Trade discount on prepaid product sales does not trigger TDS where the arrangement is principal-to-principal, not agency.

Margin allowed to prepaid distributors on sale of SIM cards, recharge coupons and related prepaid products was treated as a trade discount arising from a principal-to-principal sale, not as commission. The invoices were issued net of discount and no separate commission was credited or paid, so the arrangement lacked the principal-agent relationship required for section 194H. On those facts, the embedded discount did not attract tax deduction at source, and the TDS demand on the disputed margins was deleted.

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Issues: Whether the margin allowed to prepaid distributors on sale of SIM cards, recharge coupons and related prepaid products constituted commission liable to tax deduction at source under section 194H of the Income-tax Act, 1961, or was merely a trade discount arising from a principal-to-principal sale transaction.

Analysis: The distributors of prepaid products were found to be purchasing the items at a discounted price and reselling them within the maximum retail price framework. The sale invoices were issued net of discount, and the amounts were not separately credited or paid as commission. On the facts recorded, the transaction was treated as a sale of prepaid service products on a principal-to-principal basis rather than an agency arrangement. Since section 194H applies to commission or brokerage paid in the course of a principal-agent relationship, the mere discount embedded in the sale price did not attract tax deduction at source.

Conclusion: The margin given to prepaid distributors was not commission within the meaning of section 194H, and no TDS liability arose on that account.

Final Conclusion: The assessees' appeals succeeded and the demand raised on the disputed prepaid-distributor margins was deleted.

Ratio Decidendi: A discount allowed on sale of prepaid products in a principal-to-principal transaction, where no commission is separately paid or credited, does not constitute commission or brokerage liable for deduction of tax at source under section 194H of the Income-tax Act, 1961.

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