FACTS OF THE CASE

The appeals arise from two connected appeals under Section 260A of the Income-tax Act, 1961 by the Pr. Commissioner of Income-Tax-6 (“Revenue”) against orders of the Income-tax Appellate Tribunal (“Tribunal”) for Assessment Years 2011-12 and 2012-13. The respondent assessee, Nirja Publishers & Printers Pvt. Ltd., claimed deductions under Section 80IC in respect of eligible manufacturing operations at its Rudrapur printing unit. During assessments, the Assessing Officer disallowed the deduction on the ground that no actual printing or binding operations took place at the eligible unit, and additionally made an addition under Section 40(a)(ia) holding trade discounts offered to the buyer (holding company) were in the nature of commission requiring TDS under Section 194H. On appeal, both the CIT(A) and the Tribunal allowed the assessee’s claims, holding the deduction under Section 80IC was allowable and that the trade discount was not a commission requiring TDS. The Revenue appealed to the High Court. 

ISSUES INVOLVED

  1. Whether the assessee was entitled to deduction under Section 80IC given that no printing or binding of books allegedly took place at the eligible unit.
  2. Whether trade discounts offered should be treated as commission subject to TDS under Section 194H and addition under Section 40(a)(ia).
  3. Whether any substantial question of law arises for consideration by the High Court.

PETITIONER’S ARGUMENTS

  • The assessee did not truly carry out printing or binding operations at the eligible undertaking at Rudrapur, and therefore the claim of deduction under Section 80IC was not maintainable.
  • The trade discount given to the holding company was in substance a commission, for which the assessee failed to deduct tax at source under Section 194H, justifying disallowance under Section 40(a)(ia).
  • The Tribunal failed to appreciate the factual matrix and wrongly upheld the assessing officer’s orders. 

RESPONDENT’S ARGUMENTS

  • Actual printing and binding operations were carried out at the eligible undertaking, substantiated by evidence, entitling it to deduction under Section 80IC.
  • The trade discount was just that – a trade discount – and not a commission; hence there was no requirement to deduct tax under Section 194H and no addition under Section 40(a)(ia) was sustainable.
  • Findings of fact recorded by CIT(A) and affirmed by the Tribunal cannot be re-examined by the High Court under Section 260A in the absence of perversity.

COURT ORDER / FINDINGS

  • The only substantive dispute requiring consideration was whether the assessee had carried out actual printing and binding operations at its eligible unit entitling it to deduction under Section 80IC.
  • The Assessing Officer’s conclusion that no manufacturing activity had taken place was essentially a question of fact. CIT(A) had examined these facts in detail, accepted the genuineness of operations, and the Tribunal confirmed those findings.
  • There was no allegation of perversity raised against the factual findings in the lower orders. Under Section 260A, the High Court could not revisit or re-evaluate the factual findings.
  • As to the trade discount issue, earlier Supreme Court authority in Commissioner of Income-tax v. Ahmedabad Stamp Vendors Association confirms that trade discount is not commission necessitating TDS; hence the addition under Section 40(a)(ia) could not be sustained.
  • Accordingly, the High Court held that no substantial question of law arises for consideration and dismissed both appeals.

 IMPORTANT CLARIFICATION

  • A claim under Section 80IC is allowable if the eligible unit genuinely carries out prescribed manufacturing activity; this is a question of fact, and factual findings not vitiated by perversity cannot be re-examined at the appellate stage under Section 260A.
  • Trade discounts given in the course of business are not commission payments requiring tax deduction at source under Section 194H; disallowance under Section 40(a)(ia) is therefore not justified merely on that basis.   

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60810012024ITA10212019_154728.pdf 

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