2018 (5) TMI 703 - AT - Income Tax

Tribunal rules distributor discounts as commissions subject to TDS, but exempts IUC payments.

M/s. Tata Teleservices Ltd. Versus Income-tax Officer, Ward 51 (5), New Delhi

M/s. Tata Teleservices Ltd. Versus Income-tax Officer, Ward 51 (5), New Delhi - [2018] 64 ITR (Trib) 497 Issues Involved:1. Demand under section 201(1) and 201(1A) of the Income Tax Act, 1961 for alleged failure to deduct tax at source under section 194H on discounts given to distributors for starter kits and recharge vouchers.2. Demand under section 201(1) and 201(1A) for alleged failure to deduct tax at source under section 194J on payments made towards roaming services provided by other telecom service providers.Issue-Wise Analysis:1. Demand under section 201(1) and 201(1A) for non-deduction of TDS under section 194H:The primary issue is whether the discounts given to distributors on the sale of starter kits and recharge vouchers should be classified as commission, thereby necessitating TDS under section 194H. The assessee argued that the transactions were on a principal-to-principal basis, and the discounts allowed were not commission but a reduction in the sale price. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) held that the relationship between the assessee and its distributors was that of principal and agent, and the discounts given were in the nature of commission, thus attracting TDS under section 194H.The CIT(A) referenced various clauses in the agreement between the assessee and its distributors, indicating that the ownership of SIM cards and recharge vouchers remained with the assessee until sold to the ultimate consumer. The distributors were required to follow the marketing and pricing guidelines set by the assessee, and any unsold stock had to be returned to the assessee, which would then compensate the distributors. This arrangement was indicative of a principal-agent relationship, not a principal-to-principal sale.The CIT(A) also noted that the Delhi High Court in the case of Idea Cellular Ltd. had held that the relationship between the telecom operator and its distributors was that of principal and agent. The Karnataka High Court's decision in Bharti Airtel Ltd. was distinguished on the grounds that it did not consider the possibility of selling a right to service, which was a significant aspect in the present case.The Tribunal upheld the CIT(A)'s decision, following the jurisdictional High Court's ruling in Idea Cellular Ltd., and concluded that the discounts given to distributors were indeed commissions, thereby attracting TDS under section 194H.2. Demand under section 201(1) and 201(1A) for non-deduction of TDS under section 194J:The second issue pertains to the payments made by the assessee to other telecom operators for interconnect usage charges (IUC) and whether these payments should be classified as fees for technical services, thereby necessitating TDS under section 194J. The AO and CIT(A) held that the IUC payments involved human intervention in the form of configuration, installation, and testing, making them fees for technical services.The assessee argued that the process of transferring calls between networks was automated and did not involve human intervention. The Tribunal referred to the decision in Bharti Airtel Ltd. v. ITO, where it was held that IUC payments did not involve human intervention and were not fees for technical services. The Tribunal also referenced the decision in Bharat Sanchar Nigam Ltd. v. Addl. CIT, where it was held that roaming charges did not fall under the purview of TDS under section 194J.The Tribunal concluded that the IUC payments made by the assessee did not involve human intervention and were not fees for technical services. Therefore, the assessee was not liable to deduct TDS under section 194J on these payments.Conclusion:The Tribunal upheld the CIT(A)'s decision regarding the applicability of TDS under section 194H on discounts given to distributors, following the jurisdictional High Court's ruling in Idea Cellular Ltd. However, it reversed the CIT(A)'s decision regarding the applicability of TDS under section 194J on IUC payments, following the decisions in Bharti Airtel Ltd. and Bharat Sanchar Nigam Ltd. The appeals for the assessment years 2007-08 to 2009-10 were partly allowed, while the appeals for the assessment years 2010-11 and 2011-12 were dismissed.