The Income Tax Appellate Tribunal (ITAT) Chennai Bench recently held that the payment made to dealers for sale of fertilizers are in the nature of rebates.Hence,no Tax Deduction at Source should be deducted from assessee.
The assessee Greenstar Fertilizers Limited, engaged in manufacturing and selling of fertilizers in India.
The assessee sold fertilizers through a network of dealers. It transpired that the assessee offered annual rebate to selected dealers upon achieving targets. The same was given in the shape of credit notes and gold coins which aggregated to Rs.451.24 Lacs. The assessee submitted that credit notes were given in order to promote the sales.
During the assessment proceedings , the AO held that such credits were in the nature of commission which would require TDS under Section 194H of the Income Tax Act and accordingly, the assessee had deemed to be assessee-in-default.
Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax Appeals (CIT(A)), who upheld the action of AO. Thus the assessee filed the appeal before the tribunal.
During the appeallate proceedings, the tribunal observed that assessee sells its products through a network of dealers / distributors under a commercial agreement.
As per the agreement, the risk and rewards of sale transactions pass on to these dealers at the point of time of sale only.
The assessee merely regulates business terms for the purpose of sale even though the sale happens on a principal-to-principal basis only. Further the assessee provides rebates to dealers depending on market conditions.
Fixed rebates are generally reduced from the invoice and only net sale consideration has shown in the financial statements. Variable rebates are based on sales quantity or on achievement of sales targets,
It was also found that the dealers / distributors did not act on behalf of the assessee rather they act on an independent basis subject to business terms laid down by the assessee.
After reviewing the facts and submissions, the two-member bench of the tribunal comprising Manoj Kumar Aggarwal (Accountant Member) and Mahavir Singh (Vice President) held that there was no obligation on assessee to deduct TDS on rebates given on transaction of sale.
Therefore, the bench allowed the appeal of the assessee.
R. Vijayaraghavan , appeared for the assessee and D. Hema Bhupal , counsel appeared for revenue.
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