TaxTMI 
TaxTMI 
2012 (5) TMI 280
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....ther the Ld CIT(A) is justified in holding that the provisions of sec. 194H are applicable for the amounts paid to the distributors on sale of "Prepaid cards". (b) Whether the Ld CIT(A) is justified in holding that the provisions of sec. 194J is applicable on the amounts paid to other telephony operators towards roaming charges. (c) Whether the Ld CIT(A) is justified in confirming the alternative contention raised in the remand proceeding that the provisions of sec. 194I shall apply alternatively to the payment of roaming charges. At the time of hearing, the Ld A.R raised an alternative plea that the assessee shall not be required to deduct tax at source once again, once the tax on the said income has been paid by the deductees. For this proposition, the assessee has placed reliance on the decision of Hon'ble Supreme Court in the case of "Hindustan Coco-cola Beverages Pvt Ltd (293 ITR 226, Page 268-270). He submitted that the said alternative plea was also raised before Ld CIT(A), but the first appellate authority did not offer any comments thereon. 3. The facts relating to the first issue, i.e. regarding the applicability of sec. 194H on the amounts paid to the dist....
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.... income by way of commission or brokerage shall at the time of credit of such income to the account of payee in cash or by the issue of cheque or draft or by any other mode whichever is earlier deduct income tax there on at the rate of 10 percent. Explanation (1) of this clause defines commission or brokerage as under: 'Commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered.... This makes it clear that even if the amount is not paid in cash or cheque but if it credited to other persons account the tax is required to be deducted. The definition of commission also states that even if the amount is received indirectly by a person acting on behalf of another person for services rendered it amounts to commission/brokerage which attracts TDS u/s 194H of the Act. All the three conditions laid down in Sec. 194H as discussed above are applicable to the payment made by the assessee. 1. The amount is indirectly received by the distributor. 2. The amount is received by the distributor for services rendered. 3. The assessee has debited the expenses by crediting distribut....
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....under the sale of goods act." The AO also held that the other two decisions relied upon by the assessee are also not applicable to the facts of instant case. Instead, the AO, at page 11 of the order relating to the F.Y 2007-08 (A.Y 2008-09), has observed as under:- "Further in assessees own case reported in 294 ITR 283 (Kolkatta) it has been decided that the relation between assessee and distributor are that of Principal and Agent and not Principal to Principal. The price difference carries nomenclature of the Commission and not as discount claimed by the assessee. Apart from the ownership of such prepaid cards, the assessee company is strictly regulating as to the manner of business operations by the franchisees while selling such cards from time to time vide investigation (sic. Inventory) checking by the auditors appointed by the company and inspection of records. The assessee only pays commission to the franchisee for the services rendered by them. The price difference is nothing but a payment of commission by the assessee to its franchiesees." Accordingly, the AO held that the assessee is liable to deduct tax at source on the amounts paid to the distributors of Prepaid....
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....2 (Guj)], there also there is a right to utilize the value captured in the stamp for entering into and establishing a transaction/agreement. Such goods cannot be sold further. IMPORTANT 3.3.2 That the concept of merchandise has changed because of technological advancement has been recognized by the Hon'ble Supreme Court (PB 349-352). 3.2.3 The assessee, who had bought rights of various decoders, recorded movies on beta-cam tapes and transferred them as telecasting rights to Star TV for five years and claimed the benefit of the deduction under section 80HHC of the Income-tax Act, 1961, in relation to the profit therefrom. 3.2.4 The Assessing Officer (AO) held that the assessee was not entitled to deduction u/s.80HHC, inter alia, on the ground that the export was not of merchandise or goods as contemplated under section 80HC, but was merely an export of "rights" in the film. 3.2.5 Before the Hon'ble Supreme Court, Revenue, submitted that the assessee in this case was not engaged in the export of goods and merchandise; that the film recorded on beta-cam tapes did not qualify either as "goods" or "merchandise". In this connection, it was urged that the beta-cam tape (cas....
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....duct": there can be a trade similar in nature to a trade of goods? 3.4 In this context the decision of the Hon'ble Supreme Court which was not noted by any of the High Courts needs to be explained. 3.5 The decision of the jurisdictional High Court in Ahmedabad Stamp Vendors - 257 ITR 202 (Guj) has to be analysed as to whether it applies to the proposition which is being made out. PB page 139. 4. Prepaid product The prepaid product is captured in the prepaid start up pack. It captures therein the "Right to use Airtime" to the extent of specified minutes or a "promise to provide specified minutes of Airtime" to the owner of the start up pack It is not any provision of electro magnetic waves, but t is a Right to enable the prepaid customer to expend the minutes paid for. The start up pack comprises of SIM card and in this SIM is captured the right to use airtime for specified minutes. The property in the SIM card remains that of the company and it is similar to a bottle of soft drink The SIM card can be recharged with additional airtime as in the case of soft drink bottle. This "Right to use Airtime" for a specified minute or the "promise to deliver such ....
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....iler and finally to the customer. 4) The imposition of conditions by the company have no relevance and the direct decision has been discussed in para 7.16 and 7.17 of CIT(A) order. Bhopal Sugar Industries vs STO 40 STC 42 (copy at PB page 187-200) Discussed in the Gujarat High Court decision - PB 133. 5) The owner of the SIM card is the company. This is not in doubt and as explained this is similar to a Coco-cola bottle. In the SIM card right to use airtime is captured and it is the right to use airtime which is transferred. 6) As explained the "Right to use services" for a specified time can be sold, and the promise to provide such service will be that of the company. 7) For the reasons explained above, distributor of prepaid product is not an agent but is an independent Principal. 6. High Court decisions distinguished 6.1 Decision of the Delhi High Court in Idea Cellular Ltd 325 ITR 148 (Del) The basic proposition in the Delhi High Court was: - that in the case of supply and delivery of SIM cards and other recharge coupons, there is no sale and purchase of goods but only services, - that decision of the Ahmedabad High Court was no applicable as it cover....
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....ct which has been sold is the right to use airtime for a specified amount and consequent promise to render airtime for the use by the ultimate customer. 6.2.5 Basically "promise to deliver is a product" and this principal has been followed in the decision of the Ahmedabad High Court 257 ITR 202. Kerala High Court in the case of Vodafone has disagreed that the decision of the AHMEDABAD High Court in Stamp Vendors Association and also of the Kerala High Court in the case of Kerala Stamp Vendors Association 282 ITR 7 addition the case of MS Hameed vs. Director of State Lotteries in 249 ITR 186. 6.3 Bharti Cellular Limited (PB page 386-393) The decision of Calcutta High Court in the case of Bharti Cellular Ltd High Court cannot be relied upon - 6.3.1 The decision is based upon the understanding "property in the Start up pack, prepaid coupons after even the transfer of delivery of franchise remains with the appellant assessee.(PB page 391) 6.3.1.1 This is incorrect because the property in the sim card remains with the company but nothing else and start up pack and coupons has the merchandise "Right to use airtime". 6.3.2 The Hon'ble High Court has also noted incorrectl....
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....t it may, at best, have only a persuasive effect. By no amount of stretching of the doctrine of stare decisis can judgments of one High Court be given the statu9s of a binding precedent so far as other High Courts or courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Sc which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different. High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution." Similar position has been reiterated again by the hon'ble jurisdictional High Court in the case of Consolidated Pneumatic Tool Co. (India) Limited v. CIT [1994] 209 ITR 277 (Bom) by holding t....
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....inted distributors in regard to its prepaid product which is "Right to use specified Airtime" whish is captured in the SIM card which is included in the start up pack. The prepaid product is a merchandise which is not subject to sales tax. That because it is not subject to sales tax cannot prove fatal to character of merchandise, capable of being transferred to the relationship of Principal to Principal The jurisdictional High Court in Ahmedabad Stamp Vendors applies squarely to the facts and fundamentals in this appeal the provisions of Section 194H do not apply. Without prejudice the tax cannot be recovered from the assessee in view of the decision of the Hon'ble Supreme Court in Hindustan Coco-cola Beverages 293 ITR 226. 10. On the other hand, the Ld D.R invited our attention to all the relevant observations made by the AO and Ld CIT(A) and contended that the payment made to the distributors of Prepaid cards falls in the category of commission liable for deduction of tax at source u/s 194H of the Act. He also submitted that the AO has rightly distinguished the case law relied upon by the assessee. 11. We have heard the rival contentions and carefully perused the r....
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.... here. "The expression "goods" is not a term of art. Its meaning varies from statute to statute. The term "goods" had been defined in the Act as also in Article 366(12) of the Constitution to include all materials, commodities and articles. Commodity is an expression of wide connotation and includes everything of use or value which can be an object of trade and commerce. .... Indian law does not make any distinction between tangible property and intangible property. "Goods" may be tangible or intangible property. A program would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customised satisfies these attributes, the same would be goods. Unlike the American courts, the Supreme Court of India has also not gone into the question of severability. What is essential for an article to become goods is its marketability." Thus, it is very much clear that the meaning of "Goods" varies from statute to statute. 13. Thus, we notice that the decisions relied upon by the assessee are no....
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....and it is subject to TDS u/s 194H. By respectfully following this decision, we uphold the order of Ld CIT(A) on this issue. 15. The next issue pertains to the applicability of provisions of sec. 194J on roaming charges paid by the assessee to other operators. Before addressing this issue, it is pertinent to understand the purpose and back ground of making payment of "Roaming charges". The Government of India has created various Circles for the purpose of issuing license to the cellular operators. Accordingly the subscribers can use the services provided by the cellular operators within that circle (Let us call it as "Home Circle"). When a subscriber moves to some other circle (Let us call it as "Outside circle"), the concerned cellular operator cannot provide services to that subscriber in that circle and hence the subscriber cannot use their cell phones in the outside circle. In order to tide over this problem, all the cellular operators operating in different circles normally enters into agreements in order to see that the subscriber continues to receive the services. Such kind of arrangement was made possible due to technical advancement. In view of the said agreements and ar....
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....ter reaching Mumbai (in case of air travel). Where the subscriber travels by land he automatically receives a message transferring to the roaming network on visiting another telecom, circle. - The subscriber has a choice of manual network selection or automatic network selection - Under automatic network selection, the services of the most preferred roaming partner of the subscriber's home network will be selected. - Under, the manual selection, the subscriber can choose the roaming partner whose services he would like to use out of the ones which are available in that area (subscriber can only choose the roaming partner with whom, Airtel has tie-up) - Visiting network (e.g. Vodafone) locates mobile device and identifies that it is not registered with its system, i.e. VLR - Visiting network automatically contacts home network of Airtel subscriber, i.e. HLR and requests service information about roaming device using MSI number - MSI number is a unique subscriber identity number granted to the customer at the time of subscription. - Visiting network maintains temporary subscriber record for the said mobile device and provides an internal temporary phone number to th....
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....nds son IMSI which is based on the SIM card issued by home service providers therefore the roaming service is a technical service. - Service tax is charged on roaming. 3. Section 194J states: Quote "Fees for professional or technical services. 194J (1) Any person, not being an individual or a Hindu undivided family who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein: Provide......... ..... .......... (A) ... .... ........ ....... (B) .... ..... ...... ..... .... (i) ... ... .... .... .... .... (ii) ... ... ... ... ... ... ... (iii) ... .... .... .... .... ... (iv) ... ... ... ... ... Provided further ... ... ... ... ... ... ... Provided also ... ... ... ... ... ... ... ... (2) (3) Explanation....
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....l raised by the visiting service provider which is again based upon by the time used by the roaming subscriber in the visiting network. 3.5 The charges paid by the home network to the visiting network is based purely on airtime usage and there is no difference from the airtime usage by the subscriber in his home network 3.6 Reliance is placed on the decision of the madras High Court in the case of Skycell Communication Limited (which is now merged with Bharti Airtel Limited) 251 ITR 53. (PB 290-294) Sky Cell Communications Limited 251 ITR 53 (Madras): This case law has been distinguished by Revenue on the ground that in the case of roaming the payment is made by one operator to the other while in the matter of Sky Cell the payment was made by the subscribers to the company i.e. Sky Cell Communications Limited. In our view the above understanding of Revenue is not correct as; a) The service in both the cases remains same i.e. telecom service; b) In the case of Sky Cell, the payment was made by the subscriber to the company for telecom service and in the present case also the payment is made by the assessee company to the other operator on behalf of the subscribers ....
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....the A.O raised an alternative plea in regard to applicability of Section194-I to the Roaming charges paid by the assessee-company. 3.9.2 The CIT(Appeals) confirmed the applicability of Section 194-J and in another para confirmed the applicability of Section 194-I also. 3.9.3 In regard to applicability of Section 194-I, reference is invited to the decision of Mumbai Tribunal in the matter of Vodafone Essar Limited - 9 ITR (Trib) 182 (Mum) (PB page 324-358) The main issue in above referred case was in regard to applicability of Section 194-I to the Roaming charges. At page 208 para 29, it was held - "Our conclusion in regard to Section 194-I is that the payment of Roaming charges by the assessee to the other service provides cannot be considered as rent within the meaning of the explanation below Section 194-I. Therefore, there was no liability on the part of the assessee to deduct tax from the same under that Section" 3.9.4 In this decision the issue of Section 194-J was also raised however since the CIT(Appeals) had confirmed the applicability of Section 194-J the Hon'ble ITAT restored the matter for a fresh decision. Double collection of tax 4. Without prejudice ....
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.... Circle cellular Operators continue to provide services to the subscribers by utilizing all the technical facilities that were available with the outside circle cellular Operators. The assessee in the written submissions has filed the nature of functioning of the cellular operator when a subscriber moves out of home town. As stated earlier, this issue can be settled, if the modalities of the operations of the cellular operators are well appreciated and understood. Since neither the AO nor the Bench is not technical expert in this regard, in our view, the right course of action would be to seek opinion of a technical expert on the modalities of operations of roaming facility. 21. Accordingly, we are of the view that this issue needs to be examined afresh by obtaining proper technical assistance. Accordingly, we set aside the orders of the learned CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the issue afresh after obtaining opinion of the technical experts in this regard. 22. The next issue pertains to the applicability of provisions of Section 194I to roaming charges. It is pertinent to note that the AO has raised an alternative....