INCOME TAX ACT, 1961

Section 194H

Tax deduction at source - Under section 194H - Payment of margin on goods sold by stockist - Sale of goods being in nature of principal-to-principal basis

Assessee-company was engaged in business of manufacture and trading of drugs, pharmaceuticals etc. The modus operandi of its business was that the stockist placed orders on assessee and goods were transferred to clearing and forwarding agents (CFAs). The CFAs then packed and dispatched the goods to the stockist against the payments. As per the arrangements between the assessee and CFAs, the assessee allowed 2% margin on total goods sold by the stockist. AO alleged that the margin amount paid to stockist was in the nature of commission liable for TDS under section 194H and accordingly, he held assessee as assessee-in-default under section 201(1) and 201(1A) for short deduction of tax at source. Held: It was found that arrangement between assessee and stockist for sale of goods was in the nature of principal-to-principal basis, but not in the nature of principal to agent, thus, the amount paid by assessee to stockist was not in the nature of commission liable for TDS under section 194H. Therefore, the additions made by AO towards short deduction of TDS under section 201(1) and consequent interest under section 201(1A) were deleted.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13

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