TaxTMI 
TaxTMI 
2014 (6) TMI 38
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....assessee was a trader and transactions were on principal to principal basis and no commission was paid and therefore provisions of TDS were not applicable. 3. That the Ld. CIT(A) has failed to appreciate that the computation made by the AO was not correct and revised computation by the assessee has not been considered by the ld. CIT(A). 4. That the Ld. CIT(A) has failed to appreciate where tax has been paid by the payee then there is no liability for the payer for the same. Benefit for amounts paid by the payee has not been allowed in all the cases. 5. Except for rejecting the explanation of the assessee, the orders are of non-speaking. It is, therefore, prayed that it be held that both the initiation of proceedings and the levy of tax and interest u/s 201(1) and 201(1A) of the Act, deserves to be vacated. 6. The assessee craves leave to add or amend the grounds of appeal." 2. In ITA No.609(Asr)/2013 for the A.Y. 2009-10, the assessee has raised following grounds of appeal: "1. That the Ld. CIT(A), Jammu has grossly erred both on fact and in law in confirming the orders of assessing officer in treating the assessee in default under section 201(1) and 201(1A) of the Income Tax....
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.... Profit & Loss Account. In order to give clear picture of the Trading Account results on the basis of figures of Direct Income and Expenses a Trading account of the PR is prepared as under: Opening stock 2858460.00 Sales 505574301.21 Purchases 523561906.00 Closing stock 2186851.90 Gross Loss 18659214.11 526420366.00 526420366.00 The PR has credited commission received at Rs.28629350/- in the Profit & Loss account. Thus, by reducing the above trading loss of Rs.18659214/-, net margin has been shows at Rs.9970137/-. In order to find out the reason for showing loss in trading, the PR vide order sheet entry dated 5.12.2011 was asked to file copies of purchase and sale bills for Rs.1.00 lakh and above. On going through the copies of bills furnished by the PR for amounts ranging from 1000 to 20000 it was observed that the PR has credited the sales net of Discount allowed to the Sub Franchises. 5. The AO issued show cause notice to the PR vide letter dated 23/25.01.2012 and the said letter is reproduced at pages 2 & 3 of AO's order. The assessee PR filed the written reply dated 21.02.2012 which is reproduced by the AO at pages 4 & 5 of his ord....
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....asssee and assessment order. It is observed that the appellant is engaged a franshisee of M/s. Bharat Sanchar Nigam Limited and provides sim cards and to ups to sub franchisee. The issue under consideration is whether the distribution of sim cards, recharge coupons & top ups etc. amounts to sale of goods or not. It is observed that what is delivered is the right to use the mobile phone for a particulars period of time or right to send and receive the electronic data for communication upto particular size of data. The recharge coupons, top up cards can not by itself be used for any purpose. It only contains an electronic code which when typed in the mobile phone will allow the subscriber to use the mobile service. Thus, what is delivered is not any goods for use but a symbolic key to use the services provided by the particular mobile company. It is also seen that even these symbolic cards for recharge are not required and many distributors use electronic top up or lapu-sims to transfer the recharge amounts to subscribers to allow them to use their mobile services. The Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. & Anr. vs. Union of India & Ors (2006) 201 CTR (SC) 3....
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....company and franchisee is different from the agreement between the franchisee and sub franchisee. It is observed that the recharge coupons etc. are provided by the cellular company to the franchisee and further by franchisee to the sub franchisee. Therefore, once it is established that the provision of sim cards, recharge coupons etc. by the cellular company to the franchisee is not sale of goods, then further distributions of same Sim cards, recharge coupons etc to sub franchisee can not be regarded as sale of goods by any stretch of arguments. This plea of the assessee is vague and is not sustainable. Further, in a recently judgment by the Hon'ble Calcutta High Court in the case of Bharti Cellular Ltd. vs. ACIT (2013) 354 ITR 507 (Cal.) the assessee was engaged in the business of providing cellular mobile telephone services through its franchisee by selling to them starter pack and rechargeable coupons, SIM and prepaid cards which were purchase by the franchisee engaged by the assessee at a rate below the market price on such sim cards and sold to retailers by whom they were ultimately sold to customers. It was held that there has been indirect payment by the assessee to the fra....
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.... TDS is deducted and deposited on commission disbursed to Sub- Franchisee on account of new connections booked by them. 4. Recharge - Recharge is a sort of currency to enhance talk time. Sale of recharge contributes to more than ninety five percent of business. It is sold to distributors, retailers and shop keepers of any trades and from our counters also. At different rates depending upon market. Recharge are sold to us by BSNL against advance payment only. It becomes our property .All-risks are ours. They are not compensated /replaced in case of damaged, theft, lost or fire. It is relevant to point out that there is no dispute about the SIM Cards/Start-up Connections because I am getting the commission from Company and they deduct TDS thereon. Similarly, we deduct TDS on the payment made to Sub- Franchisee on account of commission on SIM Cards. Thus, there is no dispute as far as the SIM Cards are concerned. The only dispute is with regard to Recharge Coupons and Top-ups. 5. That the recharge Coupons purchased by the appellant becomes the property of the appellant and whether these are lost or destroyed or are not sold the responsibility for the same rests with the appellant a....
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....ade discount has been deducted. 12. That the relationship between the appellant and the subdistributors is on principal to principal basis and there is no relationship of principal and agent. 13. As per Indian Contract Act, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person from whom such act is done is called principal. 14. A person who acts on his own behalf cannot be termed as an agent. If the principal has no control over the person, he is not an agent. 15. The sub-distributors are independent of the appellant and the appellant has no control as regards selling practices or sale price of the product. In these circumstances, it cannot be said that the subdistributors are agents of the appellant. 16. The appellant in its books of accounts has shown the transactions as purchase and sale and the books of accounts are duly audited. The Ld. AO has not rejected these books of accounts and the Trading and Profit & Loss Account furnished. 17. Both the appellant and the sub-distributors are independent business entities and the appellant has no control on sale or pricing of the product, therefore there is no re....
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....uly been showing the same as purchase & sale and there is no question of deducting tax at source on these, whereas the assessee has paid the commission. The Assessee has duly deducted the tax at source. This view finds support from the decision of Supreme Court of India, in the case of CIT Vs. Ahmedabad Stamp Vendors Association. In this case the vendors were allowed 0.50% to 4% discount on purchase of stamps. Held by the Hon'ble Supreme Court that provisions of section 194H are not applicable. (Refer Page No 113, 114 to 124 of the Paper Book) 21. That the appellant rely on the following judgments:- 1. CIT vs. Ahmedabad Stamp Vendors Association [Refer Page No.113, 114 to 123 of the paper-book, Relevant Page No.113,1171121 to 123] In this case, Stamp Vendors were allowed to 0.50% to 4% discount on purchase of stamps. Held by the Hon'ble Supreme Court that provisions of Sec.194H are not applicable. 2. Jagran Prakashan Ltd vs. DCIT (TDS) 73 DTR (HC) 233 [Refer Page No.164 to 254 of the paper-book, Relevant Page No.165,170,177 & 178,212,220 & 252] The assessee company was publishing Hindi Daily Newspaper and was allowing trade discount to advertising agencies, the provisions of ....
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....venue held it to be commission and hence TDS deductible. It was held that the transaction was in between principal and provisions of section 194H not applicable. In this case SLP of the department stands dismissed. 10. In NMDC vs. ACIT, 133 TTJ 244, the assessee a government company supplied iron ore to another government company which was appointed as centralizing agency by the government, the later having exported the same ore in its capacity as principal, it cannot be said that the goods were exported by the other company on behalf of the assessee as agent and provisions of TDS not applicable. 11. Similar issue was considered by the Hon'ble ITAT, Cuttack Bench in the case of Pareek Electricals 151 TTJ 226. In this case the assessee was a franchisee of BSNL and was selling their products i.e. SIM Cards and recharge coupons and allowing trade discount. The assessing officer disallowed the claim of the assessee that it was trade discount and CIT(A) confirmed the orders. On 2nd appeal, the Hon'ble ITAT held that 'we are inclined to consider the contention of the learned counsel for the assessee for the trade discount made available to the sub-franchisee was a compensation by forgo....
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....s. Out of these the ld. AO accepted 23 and with regard to others he stated that these are not supported by statement of incomes hence cannot be considered. The appellant submits that the returns are filed paperless and therefore these were not supported by statements. The ld. AO did not issue any notice to these sub-dealers for confirming the receipt of amounts and paying tax thereon, as held by Hon'ble Allahabad high court and Hon'ble Mumbai bench of ITAT. The appellant has filed further 7 acknowledgements and pray that these be accepted as additional evidence and credit allowed. 25. The ld. AO has invoked the provisions of section 201 and 201(IA) of the act. Section 201(IA) states that in case of default in deduction then the person responsible shall be deemed to be assessee in default. Provision of sub-section (IA) states that in default the person responsible shall be liable for interest. The law therefore is that if the amount is not deducted it becomes the liability of the person receiving the income the person responsible to deduct is only liable for interest. This has been so held by the full bench of Hon'ble Uttrakhand High Court in Director of Income-Tax Vs. Maersk Co. L....
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.... stock is damaged/lost the loss is borne by the buyer. 4 Whether Responsible to customer for default/deficiency in service. No, only BSNL is responsible to customer No. Only BSNL Service provider is responsible to customer. 5 Whether Requirement to have Staff Office as per BSNL design and Standards. Yes. No. 6 In case of CAF [Customer Acquisition Form] that does not fulfill guidelines Franchisee has to bear the penalty levied by BSNL/TRAI in case of any error made even by Sub-Franchisee /retailer. No Penalty leviable on Sub-Franchisee/retailer and the franchisee is only liable to BSNL, the franchisee can not levy any penalty on Sub Franchisee/Retailer. 7 Whether Exclusive Channel partners of BSNL. Franchisee is exclusive in his area of operation Not Exclusive, may deal with any number of companies/products 8 Responsibility towards Seller Franchisee responsible to BSNL/ Sub-Franchisee/Retailer not responsible to Franchisee. 9 Whether Principal Agent Relationship No, but for limited purpose, discount is treated as Commission as per High Court decisions. No, the transaction is done on Principal to Principal basis. Without prejudice to the submissions made here....
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....ailers for selling prepaid cards. 2 Exclusive Agreement Page No 60 clause 2 The franchisee understands and agrees that this marketing and distribution agreement is on exclusive basis. Page No 78 clause 2 The franchisee understands and agrees that this marketing and distribution agreement is on exclusive basis 3 In case of any loss liability is that of Sh. Gurpreet Singh and not of BSNL Page No 63 clause 9.7(c & d) That the BSNL shall not be liable for any loss, pilferage or damage to the goods stored and sold at the premises and the merchandise shall be entire responsibility of the franchisee unless the same is occasioned by willful neglect or default of the BSNL. That it shall be the responsibility of the franchisee to effect the sales through proper invoices detailing the material particulars of the BSNL phones including IMEI number. Page No 81 clause 9.7(c) That the BSNL shall not be liable for any loss, pilferage or damage to the goods stored and sold at the premises and the merchandise shall be entire responsibility of the franchisee unless the same is occasioned by willful neglect or default of the BSNL. That it shall be the responsibility of the franchisee to eff....
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....nd the franchisee representatives & employees or to provide service with any right, power or authority or to provide the Franchisee with any right, power or authority, whether express or implied to create any such duty or obligation. Page No.86 Clause 24.1 The Franchisee, its employees, agents and representatives shall provide services as an independent 'entity' on an exclusive basis and nothing contained herein shall be deemed to create any partnership, joint venture, employment or relationship of principal and agent between the parties hereto or between BSNL and the franchisee representatives & employees or to provide service with any right, power or authority or to provide the Franchisee with any right, power or authority, whether express or implied to create any such duty or obligation. Furthermore, it is relevant to point out that the worthy CIT(A) has rejected the appeal and while deciding the appeal he has concluded the whole discussion in Para 4 on Page No.9 to 1 of the order of CIT(A). It may be further pointed out that the Ld. CIT(A) has relied on certain Judgments which were not at all applicable on the present facts and circumstances of the case. The CIT(A), while de....
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....358 ITR 195. In view of these circumstances, there was no justification for the department to take a different view during the year under consideration and it is, therefore, very respectfully prayed that the appeal of the assessee may kindly be accepted as there was no liability u/s 201(1) & 201(1A) of the IT Act, 1961." 9. The Ld. DR, on the other hand, relied upon the orders of both the authorities below. 10. We have heard the rival contentions and perused the facts of the case. As per Revenue, the PR is engaged in providing telecommunication services and is a service provider and after providing such services, the margin so earned is termed as commission liable under the provisions of section 194H to deduct tax at source on the payment made to sub franchisee and since PR assessee has failed to do so, the same is liable u/s 201(1) alongwith interest u/s 201(1A) of the Act. On perusal of record and arguments of both the authorities below, we are of the view that the assessee has declared himself as franchisee of M/s. Bharat Sanchar Nigam Limited (BSNL) and is in the business of purchasing SIM cards and Recharge coupons from BSNL against payment and resells them to Sub Contracto....
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.... of Commission. These cases are not applicable in the present case since the assessee is not a service provider, as he purchased recharge coupons from the service provider i.e. BSNL and not provides any service to the subscribers. The assessee simply sells recharges to the sub-distributors, which is on principal to principal basis and there is no relationship of principal and agent. Further, there is no written agreement with the subdistributors. The sale bills are issued to the sub-distributors and copies were produced before the authorities below. The books of account are audited and transactions has been shown as sale and purchase. None of the conditions referred to in section 194H to Explanation (i) is fulfilled. But equal margin earned/profit earned as commission i.e. the sub-distributor is not receiving the payment on behalf of the assessee but on his own and he is not accountable to the assessee. Once the assessee has sold the SIM cards or Recharge coupons, the assessee has no control or liability towards the subdistributors. A copy of the bills filed before the authorities below issued by the BSNL show that BSNL has allowed the discount in some cases and allowed commission ....