The ACIT, Circle-4(1), Visakhapatnam v. M/s Pearl Bottling (P) Ltd., Visakhapatnam

ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 367/VIZAG/2009 ASSESSMENT YEAR: 2005-06 AD. CIT RANGE-4 VISAKHAPATNAM VS. PEARL BOTTLING (P) LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AABCK 2911 Q ITA NO. 271/VIZAG/2010 ASSESSMENT YEAR: 2006-07 AD. CIT RANGE-4 VISAKHAPATNAM VS. PEARL BOTTLING (P) LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AABCK 2911 Q APPELLANT BY: SHRI T.H. LUCAS PETER CIT (DR) RESPONDENT BY: SHRI V.K. JAIN CA ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEALS OF THE REVENUE ARE DIRECTED AGAINS T THE ORDERS PASSED BY LD CIT(A) VISAKHAPATNAM AND THEY RELATE TO THE ASS ESSMENT YEARS 2005- 06 AND 2006-07. SINCE THE ISSUE URGED IN THESE TWO APPEALS IS IDENTICAL IN NATURE THEY WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER. 2. THE SOLITARY ISSUE URGED IN BOTH THESE APPEA LS IS WHETHER THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE DISCOUNTS P AID BY THE ASSESSEE COMPANY DO NOT PARTAKE THE CHARACTER OF COMMISSION AND CONSEQUENTLY NO ADDITION MADE U/S 40(A)(IA) OF THE ACT IS WARRANTED FOR NON-DEDUCTION OF TAX AT SOURCE ON SUCH DISCOUNTS ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 2 OF 12 3. THE FACTS RELATING TO THE ISSUE ARE DISCUSSE D IN BRIEF. THE ASSESSEE IS ENGAGED IN THE MANUFACTURE AND SALE OF SOFT DRINKS UNDER THE BRAND NAME PEPSI. THE COMPANY HAS APPOINTED DISTRIBUTORS AND IT SUPPLIES ITS PRODUCTS TO THE DISTRIBUTORS WHO IN TURN SUPPLY TH EM TO THE RETAILERS. THE COMPANY IS ALSO DIRECTLY SUPPLYING ITS PRODUCTS TO CERTAIN KINDS OF RETAILERS LIKE HOTELS RESTAURANTS ETC. WITHOUT INVOLVEMENT O F THE DISTRIBUTORS. THE COMPANY HAS FIXED THE MAXIMUM RETAIL PRICE (MRP) FOR ALL ITS PRODUCTS AND THE PRODUCTS ARE SUPPLIED TO THE RETAILERS AT A DISCOUNTED RATE. THE METHODOLOGY FOLLOWED BY THE COMPANY IN THIS REGARD IS STATED AS UNDER:- (A) IN THE CASE OF RETAILERS TO WHOM THE PRODUCTS ARE DIRECTLY SOLD IT IS STATED THAT THE COMPANY IS REDUCING THE APPLI CABLE DISCOUNTS IN THE INVOICE ITSELF AND ONLY THE NET AMOUNT IS CO LLECTED FROM THEM. (B) IN CASE OF PRODUCTS THAT WERE SOLD THROUGH THE DIST RIBUTORS IT IS STATED THAT THE SAID DISTRIBUTORS OFFER DISCOUNT TO THE RETAILERS IN THE MARKET AND AT THE END OF EACH MONTH THEY RAISE A CLAIM BEFORE THE COMPANY FOR REIMBURSEMENT OF THE AGGREGA TE AMOUNTS OF DISCOUNTS SO ALLOWED DURING THAT MONTH WHICH IS SAID TO BE REIMBURSED BY THE ASSESSEE. (C) THE ASSESSEE ALSO ALLOWS DISCOUNTS TO ITS DISTRIBUT ORS A DISCOUNT CALLED PROMOTIONAL DISCOUNT ON FULFILLING/ACHIEVE MENT OF SALES TARGETS THAT ARE FIXED FROM TIME TO TIME. IT IS STAT ED THAT THE QUANTUM OF DISCOUNT IS NOT FIXED ON A FIXED PERCENT AGE BUT WILL BE IN THE NATURE OF QUANTITY DISCOUNT. FOR THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT Y EAR 2005-06 THE BREAK UP OF THE DISCOUNTS IN THREE CATEGORIES STATED ABOV E ARE STATED AS UNDER: (A) DISCOUNT ALLOWED TO SPOT SALE RETAILERS - 1 61 23 755 (B) MONTHLY DISCOUNT GIVEN TO THE DISTRIBUTORS - 2 97 60 547 (C) PROMOTIONAL DISCOUNT - 22 88 631 ---------------- 4 81 72 933 ======== ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 3 OF 12 FOR THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-0 7 THE BREAK UP DETAILS OF THE AGGREGATE AMOUNT OF RS.4 53 07 469 UNDER THE ABOVE SAID THREE CATEGORIES IS NOT AVAILABLE. 3.1 ACCORDING TO THE ASSESSEE COMPANY DISCOUNT S OFFERED BY IT ARE IN THE NATURE OF TRADE DISCOUNTS AND THEY CAN NOT BE C ATEGORISED AS COMMISSION PAYMENTS WARRANTING DEDUCTION OF TAX A T SOURCE U/S 194H OF THE ACT. ACCORDINGLY THE ASSESSEE COMPANY DID NOT DEDUCT TAX AT SOURCE (TDS) ON SUCH PAYMENTS. HOWEVER THE ASSESSING OFFI CER WAS OF THE VIEW THAT THESE DISCOUNTS PARTAKE THE CHARACTER OF COMM ISSION PAYMENTS WARRANTING DEDUCTION OF TAX AT SOURCE U/S 194H OF T HE ACT AND SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE HE DIS ALLOWED THE ENTIRE DISCOUNT PAYMENTS BY INVOKING THE PROVISIONS OF SEC . 40(A)(IA) OF THE ACT. IN SUPPORT OF HIS VIEWS THE ASSESSING OFFICER PLACE D RELIANCE ON THE DECISION OF JAIPUR BENCH OF ITAT IN THE CASE OF M/S HINDUSTAN COCO-COLA BEVERAGES (97 ITD 105). BEFORE THE ASSESSING OFFI CER THE ASSESSEE PLACED RELIANCE ON THE DECISION OF KOLKATTA BENCH OF ITAT IN THE CASE OF SHREE BAIDYANATH AYURVED BHAVAN LTD. (83 TTJ 409). HOWEV ER IN THE VIEW OF THE ASSESSING OFFICER THE SAID DECISION WAS NOT AP PLICABLE TO THE FACTS OF THE INSTANT CASE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY DELETED TH E ADDITION MADE IN BOTH THE YEARS BY HOLDING THAT THE PAYMENTS MADE BY THE ASSESSEE IS IN THE NATURE OF TRADE DISCOUNT AND THE RELATIONSHIP BETWE EN THE ASSESSEE AND ITS DISTRIBUTORS IS THAT OF PRINCIPAL TO PRINCIPAL A ND NOT PRINCIPAL TO AGENT. AGGRIEVED BY THE ORDERS OF LD CIT(A) THE REVENUE I S IN APPEAL BEFORE US FOR BOTH THE YEARS. 4. LD DR INVITED OUR ATTENTION TO THE RESTRICT IVE CLAUSES EXTRACTED BY THE ASSESSING OFFICER FROM THE AGREEMENT ENTERED BETWEE N THE ASSESSEE AND THE DISTRIBUTOR AND SUBMITTED THAT THE ASSESSEE BY INCORPORATING SUCH RESTRICTIVE CLAUSES HAS TAKEN FULL CONTROL OVER TH E BUSINESS BY THE ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 4 OF 12 DISTRIBUTOR AND HENCE THE DISTRIBUTOR IS CONSTRAINE D TO CARRY ON HIS BUSINESS AS PER THE DICTATES OF THE ASSESSEE HEREIN. FURTHE R THE DISTRIBUTOR SHALL NOT BE ENTITLED TO DEAL WITH ANY OTHER PRODUCTS WITHOUT OBTAINING EXPRESS WRITTEN PERMISSION FROM THE ASSESSEE. ACCORDING TO LD DR SUCH KIND OF RESTRICTIONS TRANSLATES THE RELATIONSHIP BETWEEN TH E ASSESSEE AND THE DISTRIBUTOR INTO THAT OF PRINCIPAL TO AGENT. THE LD DR FURTHER SUBMITTED THAT IT IS WELL SETTLED PRINCIPLE THAT THE NOMENCLA TURE GIVEN TO A TRANSACTION SHALL NOT DECIDE THE NATURE OF THE TRANSACTION AND THE SUBSTANCE OF THE RELATIONSHIP SHOULD BE DECIDED ON THE BASIS OF THE TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN THE PARTIES. BY INVITING OUR ATTENTION TO THE DECISION OF M/S HINDUSTAN COCOLA BEVERAGES (SUPRA) THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE AO H AS BROUGHT OUT THE PARITY OF FACTS BETWEEN THE INSTANT CASE AND THE CA SE OF M/S HINDUSTAN CO- COLA BEVERAGES SUPRA IN PAGE 9 OF THE ASSESSMENT O RDER AND HENCE THE RATIO OF SAID DECISION SHALL SQUARELY APPLY TO THE INSTANT CASE. ACCORDINGLY THE LD D.R SUBMITTED THAT THE AMOUNT PAID TO THE DI STRIBUTORS IN THE INSTANT CASE PARTAKE THE CHARACTER OF COMMISSION SUSCEPTIBL E FOR TDS U/S 194H OF THE ACT. ACCORDING TO LD D.R FOLLOWING DECISIONS RELIED UPON BY LD CIT(A) ARE DISTINGUISHABLE AND HENCE ARE NOT APPLICABLE T O THE FACTS OF THE INSTANT CASE. A) M/S JAI DRINKS (P) LTD (ITA NO.2922/D/2005 DT. 28.11.2008) B) SHREE BAIDYANATH AYURVED BHAVAN LTD (83 TTJ (C AL)409) C) AHMEDABAD STAMP VENDORS ASSN. V UNION OF INDIA (124 TAXMANN 628 (GUJ) D) NATIONAL PANASONIC INDIA (P) LTD VS D.C.I.T (94 T TJ (PUNE) 088) E) GOVERNMENT MILK SCHEME V A.C.I.T (281 ITR (PUNE) 088) F) MOTHER DAIRY INDIA LTD V ITO (ITA NO.2975/DEL/0 8 DT. 12-12-08) IN THE CASE OF M/S JAI DRINKS (P) LTD THE AGREEMENT WAS BETWEEN A DEALER AND SUB DEALER AND FURTHER AFTER THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. IDEA CELLULAR LTD (2010) (325 ITR 148) THE ASSESSEE COULD NOT PLACE RELIANCE ON THAT DECISION. THE CASE OF M/S SHREE BAIDYANATH ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 5 OF 12 AYURVED BHAVAN LTD PERTAINS TO SEC. 154 PROCEEDINGS AND HENCE THE TRIBUNAL DECIDED THE CASE BY ACCEPTING THAT THE VIE W OF THE ASSESSING OFFICER IN THAT CASE WAS A POSSIBLE VIEW. HENCE THE RE IS NO FINDING IN THAT CASE WITH REGARD TO THE NATURE OF RELATIONSHIP THAT EXISTED BETWEEN THE PARTIES THEREIN. IN THE REMAINING FOUR CASES THERE IS A CLEAR FINDING THAT THERE EXISTED A PRINCIPAL TO PRINCIPAL RELATIONSH IP BETWEEN THE PARTIES. ACCORDING TO LD D.R THE RATIO LAID DOWN IN THE FOLL OWING CASES ARE APPLICABLE TO THE INSTANT CASE. A) SINGAPORE AIRLINES (319 ITR 29 (DELHI) B) CIT VS. IDEA CELLULAR LTD. (2010) (325 ITR 148 ( DELHI)) C) VODAFONE ESSAR (235 CTR 393 (KAR)) D) AROUND THE WORLD (268 ITR 477 (MAD)) E) TUBE INVESTMENT (223 CTR 99) ACCORDINGLY LD D.R CONTENDED THAT THE ORDER OF THE ASSESSING OFFICER SHOULD BE UPHELD. 5. ON THE OTHER HAND THE LD COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE FACTS IN THE CASE OF M/S HINDUSTAN COCO COLA BE VERAGES LTD IS DISTINGUISHABLE I.E. IN THAT CASE THE ASSESSEE HA D DEBITED COMMISSION EXPENSES SEPARATELY IN ITS PROFIT AND LOSS ACCOUNT AND HENCE THE RATIO OF THE SAID CASE CANNOT BE APPLIED TO THE INSTANT CASE . ACCORDING TO LEARNED A.R THE OTHER CASES RELIED UPON BY THE LD DR ARE A LSO NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. FOR EXAMPLE IN THE CAS ES OF IDEA CELLULAR LTD SUPRA THE RELATIONSHIP IS ESTABLISHED BETWEEN THE COMPANY AND THE CUSTOMER UPON THE SALE OF SIM CARD AND THERE AFTER THE COMPANY CONTINUES TO PROVIDE SERVICES TO THE CUSTOMERS. HENCE THE DIS TRIBUTORS OF THE SIM CARD WERE CONSIDERED TO BE THE AGENTS OF THE COMPANY. HO WEVER IN THE INSTANT CASE NO SUCH RELATIONSHIP IS CREATED BETWEEN THE A SSESSEE COMPANY AND THE CUSTOMERS BY THE DISTRIBUTORS. WITH REGARD TO THE COMMENTS OF THE ASSESSING OFFICER THE LEARNED A.R SUBMITTED THE FO LLOWING:- A) THE COMPANY IS MANUFACTURING THE SOFT DRINKS A S PER THE AGREEMENT ENTERED WITH PEPSICO INC.. AS PER THE AG REEMENT WHICH IS PLACED AT PAGES 157-170 OF PAPER BOOK RELATING T O THE ASSESSMENT ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 6 OF 12 YEAR 2005-06 THE ASSESSEE CAN MARKET ITS PRODUCTS ONLY IN THE TERRITORIES DESCRIBED IN THE AGREEMENT AND FURTHER THE ASSESSEE HAS ALSO TO ENSURE THAT ITS DISTRIBUTORS ALSO FULLY COM PLY WITH THE TERMS AND CONDITIONS OF THE SAID AGREEMENT HENCE THE ASSE SSEE IS CONSTRAINED TO INCORPORATE ALL TYPES OF SUCH RESTRI CTIONS ON THE DISTRIBUTORS. B) AS PER CLAUSE 2.5 OF THE AGREEMENT ENTERED BETWE EN THE ASSESSEE COMPANY AND ITS DEALERS THE SAID DEALERS ARE NOT E NTITLED TO ENTER INTO NEGOTIATIONS SIGN CONTRACTS OR OTHERWISE ENGA GE IN ACTIVITIES ON BEHALF OF THE ASSESSEE BEYOND THE SCOPE OF THE AGRE EMENT. SIMILARLY AS PER CLAUSE 4.1(E) THE DEALER DOES NOT HAVE ANY RIGHT TO APPOINT SUB-DEALER AGENT ETC. FOR THE ASSESSEES P RODUCTS. THESE CLAUSES ESTABLISH THE FACT THAT THE RELATIONSHIP BE TWEEN THE ASSESSEE COMPANY AND ITS DISTRIBUTORS ARE THAT OF PRINCIPAL TO PRINCIPAL BASIS. C) AS PER CLAUSE 5 OF THE AGREEMENT THE DEALER SH ALL MAKE FULL ADVANCE AT THE TIME OF PLACING ORDER FOR THE PRODUC TS; THE DEALER SHALL SUBMIT ALL THE STATUTORY FORMS REQUIRED FOR T HE SAID PURPOSE AND FURTHER IT IS THE DISCRETION OF THE ASSESSEE COMPAN Y TO SUPPLY/PROVIDE ITS PRODUCTS TO THE DEALER CONSIDER ING THE AVAILABILITY OF IT. FURTHER AS PER CLAUSE 6.7 THE DEALER SHALL BE RESPONSIBLE FOR ANY MARKET OUTSTANDING IN THE EVENT OF TERMINATION OF THE AGREEMENT AND HE SHALL BE RESPONSIBLE FOR THE SETTL EMENT OF ALL THE KEY ACCOUNT DISCOUNTS AS ON THE DATE OF TERMINATION . THESE FACTS ALSO ESTABLISH THAT THE RELATIONSHIP BETWEEN THE PA RTIES IS ON PRINCIPAL TO PRINCIPAL BASIS. D) IN THE SALES TAX ASSESSMENT OF THE ASSESSEE TH E AGGREGATE AMOUNT OF DISCOUNTS IS DEDUCTED AS EXEMPTED TURNOV ER. HENCE IT IS CLEARLY PROVED THAT THE DISCOUNTS OFFERED BY THE ASSESSEE ARE ONLY TRADE DISCOUNTS AS HELD BY LEARNED CIT(A). E) THE RESPECTIVE DEALERS ARE ALSO SEPARATELY ASSESSED TO SALES TAX. ACCORDING TO LEARNED AUTHORISED REPRESENTATIVE THE FACTS OF THE INSTANT CASE IS IDENTICAL WITH THE FACTS PREVAILING IN THE CASE OF M/S JAI DRINKS PVT. LTD. (SUPRA) AND HENCE THE DECISION RENDERED IN THA T CASE SHALL BE APPLICABLE TO THE INSTANT CASE ALSO. ACCORDING TO LEARNED AUTHORISED REPRESENTATIVE IN ORDER TO VERIFY THE APPLICABILIT Y OF SEC. 194H OF THE ACT IT IS NECESSARY TO FIRST IDENTIFY THE RELATIONSHIP BET WEEN THE PARTIES. HENCE THE DECISION IN THE CASE OF M/S HINDUSTAN CO COLA B EVERAGES LTD WHICH ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 7 OF 12 WAS RELIED UPON BY THE ASSESSING OFFICER CAN NOT BE SAID TO BE APPLICABLE IN THE INSTANT CASE IN VIEW OF THE VARIOUS CLAUSES CIT ED ABOVE. ACCORDING TO LEARNED A.R THE DECISION IN THE CASE OF HINDUSTAN CO-COLA BEVERAGES HAS BEEN DISTINGUISHED BY HON'BLE ITAT PUNE BENCH IN TH E CASE OF FOSTERS INDIA (P) LTD VS. ITO (2008) (IDI)-GJX-0163 TPUN). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THERE IS NO DISAGREEMENT BETWEEN THE PARTIES THAT T HE PROVISION OF SEC. 194H RELATING TO THE TDS ON COMMISSION SHALL BE APP LICABLE ONLY IF THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS D ISTRIBUTORS ARE IN THE NATURE OF PRINCIPAL TO AGENT. THE COROLLARY IS T HAT THE SAID TDS PROVISIONS SHALL NOT APPLY IF THE NATURE OF THE RELATIONSHIP I S THAT OF PRINCIPAL TO PRINCIPAL. HENCE THE FIRST ISSUE THAT SHOULD BE R ESOLVED IS TO ASCERTAIN THE KIND OF RELATIONSHIP THAT EXISTED BETWEEN THE ASSES SEE COMPANY AND ITS DISTRIBUTORS. IT MAY BE NOTED HERE THAT THE DISTRI BUTOR IS DESCRIBED AS DEALER IN THE AGREEMENT BETWEEN THE ASSESSEE COMP ANY AND ITS DISTRIBUTORS. HENCE WE PRESUME THAT IN THE INSTANT CASE THE DISTRIBUTOR AND DEALER REFER TO THE DISTRIBUTOR ONLY. ACCORDING TO THE REVENUE THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS D ISTRIBUTORS IS IN THE NATURE OF PRINCIPAL TO AGENT WHILE ACCORDING TO THE ASSESSEE IT IS IN THE NATURE OF PRINCIPAL TO PRINCIPAL. IN THE VARIOUS CASE LAW RELIED UPON BY BOTH THE PARTIES THE COURTS HAVE ATTEMPTED TO ASCE RTAIN THE NATURE OF RELATIONSHIP FIRST AND THEN ANSWERED THE QUESTIONS POSED TO THEM. THE PERTINENT POINT TO BE NOTED IS THAT IN A CONTRACT O F AGENCY THE TITLE TO PROPERTY IN THE GOODS DOES NOT PASS FROM THE PRINCI PAL TO THE AGENT. HOWEVER IN THE CONTRACT OF SALE THE TITLE TO PROPE RTY IN THE GOODS PASSES ON TO THE BUYER ON DELIVERY OF THE GOODS FOR A PRICE P AID OR PROMISED. 7. THE ASSESSING OFFICER HELD THAT THERE IS NO TRANSFER OF TITLE TO PROPERTY FOR THE FOLLOWING REASONS. ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 8 OF 12 1. THE PURCHASER DOES NOT HAVE FULL FREEDOM OF FIXING A SALE PRICE. 2. THERE IS A RESTRICTION ON AREA OF OPERATION OF THE PURCHASER 3. SALES-EXECUTIVES OF THE ASSESSEE COMPANY REGULARLY MONITOR REGARDING TARGET ACHIEVEMENTS ETC. 4. REIMBURSEMENT OF CLAIMS IN RESPECT OF LEAKAGE AND BREAKAGE IS BEING PROVIDED BY THE ASSESSEE COMPANY. 5. THE PURCHASER CANNOT APPOINT ANY SUB-DEALER AGENT ETC. 6. THE ASSESSEE HAS MADE THE ENTRIES IN ITS BOOKS OF ACCOUNT DEBITING COMMISSION ACCOUNT AS AN EXPENDITURE. ON A CAREFUL PERUSAL OF THE AGREEMENT ENTERED BETWE EN THE ASSESSEE COMPANY AND ITS DEALERS WE DO NOT FIND ANY CLAUSE WITH REGARD TO THE REIMBURSEMENT OF CLAIMS IN RESPECT OF LEAKAGE AND B REAKAGE (POINT NO.5). THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E HAS MADE THE ENTRIES IN ITS BOOKS OF ACCOUNT DEBITING COMMISSION ACCOUNT AS EXPENDITURE; WHERE AS ACCORDING TO THE LEARNED A.R THE ASSESSEE HAS N OT PASSED SUCH ENTRIES IN THE BOOKS (POINT NO.6). THUS THERE IS CONTRADIC TION ON THIS POINT BETWEEN THE ASSESSING OFFICER AND THE ASSESSEE. SIM ILARLY AS PER CLAUSE 4.1(H) THE DEALER SHALL HAVE LIBERTY TO SELL THE A SSESSEES PRODUCTS AT ANY PRICE BELOW THE MAXIMUM PRICE SPECIFIED TO THE DEAL ER. THUS THE ASSESSEE IS HAVING FREEDOM TO FIX PRICE WITHIN THE PRICE FIX ED BY THE ASSESSEE WHICH IS IN CONTRADICTION TO THE OBSERVATION OF THE ASSES SING OFFICER. (POINT NO.1). 8. BEFORE PROCEEDING FURTHER LET US DISCUSS SOME JUDICIAL PRECEDENTS TO FIND OUT WHETHER THE OTHER CONDITIONS POINTED OUT B Y THE ASSESSING OFFICER (SUPRA) ARE VITAL FOR THE PURPOSE OF ASCERTAINING T HE TRANSFER OF TITLE OF PROPERTY IN THE GOODS. ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 9 OF 12 8.1 THE HON'BLE DELHI HIGH COURT IN THE CASE OF ID EA CELLULAR LTD. (SUPRA) HAS EXTRACTED AT PARAGRAPH 27 OF ITS ORDER THE FOL LOWING OBSERVATIONS MADE BY THE COCHIN BENCH OF ITAT IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. 34. WE DO NOT THINK THAT THIS SO-CALLED PRICING FREEDOM IS SO CRUCIAL IN EXAMINING THE EXACT NATURE OF THE BUSINESS RELATION BETWEEN THE ASSESSEE COMPANY AND ITS DISTRIBUTORS. THE PRICING FACTOR IS ALSO A MATTER OF MUTUAL CONSENT BETWEEN THE PARTIES. EVEN IN THE CASE OF AN AGENCY THERE CAN BE A CLAUSE BY WHICH AN AGENT IS AUTHORIS ED TO SELL THE GOODS FOR A PRICE LESS THAN THE MRP. EVEN IN A CASE OF PRINCIPAL-TO-PRINCIPAL THERE MAY BE A CLAUSE THAT THE DISTRIBUTOR CANNOT SELL A PRODUCT FOR A PRICE LESS THAN THE MRP UNLESS A CONSENT IS GIVEN BY THE MANUFACTURER. THE MATTER OF PRICING IN BOTH THE CASES I.E. PRINCIPAL-TO-PRINCIPAL AND PRIN CIPAL TO AGENTS CAN BE A MATTER OF MUTUAL CONSENT BETWEEN THE PARTI ES AND EVEN A MATTER OF NEGOTIATION AFTER THE EXECUTION OF THE AGREEMENT. THERE ARE NO HARD AND FAST RULES OF ANY LEGAL PROPOSITION AS FAR AS THESE MATTERS ARE CONCERNED. 8.2 THE HON'BLE SUPREME COURT HAS CONSIDERED THI S ISSUE IN THE CASE OF BHOPAL SUGAR INDUSTRIES LTD VS. STO AIR 1977 SUPR EME COURT 1275 AND HEAD NOTES OF THE SAID JUDGMENT HAS BEEN EXTRACTED BY THIS BENCH IN ITS ORDER DATED 20-07-2009 IN THE CASE OF NMDC LTD. VS. A.C.I.T (TDS). THE SAME IS EXTRACTED BELOW: IN A CONTRACT OF SALE TITLE TO PROPERTY IN THE GO ODS PASSES ON TO THE BUYER ON DELIVERY OF THE GOODS FOR A PRICE P AID OR PROMISED. ONCE THIS HAPPENS THE BUYER BECOMES OWNER OF THE PR OPERTY AND THE SELLER HAS NO VESTIGE OF TITLE LEFT IN THE PROP ERTY. HAVING REGARD TO THE COMPLEXITIES OF MODERN TIMES THE CONCEPT OF SALE HAS UNDERGONE A CHANGE AND MADE A DEPARTURE FROM THE OL D DOCTRINE OF LAISSEZ FAIRE. EVEN IF THE SELLER BY AN AGREEMENT IMPOSED A NUMBER OF RESTRICTIONS ON THE BUYER SUCH FOR EXAMP LE AS FIXING OF PRICE SUBMISSION OF STATEMENT OF ACCOUNT S AREA OF SALE AND SO ON THESE RESTRICTIONS WOULD NOT PER SE CONVERT A CONTRACT OF SALE INTO ONE OF AGENCY. A CONTRACT OF AGENCY DIFFERS FROM A CONTRACT OF SAL E IN AS MUCH AS AN AGENT AFTER TAKING DELIVERY OF THE PROPERTY DOES NOT SELL IT AS HIS OWN BUT SELLS IT AS THE PROPERTY OF THE PRINCIPAL U NDER HIS INSTRUCTIONS AND DIRECTIONS. ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 10 OF 12 WHILE INTERPRETING THE TERMS OF AN AGREEMENT THE C OURT HAS TO LOOK TO THE SUBSTANCE RATHER THAN THE FORM OF THE AGREEM ENT. USE OF WORDS LIKE AGENT OR AGENCY BUYER AND SELLER IS NOT SUFFICIENT TO LEAD TO THE INFERENCE THAT THE PARTIES DID IN FA CT INTEND THAT THE SAID STATUS WOULD BE CONFERRED. IN CERTAIN TRADES THE WORD AGENT IS OFTEN USED WITHOUT ANY REFERENCE TO THE LAW OF P RINCIPAL AND AGENT. IN THE INSTANT CASE THE EVIDENCE FURNISHED BY THE A GREEMENT WAS SUFFICIENT TO CONCLUDE (A) THAT THE GOODS WERE SUPP LIED NOT ON CONSIGNMENT BASIS BUT BY WAY OF OUTRIGHT SALE (B) T HAT THE AGREEMENT WAS TO SELL PETROL AND OTHER OILS AFTER THE DEALER HAD BOUGHT THE PROPERTY FROM CALTEX AT PRICES FIXED BY THAT COMPANY ; (C) THAT STIPULATION OF SALE PRICE WAS TO PROTECT THE COMPANYS GOODWILL AND TO ENSURE QUALITY OF GOODS T O BE DISTRIBUTED- IN FACT STIPULATION OF PRICE WHICH IS GENERALLY A C OMMON TERM IN ALL AGREEMENTS BETWEEN MONOPOLISTIC COMPANIES AND THEIR DISTRIBUTORS DID NOT DETRACT FROM THE FREEDOM OF CONTRACT OF SAL E (D) SALE BY THE APPELLANT TO OTHER CUSTOMERS DID NOT DISCLOSE THAT THE PROPERTY BELONGED TO CALTEX ; (E) IT WAS THE APPELLANT THAT BORE LOSSES DUE TO LEAKAGE DAMAGE AND EVAPORATION IN S TORAGE AND (F) REIMBURSEMENT BY THE COMPANY OF TRANSPORT CHARGES A ND HANDLING EXPENSES AND ALSO REIMBURSEMENT OF SUPPLIES MADE BY THE APPELLANT TO CERTAIN DESIGNATED CUSTOMERS SHOWED THAT THE AGR EEMENT WAS A CONTRACT OF SALE AND NOT OF AGENCY. FURTHER THE TERM REQUIRING THE DEALER TO FURNISH STATEMENTS OF SALES AND OTHER MATTERS SHOWED THAT THE COMPANY WANTED TO KEEP ITSELF FULLY INFORMED OF THE PROPER CONDUCT OF THE BUSINESS IN O RDER TO MAINTAIN ITS GOODWILL AND TO TERMINATE THE AGREEMEN T IN CASE IT FOUND THAT THE APPELLANT WAS MISUSING THE P RIVILEGE GIVEN TO IT. THE TERM COMMISSION AND ALLOWANCES INDICATED TH AT CERTAIN SPECIAL BENEFITS WERE CONFERRED BY THE COMP ANY ON ITS DISTRIBUTORS. IT DID NOT SHOW THAT IT WAS AN AGENC Y NOR WAS THE TERM REQUIRING THE APPELLANT TO FURNISH SECURITY FOR THE DUE OBSERVANCE AND PERFORMANCE OF THE STIPULATIONS AND INDICATION THAT THE AGREEMENT WAS AN AGENCY. 8.3 THUS FROM THE ORDER OF HON'BLE SUPREME COURT CITED ABOVE IT CAN BE NOTICED THAT ALL THE POINTS THAT WERE LISTED OUT BY THE ASSESSING OFFICER HAS BEEN FOUND TO BE NOT VITAL TO DETERMINE THE NATURE OF RELATIONSHIP. 9. ON A CAREFUL PERUSAL OF THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS DEALERS AND ON CONSIDERATION OF THE ARGUMEN TS OF THE LEARNED ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 11 OF 12 AUTHORISED REPRESENTATIVE SUMMARIZED ABOVE WE ARE OF THE VIEW THAT THE TITLE TO PROPERTY IN THE GOODS GOT TRANSFERRED FROM THE ASSESSEE TO THE DISTRIBUTORS. ACCORDINGLY WE HOLD THAT THE RELATI ONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS DISTRIBUTORS IS IN THE NAT URE OF PRINCIPAL TO PRINCIPAL BASIS. 10. NOW WE SHALL TURN TO THE SPECIFIC ADDITION MAD E BY THE ASSESSING OFFICER. IN THE INSTANT CASE THE TOTAL DISCOUNT GI VEN BY THE ASSESSEE HAS BEEN CATEGORIZED INTO THREE GROUPS AS STATED IN TH E PARAGRAPH NO. 3 SUPRA VIZ. A) DISCOUNT ALLOWED TO THE RETAILERS ON SPOT SALES WHERE NO DISTRIBUTOR IS INVOLVED. B) MONTHLY DISCOUNT GIVEN TO THE DISTRIBUTORS C) PROMOTIONAL DISCOUNT GIVEN TO THE DISTRIBUTORS . THUS THERE ARE TWO TYPES OF CUSTOMERS FOR THE ASSES SEE COMPANY VIZ. THE SPOT SALES RETAILERS AND THE DISTRIBUTORS. THE NATU RES OF THE ABOVE PAYMENTS HAVE BEEN DISCUSSED IN PARAGRAPH 3 (SUPRA) . ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDER WE NOTICE THAT THE ASSESSING OFFICER HAS DISCUSSED IN DETAIL ABOUT THE AGREEMENT ENTERED BET WEEN THE ASSESSEE COMPANY AND THE DISTRIBUTORS. THE ASSESSING OFFICE R HAS NOT EXAMINED THE ASPECT RELATING TO THE SPOT SALES RETAILERS. THERE IS ALSO NO DISCUSSION ABOUT THE DEALERS MARGIN. 10. THE SPOT SALES RETAILERS ARE HOTELS CINEMA HALLS ETC. TO WHOM THE ASSESSEE COMPANY SUPPLIES THE PRODUCTS DIRECTLY WIT HOUT AVAILING THE SERVICES OF THE DISTRIBUTORS. ACCORDING TO THE ASSE SSEE AMOUNT OF DISCOUNT OFFERED TO SUCH CUSTOMERS ARE DIRECTLY REDUCED FROM THE BILL AMOUNT AND THE SAID PERSONS ARE ALSO PAYING ONLY THE NET AMOUNT. HENCE ACCORDING TO THESE FACTS THE DISCOUNTS OFFERED BY THE COMPANY A RE IN THE NATURE OF TRADE DISCOUNT IN WHICH CASE THE QUESTION OF DED UCTION OF TAX AT SOURCE U/S 194H DOES NOT ARISE. AS STATED EARLIER THE AS SESSING OFFICER HAS NOT EXAMINED THE CASE OF SPOT SALES RETAILERS. THE REM AINING TWO TYPES OF ITA NOS 367 OF 09 & 271 OF 2010 PEARL BOTTLING (P) L TD.VISAKHAPATNAM PAGE 12 OF 12 DISCOUNTS HAVE BEEN GIVEN TO THE DISTRIBUTORS IN CO NNECTION WITH THE SALES TARGETS. THESE DISCOUNTS IN OUR VIEW CANNOT BE C ATEGORIZED AS COMMISSION AS THE RELATIONSHIP BETWEEN THE ASSES SEE COMPANY AND ITS DISTRIBUTORS HAVE BEEN HELD BY US TO BE IN THE NATU RE OF PRINCIPAL TO PRINCIPAL BASIS. HENCE IN OUR VIEW THERE IS NO LIABILITY FOR THE ASSESSEE TO DEDUCT TAX AT SOURCE ON SUCH DISCOUNT PAYMENTS UNDE R SECTION 194H OF THE ACT. IN VIEW OF THE FOREGOING DISCUSSIONS WE UPHOL D THE DECISION OF LEARNED CIT(A) IN BOTH THE YEARS. 11. IN THE RESULT BOTH THE APPEALS OF THE REVE NUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:10-02-2011 COPY TO 1 THE ADDITIONAL COMMISSIONER OF INCOME TAX RANGE- 4 VISAKHAPATNAM 2 M/S PEARL BOTTLING (P) LTD. CHANDRAMPALEM MADHU RAWADA VISAKHAPATNAM 3 4. THE CIT 2 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM