TaxTMI 
TaxTMI 
2018 (5) TMI 229
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.... given by Ministry of Information & Broadcasting, Government of India. DTH service is a mode by which television signals are provided directly at the home of the subscribers, without passing through any intermediary, such as cable operators. The Set-Top Box (STB) at the premises of the subscribers receives such signals directly through the dish antenna and such signals are viewed on the television by the subscriber. The assessee entered into agreements with various parties (called distributors and dealers) for distribution/ sale of Set-Top Boxes, sale of recharge vouchers, prepaid vouchers etc. The assessee also entered into agreements with various parties (called Installation Service Providers -ISPs) at various locations for carrying out the work of installation of STB and Dish Antenna. As per the existing procedure, the. distributors/ dealers are allowed discounts on sale of STB and recharge vouchers from their Maximum Retail Price (MRP). The distributor/ dealer can sell these items to the customers at a price not exceeding the MRP. As regards the Installation Charges, the assessee has deducted tax at source u/s 194C, of the Act .from the charges, paid .whereas no tax has been de....
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.... made by the appellant would constitute 'fees for technical services' as defined in the Explanation 2 to Section 9(1)(vii) of the Act. The AO is of the view that ' activity of Installation of DTH apparatus needs certain skills and technical expertise. On the other hand the case of the appellant is that from the nature of services being rendered by ISPs, it is evident that they do not fall within the scope of technical services. 7.11 The job of the Installation Service Provider is to go to the premises of the subscriber, to install dish antenna and Set-Top Box. Thereafter, the Installation Service Provider has to connect the Set-top Box to the Television of the subscriber by making few wiring connections. This can be done by any sound person after reading the installation manual carefully. With regard to the claim of the AO that training is given by the appellant, the argument of the AR is that basic training/ instructions are provided for a short period to make them understand the process of Installation so that they can apply the same at the place of the subscriber. Further, the services from skilled and technically qualified persons cannot be obtained at a me....
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....stallation of hardware at the customer's/subscriber's premises is carried out by a technically skilled person as the software is to be synchronized with the TV set to provide the DTH services and other technical services are also to be rendered. We observe that the work of installation of Set-Top Boxes and Antenna at the premises of the end-user is given as per the contract with Installation Service Providers (ISPs). The job of the Installation Service Provider is to go to the premises of the subscriber, to install Dish Antenna and Set-Top Box and connect them to the Television of the subscriber. The Installation Service Provider has to connect the Set-top Box to the Television by making few basic wiring connections. It does not require any special technical expertise or any technical degree and it can be done by any sound person on reading through the installation manual. Also, there is no specific qualification or recognized course required for Installation Service Provider to become eligible for installation of Dish and Set-Top Box. They are given basic training/instructions for a short period to make them understand the process of Installation so that they can apply the....
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....rice. The distributors/ agents sell the various products (STB and RCV) to the subscriber of customer at a price not exceeding the Maximum Retail Price. There are two types of discount / incentives given to dealers / distributors, one at the time of sale which is given in the invoices itself and another on activations of STB by way of credit notes. Since, assessee has not deducted tax at source on the said discount allowed to the distributors / agents, the AO held that assessee is in default u/s.194H of the Act. Even though there are various judicial pronouncements holding different view, however, the issue has been dealt elaborately by the ITAT Ahmedabad Bench in the case of Videocon Essar Gujarat Ltd., 60 Taxmnn.com 214, wherein issue has been dealt with threadbare and the Tribunal held as under:- 1. By way of this, the assessee appellant has called into question the correctness of order dated 31 st December 2010 passed by the learned CIT(A), in the matter of tax withholding demand raised under section 201(1) and 201(1A) read with Section 194 H of the Income Tax Act, 1961, for the assessment year 2008-09. 2. In the first ground of appeal, the assessee has raised ....
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....it was thus highlighted, is on principal to principal basis. It was submitted that since distributor does not render any service to the assessee, the difference between the sale p rice and the MRP cannot be treated as discount for the purposes of Section 194H. Certain judicial precedents were also cited by the assessee to support his case but, for the reasons we will set out in a short while, it is not really necessary to go into that aspect of the matter. None of these submissions, however, impressed the Assessing Officer. He proceeded to reject these submissions and hold the assessee as an assessee in default, for not deducting tax at source from commission on sale of prepaid airtime, under section 201 of the Income Tax Act, 1961. While doing so, the Assessing Officer observed as follows: The above submission of the assessee have been duly considered. However, the same is not acceptable on the following grounds: - Before making any conclusion that difference between MRP and Sale Price to distributor is commission or riot it is necessary to ascertain that whether the nature of business entered into between the company and distributor are sale and purchase of goods or prov....
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....Court, the essence of the contract between company and distributors is that of service and margin between MRP and sale price is nothing but commission. This view has also been upheld by the Hon'ble ITAT, Cochin in ITA No. 106 to 113/Coch/2007 in the case of Vodafone Essar Cellular Limited vs. ACIT, Cochin (in the case of deductor itself). The Hon'ble ITAT has taken into consideration all relevant facts and the decision cited by the company and held that there is no relationship of principal to principal and difference of price -is nothing but commission. In view of the above, I am of the considered view that deductor is liable to deduct the tax at source u/s.194H on amount of difference between MRP and sale price paid by the distributors. The such difference is works out to Rs. 51,67,60,486/-. Therefore, the deductor is treated as deemed defaulter u/s,201(1) of the I.T. Act to the above extent and also liable to charge interest u/s.201(1A) of the I.T. Act. 4. Aggrieved by the stand so taken by the Assessing Officer carried the matter in appeal before the CIT(A) but without much success. Learned CIT(A) extensively reproduced from the written submissions fil....
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....r itself states that the assessee has sold the "pre-paid vouchers, of various face value, to its distributors, at a rate lower than its face value ", and that "the difference (between the face value and the price at which is sold) is nothing but commission on which no tax has been deducted ". The short issue that we are required to adjudicate in this appeal is whether the provisions of section 194H will come into play in respect of the difference between the price at which the airtime is thus sold to the distributors and its recommended retail price to the end consumers. 8. This issue is no longer res integra. As the same business model, with no or peripheral variations, has been followed by almost all the operators in the mobile telecommunication industry, this issue has been subject matter before various forums, and more importantly, before various Hon'ble High Courts. Learned Representatives fairly agree that the above issue in appeal is subject matter of difference of opinion by various Hon'ble non-jurisdictional High Courts and that we do not have the benefit of guidance by Hon'ble jurisdictional High Court. 9. This issue is covered, in favour of ....
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....he case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal. 63. It was contended by the revenue that, in the event of the assessee deducting the amount and paying into the department, ultimately if the dealer is not liable to tax it is always open to him to seek for refun....
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....on to be considered is whether Section 194H is applicable for the "discount" given by the assessee to the distributors in the course of selling Sim Cards and Recharge coupons under prepaid scheme against advance payment received from the distributors. We have to necessarily examine this contention with reference to the statutory provisions namely, Section 194H .... What is clear from Explanation (i) of the definition clause 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 (supra) abovereferred 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 continued services by the assessee to....
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.... 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 ove....
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.... loyally accepted" (See observations of Lord Hailsham and Lord Diplock in Broome vs. Cassell). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system 12. The question whether the non- jurisdictional High Court binds the Tribunal benches or not came up for consideration before Hon'ble Bombay High Court in the case of CIT Vs Godavaridevi Saraf [(1978) 113 ITR 589 (Bom)]. That was a case in which Their Lordships were in seisin of the question as to "whether, on the facts and circumstances of the case, and in view of decision in the case of A.M. Sali Maricar & Anr. vs. ITO & Anr. [(1973) 90 ITR 116 (Mad)] the penalty imposed on the assessee under s. 140A(3) was legal ? The specific question before Their Lordship s thus was whether the Tribunal, while sitting in Bombay, was justified in following the Madras High Court decision. It was in this context that Hon'ble Bombay High Court concluded as follows: "It should not be overlooked that IT Act is an all India stat ute, and if a Tribunal in Madras has to proceed on the footing that s. 140A(3) was non-existent, the order of ....
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....ng supplied by us) 14. A little later, however, while dealing with a materially similar situation, in the case of CIT Vs Maganlal Mohanlal Panchal (HUF) [(1994) 210 ITR 580 (Guj)], vide judgment dated 1 st September 1994, Their Lordships have held as follows: ........ At the time when the Tribunal decided the appeal, that was the only decision in the field and, therefore, in view of what the Bombay High Court has held in CIT vs. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom) and CIT vs. Smt. Nirmalabai K. Darekar(1990) 186 ITR 242 (Bom), the Tribunal was bound to follow the said judgment of the Madras High Cour. It, therefore, can not be said that the Tribunal committed an error in following the said judgment of the Madras High Court. In view of the said decision of the Madras High Court, the only course which the Tribunal could have followed was to direct the ITO to consider the pa rtial partition on the merits and pass an order under s. 171 first and then under s. 143(3) of the Act 15. It is clear that, except on the issue of legality of the statutory provision itself, the decisions of even the non-jurisdictional High Courts are binding on I.T.A. No.:....
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....construction which favours the assessee must be adopted" Although this principle so laid down was in the context of penalty, and Their Lordships specifically stated so in so many words, it has been consistently followed for the interpretation about the statutory provisions as well. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)] the above principle of law has been reiterated by observing as follows: "......Counsel submits that when two interpretations are possible to be made, the interpretation which is favourable to the assessee should be adopted. In support of that contention, learned counsel has placed reliance upon a few decisions of this Court in CIT vs. Madho Prasad Jatia (1976) 105 ITR 179 (SC); CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and CIT vs. Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 518 (SC) : .........The above principle of law is well-established and there is no doubt about that......." 19. Having noted the legal position as above, it is appropriate, for the sake of completeness, to note the exception to this general rule as well. Hon'ble Supreme Court had....
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....ourt not favourable to the assessee. In our humble understanding, it is only on this basis, without sitting in value judgment on the views expressed by a higher tier of judicial hierarchy, that the conflicting views of Hon'ble non jurisdictional High Courts can be resolved by us in a transparent, objective and predictable manner. 21. It is very tempting to believe, or pretend to believe, that, in the absence of direct decision on the issue by the Hon'ble jurisdictional High Court, we have unfettered discretions in exercise of our judicial powers but then such an approach will not only be contrary to settled legal position, as set out above, but also, in a way, an exercise in impropriety. I.T.A. No.: 386 /Ahd/11 Assessment year: 2008-09 22. We may also mention that a single member bench of this Tribunal, in the case of ITO Vs Bharat Sanchar Nigam Limited and vice versa (ITA No 170/Hyd/2010 and CO No 10/Hyd/10; order dated 5 th June 2015) has reached the same conclusion but the reasoning adopted, for following Hon'ble Karnataka High Court's judgment in the case of Bharti Airtel Limite d (supra), was stated to be that "Since no jurisdictional....
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....#39; - assessee Page 68. 2 ''Distributor shall not make any promise, Clause 1e of Annexure III to the agreement provides that the representation or to give any warranty or distributor shall not make any promises or representation or guarantee with respect to services and give any warranties or guarantees in respect of the service products, who are not authorized by the tickets except such as are consistent with those which assessee' - Page 69. accompany the Service Ticket or as expressly authorized by the assessee in writing. 3 That the insurance liability for the entire As per clause (iv) of Annexure II to the agreement, the stock in trade in the premises at the assessee is not liable for any loss, pilferage or damage to the address under reference will be of the recharge vouchers/service tickets post-delivery of the same to Distributor and the liability for any loss or the distributors. The assessee does not compensate the damage due to any fire, burglary, theft distributors for any unsold stock etc., will be of the Distributor.' - Page 69. 4 'The Distributor has no express or implied Distributor does not have an authority to assume ....
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.... the assessee) under any circumstances". (b) The fact that there are certain conditions and stipulations attached to the sale of this right of service by the assessee to his distributors does not affect the character of sale on principal to principal basis. (c) Section 194 H comes into play only in a situation in which "any person, ........responsible for paying..... to a resident, any income by way of commission" pays or credits such "income by way of commission" . However, since at the time of the assessee selling these rights for a consideration to the distributor, the distributor does not earn any income, the provisions of Section 194 H donot come into play on the transaction of sale of the right to service by the assessee to his distributors. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor (d) So far as the transaction of sale of 'right to service' by the assessee to his distributor is concerned, while it has income potential at a future points of time (i.e. when this right to service is sold at a profit by the distributor), rather than earning income,....
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....seller and that the agreement is on a principal to principal' basis and neither party is, nor shall be deemed to be, an agent/partner of the other. It Is also provided thai nothing in the Agreement shall be construed to render the distributor of a partner or agent of the assessee. rincipal to Principal arrangement: Clause 8 - Nothing in this agreement shall constitute or deemed to constitute lartnership between the parties hereto, or constitute or be deemed to constitute the distributor as an agent of the Company for any purpose whatsoever, and the Distributor shall have no authority or power to bind the Company or to contract in the name of the Company in any way or for any purpose The relationship between the parties hereto shall be that of a vendor and a purchaser on principal-to- principal basis. (PB Page No. 55) Clause 9 - The Distributor may describe himself as the Company's "Authorize;: Distributor" in respect of the Products, but roust not hold himself out as the company's agent for sales of the Products or as being entitled to bind the company| in any way. (PB Page No. 55) 2. Distributor shall not make any promise *^presentation or to give any warranty....
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....with respect to any matter relating to the Product being sold by the company. The Distributor shall also take the necessary insurance cover for all the stock at the warehouse and shall keep the company indemnified against any loss, theft of such stock. (PB Page No. 59) 4. The Distributor has no express or implied right or authority to assume or undertake any obligation in respect of or on in the name of the assessee.' Distributor docs not have an authority to assume or create any obligations VWL's behalf or incur any liability on behalf of VWL r accept any contract binding upon VWL (clause 17.1 of the Agreement). Clause 29 - The Distributor hereby agrees that the dealer's appointed by it, in rms of this agreement, would not in anyway be constituted as agent/s of the Company for any purpose whatsoever, and the dealer/s shall have no authority or power to bind the Company or 10 contract, or create a liability, in the name of the Company, in any way or for any purpose whatsoever. The relationship between the distributor and the dealer/s shall be that of a vendor and purchaser on principal-to-Pirincipal basis. The Distributor also agrees that all the benefits/in....