The Pune bench of the Income Tax Appellate Tribunal (ITAT), Pune bench has held that the difference between the MRP and the price sold to Stockists, cannot be considered as commission or brokerage paid by the assessee to its Stockists and therefore, TDS provisions under section 194H of the Income Tax Act, 1961 cannot be attracted.
The assessee, Wockhardt Limited sold its products to distributors at a price lower than the Maximum Retail Price (MRP), which difference has been opined by the PCIT as Commission requiring deduction of tax at source u/s 194H of the Act.
The Tribunal bench comprising Shri R.S. Syal, Vice President and Shri Partha Sarathi Chaudhury, Judicial Member has held that “It is simple and plain that a manufacturer would sell his goods to Stockists or Distributors at a price below the MRP, who, in turn, will add up their margin and then sell the products to the retailers. The MRP is the price which is charged by a Retailer from the ultimate consumers. All the intermediaries between the Manufacturer and ultimate consumer are to be compensated within the overall MRP of the product.”
Quashing the order, the Tribunal bench held that “the difference between the MRP and the price sold to Stockists, by no stretch of the imagination, can be considered as commission or brokerage paid by the assessee to its Stockists. In order to get covered under section 194H, it is apparent that principal and agent relations must be established. If the transaction is done on a principal-to-principal basis, there can be no scope for payment of commission requiring deduction of tax at source u/s.194H of the Act. Here is a case in which the assessee sold its products to Stockists on a principal-to-principal basis, who, in turn, sold the same products to Retailers again on a principal-to-principal basis for onward sale to customers again on a principal-to-principal basis. In that view of the matter, the relation between the assessee and its stockists cannot be described as that of principal and agent.”
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