When the government offers bulk buyers of stamp papers commission ranging from 0. 5 per cent to 4 per cent, what it is offering is cash discount as inducement for bulk purchases and not commission on sales.

Section 194H of the Income-tax Act targets commission and not cash discount for deduction of tax at source.

The Supreme Court laid bare this fine distinction between cash discount and commission in Commissioner of Income-Tax and Others v. Ahmedabad Stamp Vendors Association while upholding the High Court judgment against the Income-Tax Department which saw in such transactions payment of commission by the state to the stamp vendors. The Supreme Court disabused this notion. The stamp vendors did not earn their reward on sale but at the time of purchase and hence it was cash discount rather than commission.

Section 194H contemplates deduction of tax at source at the time of payment of commission whereas in these transactions there was no payment of commission at all.

(The author is a New Delhi-based chartered accountant)

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