Section 40(a)(ia), 194H & 194J of the Income-tax Act, 1961 – TDS – Benefit extended to distributors cannot be treated as commission under section 194H as there is absence of principal-agent relationship.

Facts: Assessee went on appeal before Tribunal and raised the ground that AO and DRP have erred making a disallowance of the trade offers provided by assessee to its distributors (HCL Info systems Ltd as well as other distributors) under section 40(a)(ia).

Held, that it can be seen from the "Agreement for the Supply of Cellular Mobile Phones" between HCL and the assessee that relationship between the assessee and HCL is that of principal to principal and not that of principal to agent. The discount which was offered to distributors is given for promotion of sales. This element cannot be treated as commission. There is absence of a principal-agent relationship and benefit extended to distributors cannot be treated as commission under section 194H. As regards to applicability of section 194J, AO has not given any reasoning or finding to the extent that there is payment for technical service liable for withholding under section 194J. Marketing activities have been undertaken by HCL on its own. Merely making an addition under section 194J without the actual basis for the same on part of the AO is not just and proper. The Ld. DR's contention that discounts were given by way of debit notes and the same were not adjusted or mentioned in the invoice generated upon original sales made by the assessee, does not seem tenable after going through the invoice and the debit notes. In fact, there is clear mentioned about the discount for sales promotion. Thus, on both the account the addition made by the Assessing Officer does not sustain – NOKIA INDIA (P.) LTD. Vs. DY. CIT [2020] 181 ITD 645 (ITAT-DELHI)