TaxTMI 
TaxTMI 
TaxTMI 
2008 (3) TMI 355
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....ections are provided to the subscribers through distributors called Prepaid Market Associates (PMAs) appointed by the assessee. The assessee offers discount for prepaid calling services to its distributors. A survey was conducted under Section 133A of Income-tax Act, 1961 at the premises of Idea Cellular Ltd., New Delhi. The assessing officer noted that as per the agreement the distributors were required to store the SIM Card and Recharge Coupons in such a way as to clearly indicate at all times that prepaid SIM Card/Recharge Coupons were owned by assessee. They were not allowed to remove, obscure or delete in marks placed on prepaid SIM Card/recharge coupons. The terms of agreement further provided that without written consent of ICL the distributors (PMAs) shall not directly or indirectly: (i) market, solicit, sell, offer and accept offers for telephony services that compete with ICL's telephony Services. (ii) induce or refer any actual or prospective subscriber of ICL's telephony services to subscribe to any Competitive Telephony Services, (iii) provide any Company or Customer information/data to any competitive entity, From this clause the Assessing Officer came ....
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....of retailers by distributors. Therefore, it could not be said that there existed principal- agent relationship between the assessee and the distributors. In so far as the maximum price chargeable on SIM Card was concerned, it was nothing but equivalent to the maximum retail price chargeable on goods. This criterion could least be used as a determinant of relationship between the assessee and the distributor. The assessee could not be alienated from the subscriber who was to avail of the services of assessee. The other requirements such as obtaining of all relevant information of subscriber by PMAs and forwarding of the same to the assessee; meeting with sales targets; and the method of invoicing and accounting are procedural requirements. These could not be called as determining factors for principal- agent relationship. 5. It was also argued that assessee had network of distributors who acquired SIM Cards from the assessee at discount meaning thereby that dealers were required to pay a fixed price to the assessee. The assessee had fixed the maximum price that could be charged from subscribers on these SIM cards by the dealers. The dealers had the freedom to sell the SIM Card at a....
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....m to sale the goods at prices lower than that stipulated. Therefore, PMA can sell the goods at his own rates subject to the condition that the value to the end users does not exceeds the price higher than the maximum retail price indicated on the pack. Further as per Clause 18 of the agreement the rates and values of prepaid SIM cards/recharge coupon shall be as per the policy of ICL which shall be subjected to change or modification without any prior notification or intimation at the sole discretion of ICL. It has also been submitted that on termination or expiration of agreement neither PMA nor the authorised retailer appointed by him shall be entitled to claim from the assessee any compensation for cost and expenses incurred by them either in the setting up or promotion of its business or for any other matter relating to its appointment as PMA or the authorised retailer as the case may be. The PMA or the authorised retailer shall not be entitled to claim any compensation for loss of office of business or for loss of opportunity profits or any loss whatsoever suffered by him on account of such termination. On the basis of above it has been submitted that there is no relationship ....
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....shall remain in ICL and shall not pass to PMA. This suggests that prepaid SIM cards/coupons were not sold to PMA. The assessee exercises right for passing over of title to PMAs. Clause 8 of the agreement defines the functions of PMA. It gives details of code of conduct imposed on the agent. Further Clause 11(c) imposes further restrictions on PMA to the effect that PMA shall ensure that the subscribers are not activated from his/their end, until the completed CSA form with accompanied documents, are sent by him/them and are received by ICL. Clause 13 of the agreement provides that PMA will ensure that its appointed authorised retailers shall display prominently at the point of purchase that they are the authorised retailers of the Idea Chitchat prepaid services of ICL. Therefore, the retailers are agent of the assessee. As per Clause 14, the assessee is required to organize training programmes for PMAs to train them on all aspects of the use of Idea Chitchat prepaid services so that they may be able to explain the same fully to their end-users. PMA in turn are to organize training programmes to train their authorised retailers. As per Clause 19, the PMA has to achieve a minimum sal....
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....te. The term "commission or brokerage" has been defined in the explanation and includes any payment received or receivable directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or a thing not being securities. Definition of expression "commission or brokerage" as contained in Clause (i) of Explanation to Section 194H, is not so wide that it would include any payment receivable, directly or indirectly for services in the course of buying or selling of goods. To fall within the said explanation, the payment received or receivable, directly or indirectly, by a person acting on behalf of another person (i) for services rendered (not being professional), or (ii) for any services in the course of buying or selling goods, or (iii) in relation to any transaction relating to any asset, valuable article or thing, the element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to Section 194H. As held in Bhopal Sugar Industries Ltd. v. STO 4....
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....discuss the distinction between the contract of sale or contract of agency. The essence of contract to sale is the transfer of title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of goods as a debtor for the price to be paid and not an agent for the proceeds of the sale. On the other hand, the essence of agency to sell is the delivery of goods to a person, who is to sell them, not as his own property but as the property of the principal who continues to be the owner of goods and who is therefore liable to account for the proceeds. 15. The true legal relationship between the assessee and the PMAs has to be inferred from the nature of contract, its terms and conditions and the nature of respective obligations undertaken by the parties. Clause 3 of the agreement specifically provides that the relationship created by the agreement is that of independent contracting parties and is not, and shall not deem to be any relationship inter-alia employer/employee; principal and agent. Clause 6(b) provides that full legal equitable title and interest in all and any of the prepaid sim card /recharge coupons delivered to PMAs shall remain ....
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....itions stipulated in the agreement including termination clause do not throw any light so as to suggest that the agreement between the assessee and PMA is that of principal and agent. In the case of Gordon Goodroffe & Co. Madras Ltd. v. Shaik MA Mazid and Co. held that even an agent can become a purchaser when agent pays the price to principal on his own responsibility. In the case before the goods are sold to the PMA who in turn transfer goods to retailer to be sold to the end users. The retailers are appointed by the PMA though with the approval of the assessee but they are working under the instructions of PMAs. Termination of the retailers is co-terminus with the termination of the agreement with PMA. In our considered view the legal relationship between the assessee and PMA is that of seller and purchaser. We do not find any condition in the agreement from which it can be inferred that PMA stands in a fiduciary position in relation to the assessee. It is admitted by the revenue that the agreement in substance is the agreements entered into between the assessee and the PMA is in the nature of contract to sale and not contract of the agency. Therefore, the discount allowed by th....
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....the assessee to prove that taxes have been paid by the distributors on the amount of discount paid by the assessee to them. Replying to the query to the argument, Ld. AR of the assessee agreed that issue requires verification; however, it will be gross injustice if taxes are collected twice on the same income. 18. We have heard both the parties. The ld. AR of the assessee has fairly conceded that the fact whether PMAs have paid tax on discount received by them needs verification. The legal issue arising out of additional ground raised relates to the issue whether tax can be collected from the assessee when PMAs have paid tax on their income. It is a settled law as held by several courts that same income cannot be subject tax twice. Therefore, the additional ground of appeal raised by assessee is admitted being a question of law in view of decision of Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT (supra). However since we have held that the discount allowed by the assessee to PMAs is not visited by the provisions of Section 194H the issue becomes of mere academic interest and hence we do not consider it necessary to decide the same. 19. The next common issue for consid....
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....13,890/- and interest under Section 201(1A) was also charged. 23. The matter was carried in appeal before Ld. CIT(A). It was argued that an agreement was entered into by the assessee and MTNL, according to which following was agreed: Each party i.e. DOT as well as the licensee does hereby agree to: (e) interconnect its network, to the network facilities of the other party, and (f) supply the requested telecommunication services to the other party, and (g) make available to the other party the services, facilities and information as specified in this interconnect agreement of License Agreement to which they are subject. (h) provide the other interconnected party with interconnection traffic carriage and fault detection of a technical and operational quality and timeliness that is equivalent to that which the each party provides to itself. According to the assessee what is agreed is to provide the availability of telephone connection network to each other which is the true nature of the interconnectivity. The Assessing Officer failed to appreciate that merely use of sophisticated technology cannot be interpreted as technical services. There should be essentially application of hu....
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....are applicable. On the other hand, ld. AR relied on the order of ITAT Chandigarh Bench in the case of HFCL Motel Ltd. v. Income Tax Officer 99 TTJ 440 and decision of ITAT Delhi Bench 'I' in the case of M/s Escotel Mobile Communications Ltd. in ITA No. 2154, 2155 & 2156/Del/2005. It has been submitted that issue is covered in favour of assessee. Therefore, Ld. CIT(A) was justified in deleting the addition. Ld. DR replying the arguments advanced by Ld. AR of the assessee submitted that in the case of HFCL Infotel Ltd. and M/s Escotel Mobile Communications Ltd. the agreement was with BSNL whereas in the instant case the agreement is not with BSNL but with MTNL. Therefore, the case relied upon by the Ld. AR of the assessee are not applicable. 26. We have heard both the parties and perused the material available on record. We find that issue is covered in favour of assessee by the order of ITAT relied upon by the Ld. AR of the assessee. In the case of HFCL Infotel Ltd. (Supra) payments of interconnect charges to BSNL for providing telephone communicating services to its subscribers were made by the assessee. The ITAT held as under: We have heard both the parties and have gon....