Law:

Section:

Section 194H of the Income-tax Act, 1961 - Deduction of tax at source - Commission or brokerage, etc. - Whether discount granted on sale of stamp paper to licensed stamp vendors by treasury cannot be termed as 'commission or brokerage' to attract TDS under section 194H - Held, yes FACTS The petitioners, licensed stamp vendors, engaged in the purchase of stamp paper from the treasury and sale of the same in accordance with the Kerala Manufacture and Sale of Stamp Rules, 1960. The stamp papers were sold to the petitioners by the treasury at a discounted price. A demand was made by the Income-tax Department to the Treasury Officers to recover income tax from the discount allowed to the petitioners on the sale of the stamp paper to them in terms of section 194H. On writ, the petitioners contended that they were not agents of the Government and were independent dealers in stamp papers though subject to the discipline provided in the Rules and so much so, deduction of income-tax on discount allowed is not authorised under section 194H. HELD It is clear from section 194H that what is subject to deduction of income tax at source is only 'commission' or 'brokerage'. Section 194H does not contemplate discount granted by the seller to the buyer as 'commission or brokerage'. What is provided under rule 39 of Stamp Rules is a discount to the stamp vendor at the time of sale of stamp paper to him by the treasury. In other words, the stamp vendor pays, for the stamp paper, its face value as reduced by the discount allowed to him under rule 39. It is clear from the definition of 'commission and brokerage' as contained in Explanation to section 194H that the commission or brokerage that attracts TDS is the one paid for 'services rendered in the course of sale' which obviously can be the services rendered by a third party like a broker or an agent and cannot be the buyer as the buyer is not rendering any service except buying. Therefore, obviously payments to third parties involved in sale or purchase such as a commission agent or a broker are covered by section 194H. Discount granted on sale of stamp paper to the licensed stamp vendors by the treasury, therefore, cannot be…

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