The order of the Bench was delivered by
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax ( Appeals)-XII, Kolkata dated 11. 02.2015 and the solitary issue arising out of the same relates to the disallowance of Rs. 14, 47, 045/- made by the Assessing Officer and confirmed by the ld. CIT( Appeals) under section 40(a)(ia) on account of payment made by the assessee to the Hawkers.
2. The assessee in the present case is an individual, who is engaged in the business of trading in newspapers, magazines, etc. The return of income for the year under consideration was filed by him on 10.03.2009 declaring total income of Rs. 1,81,604/-. In the Profit & Loss Account filed along with the said return, a sum of Rs. 14,47,045/- was debited by the assessee on account of Hawkers commission. According to the Assessing Officer, the assessee was required to deduct tax at source from the said amount as per the provisions of section 194H of the Act and since there was failure on the part of the assessee to do so, he required the assesese to explain as to why the amount of Rs. 14,47, 045/- should not be disallowed under section 40( a)(ia). In reply, the following explanation was offered by the assessee in writing:-
"In this respect, I Sri Amit Majumder, a News paper Agent of A.B.P. (P) Ltd., duly appoint by the said papers management.
Thus, I pay delivery charge only whosoever, for the time being, performs the work of delivery of news paper and magazines.
In my books of account, my accountant being not conversant with the technicality of the "Commission" as per I. T. Act, 1961 , mentioned the word " Commission" in my account book due to his ignorance.
Hence, the word "Commission", in my books of account is a wrong use of the said word for which I am not to be penalised, as my ignorant mistake of use of the word "Commission" will not prove that the deliverymen, actually undertake to deliver the news paper etc. on the basis of "Commission". The delivery persons are nothing but casually engaged labourers who received their labour charges for the purpose of delivery of news papers to the respective destination and they have no other work to perform.
Since, it is not possible for me to make delivery to all the customers for that I engaged deliverymen, to render delivery of the News paper and other Magazines, of the said ABP Patrika group.
The persons, who are entrusted for the said delivery of the news papers and magazines, of the said group, are persons, paid only delivery charges.
I have no contractual terms with those delivery persons who are frequently changed or replaced by me, according to my suitability for the said purpose.
Thus, I pay delivery charge only whosoever, for the time being, performs the work of delivery of news paper and magazines.
In my books of account, my accountant being not conversant with the technicality of the "Commission" as per I. T. Act, 1961 , mentioned the word " Commission" in my account book due to his ignorance.
Hence, the word "Commission", in my books of account is a wrong use of the said word for which I am not to be penalised, as my ignorant mistake of use of the word "Commission" will not prove that the deliverymen, actually undertake to deliver the news paper etc. on the basis of "Commission". The delivery persons are noting but casually engaged labourers who received their labour charges for the purpose of delivery of news papers to the respective destination and they have no other work to perform.
The prices of News Papers, as delivered by the delivery- person, to the specified destination, are collected by me. The delivery person's services, for collection of prices of news papers etc. are never used by me.
The written submissions, in this behalf, have already been submitted by those delivery persons to you to whom also you issued the Show Cause letters.
This apart, most of the persons have also affirmed affidavit and notarised before the appointed Notary Public. ( Xerox copies of affidavit are enclosed collectively marked "A")
Thus, out of fifteen delivery person, to whom show cause letters were issued, eleven persons affirmed and executed the enclosed affidavits. The remaining four persons, being illiterate on perusal of the non-judicial stamp paper got scared and did not affirmed and executed the affidavit through they have submitted theirs replies of the show cause letter only. The eleven persons' absence from affirmation and execution of affidavit is purely due to their ignorance and can never interpreted otherwise.
Therefore, in consideration of the above position, I pray Sir, Kindly, to drop the proceedings as initiated u/s. 194{H) of the I. T. Act, 1961 in as much as my mode of dealing with deliverymen can in no way be termed as "Commission".
The delivery charges to delivery - men is a sine qua non, in the delivery of news papers otherwise which the distribution of news papers, magazines etc. are not possible.
Hope, the explanation supra will convince you on this regard and Oblige”.
3. The above explanation offered by the assessee was not found acceptable by the Assessing Officer for the following reasons:-
“(i) Explanation(i) below 3rd Proviso to section 194H states- “Commission or Brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the case of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities". Those hawkers are acting on behalf of the assessee and providing services in selling newspapers, magazine etc. hence the payments made to them by the assessee is commission.
(ii) Accountant of the assessee as stated supra, is not as ignorant as it is claimed to be; he is supposed to be and is conversant with the word commission. It is an afterthought to project him as an ignorant person who has prepared, maintained and forwarded his books not only to the Auditor but also for proceeding u/s 143(3) where no infirmity has been found. Hence, the assessee's claim about the Accountant is considered to be an afterthought to evade the disallowance u/s 40(a)( ia). Such claim is rejected being untrue.
(iii) Hypothetically .if it is admitted that he is ignorant about the meaning of commission, then what about the Chartered Accountant who endorsed/prepared the Profit &Loss account? Hence, the statement that payments made to Hawkers are not commission, is not accepted as true”.
For the reasons given above as well as other reasons given in the assessment order, the Assessing Officer held that the amount in question paid by the assessee to different Hawkers was in the nature of commission and the assessee was liable to deduct tax at source from the said amount. Since the assessee had failed to do so, the Assessing Officer invoked the provisions of section 40(a)(ia) and made a disallowance of Rs. 14, 47, 045/- in the assessment completed under section 143( 3) vide an order dated 27.12. 2011.
4. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT( Appeals) challenging the disallowance made by the Assessing Officer under section 40( a)(ia). During the course of appellate proceedings before the ld. CIT( Appeals), the following submissions were made on behalf of the assessee in support of his case that the disallowance made by the Assessing Officer under section 40(a)( ia) was not sustainable:-
“The pivot of this appeal is whether the 'hawkers commission' is a misnomer phrase of 'hawker's service charge paid by way of discount on the MRP of newspapers sold by hawking on Road, Rly. Stations, market places etc. and/or by effecting supply of them to the readers of newspaper or not.
Before indulging in any discussion on the above issue the commercial relation between the appellant and the hawker' s who get the supply of newspapers for sale by hawking and/or by supply to regular consumers/readers has to be considered seriously. The hawker's get the supply of newspaper early in the morning from the appellant who is an agent of Ananda Bazar Pairika earning gross income by way of discount on the MRP of newspaper as evident from the invoice of ABP copy of which is attached hereto as annexure 'A' for your ready reference, for sale by hawking & supply, The hawker' s are neither enlisted on the records of the appellant nor they have any contract for the commercial dealing in this regard, The persons of the hawker' s differ from time to time. The hawker' s pay to the appellant the cost price of the papers supplied to them being the net amount due, after the deduction of discount on the MRP mentioned at the top of the 1st sheet of newspaper. As for the papers returned to the appellant as unsold the amount which differs from time to time in accordance with the direction of ABP, the principal Of the appellant, determined on the basis of the MRP of the newspapers, is realised from the hawkers in respect of the said unsold papers. There is no agreement the appellant and the hawkers giving out stipulated terms and conditions touching the fiscal and trade relation, existence of which is needed for earning commission or brokerage at fixed rate. The appellant enjoys the allowance of discount on the MRP of newspaper and as such, he also pays service charges to the hawkers by way of 'hawker' s discount', a phrase appearing in the Cash book against the charges paid to the hawkers. ( some Xerox sheet of Cash Book giving out the mode of payment made to hawkers are attached hereto as Annexure 'B' for your Honour's perusal and reference). The Ld. AO went through the Cash Book produced before him at the time of hearing, which in fact, he kept with him for some days for thorough examination. The accountant, due to his ignorance, inadvertence on the part of him and/or the overlooking by the Auditor in this regard, he termed the expenses being the payments to the hawkers as 'hawker's commission' in the P&L A/ c. ignoring the term used in this regard in the Cash Book. The genuine mistake of the accountant and the overlooking by the Auditor were utilised by the Ld. AO turning blind eyes to the facts and circumstances of the' instant caseonly with a view to victimising the Appellant who is an honest tax payer and who maintains proper books of account and he brought the expenses within the ambit of the mischief of Sec. 194H of the I. T. Act, 1961., I crave leave to mention here that the Ld. AO did not find any fault in the maintenance of books of a/ c. ( Some Xerox sheets of Cash Book giving out the mode of payment made to the hawkers are attached hereto as Annexure- 'C' for your Honour' s kind perusal). I cannot help saying 'this is very unfortunate.
It is, therefore, prayed that by probing into the facts and circumstances of the case with judicial perspective your Honour would graciously find that the phrase ‘hawker’ s commission’ appearing in P&L a/c. of the statements of a/ c is a misnomer of ‘service charges’ paid by allowing discount on MRP of newspapers and allow the expenses claimed in P&: a/c on merit. And for this act of justice, as in duty bound, my client shall ever pray”.
5. The above submissions made by the assessee were forwarded by the ld. CIT(Appeals) to the Assessing Officer for his comments and after taking into consideration the comments made by the Assessing Officer as well as the counter comments thereon made by the assessee, the ld. CIT( Appeals) proceeded to confirm the disallowance of Rs. 14, 47, 045/- made by the Assessing Officer under section 40(a)(ia) for the following reasons given in paragraph no. 6 of his impugned order:-
“6. I have considered the facts of the case and the submissions of the appellant and the Assessing Officer. All the grounds of appeal other than the last general ground are against the disallowance of Rs. 14 ,47,045 on account of payments made to hawkers of newspapers made by the appellant treated by the Assessing Officer as commission as against the appellant's claim that the payments were in the nature of discounts. The elaborate discussion by the appellant in the grounds of appeal, statement of facts, the detailed arguments on the grounds of appeal as also the Assessing Officer' s comments on the same and the appellant's comments are self-explanatory and reproduced above with a view to bring out clearly the claims and counter-claims of the appellant and the Assessing Officer. A large part of the discussion has been devoted to the use of the term " hawker' s commission" in the P&L Account in relation to which the appellant has stated that the term used in the cash book was "hawker' s discount and the auditor had clarified that the payments had been wrongly charged in the accounts as commission instead of delivery charges. The Assessing Officer on his part has claimed that in the cash book also, the payments were charged as commission and the accountant and qualified auditor could not be said to have committed mistakes out of ignorance or inadvertence. I find that it is undisputed that the term commission was used in the Profit and Loss Account. As regards the cash book, it is computerised and a definitive view on the disputed versions of the Assessing Officer and the appellant cannot be taken at this stage having regard to the fact that computerised books can be easily edited at any stage. The auditor has also not given any categorical remarks regarding the cash book. Further, he has only certified that the payments should have been described as delivery charges and not commission. The auditor has not certified that the payments were in the nature of discount. Be that as it may, it is a settled position of law that accounting entries cannot be the sole determinant of the actual nature of transactions / expenses/ receipts. What is "therefore, necessary to examine is the nature of relationship between the appellant and hawkers and the nature of payments made to the hawkers. It is undisputed that the hawkers were distributing newspapers on behalf of the appellant and in their affidavits, they have declared that they receive 'delivery expenses' for delivery of newspapers etc. and not commission from the appellant. It is pertinent to note here that they have not affirmed that they were offered any discount against the price of the newspapers. It. has also been declared that the price of the newspapers is collected by the newspaper dealer (read 'the appellant’). It is also undisputed that cash payments have been shown to have been made to 'the hawkers by the appellant in the cash books regardless of the nomenclature. The appellant has denied the Assessing Officer's finding that the same set of 16 hawkers was employed over a period of more than one year by furnishing the names of 16 hawkers was employed over a period of more than one year by furnishing the names of 16 hawkers each employed in F. Y. 2007-08, F. Y.2008 -09 and F.Y.2009 -10 but a careful scrutiny that said lists reveals that all the hawkers, rendering service of delivery of newspapers etc. to the appellant: i.e. the F.Y.2008-09 and F.Y. 2009 -10 were same and some of them had continued from F.Y.2007 -08 onwards. The appellant has passingly accepted that unsold newspapers were returned to the appellant. The appellant after being given due opportunity of rebutting the contentions of the Assessing Officer in the remand report also did not deny the observation that "It is pertinent to state that in response to the show cause notice dated 16 -12-2011 (for completion of assessment for the A. Y. 2009-10 ) the assessee stated that hawkers were merely delivery persons and "the price of news papers, as delivered by the delivery persons, to the specified destination, are collected by me. The delivery person' s services, for collection of prices of newspapers etc. are never used by me". These facts do not support the appellant's contention that the relationship between the appellant and the hawkers was that of two principals. It is also very reasonable to assume that in such transactions, there 'would not be a written agreement. Such services by their very nature would be rendered as per oral understanding and the continuity of business relationship as brought out by the Assessing Officer's finding that all the 16 hawkers engaged by the appellant in F.Y. 2008-09 had continued their services in F.Y. 2009- 10 also. It emerges very clearly from the crucial facts narrated above that the hawkers were not engaged in the business of trading in newspapers and the property in the newspapers did not pass at any point in time to the hawkers. It was not as if the hawkers were purchasing the newspapers at a discounted price from the appellant and selling them later to their own customers, bearing the attendant risk of being left with unsold papers and the incurring the consequent loss. The appellant has argued extensively but not been able to establish with any concrete evidence that the hawkers were trading on their account and discounts were being passed on to them by the appellant. It is undisputed that the hawkers were delivering newspapers on behalf of the appellant and receiving cash payments for such services, regardless of the terminology used in the accounts to describe such payments and the exact terms and conditions governing such services, if at all there were some strict terms and conditions. The Assessing Officer has referred to the provisions of section 194H in support of his contentions. The explanation to section 194H defines 'commission or brokerage' to include any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. It is clear from the definition that payments received by any person acting on behalf of another person for services rendered are categorized as commission or brokerage for the purposes of section 194H. In the appellant's case, the payments have been made as delivery charges in the course of buying and selling newspapers on behalf of the appellant and the appellant has not made out any case to show that such payments are excluded from the purview of the provisions of section 194H. The appellant's reference to his own business relationship as a principal with Anand Bazar Patrika is not relevant in this regard at all. In view of the factual and legal position as aforesaid, I hold that the hawkers were delivering newspapers on behalf of the appellant and for these services they were receiving payments from the appellant which are covered under the definition of 'commission or brokerage' given in the explanation to section 194H of the Act. It is not disputed that the appellant did not deduct any tax at source on such payments aggregating to Rs. 14,47, 045/- and, therefore, such expenses were rightly disallowed in view of the mandate of section 40(a)(ia) of the Act”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
6. The ld. counsel for the assessee submitted that the Assessing Officer as well as the ld. CIT( Appeals) has not appreciated the exact nature of amount in question paid by the assessee to the Hawkers. He submitted that the assessee is in the business of trading in newspapers and magazines and the newspapers and magazines purchased by it from Ananda Bazar Patrika are sold to the Hawkers at the discounted rate on MRP for further sale or distribution to the customers. He submitted that these transactions are treated as sale in the hands of the assessee and purchase in the hands of the concerned Hawkers. He contended that these transactions thus are carried on principal to principal basis and the amount in question cannot be treated as commission as envisaged in section 194H. He contended that the authorities below, however, have treated the same as commission going by the nomenclature used by the assessee in the books of account, which is not correct. He pointed out that the ld. CIT( Appeals) in assessee’s own case for A. Y. 2010- 11 has accepted the stand of the assessee by deleting the similar addition made by the Assessing Officer under section 40( a)(ia) and submitted that the Department has not filed any appeal against the said order of the ld. CIT( Appeals) before the Tribunal.
7. The ld. D. R., on the other hand, contended that the Hawkers cannot be treated as buyers of newspapers and magazines from the assessee as they are selling the newspapers and magazines on behalf of the assessee and not on their own. He contended that the relation between the assessee and the Hawkers is thus that of principal and agent and the amount in question paid by the assessee to the Hawkers is in the nature of commission as rightly held by the authorities below. He also contended that the fact that the unsold newspapers and magazines are returned back by the Hawkers to the assessee further goes to show that it is not a case of purchase and sale of newspapers and magazines on principal to principal basis as sought to be contended by the ld. counsel for the assessee.
8. I have heard the arguments of both the sides and also perused the relevant material available on record. In order to ascertain the exact nature of the amount in question paid by the assessee to Hawkers, it is necessary to consider the modus operandi of the business of the assessee as well as the functions performed by the assessee and the Hawkers in the course of the business. In this regard, it is observed that the assessee is in the business of trading in newspapers and magazines and this position is accepted even by the Assessing Officer in the assessment order. The assessee thus purchases the newspapers and magazines from Aananda Bazar Patrika and supplies the same to Hawkers for further sale to the customers. The function mainly performed by the Hawkers thus is to deliver the newspapers and magazines supplied by the assessee to the customers and for these services, the Hawkers are compensated by the assessee by charging a discounted price of the newspapers and magazines. The supply or delivery of newspapers and magazines is made by the Hawkers to the customers on their own and there is nothing brought on record by the authorities below to show that such sale or supply was made by the Hawkers to the customers on behalf of the assessee as an agent. The Hawkers generally operate in an unorganized manner and the only compensation which they get for supply or delivery of the newspapers is the cash discount that the assessee offers to them on the printed price of the newspapers and magazines. Their business activities involving supply or delivery of newspapers and magazines are done by the Hawkers on their own and there is nothing on record to show that the same are done by them on behalf of the assessee as agent. Having regard to all these aspects concerning the modus operandi of the assessee’ s business as well as the functions performed by the Hawkers, I am of the view that the amount in question paid by the assessee to the Hawkers is in the nature of discount and the same cannot be treated as commission merely on the basis of nomenclature used by the assessee in his books of account. For this conclusion, we derive support from the decision of the Hon’ble Gujarat High Court in the case of Ahmedabad Stamp Vendors’ Association –vs.- Union of India [ 124 Taxman 28], wherein it was held that discount in the nature of cash discount on sale is outside the expression of “commission” or “brokerage” as envisaged in section 194H of the Act. The assessee in my opinion, therefore, was not required to deduct tax at source from the amount in question paid to the Hawkers and the question of disallowance under section 40(a)(ia) would not arise. I, therefore, delete the disallowance made by the Assessing Officer under section 40(a)(ia) and confirmed by the ld. CIT( Appeals) and allow this appeal of the assessee.
9. In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on February 03, 2017.