The Hindu Business Line : Chamber feels there's no need to cut TDS on dealer rebates

THE PHD Chamber of Commerce and Industry (PHDCCI) has taken a position that manufacturers should not be required to deduct tax at source on the rebates or discounts offered by them to their dealers and distributors.

The chamber said that the discount/rebate allowed by a manufacturer to distributors/dealers cannot be termed as ``commission'' and the provision of Section 194 H of the Income Tax Act cannot be made applicable in such a situation.

It is of the view that there was no default on the part of a manufacturer in not deducting tax on the rebates/discounts offered at the time of sale of goods to dealers/distributors.

In a representation to the Finance Ministry, the chamber said that a distributor/dealer purchases a manufacturer's product on principal-to-principal basis and re-sells it in the market for a profit. The relationship between a manufacturer and distributors/dealers is not of principal and agent.

Further, it has been highlighted that the ownership of goods passes to the dealers/distributors at the time of transfer of goods to such dealers/distributors.

``Rebates/discounts are given by the manufacturer to improve the margin available to the dealer/distributor. It is to be appreciated that, while commission is an income of the recipient the moment it accrues, rebate and discount are of a different nature. Rebate and discount merely reduce the cost of a product. They translate into income only when the said product is sold by the person who received the rebate/discount,'' the chamber said.

It also said that Section 194 H of the Act was applicable in the case of commission or brokerage paid to a person acting on behalf of another person. It is of the view that only a payment made in pursuance of an agency agreement or brokerage paid would be governed by the provisions of Section 194 H of the Income Tax Act, 1961.

Sources said that the chamber's representation to the Finance Ministry came after the tax department had issued notices to certain manufacturers, seeking explanation as to why they had not deducted tax at source under Section 194 H on the discounts provided to their dealers/distributors.

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