Recent important decision of the Delhi High Court

In the recent important decision of the Delhi High Court in the case of CIT v. Mother Dairy Ltd.,  on the facts of the case, it has been held as under:

·         The arrangement between the Mother Daity(asssessee) and the concessionaire to whom the milk is sold by the assessee are that of ‘pricipal’ to pricipal’ basis, and therefore, there was not pricnipal-agent relationship. Accodingly, the assessee was not required to deduct tax at source under section 194H of the Act on the difference amount at which the milk is sold by the assessee to concessonaries vis a vis the price at which such milk is ultimately sold by concessonaries to consumers.

·         The Court held that that there was an actual sale, and not mere delivery of the milk and the other products to the concessionaire. The concessionaire purchases the milk from the Dairy. The Dairy raises a bill on the concessionaire and the amount is paid for. The Dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement the concessionaire cannot return the milk under any circumstance, which is another clear indication that the relationship was that of principal to principal. Even if the milk gets spoiled for any reason after delivery is taken, that is to the account of the concessionaire and the Dairy is not responsible for the same.

·         The Court further held that it is irrelevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture provided by the Dairy. That fact is not determinative of the relationship between the Dairy and the concessionaires with regard to the sale of the milk and other products. They were licencees of the premises and were permitted the use of the equipment and furniture for the purpose of selling the milk and other products. But so far as the milk and the other products are concerned, these items became their property the moment they took delivery of them. They were selling the milk and the other products in their own right as owners. These are two separate legal relationships. The income-tax authorities were not justified or correct in law in mixing up the two distinct relationships or telescoping one into the other to hold that because the concessionaires were selling the milk and other products from the booths owned by the Diary and were using the equipment and furniture in the course of the sale of the milk and other products, they were carrying on the business only as agents of the Diary.

Note: To the simlar effect is the recent decision of the Delhi Bench of the Tribunal in the case of of SRL Ranbaxy ltd.: ITA No.434/Del./2011