A.K. Garodia, Accountant Member - This is Revenue's appeal directed against the order passed by learned CIT(A)-I, Kanpur, dated 30/11/2011 for the assessment year 2008-2009.
2. In this appeal, the Revenue has raised the following grounds:
'1. |
That Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.59,36,606/- made by the AO being disallowance out of discount allowed on sales by invoking the provisions of section 195 read with section 40(a)(i) of the Income tax Act, 1961, holding that no withholding of tax in terms of provisions of section 195 of the Act was required in this case as the discount allowed did not form any payment to the non-resident, without appreciating the AO's finding of fact that the payment to non-resident was not under any contractual obligation as no stipulation regarding payment of discount to the non-resident was made in the contract- note entered into by the assessee with the non-resident company. |
2. |
That Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.59,36,606/- made by the AO being disallowance out of discount allowed on sales by invoking the provisions of section 195 read with section 40(a)(i) of the Income tax Act, 1961, holding that the assessee has debited its trading account and credited the foreign company's account with the equivalent amount, and it was covered by the explanation below the provision of section 195(1), and the withholding of tax under the provision of section 195 was obligatory upon the assessee. |
3. |
That Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.59,36,606/- made by the AO being disallowance out of discount allowed on sales by invoking the provisions of section 195 read with section 40(a)(i) of the Income tax Act, 1961, holding that discounts credited in the foreign buyers account in the assessee's book constituting a "Credit', though not 'payment', it attracted the provisions of section 195(1) read with its explanation, and since the assessee had debited an equivalent amount as expenditure, by not deducting or withholding tax on such payment, the expenditure on account of discount allowed was inadmissible under the provisions of section 40(a)(i) of the IT Act 1961. |
4. |
That the order of CIT(A) deserves to be vacated and the assessment order passed by the Assessing Officer be restored.' |
3. Learned D.R. of the Revenue supported the assessment order. He also submitted that payment of discount is in the nature of interest and therefore, TDS was deductible u/s 195(1) and hence, the order of CIT(A) should be reversed and that of the Assessing Officer should be restored.
4. As against this, Learned A.R. of the assessee supported the order of CIT(A). He also submitted that in the present case, there is neither payment of interest nor commission and therefore, no TDS was deductible. He placed reliance on the following judicial pronouncements:
| (i) |
Addl. CIT v. Pearl Bottling (P.) Ltd. [2011] 46 SOT 133/10 taxmann.com 47 (Visakha) |
(ii) |
G.E. India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 (SC) |
(iii) |
Foster's India (P.) Ltd. v. ITO [2009] 29 SOT 32 (Pune) (URO) |
(iv) |
CIT v. Singapore Airlines Ltd. [2009] 319 ITR 29/180 Taxman 128 (Delhi) |
(v) |
ITO v. Mother Diary Food Processing Ltd. [2010] 40 SOT 9 (Delhi) |
(vi) |
NMDC Ltd. v. Asstt. CIT (TDS) [2011] 128 ITD 87/[2010] 8 taxmann.com 167 (visakha) |
(vii) |
Decision of I.T.A.T. Allahabad Bench in the case of Ankur Udyog Ltd. v. Asstt. CIT [IT Appeal No. 96 (All.) of 2013] |
5. In the rejoinder, Learned D.R. of the Revenue submitted that these judgments cited by Learned A.R. of the assessee are not applicable in the facts of the present case. He also submitted that the provisions of section 195 and 194H are different. He placed reliance on the judgment of Hon'ble Delhi High Court rendered in the case of CIT v.Havells India Ltd. [2013] 352 ITR 376/[2012] 208 Taxman 114/21 taxmann.com 476 (Delhi).
6. We have considered the rival submissions. We find that it is noted by the Assessing Officer on page No. 3 of the assessment order that the claim of the assessee is clearly incorrect that the assessee has received sale price in advance under contractual obligation and it was pre decided that pre payment discount will be allowed to the foreign buyers. The Assessing Officer has noted that in the terms of contract entered into with Bunge S.A., it is nowhere mentioned that it is the obligation of the assessee to give any discount to the buyers. He has also noted that only stipulation regarding pre payment advances in the contract with the buyers is as under:
"The seller expressly agrees that payment of the prepayment amount fully satisfies seller's payment obligation and buyer will ship goods equal in value of the provisional price in accordance with the terms of this agreement."
6.1 We find that as per purchase contract dated 16th May, 2006 available on page No. 6 of the second paper book, it has been specified that the seller shall cause the issuance of a banker's guarantee or SBLC by Punjab National Bank, Kanpur (seller's bank) for an amount equal to the provisional price plus interest in the form acceptable to buyer that will be informed in separate message. It was also specified that within two business days from the date buyer's bank receives the guarantee in format acceptable to buyer's bank, buyer shall pay to seller the prepayment amount. The provisional price as per this contract has been fixed at (JPY)24,200 lac. Hence, it is seen that there is no mention in the agreement i.e. the purchase contract that any prepayment discount will be allowed by the assessee. The payment was to be made by the buyer to the tune of provisional price as per the agreement after furnishing of bank guarantee by the assessee seller but as per the invoice available on page No. 27, 31, 35 and 38 of the second paper book, it is seen that in all these invoices, pre payment discount were allowed by the assessee and these invoices are of the current year i.e. April, 2007 and the assessee asked the buyer to make payment of the balance amount against the invoiced price after adjusting the advance received by the assessee and pre payment discount. Asking the buyer to pay lesser amount after adjusting discount or making payment of discount to the buyer is equivalent in our considered opinion because in both the cases, the buyer receives the benefit.
6.2 Now in the light of these facts of the present case, we examine the applicability of the various judgments cited by both the sides.
6.3 The first judgment cited by Learned A.R. of the assessee is the decision of Tribunal having been rendered in the case of Pearl Bottling (P.) Ltd. (supra). It was held by the Tribunal that when the assessee company is engaged in the manufacture and sale of soft drinks for which MRP has been fixed for the products and those products are supplied to the retailers on discounted rate, no TDS is deductible because the relation between the assessee company and its distributor is in the nature of "principal-to-principal" basis and there is no liability to deduct TDS on discount on MRP in terms of section 194H of the Act. In that case, the goods were supplied by the assessee to a distributor on fixed price which was lesser then the MRP and the Assessing Officer was of the view that on the difference of such agreed price and the MRP, TDS was deductible u/s 194H and this stand of the Assessing Officer was not approved by the Tribunal. But in the present case, the facts are different. In the present case, lesser price has been realized by the assessee from the buyers against the agreed price between the assessee and the buyer and this lesser realization from the buyer is on account of advance payment received from the buyer and even in the absence of any such clause in the purchase contract, the assessee has given the nomenclature discount to this benefit allowed by the assessee company to the buyer. In the facts of the present case, we find force in the contention of Learned D.R. of the Revenue that in the facts of the present case, this benefit allowed by the assessee to its buyer is in the nature of interest paid by the assessee to its buyer on advance payment received from the buyer. In our considered opinion, under these facts, this Tribunal decision is not applicable in the present case.
6.4 The second judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Supreme Court rendered in the case of G.E. India Technology Centre (P.) Ltd. (supra). In this case, it was held by Hon'ble Apex Court that a person paying interest or any other sum to a non-resident is liable to deduct tax if such sum is chargeable to tax in India and not otherwise. In the present case, the assessee is an exporter and against the export proceeds receivable from the overseas buyer, the assessee is allowing benefit to the buyer for making lesser payment for the reason that the buyer has made advance payment to the assessee. At this juncture, we would like to observe that as per the judgment of Hon'ble Delhi High Court cited by Learned D.R. of the Revenue in the case of Hewells India Ltd. (supra), it was held that export activity having been taken place or having been fulfilled in India, source was located in India and not outside. In the present case also, exports were made from India and the pre payment advance was also received in India against providing of bank guarantee from Punjab National Bank, Mall Road Branch, Kanpur, India and the adjustments of the benefit allowed to the buyer has been adjusted in the invoices issued in India on the overseas buyer and under these facts, in our considered opinion, income in the hands of the buyer in the form of discount or interest (whatever name we give to it) is taxable in India and therefore, this judgment of Hon'ble Apex Court is also not rendering any help to the assessee.
6.5 The third judgment cited by Learned A.R. of the assessee is the Tribunal decision rendered in the case of Foster's India (P) Ltd. (supra). This judgment is in respect of TDS u/s 194H i.e. in respect of payment of commission whereas in the present case, the dispute is regarding TDS liability u/s 195. As per section 195 of the Act, the assessee is required to deduct TDS from any sum paid by the assessee to a non resident which is chargeable under the provisions of the Income Tax Act. Hence, it is not necessary that only on payment of commission or interest, TDS is deductible u/s 195 of the Act. In fact, TDS is deductible u/s 195 of the Act from any payment to a non resident which is chargeable to tax in India. In that case, the assessee payer and the payee recipient both were located in India and hence, section 195 was not applicable and therefore, this Tribunal decision is not relevant in the present case.
6.6 The next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Delhi High Court rendered in the case of Singapore Airlines Ltd. (supra). In this case also, the dispute was regarding deductibility of TDS u/s 194H of the Act and not u/s 195 of the Act. Hence, this judgment of Hon'ble Delhi High Court is also not applicable in the facts of the present case.
6.7 The next judgment cited by Learned A.R. of the assessee is a decision of Tribunal in the case of Mother Dairy Food Processing Ltd. (supra). In this case also, the dispute was regarding deduction of TDS u/s 194H and 194C and not u/s 195 of the Act and therefore, this Tribunal decision is also not applicable in the facts of the present case.
6.8 The next judgment cited by Learned A.R. of the assessee is a decision of Tribunal in the case of NMDC Ltd. (supra). In this case also, the dispute was regarding deductibility of TDS u/s 194H and not u/s 195 of the Act and therefore, this decision of the Tribunal is also not applicable in the facts of the present case.
6.9 The last judgment cited by Learned A.R. of the assessee is a decision of Tribunal in the case of Ankur Udyog Ltd. (supra). In this case, the dispute was regarding deductibility of TDS against quantity discount provided by the assessee to its buyers. The case of the Assessing Officer was that the TDS was deductible u/s 194H of the Act. We find that in this case also, the dispute was not u/s 195 of the Act and move over, even discount was not in respect of pre payment received by the seller from the buyer. Dispute in that case was regarding quantity discount. Quantity discount is in fact reduction in sale price and hence, it cannot be considered as payment of interest whereas the benefit allowed by the assessee seller to the buyer in the name of discount in respect of advance payment received by the assessee has to be considered in the nature of interest in the present case. Under these facts, this Tribunal decision is also not applicable in the facts of the present case.
7. As per the above discussion, we have seen that none of the judgments cited by Learned A.R. of the assessee is rendering any help to the assessee. We also find that in the present case, the benefit allowed by the assessee to its buyers under the name of discount is in fact in the nature of interest because the same is in consideration of receiving advance payment. On receiving advance payment, one may compensate the maker of advance payment by way of allowing interest or the same benefit can be given the name of discount but merely because a different nomenclature has been given, it does not change its character. Under these facts, we are of the considered opinion that TDS was deductible u/s 195 of the Act and therefore, the disallowance made by the Assessing Officer is justified. Hence, we reverse the order of CIT(A) and restore that of the Assessing Officer.
8. In the result, the appeal of the Revenue stands allowed.