1 19 ITXA 953-2017.doc Sequeira IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 953 OF 2017 Pr. Commissioner of Income Tax-14 .. Appellant Vs Sandu Pharmaceuticals Ltd .. Respondent Mr.Suresh Kumar, for Appellant. Mr.Hiro Rai with Mr.Subhash Shetty and Mr.Dharan Gandhi, for Respondent. CORAM : M.S.SANKLECHA & NITIN JAMDAR, JJ. Date : 27 August, 2019. P.C. : This Appeal under section 260 of Income Tax Act, 1961 (the Act ) challenges order dated 23 March 2016 passed by Income Tax Appellate Tribunal, Mumbai ( Tribunal ). This appeal relates to Assessment Year 2009-10. 2. Revenue has urged following question of law for our consideration : Whether on facts and in circumstances of case and in law, Tribunal was justified in deleting addition under section 40(a)(ia) rw section 194H of Act amounting to Rs.5,84,55,165/-? 3. Respondent is engaged in manufacture of ::: Uploaded on - 03/09/2019 ::: Downloaded on - 04/09/2019 09:15:59 ::: 2 19 ITXA 953-2017.doc Ayurvedic medicines. During assessment proceedings for subject Assessment Year Assessing Officer noted that on sales turnover of Rs.14.25 crores Respondent had given discount of Rs.7.27 crores. Assessing Officer called upon Respondent to furnish details of discount given. In response Respondent pointed out that it was selling its Ayurvedic medicines to Company called M/s.Sandu Brothers Private Limited (SBPL) at discount @ 51%. This after taking into account cost of distribution, field staff salary, travelling expenses, incentives, marketing, etc. However Assessing officer on examination of order dated 11 November 2011 under section 143(3) of Act held 10% was on account of discount given to M/s SBPL and balance 41% was commission involved in selling its product through SBPL. It therefore held that, tax had to be deducted on commission of Rs.5.84 crores under Section 194H of Act. This not being done, entire amount of Rs.5.84 crores being commission at 41% was disallowed in terms of Section 40(a)(ia) of Act. 4. Being aggrieved Assessee filed appeal to Commissioner of Income Tax (Appeals) [CIT(A)] on above issue. By order dated 23 January 2012 CIT(A) dismissed Appeal. 5. Being aggrieved by order dated 23 March 2016, Assessee filed appeal to Tribunal. By impugned order dated 23 January 2012, appeal of Assessee was allowed. This after recordings its findings on facts as under : ::: Uploaded on - 03/09/2019 ::: Downloaded on - 04/09/2019 09:15:59 ::: 3 19 ITXA 953-2017.doc core issue to be decided is whether discount allowed by assessee on MPR to SBPL is price for selling of goods or in nature of commission. Before deciding issue, it needs reiteration that assessee sells its entire products to SBPL and allows discount of 51% on MRP. This fact is evident from invoices raised by assessee copy of which has been submitted in paper book. It is fact on record that assessee entered into agreement with SBPL on 1 st April 1997, for sale of its products. As per clause 1 of agreement, assessee is to manufacture and process certain Ayurvedic drugs and formulation by utilising secret formulation given by SBPL and pack them in bulk or in such other pack as may be stipulated or specified by SBPL to enable them market same by buying said products on its account. Clause-11 of agreement , stipulates that sale of goods to SBPL are on principal-to-principal basis and none of parties to agreement shall hold oneself as agent of other under any circumstances. It further stipulates that SBPL shall sell products on its own account only and not as agent or on behalf of assessee. Clause -10(a) of agreement provides that assessee shall manufacture goods as per specification of SBPL and if products are not in accordance with standard, SBPL shall have right to reject products. However, clause 10(b) provides that once SBPL accepts certain products manufactured by assessee, any loss suffered by SBPL, subsequently, due to handling, transportation of storage shall be borne by SBPL. Thus, on over all consideration of agreement between parties, it become clear that once certain goods are sold to SBPL after certification by them, ownership of such goods is transferred from assessee and vests with SBPL. Thus, once goods ::: Uploaded on - 03/09/2019 ::: Downloaded on - 04/09/2019 09:15:59 ::: 4 19 ITXA 953-2017.doc are certified by SBPL and sold to them contract of sale concludes as far as assessee is concerned, as goods cannot be returned back to assessee. Therefore, examined in aforesaid perspective, it has to be concluded that it is transaction of sale between assessee and SBPL on principal-to- principal basis and there is no agency between them. Further, on perusal of invoices raised, it is clear that assessee has given discount of 51% on MRP of goods sold. These evidences clearly demonstrate that there is no relationship of principal and agent between assessee and SBPL. Departmental Authorities have failed to demonstrate that SBPL was acting as agent on behalf of assessee to satisfy condition of section 194H. It is also relevant to note, though, agreement with SBPL is subsisting from year 1997 and similar trade discount has been given to SBPL on sale effected over years, Department has not made any disallowance either in preceding assessment years or in subsequent assessment years. This fact is evident from assessment orders passed for assessment year 2005-06 and 2006-07 under section 143(3) of Act, copy of which have been placed on record. That being case, when Department is following consistent view by not treating discount given to be in nature of commission over years under identical facts and circumstances, different approach cannot be taken in impugned assessment year. 6. From above would be noted that Tribunal has on facts come to conclusion that sale of goods to Sandu Brothers Private Limited was on principal-to-principal basis and not through agent. Thus no amount of discount aggregating to Rs.7.27 ::: Uploaded on - 03/09/2019 ::: Downloaded on - 04/09/2019 09:15:59 ::: 5 19 ITXA 953-2017.doc crores can be classified as commission. Therefore, section 194H of Act calling for deduction of tax of such commission would have no application to present facts. 7. Appellant has not been able to show that finding of fact arrived at by Revenue on basis of terms of agreement is in any manner perverse, or capable of different interpretation. 8. Therefore question as proposed does not give rise to any substantial question of law. Thus not entertained. 9. Appeal dismissed. (NITIN JAMDAR, J.) (M.S.SANKLECHA, J.) ::: Uploaded on - 03/09/2019 ::: Downloaded on - 04/09/2019 09:15:59 ::: Pr. Commissioner of Income-tax-14 v. Sandu Pharmaceuticals Ltd