Section 194 H of the Act are not applicable to all sales promotional expenditure

 CIT Vs. Intervet India Pvt. Ltd., ITA No. 1616/2011, Date of Pronouncement: 01.04.2014, High Court of Bombay

Section 194H of the Income Tax Act, 1961

Whether the provisions of section 194 H of the Act are applicable to all sales promotional expenditure incurred by the assessee.

Held: No

In brief, the assessee is engaged in the business of manufacturing & trading and sells its products either through consignment, commission agents or directly through the distributors/ stockists. The stock of its products are transferred to the consignment agents who in turn sale the products under its own name to the distributors/ dealers/ stockists. The assessee claimed Sales promotion expenditure incurred under the product discount scheme and the product campaign and contended that the expenditure under the said claims are only for promotion of sales and hence had no relation to payment of any commission on sales. Thus, TDS is not required to be deducted as did not fell within the ambit of Section 40(a)(ia). However, the AO held that as the assessee was paying the dealers/ stockist/ agent for the services rendered by them for buying and selling of goods, on the basis of quantum of sale made by them, such expenditure cannot be considered as sales promotion expenditure and was required to be considered as commission payment and liable to TDS.

The Hon’ble court has held that as per the fact, the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee's product. The distributors / stockists were not acting on behalf of the assessee and thus the relationship between the assessee and the distributor / stockists was that of principal to principal and hence, it could not be said to be a commission payment within the meaning of explanation (i) to Section 194H of the Act. The contention of the Revenue in regard to the application of Explanation (i) below Section 194H being applicable to all categories of sales expenditure cannot be accepted