TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 531
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....of the Income Tax Act on 20.02.2009 and completed the assessment. On 23.02.2012 the Assessing Officer issued notice u/s 148 of the IT Act for the AY 2007-08. In response to the notice u/s 148 the assessee vide her letter dated 02.04.2012 submitted on 12.04.2012 has requested to consider the original return filed on 31.10.2007 as the return in response to the notice u/s 148 of the Act and requested for the reason for issuing notice u/s 148 of the Act. The AO vide their letter dated 5.9.2012 furnished the reason for reopening the Assessment for the AY 2007-08 by issuing notice u/s 148 of the IT Act. The assesseee vide her letter submitted on 13.09.2012 through ASK No.001130912105493 has submitted the objection for the issue of notice u/s 148 of the IT Act. The Assessing Officer in his letter dated 28.09.2012 has asked for details of the parties/customers to whom discount was given with ledger copy, details of commission received along with ledger copy and details of bank account for the period from 01.04.2006 to 31.03.2007. Instead of furnishing the above details called for, the assessee filed a petition dated 14.12.2012 before the JCIT, Business Range Ill, Chennai u/s 144A of the IT....
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.... discount recipients in the file, which correspond to the income under the head 'commission', the TDS applicability needs to be examined." Being so, there is a reason to believe that income had escaped assessment and it is not necessary to establish the fact of escapement of income. At the stage of issue of notice u/s.148, the only question is whether there was relevant material on which a reasonable person could have formed the opinion that income had escaped assessment. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. Further, the intimation sent by the Department u/s.143(1) of the Act, cannot be treated to be an assessment order and he is within power conferred u/s.147 to issue notice u/s.148 of the Act. Further, failure to take steps u/s.143(3) will not render the AO powerless to initiate reassessment proceedings u/s.147 r.w.sec.148 of the Act, though the intimation was sent u/s.143(1) of the Act. In our opinion, the AO is justified in reopening the assessment in this case. This issue is also squarely cover....
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....s free to pass the same on to the client/customers in turn. In the case of Ahmadabad Stamp Vendor Association on the issue of discount allowed to stamp vendors it was held by the Gujarat High Court that the licensed Stamp Vendors purchased the stamp papers from the Government and the purchase would take place on the payment of price less discount on the principal to principal basis. This was done without any contract of an agency. The discount cannot be included within the term 'Commission' or 'Brokerage' and hence provisions of sec. 194H were not applicable. Keeping in view of the reliance placed on the case laws mentioned supra, the provision of section 40(a)(ia) as well as sec.194H are not applicable to the discount allowed by the assessee to the customers. Therefore, the CIT(Appeals) directed the AO to delete the addition made for non-deduction of TDS u/s.40(a)(ia) of the Act and modify the charging of interest u/s.234B & 234C of the Act . Against this, the Revenue is in appeal before us. 7. The ld. DR relied on the order of the Tribunal in ITA Nos.1415 & 1416/Mds/2009 dated 1.4.2011 in the case of M/s. Vodafone Essar Cellular Ltd., wherein it was held that: "....
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....idered the material on record, relevant provisions of law as well as precedents relied upon by rival sides and find that the assessee has provided Sim cards and Pre-paid cards to various distributors below the MRP prescribed for such cards and the Assessing Officer after obtaining necessary details from the assessee has concluded to hold that the amount below MRP allowed by the assessee to various distributor is discount/commission and as the assessee has failed to deduct any tax at source on such less amount, so he worked out the TDS as payable by the assessee under section 194H and raised demand under section 201(1) and 201(1A) as detailed in para 2 above. The assessee filed appeal and same was allowed by the first appellate authority, against which the Department has come up in appeal before us and it is the main argument of the ld. DR that since amount has been allowed as discount/ commission to the distributors as the assessee has charged the amount less than the MRP, therefore, it amounts to commission/brokerage and tax is liable to be deducted at source in terms of section 194H, which was not deducted, so the demand created by A O is proper and justified. Whereas, the ld. AR....
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....s of this section,-- (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; ........" What appears from Explanation (i) of the definition clause above is that commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for the services rendered. We have already taken note of our finding in BPL Cellular's case above referred that a customer can have access to mobile phone service only by inserting Sim Card in his hand set (mobile phone) and on assessee activating it. Besides getting connection to the mobile network, the Sim Card has no value or use for the subscriber. In other words, Sim Card is what links the mobile subscriber to the assessee's network. Therefore, supply of Sim Card, whether it is treated as sale by the assessee or not, is only for the purpose of rendering conti....
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....at the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. The terminology used by the assessee for the payment to the distributors, in our view, is immaterial and in substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment received or receivable by the distributor for the services to be rendered to the assessee and so much so, it falls within the definition of commission or brokerage under Explanation (i) of Section 194H of the Act. The test to be applied to find out whether Explanation (i) of Section 194H is applicable or not is to see whether assessee has made any payment and if so, whether it is for services rendered by the payee to the assessee. In this case there can be no dispute that discount is nothing but a margin given by the assessee to the distributor at the time of delivery of Sim Cards or Recharge coupons against advance payment made by the distributor. The distributor undoubtedly charges over a....
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....ecide the issue in favour of the Revenue and relevant portion of para 3, and para 6 of the judgment are given as under: "3. ................. "The assessee company is crediting the sales account by the gross amount and not by net proceeds. For example, the MRP of a pre-paid card is Rs. 100/-; margin availed by the distributor is Rs..20/-. The net proceeds available to the assessee is Rs..80/-. Let us see how the assessee is accounting for the above. When the SIM Card is given to the distributor, the assessee company is crediting the sales account for an amount of Rs..100/-. Assessee is debiting the cash account with Rs..80/- being the cash paid by the distributor. Assessee company is debiting the commission account for Rs..20/-.This is the margin enjoyed by the distributor. As far as the assessee company is concerned, it has given a commission of Rs. 20/-. On delivery of a pre-paid card of Rs..100/-, assessee is adjusting the payment of commission through accounts and invoice. In the first instance sale is accounted for Rs.. 100/-; the second cash is accounted for Rs..80/-; and the third commission is accounted for Rs..20/-. It shows that as far as the sale is concerned, it is ....
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.... products at below MRP leading to higher recovery of tax will stand in the way of assessee recovering tax at source or collecting tax from the distributors on the discount passed on to them at the time of sale of the products, if the transaction is subject to deduction at source under Section 194H of the Act. Further, it is common knowledge that recovery of tax at source is not the actual tax payable by the recipient who is free to claim refund of TDS amount with interest, if excess tax is recovered under TDS Scheme". "6. Senior counsel appearing for the assessee has relied on several judgments, particularly two decisions of this court in M.S.HAMEED V. DIRECTOR OF STATE LOTTERIES reported in (2001) 114 TAXMAN 394 (KER.) and KERALA STATE STAMP VENDORS ASSOCIATION V. OFFICE OF THE ACCOUNTANT GENERAL reported in (2006) 150 TAXMAN 30(KER.), the decision of the Gujarat High Court in AHMEDABAD STAMP VENDORS ASSOCIATION V. UNION OF INDIA reported in (2002) 124 TAXMAN 628 (GUJ.), and the decision of the Bombay High Court in COMMISSIONER OF INCOME TAX V. QUTAR AIRWAYS in I.T.A. No.99 of 2009 dated 26.3.2009. The first decision of this court pertains to sale of lottery tickets wherein thi....
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....refore, none of these decisions relied on by the assessee applies to the facts of this case which is payment of commission by way of discount for services rendered by the distributor. Senior counsel for the assessee has in support of his contentions relied on the following decisions of the Supreme Court also, ADDITIONAL COMMISSIOENR OF INCOME TAX V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION reported in (1980) 121 ITR 1, KEDARNATH JUTE MANUFACTURING CO. V. COMMISSIONER OF INCOME TAX reported in 82 ITR 363, COMMISSIONER OF INCOME TAX V. MOTORS 7 GENERAL STORES (P) LTD. (1967) 66 ITR 692, COMMISSIONER OF INCOME TAX V. AJAX PRODUCTS LTD. (1965) 55 ITR 741, COMMISSIONER OF INCOME TAX V. B.C.SRINIVASA SETTY (1981) 128 ITR 294, TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. COMMISSIONER OF INCOME TAX (1997) 227 ITR 172 and decisions of House of Lords in INLAND REVNUE COMMISSIONERS V. WESLEYAN GENERAL ASSURANCE SOCIETY reported in (1948) 16 ITR 101 and another decision in REVENUE COMMISSIONERS V. DUKE OF WESTMINSTER reported in (1936) A.C. 1.However, on going through these judgments we do not find any of the judgment has any direct application to the facts of this case. The very sch....
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....appeals for the assessment years 2003-04 and 04-05 and relevant held portion of the said judgment is reproduced as under: "TDS - Under s. 194H-Commission or discount to distributors of SIM cards/recharge coupons-Assessee, a cellular operator, provides prepaid connections to the subscribers through distributors called prepaid market associates (PMAs) appointed by it-It offers discount for prepaid calling services to its distributors-Legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMA5 with the consent of the assessee-Fact that the PMA is supposed to make the payment in advance as per the agreement does not make any difference to the nature of the transaction in view of the other terms of the agreement-Even though advance payment is made by the PMA qua SIM cards, it does not amount to 'sale' of goods in as much as unsold SIM cards are to be returned to the assessee and it is required to make payment against them-This is an antithesis of 'sale'- Therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupon....
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....actments conferring certain rights on the consumer or common law rights in his favour as against the manufacturer. No doubt, as per cl. 6(a) of the agreement, PMA is supposed to make the payment in advance. That would not make any difference to the nature of transaction in view of cI. 25(d) of the agreement. Thus, even if advance payment is made by the PMA on receipt of the SIM cards, qua those SIM cards, it does not amount to "sale" of goods. The purpose is to ensure that the payment is received in respect of those SIM cards, which are ultimately sold to the subscribers in as much as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them. This is an antithesis of "sale". There cannot be any such obligation to receive back the unsold stocks. Further, cl. 25(f) lays down that on termination of agreement, PMA or its authorized retailer appointed by it, is 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 case of sale". Thus, the Tribunal erred in holding that the payments paid by the assessee are not commission as envisaged u....