By TIOL News Service

ALLAHABAD, AUG 06, 2013: THE issues before the Bench are - Whether trade discount is nothing but Commission and the same is liable to TDS u/s 194H and Whether discount offered to licensed stamp vendors by the State Government is Commission and TDS obligation arises in such a case. And the verdict goes in favour of the assessee.

Facts of the case

The assessee, the Chief Treasury Officer, Agra, has questioned the legality and validity of the order passed by the Income Tax Officer (TDS), Agra passed under section 221(1)/221(1A) of the Income Tax Act whereby the Chief Treasury Officer was held as assessee in default having failed to deduct and pay the tax under section 194-H of the Income Tax Act, 1961 from commission. A tax liability along with interest amounting to Rs.2,77,648/- was created by the order dated 31st of March, 2002. The Revenue had conducted a survey in the office of the petitioner under section 133A and thereafter proceeding was initiated under section 221(1)/221(1A) of the Act on the allegations that the assessee sold general stamp papers, court fee stamps, copy stamps and other stamps either to the public directly or through licensed stamp vendors at a price less than 1% of the value of such stamps which amounted to 'commission' within the meaning of section 194-H of the Act. The assessee having failed to deduct the tax at source on the said 'commission amount' to which it was obliged under section 194-H of the Act, was assessee in default. The case of the assessee was that the it was not giving any commission to the stamp vendors. But the sales were made at discount of one per cent on cash purchases of stamp papers etc. by licensed vendors as per provisions of Rule 157 read with Rule 161 of U.P. Stamp Rules, 1942. The assessee, on the instructions of the ITO (TDS) collected the tax from the licensed vendors pertaining to the financial years 2001-2002, 2002-2003 and 2003-2004 and deposited the same with the department. The assessee further stated that similar issue was up for consideration before the Commissioner, Income Tax (Appeals) - II, Kanpur with respect to the Chief Treasury Officer, Kanpur and it was held that the Chief Treasury Officer was not required to deduct the tax at source on the sale of stamp papers etc. to licensed vendors as per the U.P. Stamp Rules, 1942.

In its counter-affidavit, the Revenue submitted that the impugned order dated 17.2.2004 had been passed after careful consideration and the petitioner had been rightly held as assessee in default for not deducting the tax as per provisions of section 194-H. In para 7 of the counter affidavit in reply to the plea that under the circumstances the CIT(A) has held that section 194-H was not attracted on the sale of stamp paper etc. by the petitioner, it was stated, was wholly irrelevant.

Having heard the parties, the HC held that,

++ as per provisions of Sec 194H, the words "by a person acting on behalf of another person" the element of agency must be present in all such services or transactions in order to fall within the expression commission and brokerage under this Act. To find out as to whether the relation of licensed stamp vendors vis a vis the assessee, is of principal and agent or it is sale of stamp paper etc. on principal to principal basis, it is necessary to have a look to the relevant statutory provision i.e. the U.P. Stamp Rule, 1942 which governs relationship of the petitioner with stamp vendor;

++ a fair reading of the UP Stamp rules does support the Revenue's stand. The stamp vendors are purchasers of the stamps etc. from the treasury on payment of ready money in cash. They sell stamps etc. to the public not on behalf of the State Government but in their own account. Section 182 of the Indian Contract Act, 1872 defines 'agent and principal' as "182."Agent" and "principal" defined. - An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal".

++ the rule as to agency is expressed in maxim "qui facit per alium, facit per se". It is founded on a contract, express or implied, by which one of the parties confides to the other, the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and renders an account of it;

++ in view of several judicial decisions, the relationship of the assesee with licensed vendor is not that of agency. It is not a contract of employment, as contract between principal and agent is primarily contract of employment to bring a legal relation with a third party or contract to such business as may be governed between them and the third party. The U.P. Stamp Rules, 1942 leaves no room for doubt that the title to the stamp papers etc. is passed on immediately to the licensed dealer on payment of ready-money. There is nothing in the said rule to indicate that even after the sale of stamp papers etc. by the assessee to the licensed vendor, the title/ownership of the stamp papers etc. continues with the assessee. At least no such rule could be pointed out by the standing counsel for the department. The rule is silent if stamp paper etc. is lost from the custody of the stamp vendor. It does not provide that in any such eventuality it will be loss to the State. The scheme of such Rules gives fair indication that the licensed vendors are purchasers of non-judicial court fees etc. in their account, as per Rule, 161 and the word 'purchase' herein has been used in its ordinary sense as commonly understood as transfer of ownership in the goods sold;

++ the scheme of U.P. Stamps Rule, 1942 negates any such relationship of agency in between the assessee or the stamp vendor. Grant of license to sell the stamps etc. is only for the purposes of regulation modulating the conduct of the stamp vendors, so that stamps etc. are made available to the public on their face value easily and hassle free. Sale and purchase transaction takes place in between the petitioner and the stamp vendor for consideration by payment of ready money. Section 19 of the Sale of Goods Act, 1930 provides that the property in the ascertained goods is transferred to the buyer when the contract intends it to be transferred. In the absence of any thing otherwise, in the said Rules, the property passes from the date of sale. They have gone to the extent that the term of contract denotes that no delivery shall take place till entire purchase money is paid, but the incorporation of this term does not per-se postpone the title of the purchaser;

++ in Hoe Kim Seing Versus Maung Ba Chit : AIR 1935 Privy Council, 182, it has been laid down that even it it is intended that the sale consideration shall be paid later on and the goods are specified and ascertained, the property in ascertained goods is transferred to the buyer immediately.

++ we are also of the view that in the State of U.P. in the light of the Rules, 1942, the sale of stamp papers by the petitioner to the licensed vendor is a sale on principal to principal basis and there does not exist a relationship of agency in between them;

++ the central theme of the impugned order dated 16.12.2003 is that as the stamp papers etc. have been sold at a discounted price, it is nothing but payment of commission to stamp vendors by the assessee. The impugned order proceeds on the ignorance of the scheme of U.P. Stamp Rules as also the difference in between the commission and discount. Similar kind of controversy was up for consideration before this Court in the case of Jagran Prakashan Limited. It was a case of publisher of newspaper engaged in the business of printing and publishing newspapers 'Dainik Jagran' and 'Eye Next' from different places across the country. It was giving trade discount to the advertisers who used to bring advertisements for the newspapers. The newspaper publisher used to charge less advertisement charges from a category of persons who are the members of Indian Newspapers Society. The Income Tax Department treated the newspaper Dainik Jagran as assessee in default as it failed to deduct the tax at source on the differential amount which according to the department was commission paid to such advertisers. This Court on the consideration of various judgements of the Apex Court has held that such type of discount is trade discount and it is not commission;

++ by applying the ratio of the aforesaid decision and keeping in mind that the nature of transaction discount under Rule 161 is not payment of commission directly or indirectly but it is a discount;

++ we are, therefore, of the opinion that the impugned order has been passed without taking into consideration the relevant facts and is illegal. We also find that in similar set of facts CIT (A)-II, Kanpur has held that the provisions of 194-H are not attracted in the case of stamp vendors, deserves for acceptance and this decision should have been followed in absence of any material otherwise by the respondent no.2 who is below the rank of CIT (A).

(See 2013-TIOL-604-HC-ALL-IT)