TaxTMI 
TaxTMI 
2017 (11) TMI 115
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....010-11 to 2012-13 respectively. Shri Depak Chopra and Shri Mansvini Bajpaai, Ld. Advocate appeared on behalf of assessee and Md. Usman Ld. Departmental Representative appeared on behalf of Revenue. 2. At the outset it was observed the issues in all the appeals are common except the amount involved. Therefore, we heard them together and deem it appropriate to dispose of them by way of this common order for the sake of convenience by taking the ITA 1501/Kol/2015 (A.Y. 2010-11) as lead case. First we take up ITA No.1501/Kol/2015 relating to A.Y. 2010-11. 3. The assessee has taken the following grounds in the appeal filed by assessee:- "The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - 24, Kolkata ['learned CIT(A)'] has erred in passing the order under section 250 of the Income Tax Act, 1961 ('Act'), partially confirming the allegations of the Deputy Commissioner of Income Tax, Circle-59 (TDS) Kolkata (Teamed TDS officer') in relation to requirement of TDS on discount extended to prepaid distributors by the Appellant. Each of the ground ....
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....f the case and in law, the learned CIT(A) has erred in not appreciating that discount allowed by the Appellant is not income in the hands of its pre-paid distributors and that income, if any, arises only when the right to pre-paid service is further distributed/transferred. by the distributors. 2.5. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that there is no flow of monies from the Appellant to its pre-paid distributor but rather from the distributor to the Appellant, and hence, the provisions of section 194H of the Act fail to apply. 2.6. (a) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the facts of the case and the submissions made by the Appellant distinguishing its facts with those considered by the Calcutta High Court in the case of Bharti Cellular Ltd Vs ACIT and the Kerala High Court in the case of Vodafone Cellular Limited. (b) On the facts and circumstances of the case and in law, the learned CIT(A) has failed to consider the recent judicial precedents in the case of Vodafone South Limited reported as Bharti Airtel Limi....
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.... the prepaid scheme the assessee sales the SIM / starter pack and prepaid talk time to the subscriber of pre paid connections. The subscribers can acquire the SIM / starter pack and pre paid talk time by way of recharge coupons, electronic top up, Internet or any other mode. Thus, the assessee for the purpose of providing the SIM / starter pack and pre paid talk time to its subscribers has created a distribution network by appointing the distributors exclusively for its pre-paid connections. In the case on hand the disputes relates to discount provided by the assessee on the sale of pre-paid talk time. The assessee was selling the recharge coupon / vouchers and starter pack to the customers through the net of distributors. During the course of assessment proceedings, AO observed that assessee was providing discount to its distributors from the Maximum Retail Price (MRP for short) on the sale of prepaid talk time through them which was in nature of commission. Therefore, assessee was liable for deduction of Tax Deducted at Source (TDS) u/s. 194H of the Act on the discount offered to its distributors. The AO further observed that assessee was deducting TDS on the commission paid t....
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.... the agreement] * The distributor shall be responsible for the sale of the service tickets exclusively for VESL as set out hereunder. The distributor hereby agrees, confirms and undertakes; (iii) to carry out its responsibilities with regard to e Topup as detailed in the Annexure-II; (iv) to strictly adhere to and comply with the Brand-image Guidelines set out in the Annexure-III; ... [clause 7 of the agreement] * The parties agree that upon termination of this Agreement for any reason the Distributor will return all equipment and furniture supplied by VESL forthwith upon request and remove all VESL signage and all other items indicating that the Premises were operated as an VESL Distributor. The Distributor hereby agrees to grant an irrecoverable license to VESL and its designated employees to enter the premises and remove all VESL signage if the Distributor has not done so itself to the satisfaction of VESL within 7 days of termination of the Agreement. [clause 10.1 of the agreement]. The Distributor shall not be entitled to any compensation or indemnity (whether for loss of distribution rights, goodwill or otherwise) as a result of th....
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....ties in respect of sales of the Service Tickets, including. (iii) proper verification of the identity of the customers in respect of the sale of Prepaid cards and proper documentation thereof a per guidelines of concerned authorities; and (iv) ensuring complete and proper documentary compliance by the customer including properly completed Customer agreement Form/s, Enrollment Form/s [clause II(a) to annexure III] * Bill collection and acceptance of payments on behalf of VESL for bills for charges in respect of cellular services and the Service Tickets on the following basis: Any payments by cheque will be payable to VESL and held for daily collection by VESL. [Clause II(d) to annexure III] * Demonstration and sales of value-added service of VESL. [Clause II(f) to annexure III] * Maintain such records and provide VESL with such reports as may be required for evaluation of performance from time to time. [Clause III(b) to annexure III]] 4. The transaction between the assessee and distributor in relation to SIM/ starter pack and recharge coupon is not sale & purchase transaction but actually it represents services provided by the di....
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....erefore the principles laid down by the Hon'ble jurisdictional High Court in the case of Bharati Cellular Limited (Supra) cannot be applied to the instant case. The relevant extract of the judgment is reproduced below:- "In this case, reading one of the standard agreements it does not appear that the same intends to create relationship in the nature of principal to principal. From cls. 16, 16.1, 16.2 and 16.3 of agreement, it emerges though nomenclature has been used franchisee the agreement is essentially that of the principal and agent albeit the stipulation in cl. 16.2. In real sense the franchisee acts on behalf of the assessee for selling start up pack, prepaid recharge coupons to the customers of assessee and it will be clear from cls. 4.1, 4.3, 4.4 & 8.1 of the agreement. (Paras 12 & 21) It appears from the records in this case that the transaction in case of prepaid SIM cards, and rechargeable coupons, sufficient stocks are to be kept by franchisee, and then the same are to be sold to the retailers at a rate stipulated by the assessee, say at Rs. 324 and the retailer is allowed to sell it to the ultimate customer at the maximum price again fixed by the ....
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....Poddar Communication are reproduced below:- "5) SERVICE PROVIDER'S DUTITIES In order to provide the Services in the manner specified by HTEL, the Service Provider agrees to: (a) commit minimum manpower as under and comply with all statutory requirements with regards to wags and service conditions or any other regulations concerning such employees; (b) ensure that all payments to THE due under this Agreement are tendered in a timely manner; (c) comply with in reasonable time frames as determined by HTEL for completion of any of its obligations hereunder; (d) immediately advise HTEL as soon as it comes to know that any person is infringing or violating or is attempting or planning to infringe or violate any intellectual property rights owned or used by HTEL and its services and, if requested, forward promptly, a written report setting forth all the relevant information in its knowledge. (e) Comply with all of HTEL's requirements in respect of invoicing and accounts; (f) Unless otherwise agreed in writing, be solely responsible for all costs and expenses for all operating expenses incurred in connection therewith; ....
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....me. HTEL makes no warranty either express or implied concerning HHTEL;s services for a particular use or purpose. (s) The service provider shall not transfer, assign, sub-licence, encumber or in any other way deal with any of its rights or obligations under this agreement without the prior written consent of HTEL such rights and obligations being personal to the Service Provider. 6) HTEL's DUTIES HTEL agrees to; (a) Provide its expertise and to guide and assist the Service Provider in the various activities pertaining to the setting up and operation of the services and to provide continuing assistance in providing the Services using the latest techniques and skills available to HTEL; (b) Provide assistance (on request form the service provider) to its staff on service knowledge and updates; (c) Provide and maintain an up-to-date list of services and/or suppliers form which the Service provider may purchase stock services or accessories; (d) Ensure that all payments due to the service provider in accordance with this Agreement are paid within the agreed period. 7) PAYMENT In consideration of the service provider....
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....ii) to furnish an undertaking to VESL in such format and manner as VESL may prescribe form time to time with regard to due compliance with the rules, regulations and directions of Department of Telecommunications (DoT) and/or any other authority (Central/State/Local) in respect of verification of identit9y of customers (end users of the Prepaid cards). 5.VESL'S OBLIGATONS VESL shall; (a) provide the Distributor with such marketing and technical assistance as VESL may in its discretion consider necessary to assist the Distributor for the promotion of the Service Tickets; (b) Endeavour to answer as soon as possible all technical queries raised by the Distributor or its customers concerning the use or application of the Service Tickets; (c) Provide the Distributor with adequate quantities of instruction manuals, technical and promotional literature and other information relating to the Service Tickets; (d) Provide the Distributor with all information and assistance necessary to enable the Distributor to perform its obligations hereunder in respect of any modified or enhanced versions of the Service Tickets. (e) Provide it ....
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....r shall make all payments in respect of purchase order in advance by way of an account payee crossed Bank Draft/Cheque favouring "Vodafone Essar South Limited" or in cash. (ii) Delivery of the Service Tickets shall be only after receipt/realization of full payment in respect of each purchase order, VESL shall not be liable for transportation or any other arrangement for selling the Service Tickets. (iii) All charges in respect of transportation from the place of delivery to its destination including any handling charges or other levies shall be borne by the Distributor. (c) Place of Delivery: (i) In case of physical Stock - at the place designated by VESL in this behalf. (ii) In case of e Topup - electronic transfer of refill/recharge value by VESL to the Distributor. (d) Time of Delivery: All deliveries will be made only during working days (Monday to Friday except public holidays) during the working hours (i.e 10.00 a.m. to 5.00 p.m.) subject to availability of the stock. (e) Return & Replacement: VESL shall not be responsible for any post delivery defect in the Service Tickets. However, VESL may, at its sole discreti....
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....g paragraphs. Ld. AR further also drew our attention on clause No.17.2 of the agreement which shows that the relationship between the assessee and its distributors are on principle-toprinciple basis which reads as under:- "17. NO CREATION OF THIRD PARTY OBLIGATIONS 17.1 Notwithstanding anything contrary contained herein, the Distributor shall not, without VESL's prior specific approval/consent in writing, assume or create any obligations on VESL's behalf or incur any liability on behalf of VESL or in any way pledge or purport to pledge VESL's credit or accept any contract binding upon VESL. 17.2 The relationship of the parties is that of seller and buyer and it is hereby expressly agreed and clarified that this Agreement between VESL and the Distributor is on principal to principal basis and neither party is, nor shall be deemed to be, an agent / partner of the other. Nothing in this Agreement shall be construed to render the Distributor a partner or agent of VDSL." In view of above the ld. AR submitted that the case law i.e. Bharati Cellular Limited (Supra) relied by the ld. CIT(A) are based on distinguishable facts and therefore the same cannot be appli....
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....earned by the distributor, subdistributor and the retailer would be dependant on the agreement between them and all of them have to share Rs. 20/- which was allowed as discount by the Assessee to the distributor. There was no relationship between the Assessee and the subdistributor as well as the retailer. (Para 62) 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 was concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, High Court was satisfied that it was a sale of right to service. The relationship between the Assessee and the distributor was that of principal to principal and, therefore, when the Assessee sells the SIM cards to the distributor, he was not paying any commission; by such sale no income accrues in the hands of the distributor and he was not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there was no primary responsibility, the Assessee had no obligation to deduct TDS. Once it was held t....
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....arties. 44. Now, the first question which has come up for our consideration is, 'whether in the facts and circumstances of the case the learned Tribunal was right and justified in holding that assessee was liable to withhold tax at source under S. 194H of the Income Tax Act, 1961 amounting to Rs. 19,74,842/- (including interest) in respect of sales to its distributors, which are on principal to principal basis and wherein property in the goods is transferred to the distributor' 45. Taking into account the provisions of Section 182 of the Contract Act and the arrangement which has been entered into between the company and the distributor and taking into account the provisions of Section 194H, the Tribunal while considering the evidence on record, in our considered opinion, has misdirected them in considering the case from an angle other than the angle which was required to be considered by the Tribunal under the Income Tax Act. The Tribunal has travelled beyond the provisions of Section 194H where the condition precedent is that the payment is to be made by the assessee and thereafter he is to make payment. In spite of our specific query to the counsel for the depa....
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.... of the assessee to give Distributor-sip for a particular area. Only on that basis, it will be erroneous to hold that it is on Principal to Principal basis. For deciding the relation-ship on Principal to Principal basis, the criteria will not be of area of operation but agreement entered into between the parties. (v) Regarding the change in price it is always between the assessee or the company and the Distributor to decide who will absorb the loss. In that view of the matte, the findings arrived at by the Tribunal is erroneous. (vi) Regarding the return of goods after expiry date, it is always the understanding between the manufacturer and company that the product is not for preparation or consumed before expiry date, the consumed items cannot be allowed otherwise manufacturer will invite criminal liability. To avoid any criminal liability or any criminal act is done for taking back the goods, will not deter the relation-ship to Principal to Principal basis. (vii) Regarding supervision, s always for the manufacturer and the company to look into the matter that his Distributor or Sub- Distributor or Retailer will not induct in mal practice. ....
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....ellular Limited (supra). Page 23 9.1 Now the issue before us arises for our adjudication so as to whether the discount given by the assessee is in the nature of commission in the given facts & circumstances. From the submission of the Ld. AR for the assessee, we find that the transaction of recharge coupons was treated as sale in the books of accounts which was shown net of discounts in the books of accounts. In this connection we find that the agreement made between the assessee and the distributor was for the sale of recharge coupons and not the agreement for the commission. The relevant portion of agreement has already been discussed in the preceding paragraph and the same is not reproduced here for the sake of brevity. On perusal of the agreement it can be inferred that the transaction between the assessee and the distributor was based on principal to principal basis and which is in the nature of purchase and sale transaction. There was no clause in the agreement suggesting that the assessee is liable for the payment of the commission to the distributors. The distributor was authorized to sale the prepaid recharge coupons at a price of its/ his choice but not exceeding MR....