Tax deduction at source on distributor discounts for pre-paid vouchers was disallowed under binding precedent.

Discounts allowed to distributors on pre-paid SIM cards and recharge vouchers were treated as outside the tax-deduction obligation because the issue was covered by the Supreme Court's ruling in Bharti Cellular Limited, which held that section 194H does not apply to the sale or transfer of pre-paid coupons or starter kits and that no deduction is required on the income or profit component paid to distributors or franchisees. On that basis, no liability arose under section 194H and the consequential characterisation of the assessee as in default under section 201 could not be sustained.

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Issues: Whether the appellant was required to deduct tax at source under section 194H of the Income-tax Act, 1961 on discounts allowed to distributors for pre-paid SIM cards and recharge vouchers, and whether it could be treated as an assessee in default under section 201 for non-compliance.

Analysis: The controversy was treated as covered by the Supreme Court's decision in Bharti Cellular Limited, which held that the assessees had no legal obligation to deduct tax at source on the income or profit component in the payments received by distributors/franchisees, and that section 194H did not apply to the sale or transfer of pre-paid coupons or starter kits. In view of that binding determination, the same legal position governed the present assessment years.

Conclusion: The questions were answered in favour of the assessee and against the Revenue; no liability arose under section 194H, and the consequential invocation of section 201 could not survive.

Final Conclusion: The appeal failed and stood dismissed, leaving the assessee successful on the substantive tax issues.

Ratio Decidendi: Where the distributor arrangement does not create a legal obligation to deduct tax at source on the relevant discount or margin component, section 194H does not apply and consequential default under section 201 cannot be sustained.

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