Income Tax Appellate Tribunal - Kolkata
Shree Baidyanath Ayurved Bhawan Ltd. vs Joint Commissioner Of Income Tax on 31 January, 2003
Equivalent citations: (2004)83TTJ(KOL)409
ORDER
Pramod Kumar, A.M.
1. This appeal, filed by the assessee, is directed against the order dt. 28th Sept., 2000, passed by the CIT(A)-V, Kolkata, in the matter of order under Section 154 r/w Section 143(3) of the IT Act, 1961, passed by the Jt CIT, Special Range 15, Kolkata, for the asst yr 1992-93.
2. By way of impugned order under Section 154, the AO has held that the assessee was under an obligation to deduct tax at source from the payments termed as 'commission', though, according to the assessee, in the nature of trade discount, sales incentives or bonus on achieving the targeted sales. The AO has further held that as the commission credited by the assessee, to the dealers, amounted to Rs. 92,81,460, the assessee is liable to pay the amount of tax non-deducted which, worked out at the rate of 10 per cent of the amount of commission, comes to Rs. 9,28,146. The AO further held that the assessee is liable to pay interest under Section 201(1A) on the aforesaid amount which worked out to further Rs. 9,74,505 till 31st March, 1999. Aggrieved, assessee carried the matter in appeal to the CIT(A) but without any success. Still aggrieved, the assessee is in appeal before us.
3. Learned counsel for the assessee has submitted that the assessee-company is a manufacturer of ayurvedic medicines and has been selling its medicines to dealers and distributors, who is turn, sell it to the retailer which is the point of sale to the final consumers. It is further submitted that goods are sold at wholesale price (WSP) less trade discount to the dealer/distributor, and the dealer/distributor in turn sell it to the retailer at WSP, who finally sells at maximum retail price (MRP). Thus, the normal margin for the dealer is 'trade discount' and for the retailer is 'WSP less MRP' It is then explained that, in addition to these normal margins of profit, the dealers are offered extra incentives on achieving certain targets which are traditionally fixed after taking into account past performance of dealer, market potential and other related factors. This additional incentive which is, more by tradition rather than by correct nomenclature, is termed as 'commission and is credited to the dealers account against which dealer can use for purchases of goods but that credit is not available for payment in money terms. In effect, the additional incentives is given in terms of extra supplies of assessee's products. It was further submitted that the assessee has engaged no agents, brokers or factors who sell the company's products by acting on behalf of the company and, therefore, there is no de facto payment of commission in terms of connotations of that expression in commercial parlance. It is also submitted that all transactions between the assessee and the dealers/distributors are on principal-to-principal-basis, the sales made to the dealers/distributors is on their account and that, irrespective of the terminology employed, the relationship between the assessee vis-a-vis the dealers/distributors is of the seller and buyer. It is also submitted that the goods are sold to dealers vide sales bills and the property in goods passes to the dealers on the invoices being raised and the goods being shipped to the dealers. A reference was then made to the CBDT Circular No. 619, dt 4th Dec , 1991, and Hon'ble Bombay High Court's judgment in the case of Hanhar Cotton Pressing Factory v. CIT (I960) 39 ITR 594 (Bom) in support of the submission that the payment in question is not covered by the connotation of expression 'commission' as used in commercial parlance. In conclusion, it was submitted that since transactions are on principal-to-principal-basis and since there is no element of agency between the assessee vis-a-vis the dealers and distributors, the payment in question, though termed as 'commission', cannot come with the scope of that expression for the purpose of Section 194H. We were thus urged to vacate the orders of the authorities below. On the other hand, learned Departmental Representative vehemently defended the orders of the authorities below, strongly relied upon the same, and submitted that the impugned payment being admittedly in the nature of commission, Section 194H is clearly applicable on the facts of the case and the AO not having raised the short deduction of tax, and consequent interest levy demand earlier, he was quite justified in raising that demand by way of rectification under Section 154. On merits, it was submitted that it is not in dispute that the assessee has paid commission to its dealers and distributors, by way of cash or credit or whatever, and that the assessee should have deducted the tax at source from such commission payments. We are thus urged to uphold the orders of the authorities below and decline to interfere in the matter.
4. We find that Section 194H, which was reintroduced by the Finance Act, 2001, w.e.f. 1st June, 2001, imposes certain tax deduction obligations on persons, other than individuals and HUF, paying commission or brokerage to a resident. The expression 'commission or brokerage', for the purpose of Section 194H, has been defined as follows :
"'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 course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing not being securities."' We find that the expression 'commission' and 'brokerage' have been used together in the statute. It is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. Explaining this principle in more general terms, a very distinguished colleague of ours Hon'ble Shri M.K. Chaturvedi, Vice President (MZ) has, in Interpretation of Taxing Statutes (AIFTP Journal: Vol. 4 No. 7, July, 2002, at p. 7), observed:
"Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on common-sense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms "anything else she needs" a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words, of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejusdem generis. A man may be known by the company he keeps and a word may be interpreted with reference to the accompanying words. Words derive colour from the surrounding words."
5. Broom's Legal Maxims (10th Edn.) observes that "It is a rule laid down by Lord Bacon, that copulatio verboium indicat acceptationem in eodem sensu the coupling of words together shows that they are to be understood in the same sense."
6. Let us now deal with legal connotations of these two expressions, namely 'commission' and 'brokerage'. The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997 Edn.) observes that 'in commercial law, commission is a compensation to a factor or other agent for services to be rendered in making a sales or otherwise; a sum allowed as compensation to a servant, factor or agent who manages the affairs of others, in recompense for his services'. According to the given definition, "It is an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions. It is generally calculated as a certain percentage on the amount of the transactions on the profits to the principal." We may mention that the Law Lexicon further states that "The word 'commission' is used occasionally to mean 'discount'. What is called commission is a percentage deducted in the case of goods which are consigned the ordinary invoice price. The expression 'brokerage' is defined as 'fees or commission given to or charged by a broker'. In turn a broker is defined as "a middleman or agent who, for a commission on the value of transaction, negotiates for others the purchase or sale of books, bonds or commodities, or property of any kind, or who attends to the doing of something for another".
7. We also find that it is an undisputed position that so far as the case before us is concerned, the payments in question are in the nature of a trade discount and that there are no payments to an outsider for services rendered in connection with effecting sales or carrying out business transactions. We also find that all the transactions are admittedly on the basis of principal-to-principal basis, and the relationship between the assesses and the persons to whom commission in question is concerned is of seller and buyer, and not of principal and agent.
8. If we are to look at the connotations of expression 'commission or brokerage' in its cognate sense, as in the light of the principle of noscitur a sociis we are obliged to, a view indeed seems possible that the scope of expression 'commission', for this purpose, will be confined to an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions' and shall not extend to 'trade discounts' which at best the assessee's commission claim in the present case. As we are adjudicating, on legality of a TDS liability imposed in the course of rectification proceedings under Section 154, suffice it to say that a matter, on which clearly a view in favour of assessee is possible, a demand cannot be raised in the course of such proceedings. It is well settled in law, as held by Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros and Ors. (1971) 82 ITR 50 (SC) that Section 154 does not contemplate rectification of any mistake on which two views are possible. In the present case, neither can it be said that there was any mistake at all in not raising demand under Section 201 on account of not deducting tax at source nor, even if we presumed that such a non-levy of demand on such non-deductions was a 'mistake', can it be said that there are no two views on the tax deduction liability of the assessee so far as commission in the nature of trade discounts are concerned.
9. In view of the above discussion, we are of the considered view that the CIT(A) indeed erred in sustaining the impugned order under Section 154 of the Act. We, accordingly deem it fit and proper to cancel the impugned order.
10. We may make it clear that as we have decided the matter on the question of scope of Section 154, we see no need to give any specific adjudication on merits of the case or adjudicate as to whether or not the assessee was indeed liable to deduct tax at source. On the facts and in the circumstances of the present case, it is not necessary for us to address ourselves to that broader question.
11. In the result, assessee's appeal is allowed.