TaxTMI 
TaxTMI 
2011 (5) TMI 590
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....s a commission and section 194H of Income-tax Act, 1961 is attracted to such payment?" 2. The facts of this case leading to preferring the present appeal is summarized as follows: The appellant-assessee is engaged in the business of providing cellular mobile telephone services in Kolkata under the brand name "Airtel". The assessee provides such services through its distributors by selling to them Starter Pack and Rechargeable Coupons which is commonly known as Subscriber Identification Mobile Card (hereinafter in short 'SIM Card' and pre-paid card). These Sim cards and rechargeable coupons were purchased by the distributors/franchisees engaged by the assessee at a rate below the market price on such Sim card and the same are sold to the retailers by whom the same are ultimately sold to the customers. The Assessing Officer while going through the records namely the TDS return filed by the assessee-appellant found that assessee had paid commission on starter pack and rechargeable coupons to 16 parties herein called "Franchisees" and though the assessee had deducted TDS on commission and deposited the same during the period from April 2002 to July 2002, such deduction of tax at sour....
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....between the assessee-appellant and franchisees, contends that the relationship between the appellant and its franchisees are not of principal and agent and it is in substance that of principal to principal in connection with the services rendered to the ultimate customers through scheme of the pre-paid Sim card and recharge coupons. He has drawn our attention to various sub-clauses under clause (16) of the model agreement particularly clause (16.2) submits that the nature of the relationship is clearly that of a principal to principal. He relying on judgment of the Supreme Court in case of Bhopal Sugar Industry Ltd. v. STO 40 STC 42 and also Division Bench judgment of the Gujarat High Court in case of Ahmedabad Stamp Vendor Association v. Union of India [2000] 257 ITR 202 contends that when it is established the relationship is between principal to principal the question of payment of commission in any form by the assessee does not and cannot arise so as to invoke the provisions of section 194H of the Income-tax Act, 1961. 7. He further contends that it is settled principle of law that merely because some terms and conditions and restrictions having been imposed in the agreement, ....
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....ng through the materials placed before us the precise point is in order to hold the assessee is liable for deducting tax at source under section 194H, whether the relationship between the appellants and their franchisees created by the agreement is of a principal and agent or not, in other words whether the basic and cardinal character of the agreement intend to create the relationship of the principal to principal. 14. The test has been well explained by the Supreme Court when the relationship of principal to principal can be found, in the judgment of the Bhopal Sugar Industry Ltd.'s case (supra). It is held in that case at page 49 of the report that true relationship of the parties has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship. 15. The Supreme Court in the said judgment observed at page 47 of the report as follows :- "Thus the essence of the matter is that in a contract of sale, title to the property passes on to the buyer on delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no vestig....
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.... to actively provide effective ways to market and promote the Pre Paid Services and shall always act in the interest of both BML and the subscribers to the Services of BML. 4.3 The franchisee shall treat as confidential and secret all verbal and written communications, lists and circulars of BML in respect of operational and marketing policies and strategies of BML that are communicated by BML to the franchisee. The franchisee shall adopt and implement security procedures acceptable to BML for determining the persons to whom such information is authorized to be disclosed based upon such person's need to know the same for the purpose of fulfilling the franchisee's obligations and responsibilities under this Agreement. Confidential and trade secret information of BML shall remain the property of BML and shall be returned to BML upon termination of this Agreement in the manner prescribed by BML. The franchisee hereby undertakes and agrees not to retain and make any copies of the entrusted confidential information. 4.4 The franchisee shall, in the conduct of its business and performing its obligations under this Agreement conform and adhere to the policies of BML communicated to the ....
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....1, 4.3, 4.4 of the agreement. 23. Section 194H of the Income-tax Act, 1961 provides as follows :- "194H. Commission or brokerage.-Any person, not being an individual or a Hindu 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 **[five] per cent: **At relevant period rate was 5 per cent Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed two thousand five hundred rupees; Explanation.-For the purposes of this section.- (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person....