TaxTMI 
TaxTMI 
2018 (5) TMI 703
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....that the Appellant was duty bound to deduct tax at source under section 194H from the discounts allowed to its distributors on bulk sale of starter kits and recharge vouchers (RCVs) under section 194H of the Income- tax Act, 1961 ('IT Act') and consequently hold it to be an assessee in default under section 201 of the Act. i. That the Ld CIT (A) grossly erred in not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/credit to payee's account and that the discount allowed is not payment/credit made to the Channel partners account; ii. That the Ld. CIT (A) grossly erred in not appreciating that Section 194H would not apply as the discount allowed does not qualify as income chargeable to tax under the Act in the hands of the payee in the facts and circumstances of present case; iii. That the Ld CIT (A) erroneously classified the discount given by the Applicant to its Channel Partners at the time of bulk sale of Starter Kits and RCVs as commission/brokerage; iv That the Ld. CIT (A) completely erred in holding that the principal-agent relationship existed between the Appellant and its Channel partners without appre....
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....ugned order in violation of the principles of natural justice by not granting an opportunity to the Appellant to independently cross examine the technical expert's opinion on interconnect usage charges, if any, as directed by the Honourable Supreme Court in case of Bharti Cellular Limited E. That the Ld CIT (A) erred in construing and relying on the crossexamination in the case of Vodafone West Ltd. F. That the Ld. CIT (A) erred in not appreciating that as per the decision in CIT vs Bharti Cellular [2011] 330 ITR 239, examination and cross examination of expert had to be conducted in the facts/case of the Appellant and that the Appellant was to be granted an opportunity to adduce its evidence; G. That the Ld, CIT (A) has grossly erred in ignoring the C.A. certificates available in respect of MTNL, Hutchison Essar and Tata Communication. H. That the Ld. CIT (A) grossly erred in levying interest under section 201(1A) of the Act; I. That the Ld. CIT (A) grossly erred in not considering the contentions and grounds raised by the Appellant." 3. The common issues involved in all these appeals pertain to (i) the demand raised against the assessee under section 201(1) a....
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....ducted on such interconnect usage charges (IUC), being the fee for technical services, as per section 194J of the Act. The details of such payments, on which no TDS was made by assessee are as under : Sl. No. Name of operator Amount of IUC paid 1. Hutchison Essar 12,06,69,183 2. MTNL 19,67,57,060 3. Reliance Communication 15,62,20,843 The Assessing Officer relying on the decision of Hon'ble Supreme Court in the case of Vodafone Essar Mobile Services Ltd., in Civil Appeal No. 6692 dated 12.08.2010, considering the detailed contentions of the assessee, extensive exercise carried out by Assessing Officer in assessment proceedings for F.Y. 2002-03 with the help of experts and the circular of CBDT on alternate plea of assessee, treated the assessee in default for not deducting TDS u/s. 194J of the IT Act on the impugned IUC and calculated the tax liability and interest on above payments made for IUC at Rs. 6,41,33,290/- vide assessment order. 6. The assessee assailed the order of Assessing Officer in appeal before the ld. CIT(A), who after considering the detailed submissions of assessee, various case laws and attending circumstances of the case, affirmed the order of....
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....he distributors is missing as the discount cannot be equated as income in the hands of the distributors. Distributors make its income on further sale of these products in the market. The services that have been rendered by the channel partners are those which are the terms of license conditions to be adhered by any operator under the license agreement issued by the department of telecommunication. For these services the channel partners are remunerated in the form of commission / incentives / credits on which' the appellant has been deducting TDS appropriately as required under the Act" 6.3 The appellant has quoted the judgment of Hon'ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Associates Vs. Union of India (2002) 124 Taxman 628 (Guj) and Mother Dairy India Ltd. Vs. ITO (Delhi) (2009) 28 SOT 43 (Delhi), and has stated that "there is sale of the products inbuilt for which upfront payment is made and accordingly an agreed discount as per the market condition is allowed. There is a transaction of sale and payment of applicable sales tax/VAT on goods involved in the transaction. In case of the transaction of sale of goods i.e. SIM cards etc. the appellant r....
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....mmission or Brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) ............... (iii) ............... (iv)............. 6.7 The provisions of Section 194H suggests that except for a situation which is encompassed by the second proviso, it applies to all persons other than an individual or an HUF who is responsible for paying on or after 01.06.2001 to a resident any income by way of commission to deduct tax at source at the time of credit of such income to the account of the payee, that is, the recipient or at the time of payment of such income in cash or by issue of cheque or draft or by any other mode. In other words where a person pays to a resident income which is of the nature of commission then that person is obliged to deduct tax at source at any of the said stages, that is, either at the time of credit of such income/commission or at the time of payment which may....
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...., that is, the principal, liable to be sued directly by the third parties. (Reference: Varsha Engineering Pvt. Ltd vs Vijay Traders & Ors AIR 1983 Guj 166 at pages 168-169, para 5). (ii) The person who purports to enter into a transaction on behalf of the principal would have the power to create, modify or terminate contractual relationship between his principal, that is, the person whom he represents, and the third parties. (Reference: P. Krishna Bhatta & Ors. Vs. Mundila Ganapathi Bhatta (died) & Ors. AIR 1955 Mad 648 at page 651, para 36). (iii) An agent, though bound by instructions given to him by the principal does not work under the direct control and supervision of the principal, The agent thus uses his own discretion to act on behalf of the principal subject to the limits to his authority prescribed by the principal. (Reference: Lakshminarayan Ram Gopal & Son Ltd i/sThe Government of Hyderabad AIR 1954 SC 364 at page 367, paragraphs 11 & 12. This cited with the approval in Qamar Shaffi Tyabji vs The Commissioner/ Excess Profit Tax, Hyderabad (1960) 39 ITR 611 (SC) at pages 615 & 616. 6.12 In order to apply the above test to the nature of transaction between TTSL a....
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....rtners are in relation to both products and ancillary services. A particular Channel Partners is marketing & distributing both. Moreover the discounts are offered on purchase of products i.e. SIM Cards/Recharge vouchers, for further distribution. 6.14 The ownership/legal and equitable title and interest in SIM Cards/Recharge vouchers remains with the appellant. The distributors are supposed to store the SIM Cards/Recharge Coupons in such a way as to clearly indicate at all times that these are owned by TTSL and is not allowed to remove, obscure, delete any mark placed on the SIM Cards. The distributor is also not free to sell the similar products offered by competitors company. 6.15 Also the owner of the SIM Cards/Recharge Coupons is the appellant as it is operating under the right of a licence agreement entered into with DOT. The SIM Cards is in the nature of a key to the consumer to have access to the telephone network established and operated by the appellant. Since the SIM Cards is only a device to have access to the mobile phone network there is no question of passing of any ownership or title of the goods from the appellant to the distributor or from the distributors to....
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....o abide to (Ciause 2.1, 2.2, 2.3). The Channel Partners is not independent in making decision with respect to marketing and distribution standards, appointment of dealers/retailers, place of business but has to carry out its duties as underlined by TTSL in its Operational Manual (Clause 8.5 (ii) (iv) (vi) (vii) (ix)) Any negligence on part of the Channel Partners in market and distribution of service products would render it liable to TTSL, the service provider (Clause 14.1) 6.21 Perusal of clauses 8.1, 8.5 (ii), (iv), (vi), (vii), (is), 8.8 & 8.10 clearly indicate that the Channel Partners has no right over the product. Hence the claim of the appellant that there is a principal to principal relationship between TTSL and the Channel Partners is fallacious. 6.22 As a matter of fact, since the SIM Cards/recharge coupon etc are issued by Channel Partners on behalf of TTSL, who is the provider of cell phone connections and other ancillary services, it holds the Channel Partners harmless and is obliged to indemnify the Channel Partners for any loss caused on account of any failure to provide such service contracted for by the Channel Partners on behalf of TTSL (Clause 14.2). 6.....
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....rged by TTSL from the Channel Partners are in the nature of discount rather than commission is not tenable. The fact that this is a payment which the Channel Partners receives from the retailers by virtue of sale of the items of which TTSL is the owner, at a point till the transaction is made, clearly establishes that it is a commission and not Discount. The word 'discount1 is normally used to describe a deduction from the full amount or value of something especially a price, whereas a commission is defined in Explanation (i) to section 194H as any payment received or receivable, directly or indirectly by an agent for services rendered acting on behalf of the principal. In view of the fact that the payment earned by the Channel Partners is inextricably linked to the sale of the SUKs/RCVs, it cannot but lead to the conclusion that the payment earned over and above the discounted value fixed by TTSL is indirectly, a commission within the meaning of section 194H of the Act. this is especially so, as at no point in time (as discussed above) the Channel Partners obtain proprietary rights to the SUKs/RCVs the price fixed by TTSL and paid by Channel Partners are merely advance payment....
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....1, 4 to 10 are dismissed. On the second issue, the ld. CIT(A) observed as under : 11. Ground No. 12.13.14 & 15:- In respect of these Grounds Ld AR of the appellant pleaded that the AO raised demand on account of TDS liability u/s 194J on payment made for Interconnect Usage Charges (IUC) to other operators. The appellant has also contended in Ground No. 14, that the AO did not provide the appellant with the opportunity to cross examine the statement of technical experts. 11.1 In the remand report dated 04.02.2014 and 02.06.2014 the AO has submitted that: The applicability of Section 194J of the Act on the payments towards Interconnect Usage Charges (IUC) was inflicted purely based on the statement of expert recorded to ascertain the human intervention during the process of carriage of calls through interconnect of networks of two operators. Also, it was stated before the Id CIT(A) that the appellant was denied proper opportunity to cross examine the experts who have asserted the involvement of human on the said process. Secondly, it was submitted that, without prejudice on non application of any TDS on IUC payouts, audited certificates/self relevant taxes by various paye....
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....perator network and hence there were no inter-operator payments for roaming charges n this account and on request, the case was adjourned on 25.03.2011. * Yet again, vide order sheet entry dated 25.03.2011, the ARs were asked as to whether any tax was deducted u/s 194J of the Act on IUC charges and the case was further adjourned to 28.03.2011. * Further, during the proceedings u/s 201(1) of the Act, the then AO correctly recorded her displeasure in order sheet entry dated 28.03.2011 over the action of ARs of the deductor company in not complying with the requirements as called for repeatedly with reference to the details of TDS on IUC charges. The then AO further conveyed the limitation of the proceedings which was duly acknowledged by the ARs vide order sheet entry dated 28.03.2011 and the case was again adjourned to 29.03.2011. * The then AO vide order sheet entry dated 29.03.2011 observed that the tax u/s 194J of the Act was partly deducted on UC and hence, required the ARs to show cause as to why it should not be treated as an assessee in default. Accordingly, the case was adjourned to 30.03.201 1. * The reply filed vide letter dated 30.03.2011 were duly considered ....
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....y ACIT, Circle-51 (1) was relied upon by the AO as the facts of the present case was similar to that of Vodafone Essar Mobile Service Ltd. 11.4 Perusal of details submitted during appellate proceedings as well as r _ AO's order dated 30.03.2011, it is observed that the entire process of carriage and transfer of calls from the network of one operator to another though being - an automated process undertaken by a series of highly advanced telecom network equipment, still requires constant human intervention in form of configuration, installation, testing etc. in the order to make the process of carriage of calls effectively operational. Moreover after analysing the reason why expert opinion was not cross verified by TTSL given by the AO in remand report. I see no reason to interfere with the observations of the AO in this connection. 11.5 Thus I observe that the Id AO has correctly taken the view that TDS is required to be deducted on payments made to various parties/service providers for ILJC charges as the same constitutes fees for technical services u/s 194J of the IT. Act. Therefore Ground No. 12 to 15 stand dismissed. 11.6 However, before me during appellate proceed....
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....ppellant in course of its business supply the SIM Cards and Recharge Vouchers to its distributors (also referred to as the channel partners). That the primary agreement with the channel partners is to buy & sell Appellant's products on a principal to principal basis [clause 2.4 of the Distributor Agreement @pg. 83 of the paper book]; the Appellant sells its product to channel partners allowing discount on the primary transaction, which the channel partners were free to sell to sub-channel partners/retailers at any price not exceeding the Maximum Retail Price (MRP). There is no payment nor any sum credited by the Appellant to the channel partners, as the amount under consideration is discount allowed at the time of sale of starter kits and Recharge Vouchers. The Purchase of these products are accounted at net price paid. 3. Under the agreement, the channel partners purchase Appellant's products in bulk and generates income from further sale of these products to their retailers/customers. The discount allowed to the channel partners cannot be equated as income in the hands of the distributors and therefore, the very fundamental requirement of Section 194H is missing. [@pg. ....
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....e that a right to avail service can be traded was neither raised nor considered by the court. If a point is not raised or considered, the judgment cannot be said to have decided that issue. ii. The discounts allowed to the channel partners are at the time of bulk-purchase of the Appellant's products by the channel partners on a principal to principal basis, however, in Idea cellular, counsel for both the parties agreed that determination of element of agency was the essence of the dispute. iii. In the Idea Cellular(supra) the transaction was not that of sale and purchase as the ownership of the SIM cards remained with the assessee and there was no payment of any Sales Tax/VAT, however, in the Appellant's case the transaction under consideration is a trading transaction, the ownership of the SIM cards are duly transferred at the time of sale to the channel partners as evident from the intent and conduct of the business and there is due discharge of Sales Tax/VAT on the sale of goods. iv. Further, in Idea Cellular (supra) the distributors were not allowed to appoint retailers without approval of Idea and Idea can terminate the agreement with the distributors unilaterall....
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....shifting the title ship right in the product. - Distributors further sell the products to retailers and finally retailers sell these products to end customers charging VAT the SUKs. - In pursuant to each sale all rights of title/interest and risk for loss are transferred. (Discussed in detail in Point No. 2) 2. Transfer of Title and Risk Para 8: "Full legal and equitable title and interest in prepaid SIM Card and recharge coupons delivered to the distributors at all time remains with the assessee." "The distributors store the SIM Card and recharge coupons in such a way as to clearly indicate at all times that the prepaid SIM card/recharge coupons are owned by ICL and is not allowed to remove, obscure or delete any mark placed on prepaid SIM card/recharge coupons/' - In case of Idea, legal title and interest of the products have never been transferred to distributors and Remains with Idea. Further, distributors are also bound with specific conditions regarding storage/display of these products. - In case of TTSL, title and risk of loss or damage to the products passed to the distributor immediately upon acceptance of delivery at the distributor's warehouse. There are n....
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....ment of Sales tax/VAT Para 8: "the transaction in question was not that of sale and purchase between the assessee and the PMAs and for this reason, no Sales tax was even paid." The Hon'ble HC has considered payment of Sales Tax, inter alia, as one of the determinant to decide the relationship. It has been held that transaction in question is not sale and purchase as no sales tax has even been paid. -TTSL transfers these products to its consignment agent under stock transfer note of various locations at PAN India level. The appellant duly reflects these stock transfers in its VAT return for which the consignment agent provides F-Form, issued by State VAT department in favour of the appellant. -Therefore, consignment agent acting on behalf of the appellant sells these products to distributors under valid tax invoice after charging applied VAT. Therefore, the conclusions of the Hon'ble Delhi High Court in Idea Cellular (supra) will not apply in the present case. Reliance in this regard may be placed on the following: o Union of India vs. Chajju Ram, (2003) 5 SCC 568 @ para 23 states that "a decision is an authority for what it decides and not what can be logically deduc....
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....ibunal case/ Idea cellular (supra) are different from the agreement of the Appellant. iii. The Appellant in the present case has been deducting appropriate IDS on all commission/incentives or credits allowed to the channel partners for any ancillary or connected services apart from the primary arrangement. [@pg. 445 of the paper book], whereas, no such deduction/declaration was made by the assessee in the BSNL Tribunal case. iv. The argument that 'right to avail service' can be sold was neither raised nor argued before the Hon'ble Delhi High Court in Idea Cellular (supra) and as such cannot be considered as ratio decidendi which is binding on the Hon'ble Tribunal. Reliance can be placed on the decision of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Sun Engineering Works (P) Ltd. (1992) 4 SCC 363, wherein the Hon'ble apex court observed as below: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court... A decision of this Court takes its colour from the ques....
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....dors Association vs Office of the Accountant-General and Ors.[2006] 282 ITR 7 (Ker), which in turn had ruled upon Ahmedabad Stamp Vendors case. Once the Hon'ble Supreme Court has upheld the Ahmedabad Stamp Vendors, the contrary view expressed in Vodafone Essar Cellular cannot be said to be good law. 12. The Kerala High Court while concluding that there exists a principal to agent relationship between the assessee and its distributors (at page 10 of the case) has specifically disagreed with reasoning of the Gujarat High Court in Ahmedabad Stamp vendors Association vs. Union of India, [2002] 257 ITR 202 (Guj). 13. As per the principle of doctrine of merger (refer to Kunhayammed & Ors vs State Of Kerala & Anr, (2000) 6 SCC 359 @ para 44) vide the order of the Supreme Court dated the 06.09.2012 the decision of the Gujarat High Court in Ahemdabad Stamp Vendors Case (supra) stands affirmed and the decision of the Kerala High Court stands overruled. 14. The decision of the Calcutta High Court in Bharti Cellular v. Asst CIT [2011] 12 Taxmann.com 30 (Cal) is similarly distinguishable on facts. Reliance is also placed on the decision of the Kolkata Bench in Vodafone East Ltd, vs. D....
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....w, The Ld. AO has correctly applied provision of section u/s 194J read with explanation 2 of section 9(1)(vii) of IT Act 1961 which was legally & factually supported by Ld. CIT (A). 4. The Appellant assessee has taken alternative plea (Ground No.5 ) before Ld.CIT(A) that in the case of operators to whom payments towards IUC charges have been made, TDS has not been deducted as the Deductees income were exempted from TDS by following the ratios decided in Hindustan Coca Cola Beverage (P) Ltd. 293 ITR 226 (SC). However, the appellant assessee could not submit any evidence to prove that TDS has been deducted or the exemption u/s 197 of I.T. Act 1961 is not available hence the payments made on account of IUC charges for these service providers would be subject to TDS u/s 194J. For non deduction of TDS u/s 194J in the case of payment of IUC charges to Reliance Communication, Hutchison Essar and Tata Communication, the appellant will be considered assessee in default u/s 201( 1) of I.T. Act 1961. The AO at Para 5.2 of his order dated 30.03.2011 for financial year 2006-07 u/s 201(1)r.w.s. 201(1A) of IT Act 1961 has held that the appellant assessee did not produce any No TDS certificate ....
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....ts is in the nature of commission and the same attracts the provision of section 194H of the Act". 7. Recently in Bharat Sanchar Nigam Ltd., vs. Addl. CIT,Range-4, New Delhi, in ITA No. 920/Del/2017 decided on 25.10.2017, The Hon'ble Bench of ITAT, New Delhi has held ..(Para 11 of said order ) "Apparently, therefore, legalistically both the Hon'ble High Courts have expressed a divergent opinion in the matter. Since the appellant before us is from Delhi, we are obligated to follow the decision of Hon'ble Jurisdictional High Court. Parties before us have also elaborated upon the fact that there is a distinction in terms and conditions of distribution agreement in the instant case and the facts as existing before both the Hon'ble High Courts above, however we find no reason to deliberate upon this aspect since on the legal aspect itself the decision of Hon'ble Delhi High Court which is the Jurisdictional High Court is against the appellant. We are therefore compelled to hold that the discount on prepaid products offered by the appellant is in nature of "commission" which does attract rigors of section 194H." 8. Hence, The orders of the Ld. Assessing officer &....
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....ship. Reverting back to this aspect, in the present case, we are of the opinion that the legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee. It is created by : (a) Activation of the said SIM card by the assessee in the name of the consumer/subscriber. (b) Service provided by the assessee to the subscriber. Further, dealings between the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/defect in service. (c) Entering into the ultimate agreement between the subscriber and the assessee (cl. 15 of the agreement). It is to be borne in mind that the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is prepaid or post-paid SIM card remains the same. In the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs. In the case of postpaid, SIM card transaction is entered into directly between the assessee and the subscriber and the subscriber is sent bill periodically depending upo....
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....igation to receive back the unsold stocks. Further, cl. 25(f) lays down that on termination of agreement, PMA or its authorized retailer appointed by it, is not entitled to any compensation for cost or expenses incurred by it in either setting up or promotion of its business, etc. No such clause was required in case of "sale". (To be taken from AO's order......) 27. We may now refer to the three decisions of various Benches of the Tribunal holding which have taken the view contrary to the one held by the Tribunals in impugned decision. In Vodafone Essar Cellular Ltd. (supra), Cochin Bench has discussed the issue much elaborately in the following manner : "33. The assessee company has made a lot of reliance on the contention regarding the freedom of pricing. It is the case of the assessee company that the distributors are free to fix the selling price but the price should not exceed the MRP. The Revenue says that there is no such freedom in fixing the sale price. As far as the present case is concerned, earlier it was BPL and thereafter BPL-Hutch and now it is M/s Vodafone Essar Cellular Ltd. In the earlier two occasions, there was no clause on pricing in the agreements entere....
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.... the prepaid products to the public as well as to look after the documentation and other statutory matters regarding the mobile phone connection. So, what is the essence of service provided by the distributors ? The essence of service rendered by the distributors is not the sale of any product or goods. The distributors are providing facilities and services to the general public for the availability of devices like SIM cards to have access to the mobile phone network of the assessee company. Therefore, it is beyond doubt that all the distributors are always acting for and on behalf of the assessee company. Only for the reason that the distributors are making advance payment for the delivery of SIM cards and other products 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 inconceivable 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 n....
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....ould be outside the purview of s. 194H. 60. The next question is whether the commission/brokerage allowed by the assessee company at the stage of raising the invoice is equivalent to paying of commission/brokerage to the distributors. The assessee has always raised a contention, that too in the light of the judicial pronouncements including that of M.S. Hameed (supra) 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 prepaid 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 sometime deliver the products for a price less than the MRP is not at all an impediment in....
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....payment by the assessee in cash or cheque by way of commission to the distributors or not crediting the accounts of the distributors for any commission, delivering the products only after getting the price in full, are all matters of asssessee's indoor management. (6) Service cannot be sold or purchased and it can ony be provided. The operational features explained by the assessee company are necessary in running a mammoth system of providing mobile telephone services over a large geographical area. The distributors provide essential services to the assessee company in running such a huge operational system. The distributors are linking agents in the chain of delivery of services to consumers. Therefore, the relationship is not of a principal-to-principal." 28. We are in agreement with the view taken by the said Bench. Identical view is taken by Calcutta Bench in the case of Asstt. CIT vs. Bharti Cellular Ltd. (2007) 108 TTJ (Kol) 38 : (2007) 294 ITR 283 (Kol)(AT). Both these Benches specifically rejected the arguments of the assessee based on Ahmedabad Stamp Vendors Association (supra), Bhopal Sugar Industries Ltd. (supra), Kerala Stamp Vendors Association (sic) and Bajaj Auto....
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....ing for and on behalf of the assessee company. 57. Similar is the view expressed by the Kerala High Court in the Vodafone Essar Cellular Ltd.'s case (Supra), where it was held that, the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. In that context it was held 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. 58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold. 59. The telephone service is nothing but service. SIM cards, have no intrinsic sale value. It is supplied to the customers for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM C....
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....ness. It cannot be categorized as commission. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship." On going through the above decisions, it is apparent that both the Hon'ble High Courts have expressed a divergent opinion on the aspect of transfer of service, inasmuch as the Hon'ble jurisdictional High Court held that services cannot be transferred whereas the Hon'ble Karnataka High Court held that right to service can be transferred. But since the appellant before us hails from Delhi, we are obligated to follow the decision of Hon'ble Jurisdictional High Court. Parties before us have also elaborated upon the fact that there is a distinction in the facts of the instant case and the facts as existing before both the Hon'ble High Courts above, however we find no reason to deliberate upon this aspect since on the legal aspect itself the decision of Hon'ble Delhi High Court which is the jurisdictional High Court is against the appellant. We are therefore compelled to hold that the discount on prepaid products offered by the appellant is in nature of "commission" which does attract rigors of section 194H. 12....
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....ule B to the agreement placed at page 140 of the paper book reads as under : Commission payable to Distributor:- The commission structure for various periods shall be intimated to the distributor from time to time and shall be revised at the sole discretion of TTL based on market/commercial requirements. The distributor agrees that the commission structure for various periods intimated to the distributor by TTL shall be binding on it and shall not dispute the same for any reason, whatsoever. 14. From the above narration, it is apparent that the transaction relating to commission is agreed between the assessee and the channel partner/distributor, but the assessee has not been able to address as to for which segment of business, both the parties agreed to pay and receive commission. 15. In view of what has been discussed above, and respectfully following the decision of Hon'ble jurisdictional High Court in the case of Idea Cellular Ltd. (supra), we decide this issue against the assessee and in favour of the Revenue thereby confirming the decision reached by the ld. CIT(A) on this count. Accordingly, the grounds of appeal raised on the first issue deserve to be dismissed. 1....
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....ted calls on its network - Whether thus payment of IUC by assessee to FTO in connection with its ILD telecom service business was neither FTS under section 9(1)(vii), nor royalty/process royalty under section 9(1)(vi) - Held, yes - Whether ever retrospective amendment in domestic legislation does not affect royalty definition under DTAA, hence retrospective insertion of Explanations 5 & 6 to section 9(1)(vi) also could not have altered this position - Held, yes [Paras 33, 44, 55, 56& 72][In favour of assessee] Section 9 of the Income-tax Act, 1961, read with section 5 and article 7 of Model OECD Convention - Income - Deemed to accrue or arise in India (Business Profits) - Assessment years 2008-09 to 2011- 2012 -Assessee made payment of Inter-connected Usage Charges(IUC) to Foreign Telecom Operators (FTOs) in connection with its ILD telecom service business - Payment in question did not accrue or arise to 'FTOs' in India - Entire business operations were carried out outside India by FTOs - FTOs also did not have any Permanent Establishment in India - Whether thus no income could be deemed to accrue or arise to FTO's in India and hence under article 7 also income could....