TaxTMI 
TaxTMI 
2015 (7) TMI 175
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....-deduction of tax amounting to Rs. 55,00,794/- u/s 194H on the difference between the price at which the prepaid card is sold to the distributor and the price at which the end customer buys alleging the difference to be payment of commission. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.2) The learned Assessing Officer (TDS) has erred both on facts and in law in charging interest of Rs. 4,41,020/- u/s 201(1A) of the Act. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 2. The learned Assessing Officer (TDS) has erred both on facts and in law in applying the provision of Section 194J of the Income Tax Act to the transactions of roaming charges. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 2.1) The learned Assessing Officer (TDS) has erred both on facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduct....
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....examining the terms and conditions of the agreement entered with the assessee and the distributor, it is observed by the Assessing Officer that there is principal agent relationship between them. Therefore, the assessee was liable to deduct tax at source as per the provisions of Section 194H of the Act on commission paid to these distributors but the assessee had not deducted any tax at source on the plea that there is principal to principal relationship between them and also prepaid product and services were sold to the distributor at a discounted price and as such no commission was paid to them. The ld ITO(TDS) tabulated month wise details of MRP and dealer price and difference between MRP and dealers price for the F.Y. 2008-08 on page 2 of the order. He calculated this to be for whole year at Rs. 4,85,48,685/-. The ld Assessing Officer analysed the Section 194H of the Act with reference to transaction of SIM card, prepaid card, MRP price and dealers price. The ld ITO(TDS) analysed the agreement made by the assessee with M/s Banty Telecom, Sadulpur, district- Churu (Raj). The agreement with M/s Banty Telecom and some of the clause has been reproduced by the Assessing Officer from....
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....nterest U/s 201(1A). He further relied upon the decision of Hon'ble ITAT, Jaipur Bench in the case of Hindustan Coca Cola Beverages Pvt. Ltd. 97 ITD 105 wherein the Hon'ble Tribunal on observation of real relation of distributors with assessee company, held that it was principal to agent relationship. After considering the legal proposition on this issue, the ld ITO(TDS) held that price different between the MRP and dealers price are nothing but commission paid by the assessee to its distributors and hence the assessee was liable to deduct tax at source U/s 194H of the Act on the commission payment to its distributors. Since the assessee failed to deduct TDS, it is deemed default U/s 201(1) and 201(1A) of the Act. The ld ITO(TDS) calculated the payment U/s 201(1) U/s 194H at Rs. 55,00,794/- and interest thereon U/s 201(1A) at Rs. 4,41,020/-. 3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- "2.3.1 I have carefully considered the facts of the case and submissions of Ld. AR. On perusal of the relevant records, I find that the main issue involve....
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....al to principal basis at a discounted price as compared to MRP. There are different distributors who in turn sell on out right basis to retailers. The ld AR explained the nature of prepaid product. The distributors sold its product to retailer and price is left to the retail chain as per competition and market forces. The prepaid product which gives a right to use airtime of a specified value, is to be taken as a good or merchandise capable of being transferred. The Hon'ble Gujarat High Court had described in case of Ahmadabad Stamp Vendors 257 ITR 202 (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 in the form of stamps cannot be sold further, but a prepaid product can be. In fact a prepaid product is better placed from the point of view of trading. The merchandise concept has changed because of technological advancement has been recognized by the Hon'ble Supreme Court in the matter of B Suresh 313 ITR 149 (SC). The Hon'ble Supreme Court has held in this case that beta-cam tape (cassette) was only a medium of transfer; that there was no sale of the film in beta-cam format a....
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.... distributor is actually a sale of right to service and the provisions of Section 194H of the Act do not apply. The Hon'ble ITAT held that in that case, the relationship is principal to principal basis because right to service had been sold. There was no income accrued to the distributor at the time of purchase of prepaid card. As per Section 194H there has to be an accrual of income before charging section can be applied. The Hon'ble Jaipur ITAT Bench also followed the principles that in case of divergence of judicial opinion, a view favour of the assessee is to be adopted as held by the Hon'ble Supreme Court in Vegetable Products Limited 88 ITR 192 and Vatika Township Pvt. Ltd. 367 ITR 456. He further drawn our attention on decisions of Hon'ble Karnataka High court in the case of Bharti Airtel Ltd., therefore, he prayed to allow the appeal on this ground. 5. At the outset, the ld Sr. D.R. has vehemently supported the order of the ld CIT(A) and argued that the various Hon'ble High Courts have already held that prepaid card sold to the distributors include commission, which is liable to be deducted TDS U/s 194H of the Act. 6. We have heard the rival contentions of both th....
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....observed that the assessee had paid roaming charges to other mobile operators. The assessee is providing GSM mobile services to its subscribers. The mobile subscribers of the company have been given the facilities of getting connected/avail of telecommunication facility, when they are not in the area being covered by the assessee company, through other mobile operators. To avail such services, the assessee company makes payment to other mobile operators, which is called roaming charges. During the financial year 2008-09, the assessee company paid roaming charges at Rs. 92,16,60,531/-. As per ld ITO(TDS), these services are liable to be deducted TDS U/s 194J as fees for technical services. The technical service is not defined in the Act but dictionary meaning of word "technical" as per Cambridge dictionary is knowledge, machines or methods used in science and industry.' The work technical is derived from the word technique which means 'a particular or a special way of doing something. He further described how roaming services is technical services, which is reproduced as under:- "If the subscriber of Rajasthan Circle goes to Maharashtra when he reaches Maharashtra,....
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.... by the home service provider (Rajasthan Circle in above case) and MNC which is a unique code provided to home service provider by the ministry. Without this the roaming system cannot become operational. This makes it clear that roaming service is a technical service and the technical services are provided by one operator to another and not to the subscriber. Thus roaming service is a highly technical service and therefore while making payments the assessee was required to deduct TDS which it had not done. The ITO(TDS) gave reasonable opportunity of being heard to the assessee vide letter dated 29/01/2009, which has been replied by the assessee vide letter dated 11/02/2009 and 12/2/2009, which has been reproduced by the Assessing Officer on page 27 to 30 of the order. The ld ITO(TDS), therefore held as under:- (1) Roaming is not possible unless an agreement is entered into between the two service providers. (2) Entire Roaming facility is based on IMSI which consists of MNC (Mobile Network Code a unique code allotted to assessee) and SIM which is also issued by the assessee. (3) Roaming services is a highly technical service which is possible with the use of equipment su....
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....ows that the service provider of another region to whom roaming charges are paid is not providing services directly to ultimate customer but it is providing services to another telecom operator to facilitate its customers. (14) The provision of section 194J refers to "any sum" paid by the payer and does not distinguish between the payment made by someone on its behalf or its customer's behalf. Therefore, the plea of the assessee that the payment received by the assessee from the customers of the assessee and paid to other mobile company does not fall under TDS provision, is not tenable. From the above, it is clear that Home Service Provider takes technical services of other telecom service provider to facilitate the subscriber to access telephone wherever he visits and therefore it is required to deduct TDS from the payments made to obtain these services." The ld. ITO(TDS) considered the following decisions on which the assessee claimed that roaming charges is not covered U/s 194J of the Act. (i) Skycell Communication Ltd. 251 ITR 53 (Madras) (ii) Bharti Cellular Limited ITA No. 1120/2007) (iii) DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). (iv)....
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....ns/arguments of both the sides and I find that the contention of Ld. A.R. regarding payment made on behalf of the subscriber of the appellant company is not tenable, as the appellant company had entered into a separate agreement with the roaming service provider and is, therefore, liable for payment of roaming charges on its own behalf, as per the terms and conditions of the agreement. Hence, whether, later on, it charges for roaming services from its customers or not, this fact is not relevant and does not exempt the appellant company from the liability of TDS. Further, I find that the ld. A.O. has correctly held that the roaming facility provided by the other telecom service provider to the Home Service Provider (the appellant) to facilitate the subscribers of the appellant company, to access mobile services, wherever they visit, was a technical service. In this regard, I agree with the reasoning given, for the above finding by the ld. A.O., in para 3.5 of his order. which is already reproduced in earlier para of this order. Further, it is observed that the ld. AR has again relied on the decision in the case of Skycell Communications Ltd. and the decision of Hon'ble Delhi High Co....
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....utes are registered in his identity for which he has to pay through Hexacom Jaipur. * Alternatively, a called from Jaipur makes a call to Hexacom's subscriber which is routed to the home network of Hexacom subscriber in Jaipur. * Home network then forwards all incoming calls to the temporary phone number which terminates at the device of roaming, subscriber (in Mumbai) who is now using the services of the visiting network (i.e. Airtel): * The entire process above is automatic and does not involve any human intervention at any stage. Billing process * Usage of roaming subscriber in visited network is captured in a file called TP, i.e. transferred account procedure for GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. * TAP file contains details of calls made by subscriber, viz., location, calling party, time of call and duration, etc. * TAP/CIBER files are rated as per tariffs charged by visiting network operator. * Such TAP/CIBER file is transferred to home network of subscriber (i.e. to Hexacom). * Home network (i.e. Hexacom) then bills these calls to the Hexacom's subscriber and pays roamin....
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....facility to communicate and does not result the roaming services provided on a standard facilities to be a technical service. The whole roaming process is automatically and there is no human interference in it. The human interference is required to maintain the robust network only to ensure break down free service to the subscriber. The network owner has to maintain for itself, its network in robust condition. The technical support of the staff is required to maintain the equipment and gazettes but it is not a service for roaming facility provided to the subscriber. There is commercial arrangement to connect the technical networks basically to be able to do business. In fact DOT mandates that it should be so connected. There is no payment made for connecting the networks. Payments are made for calls which the roaming subscriber makes. If no calls are made no payment is made in spite of the fact that the networks are inter connected. He further relied on the decision in the case of CIT Vs. Bharti Cellular Ltd. 319 ITR 139 (Del) wherein it has been held by the Hon'ble Delhi High Court that roaming services not involving human interference and is not technical services as contempla....
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....case of Bangalore Electricity Supply Co. Ltd. Vs. ITO(TDS) order dated 16/3/2012 2012(20) ITR (Trib) 265 wherein payment made by State Load Dispatch Center (SLDC) is held not liable to be deducted TDS U/s 194J of the Act. The ld AR further relied on the decision of Hon'ble Mumbai ITAT in the case of Maharastra State Electricity Distribution Co. Ltd. 25 Taxman 164, Siemens Limited 30 Taxmann.com 200, ITAT Kolkata Bench decision in the case of Right Florists Pvt. Limited ITA No. 1336/Kol/2011 and ITA Delhi bench decision in the case of Delhi Transco Ltd. (ITA No. 755(Del)/2011 A.Y. 2005-06. He also relied on the decision in the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon'ble Supreme Court. The Hon'ble Supreme Court has held as under:- "In cases requiring examination by technical experts, the Department ought not to proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with technological advancement, the Department ought to examine technical experts so that the ....
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....n intervention. But the roaming process between participating entities is fully automatic and does not require any human intervention. Accordingly, the interconnected uses charge will not attract the provisions of Section 194J read with Section 9(1)(vii) read with Explanation-2 thereto. Therefore, he prayed to delete the addition. 10. At the outset, the ld Sr. DR vehemently supported the order of the ld CIT(A). 11. We have heard the rival contentions of both the parties and perused the material available on the record. After going through the order of the Assessing Officer, ld CIT(A); submissions of the assessee as well as going through the process of providing roaming services; examination of technical experts by the ACIT TDS, New Delhi in the case of Bharti Cellular Ltd.; thereafter cross examination made by M/s Bharti Cellular Ltd.; also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03/09/2013 and also various judgments given by the ITAT Ahmadabad Bench in the case of Canara Bank on MICR and Pune Bench decision on Data Link Services. We find that for installation/setting up/repairing/servicing/maintenance capacity augmentation are require human ....