Passing on incentives/discounts to retailers not commission liable to TDS u/s 194H

Passing on incentives/discounts to retailers is not in the nature of commission paid liable to TDS u/s 194H – ITAT

In a recent judgment, ITAT Chennai held that passing on certain amount of incentives/discounts to retailers claimed as business promotion expenses were not in the nature of commission paid by the assessee to the retailers, hence not liable to TDS u/s 194H.

ABCAUS Case Law Citation:
4215 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC), Delhi for confirming the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) for non deduction of TDS u/s 194H of the Act.

The appellant assessee was an individual carrying on the business as distributor of mobile recharge card, sale of maida and atta along with jio phone sales on commission basis.

The assessee filed his return of income for the assessment year in question by declaring sales for reliance jio recharge coupons and jio router modems besides income through commission scheme, discount and incentives.

During the year the assessee had passed on the discount to his retailers and claimed the same as business promotion expenses in the profit and loss account.

The return of income was selected for limited scrutiny under CASS for verification of ‘business expenses’. During the assessment proceedings, the assessee furnished the details sought by the Assessing Officer (AO). The assessment was concluded u/s 143(3) of the Act by disallowing business promotion expenditure to the tune of 30% as TDS u/s.194H of the Act had not been done by the assessee.

Before the Tribunal the assessee submitted that the said expenditure is debited to Profit and loss account in respect of the discount passed on to the customers against the sale of sim cards, modems and mobile phones. Therefore, the same cannot be treated as commission expenses.

In support of his contentions, the assessee relied upon the various judgments wherein it was clearly held that discount given (Debit Note) are not in the nature of commission and hence not liable for tax deduction at source. The ITAT Calcutta had held that it should have been acknowledged that incentive is not given at a fixed rate for payments which is known in the trade as incentive for actual collection and this incentive is in the nature of discount and not commission.

Similarly, ITAT Jaipur had held that when the assessee is not directly or indirectly decides the quantum of alleged commission/discount as well as determining the retail price at which the recharge coupon is sold to the customer then the provision of section 194H cannot be applied to the assessee.

It was also held by the ITAT Kolkata that TDS is not applicable on discount by dealers or distributors to retailers on the sale of repaid SIM cards and Mobile recharge cards by stating that the relationship between a distributor and retailer was not that of agent but on a Principal to Principal basis.

The Tribunal held that in view of the judgments of the Co-ordinate Benches in support of non-applicability of provisions of 194H for discounts passed, the payments were not in the nature of commission.

Apart from, the Tribunal noted that the since the assessee’s turnover for the year was less than the threshold prescribed in second proviso to section 194H and thereby the TDS provisions as per Section 194H was not applicable for the relevant A Y.

Accordingly, the Tribunal held that the AO erred in disallowing the 30% of the Expenditure u/s 40(a)(ia) of the Act and the same was deleted.

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