TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 263
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....r operator. A survey u/s 133A had been conducted in case of the assessee on 14.1.2010 and 15.1.2010 during the course of which it was noticed that the assessee was not deducting tax at source in relation to the margin money given to the distributors. In transactions relating to prepaid Sim cards and erecharge vouchers, which was of the nature of commission. The assessee explained that the margin allowed was only discount and not of the nature of commission and, therefore, no tax was being deducted. It was also submitted that commission was being paid only in relation to post paid connections on which tax was being deducted. The AO, however, did not accept the explanation given by the assessee. It was observed by him that whether it was prepaid Sim Cards or E-recharge vouchers relating to pre paid connections there was a contract between the mobile company and the consumers for providing services and in case of any defect in the service, the consumer could claim directly from the mobile company. The Sim card was the property of the mobile company and the role of distributors/retailer was to supply Sim cards or E-recharge vouchers on behalf of the mobile company. The distributor only....
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....e total tax which was required to be deducted was Rs. 171025401 in assessment year 2009-10 and Rs. 102029884 in assessment year 2010-11 which the assessee had failed to deduct. The AO, therefore, treated the assessee as "assessee in default" in respect of the above amounts u/s 201 (1) of the IT Act, which the assessee was made liable to pay. 2.2 The assessee disputed the decision of the AO and submitted before CIT (A) that the provisions of section 194H could be applied only if the assessee had paid any amount by way of commission and only in such cases, tax was required to be deducted at the time of credit of such income to the account of the payee or at the time of payment whichever was earlier. Such payment is required to be made for some services rendered. In the present case it was submitted that the distributor had not rendered any service in the course of buying or selling of cards on behalf of the assessee. The distributor had purchased the prepaid cards from the assessee on payment and sold the same to the retailer. It was also submitted that the distributor was not acting on behalf of the assessee and that no payment had been made to the distributor or credited to his ac....
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....sessee in default" u/s 201 (1) of the IT Act. The assessee had also raised an alternate argument that in view of the judgment of Hon'ble Supreme Court in case of Hindustan Cocacola Beverages Pvt. Ltd. (293 ITR 226), in which it was held that in case it was established that the tax had been paid by the deductee, the same could not be collected once again from the deductor, no tax should be collected from the assessee as the deductee had paid tax. CIT (A) considered the plea and held that wherever the assessee proved that tax had been paid by the deductee, recovery of tax could not be enforced against the assessee. CIT (A) further, held that in case the assessee company failed to prduce certificate from the auditors of the deductee company certifying that the tax and interest due from the deductee had been paid, the AO will be entitled to recover tax u/s 201 from the assessee. Aggrieved by the decision of CIT (A), the assessee is in appeal before tribunal in both the years. 3. Before us, the learned AR for the assessee argued that case of the assessee was Similar to the case of Ahmedabad Stamp Vendors Association (Supra) in which the Hon'ble High Court of Gujarat had held that margi....
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....difference had been treated by the revenue authorities as commission. However, the High court held that it was neither commission nor brokerage and therefore no tax was required to be deducted. Therefore it was argued that case of the assessee was also covered by the above judgment of Hon'ble High Court of Bombay in case of Qatar (Airways Supra). The learned AR further argued that in the present day of globalization the distinction between goods and services was getting blurred as held by the Hon'ble Supreme Court in case of B. Suresh (313 ITR 149). In that case the movies recorded on cassettes had been transferred to the foreign concerns as telecasting rights and the issue was whether this amounted to sale of goods or mercandise. The Hon'ble High Court held that transfer of telecasting rights would fall in the category of articles of trade and commerce, and hence, it was mercandise, eligible for deduction u/s 80 HHC. In the present case, it was pointed out that there was transfer of right to use Air Time from the service provider to the distributor and from distributor to the retailer from whom the right was ultimately transferred to the customers. This amounted to sale of article....
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....r this service other than the discount given at the time of supply, it was therefore clear that the role of the distributor was that of a middleman between the assessee and the consumers and the discount allowed was for rendering various services mentioned above. It was also pointed out that the unsold Sim cards were required to be returned to the assessee which could not happen in case the Sim cards had been sold to the distributors. In case of termination of the agreement, the distributor or the retailer was not entitled to any compensation for cost or expense incurred by it either for setting up or for promotion of business. It was pointed out that no such clause was necessary in case the assessee had sold the Sim cards to distributors. 4.1 The learned DR pointed out that all these factors had been duly noted by Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (Supra) and Hon'ble High Court of Delhi in case of IDEA Cellular Ltd. (Supra) and considering all these factors the High Courts had held that margin allowed was only commission and not discount. The same view had been taken by the Hon'ble High Court of calcutta in case of Bharati Cellular Ltd. (Supra) ....
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..... In both the categories, however, the ultimate users of the Sim cards are the customers whose handsets are activated through the Sim cards only by the assessee who gives connection to the customers through the distributors. In both the cases, the assessee had distribution agreement with the distributors as per which the distributor gets the customers for the assessee. As per the telecom regulation, connection could be given to customer only after production of identity, proof of address etc. and this job has been entrusted by the assessee to the distributors. In the post paid scheme, the assessee pays certain charges to the distributors for all these services such as enrollment of subscribers with proper verification and documentation on behalf of the assessee. The assessee treats such payment made to the distributors in post paid scheme as commission for services rendered on which tax has been deducted at source. However, in case of pre paid scheme, the assessee allows certain margin to the distributors while supplying the Sim cards and recharge coupons and this margin is treated by assessee as discount on which no tax has been deducted at source. The assessee's claim is that it ....
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....y part of which may not be recovered by the distributor. Therefore, the deduction of tax was not justified. The High Court however, did not accept the argument advanced and observed that there was specific provision u/s 197 of IT Act as per which the assessee could apply to the department for getting certificate to receive discount or commission without deduction of tax at source or with deduction at lower rate of tax. The High court also observed that there was no difference in the service rendered by the distributor under the post paid scheme and the pre paid scheme and therefore there was no justification for non deduction of tax in case of pre paid scheme when the tax was being deducted in case of post paid scheme. The High Court accordingly upheld the decision of Cochin Bench of Tribunal holding that margin money was nothing but commission for services rendered which was liable for deduction of tax at source u/s 194 H of the IT Act. 5.3 The same view has been taken by the Hon'ble High Court of Delhi in case of IDEA Cellular Ltd.(Supra), who also uphold the view taken by the Cochin bench of tribunal. The High Court also dealt with the argument raised that distributors were pay....
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....Court accordingly, held that margin money was commission on which tax was required to be deducted. 5.4 The Hon'ble High Court of Kolkata in case of Bharti Cellular Ltd. Vs. ACIT (Supra) have also taken the same view in the matter. The Hon'ble High Court while examining the issue observed that true nature of relationship between assessee and the distributor i.e. principal to principal or principal to agent has to be gathered from the nature of contract and the terminology used by the parties was not conclusive of the said relationship as held by Hon'ble Supreme Court in case of Bhopal Suger Industry Ltd. (40 STC 42). The High Court further observed that it was a settled legal position that in case of sale of goods it is to be established that property in the goods passes on to the vendor buyer without having any control or title of the seller and only then the transaction could be considered as "principal to principal". The high Court observed that in the present case though nomenclature used in the agreement was franchisee, the agreement was essentially between principal and agent. The franchisee was acting on behalf of the assessee for selling the pre paid cards and recharge coup....
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....uishable. In that case the movies had been recorded on cassettes and their telecasting rights had been sold by the assessee to the foreign concerns for a certain period and the issue was whether this amounted to sale of goods or mercandise and whether the provisions of section 80HHC were applicable. The Supreme Court held that transfer of telecast rights would fall in the category of articles of trade and commerce and hence mercandise. But in that case, the foreign concerns had right to telecast the films which could be used for a certain period. It is not so in the present case as the right to use the air time could not be exercised by the distributor. Such right to use airtime vested only with the ultimate customers. Such right could be transferred to the customer only with the permission of the assessee i.e. cellular operator. Therefore the present situation cannot be considered as covered by the judgment of Hon'ble Supreme Court in case of B. Suresh. (Supra). 5.6 The learned AR has also placed reliance on the judgment of Hon'ble High court of Bombay in case of Qatar Airway (Supra) but the said case is also distinguishable. The case related to sale of air tickets by the agents ....
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....or assessment year 2009-10 and assessment year 2010-11 in relation to inter-connected usages charges on which no tax had been deducted by the assessee which as per the AO was covered under the provisions of section 194 J. The assessee disputed the decision of AO and submitted before CIT (A) that provisions of section 194 J could be applied only when there was human intervention. It was argued that there was no human intervention in the roaming services and inter-connect services and therefore, the payment could not be covered towards professional ant technical services for which section 194 J was applicable. Accordingly, it was urged that the order of AO treating the assessee in default should be set aside. 6.1 CIT (A) after considering the submissions of the assessee, observed that the same issue had been considered by the Hon'ble Supreme Court in case of Bharti Cellular Ltd. (319 ITR 139). The issue which arose for determination by the Hon'ble Supreme Court was whether human intervention was involved in the technical operations by which the cellular service providers were providing the facility of roaming services and inter-connect services. The Hon'ble Supreme Court held that i....
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....n the ground that CIT (A) has no power to set aside the issues to the file of the AO. 6.3 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding applicability of provision of section 194J regarding deduction of tax at source in relation to roaming charges and inter-connect usage charges paid by the assessee to other cellular operators. The AO held that these payments were for technical services rendered and therefore provisions of section 194 J were attracted as per which tax was required to be deducted, which had not been done by the assessee and, accordingly the AO treated the assessee in default u/s 201(1) of the IT Act. We find, that the same issue has already been considered by the Hon'ble Supreme Court in case of Bharti Cellular Ltd. (Supra), in which it was opined that for applicability of section 194 J, it was necessary to find out if human intervention was involved at any stage including the stage where the existing capacity was exhausted and additional capacity was required. The Hon'ble Supreme Court directed the CBDT to issue directions to all its officers that in such cases the department need not proceed only ....
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.... been made in connection with deployments of educated/skilled manpower to execute certain specific jobs and, therefore, these payments were nothing but fees for technical services, which had been defined in the Explanation to section 194 J as any contract for rendering any managerial, technical or consultancy services but does not include consideration for any construction, assembly, mining or like project under taken by the recipient or consideration which would be income of recipient chargeable under the head salaries. The AO therefore, held that the provisions of section 194 J were applicable as per which tax was required to be deducted at the rate of 11.33%. He therefore, held that the assessee had deducted tax short by a sum of Rs. 10599109 i.e. 9.07% of 116857985. The AO therefore, treated the assessee in default in the respect of the above amount u/s 201(1) of the IT Act. 7.2 The assessee disputed the decision of AO and submitted before CIT (A) that the manpower outsourced was at the level of clerical staff. It was submitted that the assessee did not want to take on its roll the employees to render clerical support services required in the back office of the assessee compan....