TaxTMI 
TaxTMI 
2013 (4) TMI 755
X X X X Extracts X X X X
X X X X Extracts X X X X
....ship of Principal to Principal. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.2 The Ld. AO(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-deduction of tax amounting to ₹ 2,875,880/- u/s 194H of the Act 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 ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.3 That appellant is aggrieved by the order of the AO (TDS) to recover the tax of ₹ 2,875,880/- inspite of the fact that such tax have been paid by the distributor on the corresponding income declared by him. 1.4 The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 1,754,290 u/s 201(IA) of the Act. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the A.O. 2. The appellant craves leave to add, alter or amend the ground of appeal at a later stage." 3. In ITA No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that such payment is not for any work undertaking for the assessee company and do not fall within the provision of Section 194C of the Act. 2.2. That Ld. CIT(A) has further erred both on facts and in law in upholding the action of the Ld. A.O. 2.3 The Ld. AO(TDS) has erred both on facts and in law in demanding the tax amounting to ₹ 26,072/- inspite of the fact that the amount has been subject to tax in the hands of the other telephony operators. 2.4. The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 10,788/-- u/s 201(1A) of the Act. The Ld. CIT(A) has further erred on fact and in law in upholding the action of the A.O. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage." 4. In ITA No.95(Asr)/2012 for the assessment year 2008-09, the assessee has raised following grounds of appeal: "1. The Ld. AO(TDS) has erred both on facts and in law in applying the provisions of section 194H of the Income Tax Act to the transaction of supply of prepaid vouchers to the distributors. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.1 The Ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld to the distributor and the price at which the end customer buys alleging the difference to be payment of commission. The ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.3 That appellant is aggrieved by the order of the AO (TDS) to recover the tax of ₹ 31,296,725/- inspite of the fact that such tax have been paid by the distributor on the corresponding income declared by him. 2. The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 6,047,465 u/s 201(IA) of the Act. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the A.O. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage." 6. In ITA No.97(Asr)/2012 for the assessment year 2010-11, the assessee has raised following grounds of appeal: "1. The Ld. AO(TDS) has erred both on facts and in law in applying the provisions of section 194H of the Income Tax Act to the transaction of supply of prepaid vouchers to the distributors. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.1 The Ld. AO(TDS) has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... our decision herein below in this appeal shall be applicable in all other appeals in the common grounds in all other appeals mentioned herein above. 10. The brief facts in the grounds of the assessee for the assessment year 2006-07 are that during the year under consideration, the assessee who is termed as Person Responsible (PR) has declared gross revenue i.e. sale of SIMs and Recharge Coupons. The assessee was given a show cause notice as to why difference of sale amount and market value may not be treated as commission paid to the distributor and show cause as to why amount of such tax deductible alongwith interest u/s 201(IA) may not be charged from you. Thereafter, the explanation of the assessee and the findings of the A.O. as per page 1 to 4 of the order are reproduced for the sake of clarity as under: "2.1 In response to above, the PR vide his reply received on 23.04.2010 furnished details of Maxmum Service Charge (MSC), Distributor Price and Difference. In the said detail the PR has stated to have charged ₹ 33,85,46,683/- from the Distributors for the goods of the value of ₹ 38,95,46,683/- and balance amount of ₹ 5,08,10,665/- was in the shape of commi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... view the competitive pressure, thus keeping a margin/spread of ₹ 30/- respectively which is him income from trading.. The retailer will in turn either sell it at ₹ 1590/- as his discretion, keeping in view the competitive pressure, so however the maximum price does not exceeds ₹ 1600. Whatever retailers recover over ₹ 1530/- will be his income from trading. The income for the retailer in the example above will spread between the price paid by him to the distributor and that recovered from the customer. 9. Revenue is booked in the accounts for the amount recovered from the distributor and not the amount recovered by the distributor from the subscriber. 10. The talk time gets activated instantly, as soon as SUK is supplied to end customer. 2.2. The PR has also argued his case by relying on the various judgments. The PR has mainly relied on the judgment of the ITAT, Delhi Bench and Hyderabad Bench in the case of Idea Cellular. In addition to above the PR has also relied on some of the following main judgments. (i) Ahmedabad Stamp Vendors Association Ltd. v. UOI 9257 ITR 202) (ii) Harihar Cotton Press Factory v. CIT (196) 29 ITR 594 (iii) Bhopal Sugar I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is being delivered is not a mere physical item but an access to the cellular network, which is the property of the PR's company for all times. (ix) While freedom of pricing is not the sole determinative factor for a principal to principal relationship, it is pertinent to note that there was no freedom of pricing as per the agreements existed between the distributors and the assessee. (x) In a principal to principal sale transaction, the distributor becomes owner of goods and exerts full control over the operations thereon; in the instant case, various restrictions and conditions imposed on the distributors render them mere agents and not independent principals.; (xi) In a discount sale, once goods are sold there cannot be any restriction by one principal on another as to how and where to sell these goods. The distributorship agreements in the instant case clearly denote a geographical area of operation and the manner in which the goods should be sold. (xii) In case of purchase on discount there cannot be any restriction on the manner in which the stock purchased by the principal is to be kept, nor is there any right for one principal to inspect the stock or call for reports of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax Appellate Tribunal erred in holding that the payments paid by the assessee is not commission as envisaged under section 194 of the Act?" 12. The Hon'ble Delhi High Court vide order dated 19th Feb; 2010 in ITA Nos. 145 & 784 of 2009 answered the above question of law in favour of Revenue. The relevant part of the decision of Hon'ble Delhi High Court as reproduced by the A.O. at page 11 is reproduced for the sake of clarity as under: "28. We are in agreement with the view taken by the said Bench. Identical view is taken by Calcutta Bench in the case of Assistant Commissioner of Income Tax vs. Bharti Cellular Ltd. [(2007) 294 ITR (AT) 283 (Kolkata)]. Both these Benches specifically rejected the arguments of the assessee, based on Ahmedabad Stamp Vendors Association (supra), Kerala Stamp Vendors Association (supra) and Bajaj Auto Ltd. (supra) distinguishing those judgments and holding that they are not applicable in the given situation. We agree with the same. 29. We thus answer the question, as formulated in favour of the Revenue and against the assessee. As a consequence, these appeals are allowed and judgment of the Tribunal on this aspect is set aside. No costs." 13. Vide p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 29 January, 1997 issued by CBDT reads as under: "……I am directed to state that the Board is of the view that no demand visualized u/s 201(1) of the Act should be enforced after the tax deductor has satisfied the officer incharge of TDS that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest u/s 201(IA) of the Act till the date of payment of taxes by the decuteee assessee or the liability to charge interest u/s 201(1A) of the Act till the date of payment of taxes by the deductee assessee or the liability of penalty u/s 271C of the I.T. Act.: 3.2.In both the cases i.e. judgment of Hon'ble Delhi High Court and Instructions issue by the Board the PR was liable to satisfy the undersigned by furnishing the required proof that the taxes on the amount received from the PR has been paid by the distributor which he has failed to do. In view of these facts the plea of the PR cannot be accepted and amount deductible u/s 194H of the Income Tax Act on the Commissioner is being charged from the PR u/s 201(1) alongwith interest u/s 201(1A)." 15. Accordingly, in view of the above facts, the A.O. raised demand recove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n default to the extent tax is already recovered from the distributors. They also filed a list of 205 such distributors. 4. I have considered this plea also and find in absence of any evidence as to their returns files, tax paid and the due accounting of such commission in their respective books of accounts, the decision cannot be applied. Here, I would like to completely agree with the A.O. who in his assessment order, on this issue, has rightly held that the assessee P/R had to satisfy the A.O. in this regard as to how the taxes were already paid by the distributors. However, the assessee would be free to approach A.O. as and if such evidence are in its possession for appropriate legal relief, if applicable. 4.1 In view of the above, respectfully following the decisions of Hon'ble High Courts of Calcutta, Delhi and Kerala, the action of A.O. is affirmed and all the appeals on this issue are dismissed. 4.2. In the result, appeal is dismissed in respect of all the assessment years except 2007-08 on which involves another issue and which is discussed below." 18. As regards the issue on account of non-deduction of T.D.S. fee paid to another operators for roaming charges, during t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The case of M/s. Sky Cell Communications Ltd. as relied by the assessee is in respect of application of section 194J of I.T.Act, not applicable in this case as the A.O. has applied the provisions of section 194C of the I.T.Act. 6.2. The arrangement between assessee and other communication operators to provide roaming facility is nothing but a work undertaken by them for assessee under a contract or arrangement agreed upon by both the parties. Further, the reliance of A.O. in the ratio of the case of M/s. Bharat Sancha Nigam Ltd. decided by the Supreme Court 282 ITR 273 is also valid. In this case the Hon'ble Supreme Court has held as under: The license clearly manifests that it is one for providing telecommunication service and not for supply of any goods or transfer of right to use any goods. It is expressly prohibits transfer or assignment The integrity of license cannot be broken into pieces nor can the telecommunication service rendered by them be so mutilated. Not only this position flows from the terms of contract, this also flows from section 4 of the Indian Telegraph Act which provides for grant of license on such conditions and in consideration of such payments as it th....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... [PB 94-95] DECISION OF HON'BLE SUPREME COURT IN AHMEDABAD STAMP VENDORS ASSOCIATION - PRINCIPLE IN DECISION OF GUJARAT HIGH COURT NOT CONSIDERED IN PROPER CONTEXT. HOW IS THE RELATIONSHIP OF PRINCIPAL TO PRINCIPAL ESTABLISHED? 2.3 The decision of Kochi Tribunal in the case of Vodafone Essar Cellular 217 ITR (AT) 234 Cochin did not follow the decision of the Ahmedabad Stamp Vendors Association on the ground that the Stamp transactions have been treated as transactions of purchase and sale of goods. It will be shown that indeed there is purchase and sale of Right to use talktime. 2.3.1 The decision of the Kerala High court in Vodafone Essar Cellular Ltd. 332 ITR 255 [PB 357-369], as per para 6, 12th line states: Quote "The second decision of this Court pertains to sale of stamp paper by the licensed stamp vendors wherein also the finding of this Court following the decision of the Gujarat High Court in Ahmedabad Stamp Vendors case ((supra)) is that the transaction is sale of goods and so much so, no deduction of tax is called for under Section 194G of the Act". Firstly, the Kerela High Court has referred to incurred Section of 194G which is not relevant in the case of Ahmedab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4.3 After discussing various case laws specifically Bhopal Sugar Industries Vs. STO (1997) 40 STC 52 (Supreme Court) [PB 142-155] the difference between relationship of agency and sale between Principal to Principal was determined. 2.4.4 The Hon'ble Gujarat High Court also held that the restrictions imposed on the distributor vendor were of no consequence for the determination of the relationship principal to principal, which was what was confirmed by the Hon'ble Supreme Court in Bhopal Sugar Industries. (Discussed in PB 145) Hon'ble Gujarat High Court noted the following on PB 347 para 13- Quote "There is no dispute about the fact that the licensed vendor has to pay the price of the stamp papers less the discount at the rates provided in Appendix III to the Rules, which rates vary from 0.5 per cent to 4 per cent. It is not that the stamp vendors collect the stamp papers from the Government, sells them to the retail customers and the deposits the same proceeds with the Government less the discount. The liability of the stamp vendor to pay the price less the discount is not dependent upon or contingent to sale of the stamp papers by the licensed vendor. The licensed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payment having being made to the Government of India, and the purchaser of stamp paper takes over this "right" of having paid the stamp duty or " right" to use the stamp of specified value, the value of which had been paid by the stamp duty vendor in bulk at the time of first purchase from the government authorities. 2.5.3 This contract of having paid the duty and having received the duty is taken over by the ultimate buyer of stamps from the stamp vendor. It is acknowledged that there is a time gap between the transfer of stamp for value from the government to the stamp vendor and from the stamp vendor to the customer and the point of time of affixing of "stamp" at a later date consequent to a transaction needing stamp duty. 2.5.4 The stamp paper becomes a valid transactional evidence at a later date at the point of time the transaction which needs to bear stamp duty, stands executed or culminated. 2.5.5 At that point of time a notional entry happens automatically by way of an adjustment. 2.5.6 The obligation to pay stamp duty by the parties to the transaction is squared off with the government who has to received such payment of stamp duty. Government the supplied of stamp ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovided discount and not commission to the distributor of prepaid cards. 2.5.10 Another factor considered by the Hon'ble High Court of Ahmedabad is that no sales tax is levied on the transfer of stamp paper. 2.5.10.1 In the case of prepaid card since service tax is applicable sales tax is not leviable. 2.5.10.2 The absence of charging of sales tax cannot take away of dilute the substance of transaction of transfer of "Right to use talk time". Absence of sales tax does not make this product, any lesser product than the one on which sales tax is levied. This merchandise is capable of being transferred even though sales tax is not levied. 2.5.11 It is submitted that as in the case or Ahmedabad Stamp Vendors Association the "value of stamp duty" is captured in a stamp, which becomes operational at a later stage when the distributor gives it to the party wanting to use it for a transaction. As soon as the transaction is entered in a at a later stage the stamp becomes operational. Similarly, in the case of prepaid card distributor, the right to use airtime which is capture in a Sim Card like a Coca-Cola bottle is transferred and which becomes operational when the end of customer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d retention of profits for export business. Profits are embedded in the "income" earned. Earning of income depends on sale of goods and services. Today the different between the two is getting blurred with globalization and cross-border transaction. Today with technological advancement on has to change our thinking regarding concepts like goods, merchandise and articles. In the case of B. Suresh, the assessee had bought rights of various decoders and had recorded movies on beta-cam tapes which were transferred as telecasting rights to start T.V. for five years (it has a limited life). Hence, such "right" would certainly fall in the category of article of trade and commerce, hence, merchandise." Unquote [Emphasis supplied] 3.1.7 It is therefore clear that the concept of goods has undergone a change and in this context the "Right to use Airtime" and the "promise to provide airtime" is a product or merchandise capable of being transferred from service provider to the distributor from the distributor to the retailed and from the retailer to the customer. The Hon'ble Supreme Court has held that "Right" would be classified as merchandise. 3.1.8 It is of no consequence that the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utes of Airtime" to the owner of the start up pack. - It is sold to distributors on receipt of advance payment. - It is not any provision of electro magnetic waves, but it is a Right to enable the prepaid customer to expend the minutes paid for. - The start up pack comprises of SIM Card and in this SIM is captured the right to use airtime for specified minutes. - The property in the SIM card remain that of the company and it is similar to a bottle of soft drink. - The SIM card can be recharged with additional airtime as in the case of soft drink bottle. - This "Right to use Airtime" for a specified minute or the "promise to deliver such Airtime" is a product which is transferred on payment of money from the assessee company to the distributor at a price say ₹ 97/-. This product is the right to use airtime to the extent of ₹ 100/- and a promise to deliver airtime to the extent of ₹ 100/- by the assessee company. - The distributor sells this product to a retailer to say ₹ 98/- and retailer in turn sells this product to the consumer. (The pricing is left to the retail chain as per competition and market forces). - The distributor is also paid turnover t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onship of Principal to Principal and not Principal to Agent. 6.1.3 In the case of Ahmedabad Stamp Vendors Association where the "value of stamp duty" is captured in the stamp, which becomes operational at a later stage when the distributor of stamp gives it to the party wanting to use it for a transaction. The stamp value becomes operational when at a later date transaction requiring stamping is entered. 6.1.4 Similarly in case of prepaid card distributor, the right to use airtime which is captured in a SIM Card like a Coca-Cola bottle is transferred and which becomes operational when the end customer wants to use it at a later stage. 6.1.5 In view of this decision of the Hon'ble Supreme Court and in the absence of any decision of the jurisdictional High Court we urge that the decision of the Hon'ble Supreme Court in Ahmedabad Stamp Vendors Association be given due effect. 6.2 B. SURESH 313 ITR 149 [PB 165-169] HAS TO BE CONSIDERED WHICH HAS NOT BEEN CONSIDERED BY ANY OF THE HIGH COURTS REFERRED TO BY CIT(A). 6.2.1 The Hon'ble Supreme Court recognizers the change in the form of merchandise and goods in view of the technological development and in the light of this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut the territories in relation to which it exercised jurisdiction. It does not extend beyond its territorial jurisdiction. 7.2 Consolidated Pneumatic Tool Co. (India) Ltd. V. CIT 2009 ITR 277 (Bom.) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. That status is reserved only for the decision of the Supreme Court which are binding on all courts in the country by virtue of Article 141 of the Constitution of India. (See P. 282A, D, E) 7.3 Geoffrey Manners and Co. Ltd. V. CIT 221 ITR 695- 696(Bom.) PRECEDENT - HIGH COURT- DECISION OF HIGH COURT IS BINDING ON TRIBUNALS WITHIN ITS TERRITORIAL JURISDICTION BUTNOT ON TRIBUNALS OUTSIDE ITS TERRITORIAL JURISDICTION. 7.4 Mahindra & Mahindra Ltd. (2009) 313 ITR (AT) 263 Mum SB In such a situation to argue that a particular High Court judgment of the non-jurisdiction High Court is binding on the Tribunal is not acceptable. The Hon'ble Bombay High court in Thana Electricity Supply Limited [1994] 206 ITR 727 has discussed the binding nature of the judicial precedents. The position has been summarized in paragraph 17 of the case by lay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td. V. CIT [1996] 221 ITR 695 has followed the earlier two aforenoted judgments for holding that the decisions of a High Court are not binding precedents either for other High Courts or Tribunals outside the territorial jurisdiction of that High Court. From the above judgments of the Hon'ble jurisdiction High Court, it is apparent that only the judgments rendered by the Hon'ble Supreme Court or the jurisdictional High Court are binding on the Tribunal. The judgments of the other Hon'ble High Courts, though have persuasive value, but cannot have a binding force. 8. HIGH COURT DECISIONS DISTINGUISHED 8.1 Decision of the Delhi High court in Idea Cellular Limited 325 ITR 148 (Del) [pb 315-338] The basic proposition in the Delhi High Court was: - that in the case of supply and delivery of SIM cards and other recharge coupons, there is no sale and purchase of goods but only services, - that decision of the Ahmedabad High Court was not applicable as it covers the transactions of purchase and sale of goods, - that on termination of the agreement the stock was returned back to the service provider. DISTINGUISHING FEATURES 8.1.1 It has been explained that in view of the j....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y appellant PB page 313 the accounting entries passed by Vodafone Kerala. 8.2.4 Business relationship of principal to principal is an independent relationship established by conduct of the parties and cannot break down on account of the fact that the services of telecom connectivity and use of airtime are to be provided by telecom service provider company after the product has been sold. 8.2.5 As explained the product which has been sold is the right to use airtime for a specified amount and consequent promise to render airtime for the use by the ultimate customer. 8.2.6 Basically "promise to deliver or right to use is a product" and this principal has been followed in the decision of the Ahmedabad High Court 257 ITR 202 affirmed by the Hon'ble Supreme Court. It has also been followed by the Hon'ble Supreme Court in B. Suresh 313 ITR 149 (S.C.). 9. KOLKATA DECISION DISTINGUISHED. 9.1 Bharti Cellular Limited (erstwhile Mobitel Ltd.) 2011-TIOL- 396-KOL-HC[PB 370-376] The decision of Calcutta High Court in the case of Bharti Cellular Limited 2011-TIOL-396-KOL-High Court cannot be relied upon - DISTINGUISHING FEATURES 9.1.1 The decision is based upon the understanding "p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra 73. 9.1.2.5 All these factual errors show that the Hon'ble Kolkata High Court did not have any basis to determine these incorrect facts which have been relied upon to come to the decision against the company. [refer I.T.A.T. -105 ITD 129 (Kol.)] CONTROL IMPOSED 9.1.3 The substance of the transaction has been ignored on the basis of control clauses of the agreement by which control is imposed upon the "retailer" for compliance of conditions. 9.1.3.1 As already explained the decision of the Hon'ble Supreme Court in the case of Bhopal Sugar at PB page 142 to 155 at page 145 explains the current business policies of control imposed on the distributors and retailer by the manufacturer, which does not alter the relationship of Principal to Principal. 9.1.4 The Hon'ble Kolkata High Court has not considered the decision of Hon'ble Supreme Court in B. Suresh. 9.1.5 The decision of the High Court in the case of Ahmedabad Stamp Vendors has been brushed aside by the Hon'ble High Court without detailed discussions on the principles in the said judgment by merely stating at page 421 para 27 as on factual analysis there was no Principal to Principal relationship. We ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansferring to the roaming network on visiting another telecom, circle. • The subscriber has a choice of manual network selection or automatic network selection. • Under automatic network selection, the services of the most preferred roaming partner of the subscriber's home network will be selected. • Under, the manual selection, the subscriber can choose the roaming partner whose services he would like to use out of the ones which are available in that area (subscriber can only choose the roaming partner with whom Airtel has tie-up). • Visiting network (e.g. Hexacom) locates mobile device and identifies that it is not registered with its system i.e. VLR. • Visiting network automatically contacts home network of Airtel subscriber i.e. HLR and requests service information about roaming device using MSI number - MSI number is a unique subscriber identity number granted to the customer at the time of subscription. • Visiting network maintains temporary subscriber record for the said mobile device and provides an internal temporary phone number to the mobile device. • Home network also updates its register to indicate that the mobile is on visit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udes broadcasting and telecasting as provided under Section 194C of the Income-tax Act, 1961. 3.1.2 A perusal of Section 194C - Explanation (iv) will show that " work" has been defined as follows: "(iv) "work" shall include- (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting and telecasting; (c) Carriage of goods or passengers by any mode of transport other than by railways; (d) Catering; (e) Manufacturing or supplying a product according to the requirement Or Specification of a customer by using material purchases from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.]" 3.1.3 The CIT(A) has misread the provisions of Section 194C because nowhere in the Section or Explanation thereto "work" has been defined to include "roaming" the process which has been explained above. There is no similarity at all with the work described in the explanation. 3.1.4 In Kurukshetra Darpans the point of contention was altogether different which becomes more evident from the following qu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee. …………………………………………. ………………………………………… For the reasons recorded above, we have no hesitation in concluding that the Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of section 194C of the Act on payments made to the licensor for obtaining TV signals, Cable TV Network owned by the assessed." 3.1.6 It is clear that the aforesaid case cannot be, by any stretch of imagination, applied to the roaming transactions as the same was in relation to the broadcasting and telecasting which is clearly covered under Section 194C of the Act. 3.2 The CIT(A) has also relied on the judgment of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Limited (BSNL) 282 ITR 273. This inference of the CIT(A) is totally misplaced and out of context. The issued in the case of BSNL was to determine the applicability of sales tax on telecom services. 4 SUMMARY The action of the A.O. is trying to cover payment made to an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regarding the nature of transactions entered into between the assessee and its distributors. The assessee company, by virtue of the licence issued by the Department of Telecommunications, Govt. of India, is engaged in providing Mobile telephone services to the public at large. The Govt. of India is allotting the licence to various parties in the filed on the basis of geographical specifications. The assessee is operating on all India level and therefore provides services in various States. The services provided by the assessee-company in the purpose of sales, administration and control. The assessee company either of its own or through outsourcing establishes the infrastructure facilities for providing Cellular services. 26. The assessee is offering two types of services to the public. The first of its kind is postpaid mobile services whereby the customers are opening account with the assessee company and makes the payment on monthly basis or so against the bills issued by the assessee company. In that case, the assessee company provides services to its customers at the first instance and thereafter issues bills and realizes the proceeds. The assessee company has appointed a numb....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... product. Distributors/Retailers are not permitted to sell the products to the ultimate consumers beyond the MRP. The assessee company is delivering these products to the distributors for a specified margin. For example, if the MRP is ₹ 100/- the assessee company may deliver the same to its distributors at ₹ 80/-. This is the invoice price of the assessee company. The assessee company collects this invoice price in advance from the distributors. The distributors are permitted to deliver these products to the ultimate consumers at a price of their choice but not exceeding ₹ 100/- per unit which is the MRP. The margin earned by the distributors being the difference between the sale price and invoice price is the remuneration of the distributors in this chain of transactions. Therefore, the basic question to be decided in these appeals is whether this margin of the distributors is commission or brokerage coming within the purview of section 194H of the I.T. Act, 1961 or the margin is a discount as claimed by the assessee company which is outside the purview of that section. The questions whether the assessee is in default and is liable to proceed u/s 201(1) and 201(1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Mobile Cellular Ltd. where the court has held that the relationship between the predecessor of the assessee-company and distributors are relationship of parties involved in providing service of pre-paid telephone services to the ultimate consumers. 50. While relying on the above judicial pronouncements, the assessee company has very much relied on the flexibility of pricing given to the distributors as per the latest agreement. It is the case of the assessee company that there was no occasion for the assessee company to make any payment to the distributors or to credit their accounts for services rendered by them. While the case of the assessee company is compared to the case of lottery tickets agents and stamp vendors, there are few vital differences. In the case of stamp vendors, even if he is purchasing stamp paper from the Government Depot at a discounted price, the stamp vendors cannot sell the stamp papers at below the denomination printed on it. The stamp worth ₹ 100/- is always sold to the general public at ₹ 100/- and not for any lesser price or any discount. Government remunerable and stamp vendors by providing a margin which is given at the time of the deli....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and distributors are responsible for the stock and account of those cards, it is not possible to hold that the distributors are not acting for the assessee company but the distributors are acting on their own behalf. Such a proposition is in-conceivable in the facts of the present case. It is always possible for the telephone company itself to provide all these services directly to the consumers as the Department of Telecom was doing; but such a direct service is not feasible now-adays. Therefore, the assessee has made out a business solution to appoint distributors to take care of the operational activities of the company for providing service. The distributor is one of the important links in that chain of service. 52. Another important feature is that the SIM Cards stocked by the distributors are still the property of the service provider, the assessee company. The permissive right to use SIM Cards to get access the phone network of the assessee company is given only to the ultimate consumer who activates the connection by using the secrete number provided in the SIM Card. It is only for the ultimate consumer or the assessee company who has the authority to un-cover the secret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee company is providing the service. Distributors are helping to reach such services to the ultimate consumers. In both the system, there is documentation. In both the system, the distributors render similar types of services to the assessee company. Of-course, accounting the revenue collection and related matters are different. The essence of post-paid and pre-paid services rendered by the assessee company is the same and the relationship between the assessee and the consumers is also the same. Therefore, if post-paid and pre-paid services rendered by the assessee company is the same and the relationship between the assessee and the customers is also the same. Therefore, if post-paid scheme is subject to section 194H, it is quite unlikely that pre-paid system would be outside the purview of section 194H. 58. In the case of pre-paid scheme, the ultimate consumer pays in advance and in turn distributors also pay in advance. In the post-paid scheme, the ultimate consumer is paying after availing the service and the distributors are also paying afterwards in one case money is received in advance and in the other case services are rendered in advance. Billing and collection may b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee has always raised a contention that too in the light of the judicial pronouncements including that of M.S.Hameed and others vs. Directors of State Lotteries and others 249 ITR 186 (Ker) that the assessee company had no occasion to deduct tax at source as the assessee company was not making any payment to the distributors or crediting the account of the distributors for any services rendered to it. But that occasion was removed by the assessee itself by conscious wordings of the terms of the agreement. The assessee company can collect the net sale proceeds along with TDS element from the distributors while distributing the pre-paid products to the distributors,. The distributors shall file their returns before the concerned authorities and depending upon the working results, they can adjust the TDS collected by the assessee company against their tax liability or the refund due. The fact that the distributors may some time deliver the products for a price less than the MRP is not at all an impediment in deducting the tax at source. The distributors may deliver the products at a lesser price, but even then for the purpose of section 194H, as the above example, the margin ava....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... service products are in the nature of commission and therefore, the assessee is liable to deduct tax at source u/s 194H. As the assessee has not complied with the provisions as stated above, the assessee is liable to be visited with the consequences provided u/s 201(1) and 201(1A) of the I.T.Act. The assessee company fails in its appeals filed before us." 23.1. In the present case, the issue before us is identical as in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra). We are bound to follow the decision of co-ordinate Bench decided in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra) which has dealt all the decisions relied upon by the assessee in the present case. 23.2. As regards the issue in the present case being identical as in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra), as already mentioned there is no dispute to the nature of transactions entered into between the assessee and the distributors. The assessee by virtue of the license issued by the Department of Telecommunications, Govt. of India, is engaged in providing Mobile telephone services to the public at large. The assessee has offered two types of services to the public. The first of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the present case. Now the question arises whether the assessee and its distributors are doing sale and purchase of goods or providing services through various agents. This question has been answered and affirmed by the Hon'ble High Court of Kerala in the case of M/s. BPL Mobile Cellular Ltd. vs. State of Kerala and others in Writ Petition No.29202 of 2005, where the Hon'ble High Court has held that there is no sale or purchase of goods. The assessee is doing exactly the same business. Therefore, it is not possible to hold that the SIM Cards and re-charge coupons delivered by the assessee company to its consumers and made available by them to the ultimate considers in the State of Kerala are goods. 23.5. The co-ordinate Bench of Cochin in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra) has dealt the decision in the case of Kerala State Stamp Vendors Association vs. Office of the Accountant General and others reported in 282 ITR 07 (Ker.); M.S,Hameed and Others vs. Director of State Lotteries and others 249 ITR 186 (Ker) and that of Ahmedabad Stamp Vendors Associations vs. Union of India 257 ITR 202 (Guj) and in the case of Idea Cellular Ltd - 121 TTJ 352 (ITAT, Hyder....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... network of the assessee company is given only to the ultimate consumer who activates the connection by using the secrete number provided in the SIM Card. There is no case of any purchase and sale in the matter of pre-paid SIM Cards,/re-charge coupons. In fact, the legal obligation in respect of providing pre-paid mobile services is between the assessee company and the ultimate consumer. In view of human conduct and behavior, the transaction between the parties has to be taken into consideration which, in fact, is delivering service relating to mobile telephone system, which the assessee-company is doing. The assessee company is operating under the license issued by the Govt. of India. 23.8. We find no difference between post-paid and pre-paid system even though post-paid and pre-paid are two different methods employed for providing services and collecting revenue, the nature and content of the service rendered under both the methods is one and the same. As far as the ultimate consumer is concerned, they are getting the service of mobile telephone, whether he is subscribing to the schme of post-paid or the scheme of prepaid. The assessee company is treating the benefits enjoyed by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellular mobile telephone services in Kolkata under the brand name 'AIRTEL'. The assessee provides such premises through its distributors by selling to them Starter Pack and Rechargeable Coupons which is commonly known as 'SIMCARD' and pre-paid Card (as there is no dispute regarding post-paid Card Mobile holders). These 'SIMCARDS' and rechargeable coupons were purchased by the distributors/franchisees appointed by the assessee at a fixed rate below the market price on such SIMCARD and the same was further sold to the retailers by whom it was ultimately sold to the customers. The A.O. while perusing the TDS return filed by the assessee observed that the assessee had paid commission on starter packs and recharge coupons to 16 parties, herein called "Franchisees" and though the assessee had deducted TDS on commission and deposited the same during period from April, 2002 to July, 2002, such deduction of tax at source was discontinued by the assessee treating the payment to such franchisees not as commission but as discount which was outside the ambit of TDS under section 194H. 3. Observing the above discontinuance of deduction of tax at source the A.O. issued show cause to the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the franchisees have independent business entity, it would be incorrect to hold that the discount allowed by the assessee to the franchisees on the sale made by it as a commission. The Ld. CIT(A) on the basis of above observation and also following the decision of Gujarat High Court in the case of Ahmedabad Stamp Vendors Association has vacated the order of the A.O. and has held that the discount allowed to the franchisees are outside the purview of section 194H. 7. The revenue is aggrieved with such order of the Ld. CIT(A) and has now come in appeal by taking following grounds of appeal in both the years.: (i) That the Ld. CIT(A) accepted additional evidence filed by the assessee during the course of hearing. No opportunity under rule 46A of the Income Tax Rules was given to the A.O. before passing the order under section 251. (ii) That the Ld. CIT(A) erred in allowing full relief to the deductor considering the benefit allowed to the agents as discount allowed to them. The persons who sales the starter packs and rechargeable coupons needs to get them appointed by the cellular company through a series of formalities imposed upon them. Sometimes they are not allowed to sell su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ld. Departmental Representative that since the assessee has itself considered such payments as commission in the nature in earlier years and from the perusal of the agreement between the assessee and the franchisees/distributors, it is evident that such agreement was meant for of principal and agent relation, the action of assessee, not deducting tax at source just on the basis of different opinion and changing the nomenclature of such commission cannot be held justified. The Departmental Representative has, therefore, submitted that the order of the A.O. should be restored. 9. In his rival submission, the ld. counsel for the assessee has relied heavily on the order of the Ld. CIT(A) and has submitted that the assessee is having two types of cards i.e. "Post-paid Cards" and Pre-paid Cards" and in the case of pre-paid card the distributor/franchisee has to pay the price of the recharge coupons, less discount provided to them and this is not a case where the franchisee collects the recharge coupons from the assessee, sells them to the customers and then deposit the sale proceeds to the assessee after deducting discount. It has further been submitted by the Ld. counsel that in this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt as discount in nature. Since the assessee has claimed that it was offering discount to its franchisee and the A.O. is of the opinion that such payment to franchisee is in the nature of commission, we are of the view that the nature of payment can well be examined with help of agreement between the assessee and the franchisee. 12. We find from the perusal of the agreement between the assessee and the franchisees, that the franchises were working for the assessee in a capacity of agents. While forming such opinion, we get support from the following paras of agreement entered by the assessee with one of the franchisee Shri Ashok Kumar Singh which is also available at page 22 onwards in the paper book. Some of the relevant paras of agreement reads as under: "4.1. The FRANCHISEE shall maintain a suitable establishment for the conduct of its business and the performance of its obligations under this Agreement. The FRANCHISEE shall use its best efforts to actively provide effective ways to both BML and the subscribers to the Service of BML 4.8. The FRANCHISEE shall use its best efforts and endeavours to market and promote the Pre-paid services to meet the growing demands of the subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs issued, amended and/or updated by BML from time to time. The FRANCHISEE shall ensure the availability to subscribers of the Pre-paid Services, a level of service standards strictly in accordance with BML's standards and specifications in terms here above is a material obligation under this Agreement." 13. From the perusal of above clauses of agreement between the assessee and the franchises, it is evident that these franchisees are commission agents acting on fixed margins and fixed responsibilities, as evident from Para 4.8 of the agreement which is again reproduced for the sake of clarity: "4.8.The FRANCHISEE shall use its best efforts and endeavours to market and promote the Pre-paid Services to meet the growing demands of the subscribers. At no point of time shall any right, title or interest pass to the FRANCHISEE in respect of the Prepaid Cards for the Pre-paid Services given to the subscribers for connection to the service and all right, title ownership and property rights in the such cards shall at all times vest with BML." 14. On a plain reading of above para, it is apparent that the rights with the Pre-paid Cards at all times vests with the assessee company before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n into consideration the fact that the franchisee price and payment for services is being decided from time to time by the assessee itself which clearly suggests that these are commission in nature and not discount as contemplated by the assessee and is also evident from clause No.8.1 of the agreement between the assessee and the franchisee which is being reproduced hereunder for the sake of clarity: "8.1. The FRANCHISEE's price and payment for services will be specified by BML from time to time. The rates are subject to variation during the term of this agreement at the sole discretion of BML and shall be intimate to the distributor from time to time." The assessee has relied heavily on Paras 16.1 and 16.2 in support of its claim that both the assessee and the Franchisees are independent business entity and is solely principal to principal basis. The relevant paras reads as under: "16.1. The FRANCHISEE understands that it is an independently owned business entity and this agreement does not make the FRANCHISE, its employees associates or agents as employees, agents or legal representatives of BML for any purpose whatsoever. The FRANCHISE has no express or implied right or auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....striction of maximum retail price, a principal enjoy full freedom of fixing sale price and also becomes owner of the goods purchased by it from another businessman. However, in this present case Franchisees/Distributors do not have any independence whatsoever to do so by reducing their margins. 21. Apart from above, in case of sale on discount, once the goods are sold there cannot be any restriction imposed by on principal on the other principal in regard to the manner and the area of sales of such goods sold. There can also not be any restriction on the manner in which the stock purchased by one principal has to be kept by it in case of purchase on discount. Whereas in the present case the assessee74 company has got all right to regularly monitor operation of Franchisee/monitor or investigate the manner in which business operations are carried on by such franchisees which is not possible in case of sale on discount. In the present case before us the assessee has entered into an agreement with Distributors/Franchisees allowing later to sell the product within its specified geographical area and directing the Franchisees the manner in which such product will be sold in the market. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consultancy or interior decoration or such other profession as is notified by the Board for the purposes of Section 44AA. (iii) the expression 'securities' shall have the meaning assigned to it, in clause(h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (iv) where any income is credited to any account, whether called 'Suspense Account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly" From the perusal of Explanation (1) to section 194H, it is well apparent that the franchisee appointed by the assessee are only buying and selling Pre-paid and SIMCARDS on and behalf of the assessee. It is also worthwhile to note that service condition on such Pre-paid and SIM CARD purchases by the ultimate customers is always decided by the assessee and is subject to variation from time to time as per policy of the assessee-company and the franchisee has no role except to play a role of middleman between the assessee and the ultimate customers for which he gets commission. 23. It is,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Coca Cola Beverages (P) Ltd. Vs. ITO [2005] 98 TTJ (Jp.) 1 has held that when the assessee having sold goods to its distributors to operation in specified territories only and sale of goods at fixed margins is under the supervision and control of the assessee, the transaction between the assessee and the distributors were on principal and agent basis and not on principal-to-principal basis and , therefore, the assessee is liable to deduct tax at source under section 194H in respect of payment to Distributors. 28. We observe that the facts involved in the present case are identified to the facts of the case disposed of by the Jaipur Tribunal in the case of Hindustan Coca Cola Beverages (P.) Ltd. as in this case also the assessee has sold Pre-paid Cards to its distributors to operate in specified territories only and sale of goods by franchisee gives them fixed margins decided by the assessee and the business operation of such franchisee is always under the supervision of the assessee and therefore such transactions are on principal and agent basis for which the assessee was liable to tax at source under section 194H. 29. We, therefore, considering the facts and circumstances of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TR 226 and Instruction F.No.275/101/95/-IT(B) dated 29th January, 1997, the A.O. has rightly held that the assessee is liable to satisfy the A.O. by furnishing the required proof that the taxes on the amount received from the assessee has been paid by the distributor which he has failed to do vide para 2.3. of his order. In the facts and circumstances, the order of the ld. CIT(A) is confirmed and the appeal of the assessee for the impugned year is dismissed. 24. Since the facts in all the appeals and in all the years are identical except the ground of non-deduction of TDS and other roaming charges during the assessment year 2007-08. Our decision hereinabove for the assessment year 2006-07 shall be applicable in all other years and accordingly all the grounds of all the years mentioned hereinabove i.e. for the assessment years 2006-07 to 2010-2011 are dismissed. 25. As regards the issue on account of roaming charges for the assessment year 2007-08 is involved, the assessee has contended that no TDS was required to be deducted u/s 194J of the Act in view of the decision in the case of Skycell Communications Ltd. And Another vs. DCIT reported in 251 ITR 53 (Madras). The nature of tr....