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TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 796
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.... and in any event and having regard to the fact that in respect of sale of starter packs and recharge coupons for prepaid service, the appellant did not make any payment to or credit the accounts of the distributors, the appellant was not a person "responsible for paying" within the meaning of section 194H and could not be proceeded against under section 201 and the Tribunal was justified in law in rejecting the said contention of the appellant?" Mr. Khaitan, learned Senior Advocate appearing for the appellant restricted his submissions to the question as to whether there was, in fact, a relationship of principal and agent between the assessee and his buyers or that the goods were sold on principal to principal basis. Mr. Khaitan added that once this question is resolved, the questions formulated at the time of admission of the appeal have to be consequently answered. In support of his submission, Mr. Khaitan drew our attention to the obligation undertaken by the buyer under various clauses of the agreement entered into between the assessee and its buyers:- "(b) Ensure that all payments to HTEL due under this Agreement are tendered in a timely manner; (f) Unless otherwise agree....
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....der the circumstances, it must be held that the finding made by the Tribunal that the above agreement was an agency agreement was not correct. The true fact is that the agreement made between the assessee-firm and the importers mentioned above was not an agreement of agency as was necessary for levying income-tax on the assess-firm in respect of the sum of Rs. 50,000 mentioned in the question under section 10(5A) of the Act. The second judgment cited by Mr.Khaitan is in the case of The Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer Bhopal reported in 1977(3) SCC 147 wherein it was held that the question, as to whether there was a sale, was required to be determined having regard to the terms and the recitals in the agreement. The intention of the parties might to be spelt out from the terms of the documents and the surrounding circumstances and also from the course of dealings between the parties. He also drew our attention to the judgment in the case of Moped India Limited Vs Assistant Collector of Central Excise reported in 1986(1) SCC 125 wherein the following views were taken:- "7. That takes us to the sec....
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.... Rs. 165 allowed to the dealers in respect of different varieties of mopeds could be regarded as anything other than trade discount. The appellants charged to the dealers the price of the mopeds sold to them less the amount of Rs. 110, Rs. 145 and Rs. 165 in respect of different varieties of mopeds. These amounts allowed to the dealers were clearly trade discount liable to be deducted from the price charged to the dealers for the purpose of arriving at the excisable value of the mopeds". He also drew our attention to the judgment in the case of Bharti Airtel Ltd. Vs. Deputy Commissioner of Income-Tax reported in (2015) 372 ITR 33 (Karnataka) wherein the following views were taken:- "59) The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and the ownership vests and is transferred to the distributors. However, whoever ultimately sells the said right to the customers is not entitled to charge more than the MRP. The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the ....
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.... the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the sim cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs. 20 which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the sim cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is gen....
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.... of the SIM cards, qua those SIM cards it did not amount to "sale" of goods. The purpose was to ensure that the payment was received in respect of those SIM cards, which were ultimately sold to the subscriber inasmuch as unsold SIM cards are to be returned to the assessee and the assessee was required to make payment against them. This was an antithesis of "sale". There could not be any such obligation to receive back the unsold stocks. Further, clause 25(f) laid down that on termination of the agreement, the PMA or its authorised retailer appointed by it, was not entitled to any compensation for cost or expenses incurred by it in either setting up or promotion of its business, etc. No such clause was required in cause of "sale". The payment by the assessee constituted commission and tax had to be deducted at source on such payment." The Delhi High Court had considered the judgment in the case of C.I.T Vs. Director, Prasar Bharti reported in (2010) 325 ITR 205 (Kerala), wherein the following view was taken:- "...that the transaction was a pure agency agreement between Doordarshan and the adverti....
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....see, and (iv) the rate at which the franchisee sold to retailers and that at which the assessee sold to the franchisee, was also regulated and fixed by the assessee. From the conditions in clauses 16, 16.1, 16.2 and 16.3 of the agreement, it emerged though the nomenclature had been used as franchisee, the agreement was essentially that of the principal and agent albeit the stipulation in clause 16.2. In the real sense, the franchisee acted on behalf of the assessee for selling start up packs and pre-paid recharge coupons to the customers of the assessee. There had been indirect payment by the assessee to the franchisee of the commission and the commission would attract tax deduction at source under section 194H." The agreement between the assessee, who has been referred to therein as 'HTEL' and Poddar Communications, who has been referred to in the agreement as the 'Service Provider' provides that the service provider has been appointed by HTEL on the terms and conditions contained therein which include (a) that the service provider shall keep the premises open for the purpose of rendering and performing services during the office hours; (b) he shall maintain at least one telephon....
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....Supra). The proposition laid down in the aforesaid judgment would militate against the case of the appellant before us rather than helping him. The clauses of the contract highlighted above would go to show that the service provider of the assessee in this case was not selling services on its own behalf. He was selling services on behalf of the assessee. The question for consideration in the case of Moped India Limited (Supra) was whether the discount granted amounted to commission. It was found by the Apex Court that the dealers were wholesale buyers of the mopeds manufactured by the appellants and since the transactions between them were on principal to principal basis, it was difficult to appreciate how the appellants could possibly be said to have any interest, direct or indirect in the business of the dealers. If it could be said that the dealings and transactions between the assessee and the service providers in this case were on principal to principal basis, the question would have become simplier. In that case, it would not be difficult to hold that what was given by the assessee was a discount and not a commission. But that unfortunately is not possible. The assessee coul....