Income Tax Appellate Tribunal (ITAT) Mumbai Bench ruled that Sales or Return (SOS) agreements did not fall within the ambit of Section 194C of the Income Tax Act, 1961 and therefore the assessee did not have any liability to deduct tax at source on such payments under section 194C of Income Tax Act.
The Revenue filed an appeal against the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] holding that the assessee’s payments to various vendors for goods it purchased from them, including apparel, clothing, footwear, and other items made by these vendors, were not in the nature of “works contracts” but rather “purchase of goods.”
The revenue submitted that provisions of Section 194C of the Income Tax Act invoked by the Assessing Officer (AO) in relation thereto, were not applicable.
The company being assessed, M/s Shoppers Stop Limited, operates retail stores. It has 83 locations throughout 38 Indian cities and sells goods such as apparel, accessories, footwear, jewellery, fragrances, cosmetics, health and beauty items, home furnishings, and decor.
The assessee submitted that they had purchased goods from these parties under their ‘Sales or Return’ (SOR) model in terms of which the goods were sold by the vendor under their respective brand names and upon issuance of tax invoices.
The AO noted that the term outlets model was ’Sales or Return‘ being used by the assessee for their business misleading and was an attempt to evade the rigours of Section 194C of the Income Tax Act.
According to the AO, these facts indicated that the contract between the assessee and vendors were ‘contracts of work & labour’ not ‘contracts of supply’. The bench of Amarjit Singh (Accountant Member) and Aby T. Varkey (Judicial Member) uphold the decision of CIT(A).
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