CIT vs. Intervet India Pvt.Ltd (Bombay High Court)

S. 194-H TDS does not apply to all sales promotional expenditure if relationship is not that of principal & agent

The assessee had undertaken sales promotional scheme viz. Product discount scheme and Product campaign under which it offered an incentive on case to case basis to its stockists / dealers / agents. An amount of Rs.70 lakhs was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent.

As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee’s product. The distributors / stockists were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting of sales target, and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to Section 194H of the Income-tax Act, 1961.

The contention of the Revenue in regard to the application of Explanation (i) below Section 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Explanation (i) below Section 194H would amount to reading the said provision in abstract. The application of the provision is required to be considered to the relevant facts of every case.

No tax on FTS if service utilized for business carried abroad; upgradation of existing website is revenue expenditure

In the instant case, two moot questions were raised before the ITAT which were as under:

A. Liability of tax deduction on overseas commission

B. Whether website development charges were deductible as revenue expenditure ?

On first issue, it held in favour of assessee as under:

1) Commission paid to non-residents for services rendered outside India does not accrue or arise in India;

2) Hence, no TDS was deductible from such commission and such commission couldn’t be disallowed under section 40(a)(i);

3) Even if services rendered by the non-resident did fall within the definition of "fees for technical services, the commission paid would not be taxable in India as clause(b) of section 9(1)(vii) would save the assessee.

On second issue, it held in favour of assessee as under:

1) Expenses incurred for upgradation of an existing website ought to be distinguished from expenses for development of a new website;

2) The former was revenue expenditure and the latter was capital expenditure, resulting in creation of an intangible asset;

3) Expenditure on upgradation of existing website was equivalent to maintenance of an existing asset. Thus, it was revenue expenditure - MAHINDRA HOLIDAYS & RESORTS INDIA LTD. V. JCIT (LTU) (2013) 38 taxmann.com 207 (Chennai - Trib.)