2019 (5) TMI 1001 - AT - Income Tax

Trading margin as commission subject to tax deduction under Income Tax Act

DCIT, Circle-5 (1), New Delhi Versus Sistema Shyam Teleservices Ltd.

DCIT, Circle-5 (1), New Delhi Versus Sistema Shyam Teleservices Ltd. - TMI Issues Involved:1. Deleting the demand raised under Section 201(1)/201(1A) by holding that trading margin allowed by the assessee to the distributor does not constitute commission or brokerage as envisaged under Section 194H of the Income Tax Act.2. Determining whether the relationship between the assessee and the distributors is Principal to Principal or Principal to Agent.3. Ignoring the adjudication in similar cases involving Vodafone Essar Mobile Services Ltd. by the CIT(A).4. Accepting the contention that payment is made by the distributors to the assessee, not by the assessee to the distributors, and whether the margin retained by the distributors constitutes commission.Issue-wise Detailed Analysis:1. Deleting the Demand under Section 201(1)/201(1A):The Tribunal examined whether the trading margin allowed by the assessee to the distributor constitutes commission or brokerage under Section 194H of the Income Tax Act. The revenue argued that the discount offered to distributors on the maximum retail price of recharge vouchers should be considered as commission, thus requiring tax deduction at source (TDS). The Tribunal referred to the Delhi High Court's decision in CIT vs IDEA CELLULAR LTD (325 ITR 148), which held that such payments constitute commission and are subject to TDS under Section 194H. Consequently, the Tribunal reversed the CIT(A)'s order, restoring the Assessing Officer's decision that the assessee failed to deduct tax at source on the discount extended to distributors.2. Principal to Principal vs. Principal to Agent Relationship:The Tribunal analyzed the nature of the relationship between the assessee and its distributors. The revenue contended that the relationship was that of Principal to Agent, citing various clauses in the agreement that indicated control by the assessee over the distributors, such as setting maximum prices, requiring written approval for appointing retailers, and maintaining brand image. The Tribunal referred to the Delhi High Court's detailed examination in the IDEA CELLULAR case, which concluded that the relationship was that of Principal to Agent, thereby making the discount a commission subject to TDS under Section 194H.3. Ignoring Adjudication in Similar Cases:The revenue highlighted that in similar cases involving Vodafone Essar Mobile Services Ltd. for FY 2007-08 to 2010-11, the CIT(A) had sustained the revenue's findings. The Tribunal noted that the CIT(A)'s decision in the present case ignored these precedents. The Tribunal emphasized the importance of consistency in judicial decisions and relied on the Delhi High Court's ruling in the IDEA CELLULAR case, which supported the revenue's position.4. Payment by Distributors to Assessee:The assessee argued that the payment in question was made by the distributors to the assessee and not vice versa, and that the margin retained by distributors during the sale of recharge vouchers did not constitute commission. The Tribunal, however, referred to the Delhi High Court's decision, which clarified that the nature of the transaction and the control exercised by the assessee over the distributors indicated a Principal to Agent relationship. Therefore, the margin retained by the distributors was considered a commission, requiring TDS under Section 194H.Conclusion:The Tribunal concluded that the issue was squarely covered by the Delhi High Court's decision in CIT vs IDEA CELLULAR LTD, which held that the payment made by the assessee to its distributors constituted commission and was subject to TDS under Section 194H. Consequently, the Tribunal reversed the CIT(A)'s order and restored the Assessing Officer's decision, allowing the revenue's appeal. The Tribunal emphasized the importance of judicial consistency and adherence to higher court rulings in similar cases.