TaxTMI 
TaxTMI 
2018 (12) TMI 271
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....ction 201(1) / 201(1A) of the Income-tax Act, 1961 ('the Act'). Discount on sale of Set-Top Box treated as Commission income 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding that the Appellant is liable to deduct tax at source under section 194H of the Act on discount of Rs. 8,41,99,124 offered to distributors on sale of Set-top box by the Appellant. Discount on sale of Recharge Coupon Vouchers treated as Commission income 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding that the Appellant is liable to deduct tax at source under section 194H of the Act on discount of Rs. 10,39,94,496 offered to distributors on sale of Recharge Coupon Vouchers by the Appellant. 4. Without prejudice to Ground No. 2 and 3 above, as the Assessing Officer has already made disallowance under section 40(a)(ia) on account of non deduction of tax on discount in respect of sale of Set-Top Box and Recharge Coupon Vouchers, the same amount cannot be again subject to the provisions of TDS to raise demand under section 201(1) / (1 A) of the Act. ....
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.... for entries, bar coding of physical docket. 5. The Ld.CIT(A) has erred in law and on facts in deleting the interest u/s.201(lA) on the issues of installation service provider and document management fees as these short deduction has been deleted by him and interest deletion is consequential to quantum deletion of short deduction, which is the subject matter of further appeei as per Ground No.3 & 4 above. 6. The Ld.CIT(A) has erred in law and on facts in holding that the interest u/s.201(lA) on the short deduction confirmed by him, on the issue of set top boxes and recharge vouchers to be calculated, from the date of deduction till the return of income filed by the deductee as per the amended provisions of section inserted in the Finance Act, 2012 without appreciating that the amendment has propective effect w.e.f. 1.7.2012. Assessee's appeal: 4. Since facts are similar we are referring to facts and figures from common order for assessment year 2009-10 and 2010-11. 5. From the grounds raised, the following issue is identified and adjudicated as under:- (i) Non deduction of TDS on discount sale of Set Top Boxes (STBs) and recharge vouchers (RCVs):....
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....IT Vs. Singapore Airliner & Other Airlines, 213 Taxman 441 (Del.) (b) ACIT Vs. Bharati Cellular Ltd, 294 ITR (AT) 283, (Kolkata ITAT) (c) Bharti Cellular Ltd. Vs. ACIT, 244 CTR 185 (Cat.) (d) BPL Mobile Cellular Ltd, Writ Petition No. 29202/2005 (Ker. HC) (e) Vodafone Essar Cellular Vs. ACIT, 332 ITR 255 (Ker.) (f CIT Vs. idea Cellular Ltd, 325 ITR 148 (Del.) (g) CIT Vs. Durga Prasad More, 82 ITR 540 (SC) 8. The AO thereafter held that the facts of the present case are identical to the facts of above cases, where the courts have held that the nature of payment by telecom operators to the distributors for recharge coupons, prepaid SIM cards etc. is on account of commission as defined u/s. 194H of the Act and hence liable to deduction of tax at source. Hence he held that the appellant was liable to deduct tax at source in respect of payments under consideration. He therefore, treated the appellant as assessee in default as per the provisions of section 201(1) for non-deduction of tax at source in respect of the payments made to the distributors as discount/commission for sale of set top boxes, recharge coupons. 9. Upon the a....
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....ation to deduct tax at source on the part of the appellant will arise is that when credit of such income by way of commission is made to, the account of the distributors/dealers or when payment of income by way of commission is made by way of cash, cheque or draft or by any other mode, whichever is earlier. 11. Thereafter, the ld. CIT(A) proceeded to ascertain that whether there is a principal agent relationship between the assessee and its distributors/dealers. He referred to the provision of section 182 of the Contract Act for the definition 'Agent'. He stated that the basic and essential requisites of an agency ordinarily would be that: (i) The agent makes the principal answerable to third persons where-by the principal can sue third parties directly and renders himself, i.e. the principal liable to be sued directly by third parties. (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 the principal, i.e. between the person whom he represents and the third parties. (iii) An agent, though bound by the instructions given to him by the pr....
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....ideration, although a cost has been assigned to the STB, so far as the initial subscription amount charged from the subscribers is concerned, in reality what is charged by the assessee in terms of the subscription charges, is only the consideration for the DTH services. That in the subsequent year i.e. FY 2011-12, the business model has been changed, and as expected, in the subscription amount (which would either remain the same or be marginally changed), no cost has been assigned to the STB. In FY 2011-12, the STBs are being given free of cost to the subscribers on entrustment basis and the initial subscription amount is only for the value of DTH services. In the relevant years under consideration, although a cost has been assigned to STBs out of the initial subscription amount, it can be understood from the above facts that the real business of the assessee is that of providing DTH services to its customers and not that of 'sale of "goods'. 14. Ld. CIT(A) further observed that in the case of the assessee, the distributors sell the services of the assessee and by virtue of that the distributors are acting on behalf of the assessee by selling the assessee's services.....
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....bserved that the other conditions (as outlined above in Para 5.27) in regard to provisions of Section 194H, are that a) The payments made by the assessee to its distributors/dealers should be in the nature of income by way of commission; b) The income by way of commission should be ' paid by the assessee for services rendered by the distributors/dealers or for any services in the course of buying or selling of goods; c) The income by way of commission may be received or be receivable by the distributors/dealers from the assessee either directly or indirectly. Hence, the CIT(A) opined that there is no doubt that all these three conditions are satisfied so far as the relationship between the assessee and its distributors/dealers as well as the facts and circumstances of the case are concerned. Hence it is evident that the assessee was required to deduct tax at source in respect of the commission retained by the distributors/dealers, because the payment made by the assessee to the distributors/dealers is in the nature of 'commission or brokerage' and the same is income in the hands of distributors/dealers for services rendered to the assessee. 18. Thereafter, the ld. CI....
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....ssee is not engaged in the business of sale of goods; rather the assessee is in the business of providing DTH services to its customers. He concluded as under: 5.55 In the case of the appellant, the income in the form of commission earned by the distributors/dealers is inextricably linked to the sale of the set-top boxes and recharge vouchers by them which are the appellant's mediums for providing services to its ultimate customers. The distributors are the appellant's link with its customers. The distributors neither have any license in respect of the DTH services, nor do they have any ownership of such services. The STBs and RCVs are only the tools utilised by the appellant for delivering its services to the doorstep of its customers. Hence It is evident that the distributors/dealers act as agents of the appellant and the income which they receive from the appellant is in the nature of 'commission1 on which the tax is liable to be deducted by the appellant under the provisions of section 194H of the Act. The important facts which establish that the distributors/dealers of the appellant are in reality the agents of the appellant are as under: a) The a....
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....here are a number of limiting parameters for distributors/ dealers, which deny the existence of principal to principal relationship between them and the appellant. The distributor/dealer shall not make any representations or give any warranties in respect .of the Products other than those contained in the appellant's conditions of sale as prevalent and operating at the time of the offering of the sale, or the sale. This limits the parameters of the functioning of the distributor/dealers although within these parameters, he is free and independent to organise his business. f) The distributors/dealer is also not authorised to vary or modify the terms of the package deal offered by the appellant at the time of providing connection to the consumer through installation of STBs and dish antenna or thereafter. Similarly, the distributor/dealer is not authorised to vary or iru^g'jfythe terms of the package deal 'ered by the appellant at the time of recharge through RCVs. Any such modification is only at the instance of the appellant. g) The distributor/dealer is not authorised to sell any of the products of the appellant. through any unauthorized party as well....
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.... (230 Taxman 505 (Bom.) and the decision of Hon'ble Bombay High Court in the case of CIT vs. Qatar Airways (332 ITR 253 (Bom.). Referring to the ratios from these decisions the ld. Counsel submitted that ratio of the above decision is directly applicable to its case since it has not made any payment to the distributor and that the assessee only received sale price on sale of products to the distributors. He further submitted that TDS provisions are not applicable in cases where there is no payment made by the assessee and it is not relevant whether the assessee was engaged in the business selling of goods or rendering services. Ld. CIT(A) further relied on the decision of Hon'ble Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. vs. CIT (402 ITR 539). 22. The ld. Counsel further submitted that the difference between the sale price to retailer and the discounted price which the distributor pays to assessee cannot be categorised as commission for the purpose of section 194H of the Act or otherwise. That though Explanation (i) to section 194H of the Act inter alia states that "commission or brokerage" includes any payment received or receivable dir....
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....39;ble Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. vs. CIT (402 ITR 539) being favourable to the assessee should be followed and not the case of Hon'ble Delhi High Court in the case of CIT vs. Idea Cellular Ltd.(325 ITR148). Thereafter the ld. Authorized Representative of the assessee placed reliance on several decisions of ITAT Mumbai including that of M/s. Bharat Business Channels Limited (ITA No.7047 & 7048/Mum/2012). He also referred to entries passed by the assessee and submitted that entries passed by the assessee regarding discount cannot be considered in the nature of commission liable u/s. 194H. In this regard he referred to scheme of entries. 25. In this regard the ld. counsel for the assessee referred to Bharti Airtel Ltd. vs. DCIT (372 ITR 33). He referred to the decision of Hon'ble High Court and submitted that the matter may be remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books. If accounts are not reflected as set out above section 194 is not attracted. He submitted that book e....
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....on of Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT (345 ITR 288). Ld. Counsel alternatively without prejudice also prayed that if the assessee is an assessee in default and appeal may be set aside to the file of Assessing Officer to find facts relating to non-payment of any amount by the assessee to the distributor, the terms of distribution agreement, entries passed in light of various decisions referred by him. 31. Per contra, the ld. Departmental Representative (ld. DR for short) relied upon the order of the AO and the ld. CIT(A) relied on the case law referred by them. 32. Upon careful consideration, we find that we may gainfully refer to the provision of section 194H of the Act as under: Commission or brokerage. 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by ....
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.... 619 also can be referred as under: SECTION 194H OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE-COMMISSION OR BROKERAGE ETC - INSTRUCTIONS FOR DEDUCTION OF TAX AT SOURCE FROM COMMISSION, BROKERAGE, ETC. CIRCULAR NO.619, DATED 4-12-1991 1. The Finance (No. 2) Act, 1991 has introduced a new section 194H, into the Income-tax Act, 1961, which provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. 2. For the purposes of this section, commission 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 ....
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....rincipal will have to deposit the tax deductible on the amount of commission income to the credit of the Central Government, within the prescribed time, as explained in the succeeding paragraphs. 7. The responsibilities, obligations, etc., under the Income-tax Act of a person deducting income-tax at source are as follows : (a) According to the provisions of section 200, any person deducting tax at source under section 194H shall pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962), the tax so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, payment is normally to be made within one week from the last day of month in which the deduction is made. However, with the permission of the Assessing Officer, tax deducted at source can also be paid to the credit of the Central Government on quarterly basis. If a person fails to deduct tax at source, or, after deducting, fails to pay tax to the credit of the Central Government, he shall be liable to action under the provisions of section 201. Sub-section (1A....
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....1991. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached. 34. After careful consideration we note that the assessee in this case is engaged in business of providing direct to home (DTH) services. The assessee enters into agreement with the distributor for sale of Set Top Box (STB) and recharge coupon vouchers. As per agreement products are sold to distributor at discounted price, as agreed. The distributor/dealer sells these items to customers/subscribers at a price not exceeding MRP on the product. As per the agreement payment of each order for the above items is to be made by distributor either at the time of placing the order or at the time of delivery. Apart from the above assessee also provides festival/seasonal discounts to the distributors. For these discounts assessee does not make any payment rather it issues credit notes and same is subsequently adjusted from the payment due from the distributor. The expenditure of discount is recognized in books of account. But the same is netted from sale, so in the financial statements the discount amount is not reflected. 35. In....
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....st, so long as the assessee is not making any payment to the stockist, the question of invoking Section 194-J against the assessee does not arise. Hence, we see no reason to entertain question (b) raised by the Revenue. 2) in the case of Qutar Airways (supra), the Hon'ble High Court was considered the question of TDS on commission on brokerage u/s. 194H and the Hon'ble Apex Court has held as under: 1 The question of law as raised in this appeal is as under: "Whether on the facts and in the circumstances of the case and in law, the difference in amount between commercial price and published price is special commission in the nature of commission or brokerage within the meaning of Explanation (i) to section 194H of the Income-tax Act 1961 ?" 2. It is not in dispute that the airlines have a discretion to reduce the published price to their tickets. In the present case, the airlines had an agreement with their agents to sell their tickets at a minimum fixed commercial price which was lower than the published price but was of a variable nature and could be increased by the agent, at his discretion, to the extent up to the published price. It is not in....
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.... order and the question of law as framed does not arise. The appeal is therefore, dismissed in limini. 3) We may also refer to the decision of the Hon'ble Karnataka High Court in the case of M/s. Bharti Airtel Limited vs. DIT (in ITA Nos. 637-644 of 2013 vide order dated 14.08.2014, where similar issue was considered by the Hon'ble High Court as under: 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur [expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of lime of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the ....
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....s not liable to tax it is always open to him to seek for refund of the tax and, therefore, it cannot be said that Section 194H is not attracted to the case on hand. As stated earlier, on a proper construction of Section 194H and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and remit the same to the Department. If the payee is not in possession of the net income which i.s chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of lax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid. 64. In the case of Vodafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs. 100/- in their books of accounts and showing the discount of Rs. 20/- t....
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.... the considered view that as observed by us hereinabove, in the absence of any obligation cast upon the assessee to have deducted tax at source in respect of the discounts given to the distributors on the sale of the prepaid starter kits/sim cards, no disallowance under Sec.40(a)(ia) of Rs. 66,03,56,590/- was called for in the hands of the assessee. We thus finding no infirmity with the order of the CIT(A), uphold the same. In the case of CIT vs. Intervet India (P.) Ltd. [2014] 49 taxmann.com 14 (Bom) the Hon'ble Bombay High Court has held as under: 6. We have perused the concurrent orders with the assistance of the learned counsel for both the parties. The assessee had undertaken sales promotional scheme viz., product discount scheme and product campaign as discussed hereinabove under which the assessee had offered an incentive on case to case basis to its stockists/dealers/agents. An amount of Rs. 70,67,089 was claimed as a deduction towards expenditure Incurred under the said sales promotional scheme. The relationship between the assessee and the distributors/stockists was that of principal to principal and in fact the distributors customers of the assessee to wh....
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....se of Kerala State Stamp Vendors Association vs. Office of the Accountant General, the Hon'ble Kerala High Court held that what is liable for TDS is commission of brokerage and not the incentives given on the basis of principal to principal relations." 11. The assessee also furnished that they ought not to have been added in the income of the assessee in spite of making ground under section 194H or 40(a)(ia) of the I.T. Income Tax Act, 1961. 12. In our considered opinion, the Tribunal while considering the matter has righlty come to the conclusion that it is on the basis of principal to principal and does not constitute commission. Hence, no other view than the one taken by the Tribunal is possible. 39. A cohesive reading of the above case laws particularly that of the Hon'ble Bombay High Court in the case of Piramal Healthcare Ltd. (supra), Qatar Airways (supra) and Intervet India (P.) Ltd. (supra) would show that the ld. Counsel of the assessee's plea that the assessee should not be visited with the liability to deduct TDS for non deduction of tax at source u/s. 194H on the difference between the discounted price at which it is sold to the distributors an....
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....lowed. Revenue's appeal: (i) TDS on payment made to installation service provider 42. Brief facts of the case are as under: The assessee is engaged in the business of providing DTH services. The assessee enters into agreement with third party Installation Service Providers ('ISPs') for the installation of Tata Sky hardware at the premises of the subscribers. The Assessee transfers the Tata Sky hardware to the I3P for storage at the ISP's premises. When a potential customer purchases the Tata Sky connection, the Assessee informs the ISP to install the Tata Sky hardware at the premises of the subscriber. Thus, the relevant activity carried out by an ISP is to install the Dish Antenna and incidental hardware at the premises of the subscriber For this service, the assessee company paid installation charges of Rs. 15,44,53,432/-, Rs. 41,27,138/- and Rs. 14,84,82,077/- respectively in the three previous years relevant to the three assessment years under consideration. The assessee deducted tax at source on the said payments as per the provisions of section 194C of the Income Tax Act, 1961. The AO on perusal of details in this regard was of the view tha....
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....w basic wiring connections. This can be done by any sound person after reading the installation manual carefully. So far as the training given by the appellant is concerned, it is seen 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 payment per installation is not very high and it is a few hundred rupees. It may be noted that services from skilled and technically qualified persons cannot be obtained at such a meager amount considering that the work has to be carried out at the place of the subscriber. The work, as is evident, is repetitive in nature. I agree with the appellant that in respect of these services/works outsourced, it cannot be said that the ISPs have rendered any managerial, technical or consultancy services to the appellant within the meaning of Explanation 2 to Section 9(1)(vii) of the Act. These services involve carrying out of "work" within the meaning of section 1S4C of the Act. The appellant has therefore, correctly deducted tax at source under the said section and the provisions of section 194J are not applicable. I ....
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....ng that assessee was required to deduct tax u/s.194C of the Act. The CIT(A) has dealt with the issue threadbare and after relying on various judicial pronouncements held that work of installation of Set-Top box amounts to 'works contract. The detailed finding so recorded by CIT(A) are as per material on record which has not been controverted by Id. DR by bringing any positive material. Accordingly, we do not find any reason to interfere in the order of CIT(A) holding that installation of Set-Top Box amounts to works contract and no technical expertise are required so as to make the assessee liable under the provisions of Section 194Jofthe IT Act." 47. Upon careful consideration we find ourselves in agreement with the finding of ld. CIT(A), which is also in consonance with ITAT decision as mentioned above .Hence, we uphold the order of ld.CIT(A) on this issue. TDS on payment of document management charges: 48. Brief facts of the case are as under: On this issue, the assessee's submission was that its subscribers are required to sign-up a contract with the Assessee for availing the DTH services. All these contracts along with work orders generated for executing variou....
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....ture of 'work1 and will fail under section 194C of the Act. 7.7 In view of the above, I do not agree with the stand adopted by the AO. Since the Appellant has already deducted TDS under section 194C of the Act on the document management charges, the AO is directed not to consider the Appellant as assessee in default under Section 201(1) of the Act as there is no short deduction of tax by the Appellant. The demands of tax under section 201(1) are hereby deleted. 51. Against the above order Revenue is in appeal before us. 52. We have heard both the counsel and perused the records. The ld. Counsel of the assessee inter alia placed reliance upon the order of the ld. Commissioner of Income tax(Appeals) and has submitted that this issue is also covered in its favour by the Hon'ble Jurisdictional Mumbai Tribunal in the case of Reliance Life Insurance Co. Ltd. (ITA No. 3009 to 3011/M/2013). That in this case, the assessee was engaged in the life insurance business. That it had obtained document management services which inter alia included document management services, document delivery and collection services and document storage, etc. That the assessee had ....