TaxTMI 
TaxTMI 
2010 (8) TMI 691
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....sactions. Under the first category assessee gives connections to the customers and charges them on monthly basis by raising bills for the calls made in a month, in the succeeding month. The connections are given to the customers through distribution of SIM cards which on insertion in the hand set (mobile phone) of the customer and on activation by the assessee only gives connection to the assessee's mobile network through the towers. Under the telecom regulations, connection can be given only on customer producing identity, proof of address etc. Under the distribution agreement, the distributor gets customers for the assessee and all work in relation to the collection of document of identity of the customer, delivery of SIM cards for giving connection to the customer, collection of charges etc., are done by the distributor and the assessee pays certain charges to the distributor for all services rendered in regard to this service called "post paid services". The assessee treats the payment to the distributors for the services rendered under the "post paid scheme" as commission within the meaning of section 194H of the Income-tax Act (hereinafter called "the Act") and tax is deducte....
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....e affirmative, i.e., if this court holds that the discount given for the so-called sale of service products effected by the assessee is "commission" paid for services rendered by the distributor in the course of mobile operations by the assessee-company, then certainly there is violation of section 194H and so much so, the impugned orders issued under sections 201(1) and 201(1A) are unimpeachable as they are only consequential orders for default. We have heard senior counsel Sri S.E. Dastur appearing for the assessee and the standing counsel appearing for the respondent-Department. 2. Before proceeding to consider the various arguments raised by the appellant-assessee, we are constrained to refer to the Division Bench judgment of this court rendered in a sales tax case filed by BPL Mobile Cellular Ltd., whose business in Kerala is ultimately taken over by the assessee-company. In the judgment in the said case, i.e., W. P. (C) No. 29202 of 2005, this court noticed that for the same transaction i.e., sale of SIM cards and recharge coupons through distributors under the "prepaid scheme", the assessee's predecessor namely, BPL Cellular Ltd. along with public sector company BSNL contes....
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....lhi Bench of the Tribunal in the case of Idea Cellular Ltd. [2009] 313 ITR (AT) 55 was later reversed by the Delhi High Court and the said decision in CIT v. Idea Cellular Ltd. reported in [2010] 325 ITR 148 (Delhi) ; 230 CTR 43. On going through the said judgment of the Delhi High Court, we find that the issue raised in that case is exactly the same raised by the assessee before us which is the claim that the benefit given to the distributor is only discount and not commission. However, we find that the Delhi High Court has accepted our finding in the abovereferred decision that supply and delivery of SIM cards and recharge coupons do not amount to sale or purchase of goods, but are only for rendering services and consequently the court upheld the Department's claim of applicability of section 194H of the Act. It is not known whether the order of the Kolkata Bench of the Income-tax Appellate Tribunal in favour of the Department in Asst. CIT v. Bharti Cellular Ltd. reported in [2007] 294 ITR (AT) 283 ; [2007] 105 ITD 129 is confirmed by the High Court or not. Therefore, the position as of now is that the findings of this court in the sales tax case in the case of BPL Ce....
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....st instance sale is accounted for Rs. 100 the second cash is accounted for Rs. 80 and the third commission is accounted for Rs. 20. It shows that as far as the sale is concerned, it is Rs. 100 and the assessee has given a commission of Rs. 20 to the distributor and the net cash proceeds is Rs. 80. Instead of treating the sale at the net value of Rs. 80, the assessee is accounting the sales at the gross value of Rs. 100 and thereafter debiting an expenses account for commission paid of Rs. 20. Therefore, in the facts and circumstances of the case and in the light of the finding of the hon'ble jurisdictional High Court in the case of BPL Mobile Cellular Ltd. (Writ Petition No. 29202 of 2005) that the essence of the contract between the assessee and the distributor is that of service, we find that the distributors are acting as agents of the assessee-company and the margin enjoyed by the distributors are the commission/brokerage allowed by the asses-see-company." 4. The counsel for the assessee sought to substantiate the position contrary to the above finding of the Tribunal by reference to the distribution agreement which the assessee has with the distributors. It is stated in the a....
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....ndu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. . . . Explanation.-For the purposes of this section,- (i) `commission or brokerage' 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 thing, not being securities." 6. What is clear from Explanation (i) of the definition clause above is that commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for the services rendered. We have already taken note of our finding in BPL Cellular....
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.... is that of a middleman between the service provider namely, the assessee, and the consumers. The essence of a contract of agency is the agent's authority to commit the principal. In this case the distributors actually canvass business for the assessee and only through distributors and retailers appointed by them the assessee gets subscribers for the mobile service. The assessee renders services to the subscribers based on contracts entered into between distributors and subscribers. We have already noticed that the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom the assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. The terminology used by the assessee for the payment to the distributors, in our view, is immaterial and in substance the discount given at the time of sale of SIM cards or recharge coupons by the assessee to the distributors is a payment received or receivable by the distributor for the services to be rendered to the assessee and so much so, it falls within the definition of commission or brokerage under Explanation....
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....ted in [2010] 325 ITR 205 (Ker) ; [2010] 189 Taxman 315 wherein this court held that Prasar Bharti/Doordarshan Kendra was liable to deduct tax on the commission retained by advertising agencies, no matter, the commission was not paid by the Doordarshan but was allowed to be retained by the advertising agencies who recovered total advertising cost and remitted only net amount to the Prasar Bharti. We, therefore, do not find any merit in the contention of the assessee that recovery of tax is not permissible at the time of giving discount on the delivery of products to the distributors. 7. In view of our finding in the BPL Cellular's case in the context of demand arising under the Sales Tax Act, the mobile service providers are exonerated from sales tax liability and are liable to pay service tax to the Central Government under the Finance Act, 1994. In view of the finality attained to the sales tax case through the above judgment, it would be futile for the assessee or for that matter any mobile service provider, to contend that the charges received for supply of SIM cards and recharge coupons are not for services rendered but amounts to sale of goods on which admittedly the assesse....
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....n because consideration received by the stamp vendors for the stamp paper does not really represent its value but is nothing but stamp duty. Value of each stamp paper may be fifty paise or even a rupee, whatever be its quality, but what is collected depends on the amount stamped thereon which is nothing but stamp duty recovered by the State from the ultimate user in terms of the Stamp Act. Rightly or wrongly this court held that the transaction is sale because loss of stamp paper is to the account of the stamp vendors, if it is lost in their custody. The Government also treats the transaction as sale of goods and specific exemption is granted from payment of sales tax in terms of the provisions of the Sales Tax Act. Therefore, the finding that section 194H is not applicable is on the specific finding in that case that the transaction is sale of goods, whereas in this case following the Division Bench judgment of this court we have found that the distributor is paid commission in the form of discount for services rendered to the assessee. Therefore, none of these decisions relied on by the assessee applies to the facts of this case which is payment of commission by way of discount f....