The Kolkata bench of the Income Tax Appellate Tribunal, in EPCOS India Pvt. Ltd v. ITO recently ruled that assessee not required to deduct Tax at source (TDS) at the time of giving cash discounts to its customers for purchasing goods in bulk.
Assessee-Company engaged in the business of manufacturing and sale of soft ferrite components, DC and AC capacitors, metalized films etc. Assessee has claimed expenses under the head “trade discount and cash discount”, which was later disallowed by the Assessing Officer by observing that the discount offered to the customers was subject to various terms and conditions therefore it partake the character of commission and therefore, is liable to deduct tax at source under section 194H of the Act.
During the assessment proceedings, the assessee claimed that the discounts were given to its customers on account of bulk quantity purchased by them and there was a contract between the assessee and its customers which was based on principal to principal basis.
Accepting the above contentions, the bench observed that the assessee has been supplying goods to its dealers on principal to principal basis as evident from the agreement as discussed above. “Therefore, we find that there was no relationship between the assessee and its customers as of principal and agents. Therefore, the amount of discount offered by the assessee cannot be termed as commission u/s 194H of the Act.”
The bench further noticed that the issue of discount offered by the assessee has been duly settled by the Supreme Court in the case Ahmadabad Stamp Vendors Association.
“There is no dispute that the discount was offered by the assessee to its dealers in relation to the sales made by it to them. Thus the provisions of section 194H do not apply to the impugned discount offered by the assessee,” the bench added.
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