https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=254299 https://www.taxtmi.com/caselaws?id=254299 Liability to deduct TDS on discount/commission made u/s 194H - sale of SIM Cards - Trade discount for bulk sales within the scope or not – assessee M/s Bharti Airtel Limited is a Public Limited Company engaged in the business of telecom operations – Relationship of assessee or distributor or not – Scope of term ‘income’ u/s 2(24) –Survey conducted for verification of compliance of TDS provisions – Held that:- On delivery of the prepaid card, the assessee raises invoices and updates the accounts - In the first instance, sale is accounted for Rs. 100/-, which is the first account and Rs. 80/- is the second account and the third account is Rs. 20/- the sales is for Rs. 100/-, commission is given at Rs. 20/- to the distributors and net value is Rs. 80/- The assessee s sale is accounted at the gross value of Rs. 100/- and thereafter, the commission paid at Rs. 20/- is accounted - the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted - however, in the first instance, if the assessee accounted for only Rs. 80/- and on payment of Rs. 80/-, he hands over the prepaid card prescribing the MRP as Rs. 100/-, then at the time of sale, the assessee is not making any payment - the distributor is not earning any income - this discount of Rs. 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted The assessees sell prepaid cards/vouchers to the distributors - at the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income - In fact, rather than earning income, distributors incur expenditure for the purchase of prepaid cards - Only after the resale of those prepaid cards, distributors would derive income - at the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor - Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor – the income accrued or belonging to the distributor should be in the hands of the assessees - the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer - The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor - There is no relationship between the assessee and the sub-distributor as well as the retailer. Thus, it is a sale of right to service - The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands - The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS - the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent – thus, the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. The matter is remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books - If the accounts are not reflected Section 194H of the Act is not attracted. - Decided in favour of assessee. Case-Laws Income Tax Thu, 14 Aug 2014 00:00:00 +0530