2015 (6) TMI 448 - AT - Income Tax

Tribunal rules distributor relationship as Principal to Principal, not Agent, no tax deduction needed

M/s Sistema Shyam Teleservices Ltd (Formerly Known As M/s. Shyam Telelink Ltd) Versus Income Tax Officer TDS-1, Jaipur

M/s Sistema Shyam Teleservices Ltd (Formerly Known As M/s. Shyam Telelink Ltd) Versus Income Tax Officer TDS-1, Jaipur - TMI Issues Involved:1. Obligation to deduct tax under Chapter XVII B and Section 194H of the Income Tax Act.2. Nature of the relationship between the appellant and the prepaid distributors.3. Consideration of the appellant's submissions and similarity with other judicial decisions.4. Violation of natural justice in the impugned order.5. Whether the appellant should be considered an 'assessee in default' for taxes paid by the payee.6. Charging of interest under Section 201(1A) when the tax due has already been paid by the payee.Detailed Analysis:1. Obligation to Deduct Tax under Chapter XVII B and Section 194H:The appellant contested that it was not liable to deduct tax on the trading margin earned by distributors from the sale of prepaid talk time and recharge coupons. The CIT(A) upheld the order of the Income-tax Officer, concluding that the appellant was responsible for deducting tax under Section 194H. The appellant argued that no income by way of commission was paid to the distributors, thus no tax deduction was required.2. Nature of the Relationship Between the Appellant and the Prepaid Distributors:The appellant claimed that the relationship with the prepaid distributors was that of a 'Principal and Principal', not 'Principal and Agent'. The CIT(A) and the Assessing Officer disagreed, treating the relationship as Principal to Agent based on the terms of the agreement and various conditions imposed on the distributors. The Assessing Officer noted that the distributors sold the products as the property of the appellant, not as their own, which indicated an agency relationship.3. Consideration of the Appellant's Submissions and Similarity with Other Judicial Decisions:The appellant argued that the CIT(A) failed to consider its submissions and the judgment by the Supreme Court in the case of CIT v. Ahmadabad Stamp Vendors Association. The CIT(A) referenced decisions from various High Courts and Tribunals, which held that margins paid to distributors were commission payments subject to tax deduction under Section 194H. However, the appellant's arguments and relevant case laws were not adequately addressed.4. Violation of Natural Justice in the Impugned Order:The appellant claimed that the CIT(A) violated principles of natural justice by not providing a reasonable opportunity to present its case. The detailed written submissions dated October 8, 2012, were neither discussed nor negated in the impugned order. The appellant also contended that the order was passed in haste without a personal hearing, making it liable to be quashed.5. Whether the Appellant Should be Considered an 'Assessee in Default':The appellant argued that it should not be considered an 'assessee in default' for taxes that would have been paid by the payee. The CIT(A) held that the appellant failed to provide documentary evidence showing that the distributors had paid the due taxes, thus the benefit of the Supreme Court decision in Hindustan Coca Cola Beverages P. Ltd. was not applicable.6. Charging of Interest under Section 201(1A):The appellant contended that no interest under Section 201(1A) should be charged as the tax due had already been paid by the payee. The CIT(A) dismissed this ground, aligning with the Assessing Officer's view that the appellant did not discharge the onus of proving that the taxes were paid by the distributors.Conclusion:The Tribunal, after considering the arguments and evidence, found that the relationship between the appellant and the distributors was indeed Principal to Principal, and no TDS was liable to be deducted on the discount provided. The Tribunal relied on its own decision in the case of M/s. Idea Cellular Ltd. and other relevant case laws, concluding that the appellant was not liable for deduction under Section 194H. Consequently, the appeals for A.Y. 2007-08 to 2009-10 were allowed, and the alternative grounds raised by the appellant were not required for adjudication.