2020 (6) TMI 174 - AT - Income Tax

Tribunal Rules No Tax Deduction on Prepaid Discounts & Roaming Charges; Assessee Not in Default, No Interest Applied.

The Tribunal determined that the assessee was not obligated to deduct tax under Section 194H on discounts to prepaid distributors or under Section 194J on ... TDS u/s 194H - assessee-in-default on non-deduction of tax at source on discount allowed to the prepaid distributors on distribution of 'right to prepaid service - HELD THAT:- As relying on BHARTI AIRTEL LTD. AND OTHERS [2014 (12) TMI 642 - KARNATAKA HIGH COURT] assessee is not required to deduct tax under section 194H of the Act on the prepaid SIM Cards and hence, the assessee is not in default as per provisions of section 201(1) of the Act. Assessee-in-default' for non-deduction of tax at source u/s 194J of the Act on roaming charges paid to other telecom operators - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the judgment of Hon’ble Delhi High Court in the case of Bharti Cellular Ltd [2008 (10) TMI 321 - DELHI HIGH COURT] and respectfully following the same, we hold that the assessee is not required to deduct tax u/s.194J of the Act and consequently, the assessee shall not be treated as an assessee in default u/s 201(1) of the Act. Once, the assessee is treated as assessee not in default u/s.201(1), the interest u/s.201(1A) is not required to be charged. We, accordingly, allow the grounds of appeal raised by the assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [2020 (5) TMI 359 - ITAT MUMBAI] Issues Involved:1. Time limit for passing order under Section 201(1)/201(1A).2. Assessee-in-default status under Section 194H for non-deduction of tax on discounts to prepaid distributors.3. Assessee-in-default status under Section 194J for non-deduction of tax on roaming charges.4. Payment of taxes by recipient parties.5. Levy of interest under Section 201(1A).Issue-Wise Analysis:1. Time Limit for Passing Order:The assessee argued that the TDS officer's order under Section 201(1)/201(1A) for the financial year 2008-09 was passed beyond the time limit prescribed under Section 201(3) of the Act. The CIT(A) failed to appreciate this, and the assessee sought quashing of the order. The Tribunal did not specifically address this issue in the judgment.2. Assessee-in-Default Status under Section 194H:The assessee contended that the relationship between the assessee and the prepaid distributors was on a 'Principal to Principal' basis, thus no liability to deduct tax under Section 194H existed. The Tribunal noted that the discount given to prepaid distributors was not commission but a margin for distribution, thus not qualifying as commission under Section 194H. The Tribunal relied on several judicial pronouncements, including the Hon’ble Bombay High Court in CIT(TDS) vs Vodafone Cellular Ltd, which held that discounts given to distributors of prepaid SIM cards do not attract TDS under Section 194H.3. Assessee-in-Default Status under Section 194J:The assessee argued that roaming charges paid to other telecom operators did not require TDS under Section 194J as these were standard automated services without human intervention. The Tribunal agreed, citing the Hon’ble Delhi High Court in CIT vs. Bharti Cellular Ltd, which held that roaming charges do not qualify as fees for technical services under Section 194J.4. Payment of Taxes by Recipient Parties:The assessee claimed that the taxes on the impugned transactions had been paid by the recipient parties (distributors and telecom operators) and submitted relevant documents to the TDS Officer. The Tribunal did not specifically address this issue in the judgment.5. Levy of Interest under Section 201(1A):The assessee argued that interest under Section 201(1A) is compensatory and can only be levied when there is a default in payment of taxes. The Tribunal held that since the assessee was not in default under Sections 194H and 194J, interest under Section 201(1A) was not applicable. The Tribunal allowed the assessee's appeal on this ground.Conclusion:The Tribunal concluded that the assessee was not required to deduct tax under Section 194H on discounts to prepaid distributors and under Section 194J on roaming charges. Consequently, the assessee was not in default under Section 201(1), and interest under Section 201(1A) was not applicable. The appeals were allowed in favor of the assessee.