2018 (5) TMI 229 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Service Payments & Discounts

Jt. CIT (TDS) -OSD-2 (3) An DCIT (TDS) -1 (1), Mumbai Versus M/s. Bharat Business Channels Ltd. And M/s. Videocon d2h Limited Formerly known as Bharat Business Channels Ltd.

Jt. CIT (TDS) -OSD-2 (3) An DCIT (TDS) -1 (1), Mumbai Versus M/s. Bharat Business Channels Ltd. And M/s. Videocon d2h Limited Formerly known as Bharat ... Issues Involved:1. Whether the payment for installation services falls under Section 194C or Section 194J of the Income Tax Act.2. Whether the discount given on the sale of Set-Top Boxes (STBs) and recharge vouchers to distributors/dealers constitutes 'commission' under Section 194H of the Income Tax Act.Detailed Analysis:Issue 1: Payment for Installation Services - Section 194C vs. Section 194JThe Revenue argued that the payment for installation services should be subjected to tax deduction at source (TDS) under Section 194J (fees for technical services) rather than under Section 194C (works contract). The Assessing Officer (AO) held that the installation of DTH apparatus required technical skills and expertise, thus falling under Section 194J.The assessee contended that the installation services did not involve any technical expertise and could be performed by any sound person after reading the installation manual. The CIT(A) agreed with the assessee, stating that the job of the Installation Service Provider (ISP) involved basic wiring connections and did not require special technical expertise or a technical degree. The CIT(A) concluded that these services fell within the scope of a 'works contract' under Section 194C.The Tribunal upheld the CIT(A)'s decision, emphasizing that the work of installation did not require technical expertise and was repetitive in nature. The Tribunal noted that the ISPs received only basic training for installation, which further supported the classification under Section 194C. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.Issue 2: Discount on Sale of STBs and Recharge Vouchers - Commission under Section 194HThe AO issued a show-cause notice to the assessee for not deducting TDS on the commission paid in the form of discounts to distributors/dealers under Section 194H. The AO considered the discount as 'brokerage or commission' and held the assessee liable for TDS under Section 194H.The CIT(A) held that the relationship between the assessee and the distributors was on a principal-to-principal basis, and the discount given could not be considered as 'commission' within the meaning of Section 194H. The Tribunal supported this view, noting that the distributors purchased the recharge vouchers and STBs at a discounted price and sold them to customers at a price not exceeding the Maximum Retail Price (MRP). The Tribunal referred to various judicial pronouncements, including the ITAT Ahmedabad Bench's decision in the case of Videocon Essar Gujarat Ltd., which held that the discount given to distributors was not 'commission' but a trade discount.The Tribunal observed that the factual matrix and terms of the agreement between the assessee and its distributors were similar to those considered by the Karnataka High Court in the case of Bharti Airtel Ltd. v. DCIT, where it was held that the relationship was on a principal-to-principal basis, and the discount did not constitute 'commission' under Section 194H. The Tribunal concluded that the assessee was not liable for TDS under Section 194H on the trade discount granted to distributors.Conclusion:The Tribunal dismissed the Revenue's appeals for both the years, holding that the payment for installation services fell under Section 194C and not Section 194J. Additionally, the Tribunal allowed the assessee's appeals, concluding that the discount given to distributors did not constitute 'commission' under Section 194H, thereby relieving the assessee from the liability of TDS on such discounts.