Reimbursement of Expenses to C&F Agents for achieving Targets not subject to TDS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata bench has ruled that the provisions relating to tax deduction at source (TDS) cannot be applicable to reimbursement of expenses to C&F Agents for achieving their sales targets.

The assessee, in the instant case, made reimbursement of the expenses claimed by C & F agents. According to the assessee, the reimbursement was made by the assessee to the C & F agents to the distributors only on achieving a target or under a scheme and was in nature of sale promotion.

During the assessment proceedings, the Assessing Officer disallowed the expenses by invoking section 40(a)(ia) on ground of non-deduction of tax at source under Section 194C of the Income Tax Act, 1961.

The CIT(A) found the entire impugned amount is in the nature of reimbursement or incentive and held that the AO is wrong treating the entire expenditure as commission.

Before the Tribunal, the assessee contended that it is not a commission and there is no principal and agent relationship. It is a sales promotion to grow simultaneously. It is a benefit to the distributor and assessee has no relationship with the distributor, they argued.

The bench noted that the assessee incurred foreign trip expenses to an extent of Rs.11,18,000/- and the credit notes were placed. It was noted that a trip to Thailand offered to one person on achieving sale of 75 boxes or 2700 pieces.

“In our opinion, it is not a commission and is additional benefit given to the C&F agents. The CIT(A) examined the list of payments made to individual staff and having finding no adverse comment from AO in the remand proceedings upheld the contention of assessee that it was paid to showroom staff directly to boost the sale at an average of Rs.3,600/-. The contention of Ld.AR was that no deduction of TDS is required on the reimbursement of expenses on sales promotion.”

The bench further relied on the decision by the High Court of Andhra Pradesh & Telangana in the case of United Breweries Ltd. in which it was held that discounts offered by the Andhra Pradesh Beverages Corporation Ltdto the retailer could only be treated as sales promotion expenses, and not as the commission for the purpose of TDS.