TaxTMI 
TaxTMI 
2018 (7) TMI 1612
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....as conducted in the case on 16/02/2015. Subsequently, proceedings u/s 201(1) and 201(1A) of the Act, were initiated by issuing a notice on 23/02/2015. In response, the assessee furnished the information called for. On verification of the information provided, AO noticed that the assessee was not deducting tax at source in the case of commission payments of Rs. 77,27,80,277/- made to its distributors on prepaid connections, during FY 2013-14. Since the assessee was not deducting tax at source on the commission payments to agents on prepaid sim cards and recharge coupons, sold through agents, a show cause notice was issued to the assessee on 23/02/2015 to show cause as to why demand u/s 201(1) and 201(1A) should not be raised for non deduction of TDS u/s 194H on the above mentioned expenditure. 2.1 In response, the assessee submitted that the agreement with the distributors is on principal to principal basis and that the distributors pay discounted price in advance and nothing is paid by the assessee to the distributors so as to attract the provisions of section 194H. 2.2 The AO following the earlier order in assssee's own case for AY 2009-10, held that there is a principal to ....
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.... * Ramakrishna Vedanta Math vs. Income-tax Officer (24 Taxmann.com 29)(Kol.) AS REGARDS GROUND II & III: TREATING THE ASSESSEE AS AN "ASSESSEE IN DEFAULT" U/S. 201 OF THE ACT FOR NON-DEDUCTION OF TAX U/S. 194H OF THE ACT ON DISCOUNT ALLOWED TO THE PRE-PAID DISTRIBUTORS ("THE DISTRIBUTORS") IN RESPECT OF SUPPLY OF SIM CARD/RECHARGE VOUCHERS (SIM/RV): FACTS IN BRIEF: * The Assessee is a telecom service provider engaged in providing services in Andhra Pradesh. In the course of its business, it appoints various Distributors. * The Assessee is admittedly paying service tax on the telecommunications services provided to the ultimate subscriber. * The Assessee supplies Prepaid Cards i.e. Subscriber Identification Module and Recharge Vouchers ("SIM / RV") to its Distributors at a discounted price. The Distributors are free to resupply them to the Retailers at any price subject to the Maximum Retail Price ("MRP"). * It is the Distributor who pays the discounted price to the Assessee and there is no payment of any kind made by the Assessee to the Distributor for the above transaction. * The Distributors are required to pa....
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....Prejudice to the above & assuming without admitting that relationship is P2A, in the instant case, as the payment is made by the Distributor and there is nothing ever payable by the Assessee to the Distributor or anyone else in respect of the SIM / RV, the mechanism for deducting tax u/s. 194H of the Act fails and thus the Assessee cannot be treated as 'assessee-indefault' u/s. 201 of the Act. Proposition 1: The Assessee and the Distributors are acting on Principal to Principal ("P2P") basis and not as Principal to Agent ("P2A") For attracting provisions of section of 194H of the Act it is essential that Assessee must appoint a person who would act on his behalf in the course of rendering services to third parties and only then it can be said that there exist P2A relationship. In the present case the arrangement between the Assessee and Distributors is not in the nature of P2A but P2P. In this context, attention is invited to the following: (i) The Distributor is not acting as an agent of the Assessee but as an independent contracting party. (Refer Clause 2 of the Agreement at page no. 7 of the Factual Paper Book ("FPB")), which specifically state....
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.... unsold stock without paying anything to the Agent since the stock was always belonging to Principal. In the Assessee's case, on the Distributor returning the SIM / RV, the Assessee is not responsible for any unused or unsold stock lying with the distributor post termination. (Refer Clause 10(i) of the Agreement at page no.24 of the FPB) Thus, the above clauses read with agreement would prove that the relationship is of P2P and risk and rewards are also being transferred to Distributor. The risk of stock remaining unsold, expired etc. is with Distributor. Also, it would demonstrate that the difference between price paid to Assessee and selling price to Retailer is on his own account and not on account of Assessee and hence the Assessee is not a 'person responsible for paying any income'. In fact, a mere purchase from Assessee does not generate income at the stage of purchase, at which stage the financial transaction with Assessee has already ended. Proposition 2: Without Prejudice to the above & assuming without admitting that relationship is P2A, in the instant case, as the payment is made by the Distributor and there is nothing ever payable by the As....
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....r tax deduction at source U/S 194H of the Act. Also, this decision lays down the key ingredients for applicability of 194H of the Act, namely: * Who is the person responsible for income * In absence of payment or credit, when TDS to be deducted * And lastly on what amount TDS is to be deducted Albeit at the cost of repetition, the Assessee most humbly submits that as far as jurisdictional precedence is concerned, the Hon'ble Jurisdictional High Court in the case of MIs Vodafone Essar South Ltd. (supra) vide order dated July 17,2013 has upheld the order of the Hon'ble Hyderabad Tribunal and held that the provision of section 194H is applicable in respect amounts paid to the agents in connection with sale of SIM Cards and other services. However, in the second last para of the above High Court order, it has followed the decision of the Hon'ble Delhi High Court in the case of CIT v Idea Cellular Ltd. (325 ITR 145), Hon'ble Kerala High Court in the case of Vodafone Essar Cellular Ltd v ACIT (332 ITR 255) and Hon'ble Calcutta High Court in the case of Bharti Cellular v ACIT (244 CTR 185) and held that the AR had not distinguished t....
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.... High Court, it be held that the Assessee is not liable to deduct TDS. * In the Assessee's own case for earlier year unlike in the case of Vodafone South Ltd, appeal is admitted by Hon'ble Jurisdictional High Court. ) * In any event, neither IT AT nor Hon'ble Andhra Pradesh High Court has considered the absurdity to hold Assessee as "assesse-in-default" u/s 201 r.w.s 194H on facts of present case by importing section 206C in 194H. If view of department is accepted then it means that when collecting price from distributor of say Rs. 80/-, Assessee ought to have collected Rs. 80/- + Rs. 2(i.e. 10% on difference between MRP of Rs. 100/- and Distributor price of Rs. 80/-) thereby importing section 206C( a TCS mechanism is TDS provision.) Therefore Assessee humbly submits that with utmost respect to Hon'ble Andhra Pradesh High Court, in view of above facts on accounting and above submissions, a different view may be taken. In so far as recent decision of Hon'ble Hyderabad ITAT in Vodafone Mobile services Vs. DCIT (86 taxmann 115) is concerned, It appears that main thrust of argument in that case was that Hon'ble Karnat....
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....F INTEREST U/S. 20l(IA) OF THE ACT: 1) If it is held that the Assessee is liable to deduct TDS u/s. 194H of the Act, the Assessee humbly submit that where the recipient (i.e. the Distributors) of the income (i.e. discount) had paid income-tax on their income by way of advance tax or / and self assessment tax, then there was no question of levying any interest on the Assessee as the amount which was payable to the Income-tax Department have been duly paid by the Distributors. Reliance is placed on CIT Vs. Rishikesh Apartments Co-operative Housing (253 ITR 310) (Guj), 2) Further, the Assessee submits that, in the case of recipients of taxes who have claimed refund of taxes paid by them or who have filed loss return of income, there is no justification for charging of interest u/s. 201(1A) of the Act as the interest is to compensate the revenue for the loss. In the above case, the question of late deposit of advance tax / self-assessment tax to the Income-tax Department does not arise and therefore, there is no question of levying of interest on non-payment of TDS. In this contention, the Assessee relies on the following decisions which are as under: * CIT v....
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....rt is not on merits. When the facts are identical there is no need for another High Court to pass a detailed order. In fact Hon'ble High Court of Andhra Pradesh categorically observed that there is no illegality or infirmity in the order passed by ITAT, Hyderabad Bench, which in turn is based upon the decisions referred to above. 85. As against this, Hon'ble Karnataka High Court had taken a diametrically opposite view with regard to need for payment to be made by assessee to distributor and the fact that computation is not possible since distributor can sell at any price subject to the maximum limit of MRP. Since Hon'ble Jurisdictional High Court had already rendered a decision on these points, we cannot reconsider the matter on those issues. Suffice to say that on the aforementioned issues we are bound by the decision of Hon'ble Andhra Pradesh High Court. 86. In fact Ld Counsel mainly focused on one issue i.e., on the aspect of "sale of service". According to Ld Counsel for the assessee this aspect of the matter was not considered either by Hon'ble Andhra Pradesh High Court or other High Courts which, in turn were referred to by Andhra Pradesh High Court. We shal....
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....ale of goods' since unsold SIM cards can be taken back by assessee under certain circumstances. The Court further observed that this is antithesis of "sale". The Court also observed that a service can only be rendered and it cannot be sold particularly when assessee-company is operating under the right of licence agreement entered into with the Government of India; nobody else can be given the right to operate as cellular service provider. It was thus concluded that the ultimate service is provided by assessee-company and not by distributor. SIM card / other module is only in the nature of a key to the consumer to have access to the telephone network. 87. Before parting the Court also took note of the fact that concerned distributor can always file return of income and claim credit for the payments already made on their behalf by the assessee. On the other hand, such a provision serves public purpose inasmuch as any distributor who is liable to pay tax but rather evading tax, would come under the Income Tax net and assessee is in no way affected by this. 88. Andhra Pradesh High Court also referred to decision of Hon'ble Kerala High Court in the case of Vodafone Es....
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....erala which in turn was followed by Hon'ble Andhra Pradesh High Court. Thus it may be difficult for us to take a different view, merely because Hon'ble Karnataka High Court had taken a different stand under identical circumstances. 91. At this juncture, we may state that in the case of CIT vs. Thana Electricity Supply Ltd (supra) Hon'ble Bombay High Court observed that the expression "two views" should be understood in the sense that the Court, which is called upon to consider the issue, should be of the opinion that the other view is reasonable. With due respect we are of the view that the only reasonable interpretation is that of the view taken by Hon'ble Andhra Pradesh High Court by following decisions of Hon'ble Delhi High Court, Kerala High Court as well as Calcutta High Court. In otherwords, the issue as to whether the agent's right to commit assessee to render service to subscribers would change the nature of contract from 'principal to agent' to 'principal to principal', was impliedly considered by the aforementioned High Courts which, in our view is most appropriate, in the circumstances of the case. Therefore, we prefer to follow the decisions of Hon'ble Delhi Hi....
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.... power is given to distributor has to be looked into in the circumstances of the case and the role of distributor can only be said to be a middleman between service provider on one hand (assessee herein) and ultimate consumer on the other hand. In otherwords the distributor can only be termed as an agent of assessee in which event providing service to ultimate consumer through the medium of distributor cannot be said to be a sale of service by assessee to the distributor. 95. Now we shall refer to the observations of jurisdictional High Court (order dated 25.08.2015) in W.P. Nos. 2456 and batch of 2015. In the aforementioned case, the Court was concerned with granting of stay and the very fact that it has granted partial stay indicates that the decision rendered by Hon'ble Karnataka High Court was not followed. In otherwords the observations made therein are only in the context of considering balance of convenience while granting stay and such observations need not be considered as a decision doubting the correctness of the judgment delivered by earlier Bench of High Court. In fact, even in the aforecited judgment, it was admitted that the earlier Bench affirmed the order ....