulk discounts were given in bill itself whereas in case of so-called 'sale price discounts', assessee issued credit notes to beneficiaries, who are distributors of assessee. Thus, according to assessing officer, assessee has paid commission to its distributors under the garb of sale price discount in form of credit notes. According to since assessee was failure to deduct TDS on such so called 'commission' disallowance under section 40(a)(iv) was made. DRP upheld order of assessing officer. *Held :* Not justified. Amount claimed as discount was always given at time of transaction of sale and purchase between manufacturer and distributor/dealer and said amount reduced from grow price. Benefit/incentive given by assessee through credit notes was not in nature of discount however, as assessee failed to produce scheme under which benefit had been given to distributor issue is remanded to assessing officer.. scheme under which same was allowed by assessee. So far as the relationship between the assessee and the distributor as described in the agreement, it is made clear that the sale and purchase of the product shall be on principal-to-principal basis. [Para 9.3] Though, as per clause 4.4 of the agreement, the assessee reserves the right to give discount on primary invoicing to the distributor; but with the condition that the same will have to be passed to retailer. It is an undisputed fact that the amount of so called discount, by way of credit note has not been passed on to the retailer. Therefore, the said benefit is not as per the agreement. [Para 10.1] There is no provision in the agreement for such a discount, which is over and above the invoice price; therefore, the present amount claimed as discount given by the assessee to the distributor is not as per the obligations under the agreement. [Para 10.2] Discount is given from the gross price and it occur at the instance of sale and purchase between the manufacturer and the distributor/dealer. Whereas the commission is in the nature of refund or compensation for performing some task or business by one person on behalf of the other and in case of sale and purchase of goods, the commission is accrued at the instance of further sales by the dealer or distributor. Thus, the discount given to the trader or distributor by the manufacturer would be liable to be deducted from the price charged to the dealer or distributor for the value of the goods under the Sales-tax and Excise Act. [Para 10.11] In the case in hand, the undisputed fact is that the amount of so-called discount has not been reduced from the value of price charged by the assessee from the distributor for the purpose of excise and sales-tax. [Para 11] In the case in hand, it is manifest from the records as well as from the facts and circumstances of the case that the benefit/incentive given by the assessee through credit note is certainly not in the nature of discount because the discount is always given at the time of transaction of sale and purchase between the manufacturer and the distributor/dealer and the said amount is required to be reduced from the gross price and therefore, the sale price is always ex-discount. [Para 12] On the other hand, the commission is given only after the completion of the task or services or the sale, if it is on sale of products by the distributor or dealer to the retailer or consumers. When the distributor records the purchase price without reducing the amount of so called discount, then the said benefit allowed by the assessee to the distributor, would not partake the character of discount. [Para 12.1] The assessee recognizes the Revenue from sale as per invoice/bills at which the goods were sold to the distributor and the amount of so-called discount is separately treated as expenditure on account of sale scheme expenses and under specific head 'sale price discount' and accordingly, debited to the P&L a/c. This clearly brings out the case of the assessee from the ambit of discount. For sales-tax purpose also the assessee has shown sale price without reducing such so-called discount. [Para 12.2] It appears that the benefit given under the sale scheme expense may be for marketing and sales promotion of the products by the distributor which does not pass on to the retailer or the end user of the products. Thus, the benefit given by the assessee does not percolate to the retailer or to the end user and limit (sic benefit) to the distributor cannot be said in the nature or character of 'discount'. [Para 12.3] In simple words, when a purchase is made on discounted price, the benefit is called discount; whereas when an incentive or benefit or compensation is given for undertaking of task/job services provided or on sale of goods by one person on behalf of others, then it is called commission. [Para 12.5] Amount in question paid by the assessee to the distributor is not as per the agreement between the parties, therefore, the said payment is outside the terms of agreement. The agreement contemplates the price of the goods to be mutually agreed by the parties and as per the invoice price by the assessee. Thus, as per the agreement, the invoice price of the goods would be agreed price. The income of the distributor due to the difference between the invoice price and sale price is business income of the distributor and not in dispute before this Tribunal. [Para 12.6] Section 194H talks about the payment to a recipient which is the income by way of commission or brokerage and does not talk about the relationship between the payer and the payee necessarily be of a principal and agent. The Explanation to section 194 elaborates the terms commission or brokerage by including any payment received or receivable directly or indirectly by a person acting on behalf of another person. Thus, it is clear that the provisions of section 194H do not require any formal contract of agency. [Para 12.7] The assessee has failed to produce any material such as the scheme under which the benefit has been given to the distributors. Though the said benefit/incentive is not discount as held in the foregoing paras; however, in the absence of the scheme under which such benefit/incentive was given, it is not possible to give a conclusive finding whether it is commission or not. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of the assessing officer to verify and examine the relevant record as to be filed by the assessee and then to decide this issue as per law. [Para 13.1] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0973 (Mum-Trib) : (2013) 142 ITD 0049 : (2013) 153 TTJ 0257 : (2013) 084 DTR 0271 : (2013) 028 ITR (Trib) 0465

Income Tax Act, 1961

--Capital or revenue expenditure --Club membership fees Allowed in earlier year as revenue expenditure--During assessment proceeding it was noted by assessing officer that assessee had incurred expenditure of club membership fees which includes towards entrance fee, subscription and other services of clubs. However, assessing officer disallowed treating if as not revenue expenditure which was upheld by DRP. Held : Not justified. Since similar disallowance made by assessing officer for assessment years 2004-05 to 2006-07 had been deleted by (I)(A) and Revenue had accepted order of (I)(A) therefore, following rule of consistency, as facts are identical claim of assessee could not be treated as capital in nature.

It is clear from the details that the expenditure is only towards entrance fee, subscription arid other services of the club. The assessing officer allowed the expenditure incurred for the services availed from the club and has not doubted the payment of the entrance fee and service charges for the club membership. Therefore, there is no discrepancy in the details of the expenditure which is towards entrance fee and subscription of membership and not for any resort. [Para 6.3] Similar disallowance made by the assessing officer for the assessment year 2004-05 to 2006-07 has been deleted by the Commissioner (Appeals) and the Revenue has accepted the order of the Commissioner (Appeals). The assessing officer has not brought out on record that there is a change in the facts and circumstances with respect to the claim of the assessee for the assessment year under consideration to that of earlier years 2004-05 to 2006-07. Though, principle of res-judicata is not applicable in the matter of income-tax, however, rule of consistency has to be followed as the facts are identical. Since there is no difference in the facts and circumstances with respect to the claim of the assessee for the assessment year under consideration vis-a-vis to the assessment year 2004-05 to 2006-07 and when the order of the Commissioner (Appeals) has been accepted by the Revenue for the assessment year 2004-05 to 2006-07, then the claim of the assessee cannot be disallowed for the assessment year under consideration. [Para 6.4]

Income Tax Act, 1961, Section 37(1)

Income Tax Act, 1961

--TDS --Under section 194HIncentive/benefits to distributors by way of credit notes--During assessment proceedings assessing officer found that as regards sale price disconsits worth 57,01,01,930 assessee-company had no where stated that nature of cost incurred as discount on sale, but it had been mentioned as 'incentives' given to distributors as and by way of credit notes. Assessing officer further observed that cash discount and volume/bulk discounts were given in bill itself whereas in case of so-called 'sale price discounts', assessee issued credit notes to beneficiaries, who are distributors of assessee. Thus, according to assessing officer, assessee has paid commission to its distributors under the garb of sale price discount in form of credit notes. According to since assessee was failure to deduct TDS on such so called 'commission' disallowance under section 40(a)(iv) was made. DRP upheld order of assessing officer. Held : Not justified. Amount claimed as discount was always given at time of transaction of sale and purchase between manufacturer and distributor/dealer and said amount reduced from grow price. Benefit/incentive given by assessee through credit notes was not in nature of discount however, as assessee failed to produce scheme under which benefit had been given to distributor issue is remanded to assessing officer.. scheme under which same was allowed by assessee.

So far as the relationship between the assessee and the distributor as described in the agreement, it is made clear that the sale and purchase of the product shall be on principal-to-principal basis. [Para 9.3] Though, as per clause 4.4 of the agreement, the assessee reserves the right to give discount on primary invoicing to the distributor; but with the condition that the same will have to be passed to retailer. It is an undisputed fact that the amount of so called discount, by way of credit note has not been passed on to the retailer. Therefore, the said benefit is not as per the agreement. [Para 10.1] There is no provision in the agreement for such a discount, which is over and above the invoice price; therefore, the present amount claimed as discount given by the assessee to the distributor is not as per the obligations under the agreement. [Para 10.2] Discount is given from the gross price and it occur at the instance of sale and purchase between the manufacturer and the distributor/dealer. Whereas the commission is in the nature of refund or compensation for performing some task or business by one person on behalf of the other and in case of sale and purchase of goods, the commission is accrued at the instance of further sales by the dealer or distributor. Thus, the discount given to the trader or distributor by the manufacturer would be liable to be deducted from the price charged to the dealer or distributor for the value of the goods under the Sales-tax and Excise Act. [Para 10.11] In the case in hand, the undisputed fact is that the amount of so-called discount has not been reduced from the value of price charged by the assessee from the distributor for the purpose of excise and sales-tax. [Para 11] In the case in hand, it is manifest from the records as well as from the facts and circumstances of the case that the benefit/incentive given by the assessee through credit note is certainly not in the nature of discount because the discount is always given at the time of transaction of sale and purchase between the manufacturer and the distributor/dealer and the said amount is required to be reduced from the gross price and therefore, the sale price is always ex-discount. [Para 12] On the other hand, the commission is given only after the completion of the task or services or the sale, if it is on sale of products by the distributor or dealer to the retailer or consumers. When the distributor records the purchase price without reducing the amount of so called discount, then the said benefit allowed by the assessee to the distributor, would not partake the character of discount. [Para 12.1] The assessee recognizes the Revenue from sale as per invoice/bills at which the goods were sold to the distributor and the amount of so-called discount is separately treated as expenditure on account of sale scheme expenses and under specific head 'sale price discount' and accordingly, debited to the P&L a/c. This clearly brings out the case of the assessee from the ambit of discount. For sales-tax purpose also the assessee has shown sale price without reducing such so-called discount. [Para 12.2] It appears that the benefit given under the sale scheme expense may be for marketing and sales promotion of the products by the distributor which does not pass on to the retailer or the end user of the products. Thus, the benefit given by the assessee does not percolate to the retailer or to the end user and limit (sic benefit) to the distributor cannot be said in the nature or character of 'discount'. [Para 12.3] In simple words, when a purchase is made on discounted price, the benefit is called discount; whereas when an incentive or benefit or compensation is given for undertaking of task/job services provided or on sale of goods by one person on behalf of others, then it is called commission. [Para 12.5] Amount in question paid by the assessee to the distributor is not as per the agreement between the parties, therefore, the said payment is outside the terms of agreement. The agreement contemplates the price of the goods to be mutually agreed by the parties and as per the invoice price by the assessee. Thus, as per the agreement, the invoice price of the goods would be agreed price. The income of the distributor due to the difference between the invoice price and sale price is business income of the distributor and not in dispute before this Tribunal. [Para 12.6] Section 194H talks about the payment to a recipient which is the income by way of commission or brokerage and does not talk about the relationship between the payer and the payee necessarily be of a principal and agent. The Explanation to section 194 elaborates the terms commission or brokerage by including any payment received or receivable directly or indirectly by a person acting on behalf of another person. Thus, it is clear that the provisions of section 194H do not require any formal contract of agency. [Para 12.7] The assessee has failed to produce any material such as the scheme under which the benefit has been given to the distributors. Though the said benefit/incentive is not discount as held in the foregoing paras; however, in the absence of the scheme under which such benefit/incentive was given, it is not possible to give a conclusive finding whether it is commission or not. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of the assessing officer to verify and examine the relevant record as to be filed by the assessee and then to decide this issue as per law. [Para 13.1]