2020 (1) TMI 701 - HC - Income Tax

Court rules distributor discounts on prepaid SIM cards not subject to tax deduction under Section 194H.

The High Court upheld the Tribunal's decision that discounts on prepaid SIM cards to distributors did not require tax deduction under Section 194H as the ... TDS u/s 194H - discount given by the assessee to its distributors on prepaid SIM Cards - HELD THAT:- Tribunal noted the observations of the Assessing Officer that the discount allowed to the distributors by the Respondent – assessee company is on account of principal to principal relationship and not that of principal to agent. The Tribunal followed the decision of the Karnataka High Court in the case of Bharati Airtel Ltd. vs. DCIT [2014 (12) TMI 642 - KARNATAKA HIGH COURT] and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors was not commission and therefore not liable to deduct the TDS under Section 194H. When the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage. See M/S. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD. [2019 (7) TMI 1371 - BOMBAY HIGH COURT] - Decided against assessee. Issues:Challenge to order of Income Tax Appellate Tribunal regarding deduction of tax under Section 194H on discount given by assessee to distributors on prepaid SIM cards for Assessment Year 2010-11.Analysis:The Appellant-Revenue contested the order of the Income Tax Appellate Tribunal dated 4 January 2017, concerning Income Tax Appeal No.1041, 1042, and 1953 to 1955/PUN/2013 for the Assessment Year 2010-11. The substantial questions of law raised by the Appellant-Revenue included whether the discount provided by the assessee to its distributors on prepaid SIM cards necessitated tax deduction under Section 194H of the Income Tax Act and whether the Tribunal erred in remanding the case to the Assessing Officer. The Tribunal, referring to the Assessing Officer's observations, determined that the discount offered to distributors by the assessee was based on a principal-to-principal relationship, not that of principal to agent. Citing the decision of the Karnataka High Court in Bharati Airtel Ltd. vs. DCIT [372 ITR 33], the Tribunal concluded that the sale of SIM cards/recharge coupons at a discounted rate did not constitute commission, hence not subject to TDS under Section 194H. Notably, the Tribunal highlighted the absence of a relevant decision from the High Court on this matter at that time.Subsequently, the parties presented the order passed in Income Tax Appeal No. 702 of 2017 in the case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd., where a similar issue was addressed. The Division Bench of the High Court upheld the Tribunal's decision, emphasizing that when transactions occur on a principal-to-principal basis, tax deduction under section 194H is not applicable if the payment is not for commission or brokerage. Given the factual findings by the Tribunal, the High Court concluded that the same principle applied in the present case, thereby dismissing the proposed questions of law as they did not raise substantial legal issues. Consequently, the Appeal was disposed of based on the above analysis.