TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 271
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....;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. Levy of interest under Section 201(1A) 5. On the facts and circumstances of the case ....
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....sues 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): The assessee in this case is a Public Limited Company engaged in the business of Direct to Home (DTH) services in the name of TATA SKY . 6. The AO has held that th....
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....n 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 assessee's appeal, the ld. CIT(A) elaborately referred to the submission of the assessee. He observed that the assessee company is engaged in business of providing Direct to Home (DTH) services in the brand name of Tata Sky' for which license is given by Ministry of Information....
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.... 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 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. (iv) There is no necessity of a formal contract of agency; it can be implied which could arise from the act ....
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.... 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. Obviously, when the distributors create a third-party relationship of the subscribers with the assessee, the risks and rewards are that of the assessee only. That as already clarified, the stipulation in the agreement regarding principal to principal relationship is of no consequence because, it is the act and the situations in which the part....
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..../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. CIT(A) referred to Circular No. 619 dated 04.12.1991 issued by the CBDT for the proposition that in cases of retention by the consignee/agent of the commission or brokerage from out of the sale price, the same amounts to constructive payment by him by the consignor/principal. Hence, deduction of tax at source is required to be made from the amount of co....
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....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 agreement between the appellant and its distributor/dealer provides that the distributor/dealer is authorised to sell the appellant's STBs and RCVs. This also means that at the time of providing DTH connection to the third party (i.e. the customer), the distributor/dealer creates a legal relationship between the appellant and the third party (i.e. the customer). ....
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....ring 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 i.e. through a sales agent or otherwise, without the express written permission of the appellant. : h) The distributor/dealer is required to provide the appellant on a monthly basis, with a report of sales of the appellant's products, in such form and containing such other information as the appellant requires. i) The above conditions also limit the authority of the distributor/dealer to ac....
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.... 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 directly or indirectly the said section makes it clear that payment has to be of income by way of commission. That in the present case the assessee has not made any such payment. He contended that the ratio of Hon'ble Jurisdictional High Court in the case of CIT vs. Qatar Airways (332 ITR 253 (Bom.) is relevant here. 23. The ld. Counsel further submitted that CBDT Circular No.619 dated 04/12/1991 is not applicable since no incom....
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....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 entries passed by the assessee are in line with Bharti Airtel Ltd. 26. The ld. Counsel for the assessee submitted that in addition to the normal (primary) discount given to the distributors, the distributors are also given occasional (secondary) discounts like festival discount, quantity discount etc. to encourage them to sell higher quantities of products. The occasional discounts are provided to the distributors as per the trade schem....
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....ntra, 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 any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees : Provided further that an individual or a ....
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....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 or in relation to any transaction relating to any asset, valuable article or thing. 3. It may also be stated that credit of any income to any account whether called "Suspense account" or by any other name shall be deemed to be credit of such income to the account of the payee and the provisions of section 194H shall apply accordingly. 4. The tax so deducted at the rate of ten per cent is required to be increased by surcharge at the rate of twelve per cent where the payee is a resident person (other than a company) and at the ra....
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....overnment. 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) of section 201 lays down that such person shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which the tax was deductible to the date on which it is actually paid. Further, section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay by way of penalty a sum equal to the amount of tax which he failed to deduct at source. In this regard, attention is also invited to the provisions of section 276B which lays down that if a person fails to pay to the credit of the Central Government the t....
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.... 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 this factual scenario the Assessing Officer has held the assessee to be in default as per section 201(1) of the Act for non deduction of tax at source u/s.194H in respect of the discount offered to distributor and consequently making the assessee liable for interest u/s. 201(1A) of the Act. In the above factual background the issue has been dealt with by the Assessing Officer and CIT(A).They have found the assessee to be liable for deduction of tax at source on a variety of planks as mentioned hereinabove in detailed the order of CIT(A) referred by us. 36. We find that various case laws have been refer....
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....mission 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 dispute that under rules of ITAT, the commission payable to the agent was 9 per cent, of the published price. It is an admitted position that the TDS has been deducted while payment of this commission of 9 per cent. It is the contention of the Revenue that the difference between the published price and the minimum fixed commercial price amounts to an additional special commission and therefore TDS is deductible on this amount under section 194 H of the Income-tax Act. 3. On a perusal of the order of the Income-tax Appellate Tribunal, we find that it proceeded on the basis of its earlier decision in the case of Korean Air v. Dy. CIT in whi....
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....iture 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 assessee to the distributor. In other words the income accrued or belonging m the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributer. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to t....
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....eld 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/- to the dealer. Only if they are showing Rs. 80/- as the sale price and not reflecting in their accounts a credit of Rs. 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. ....
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....n 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 whom the sales were effected either directly or through the consignment agent. As the distributors/stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee's product. The distributors/stockists were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting of sales target, and hence, it could not be said to be commission payment within the meaning of Expln. (i) to s. 194H of the II Act, 1961. The contention of the Revenue in regard to the application of Expln. (i) below s. 194H ....
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....ohesive 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 and the MRP upto which they are permitted to sell, is cogent and is sustainable view. As noted hereinabove the Hon'ble Jurisdictional High Court in the case of Piramal Healthcare Ltd. (supra) and Qatar Airways (supra) has found that the difference between MRP and the price at which item is sold to the distributor cannot be held to be commission or brokerage. Similarly in the case of Intervet India (P.) Ltd. (supra), the Hon'ble Bombay High Court has held that when the assessee had introduced sales promotion scheme for distributors to boost sale of its product when it passed on incentives to distributors/dealers/stockists through sale credit notes and claimed it, then since the relationship between assessee and distributors/st....
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.... 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 that the work relating to installation 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. According to the AO the work involves professional services by technical manpower and is therefore within the ambit or section 194J of the Act for the following reasons: * That the installation of DTH apparatus needs technical personnel and expertise. Common man or labourers cannot install a dish and other electronic apparatus, decide the place to fix the dish after checking the signals, explain the operation of the system, etc. Thus, skilled technical personnel are requi....
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....id 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 hold accordingly and the demands of tax u/s 201(1) raised by the AO are hereby deleted. 45. Against the above order Revenue is in appeal before us. 46. We have heard both the Counsel and perused the records. The ld. Counsel of the assessee has inter alia placed reliance upon the order of the ld. CIT(A) and has submitted that its case is squarely covered by the decision of the Tribunal in the case of M/s. Bharat Business Channels Ltd. (ITA Nos. 7047 & 7048/Mum/2012). Bharat Business Channels Ltd is a DTH operator, same as the Assessee. In this case, Bharat Business Channels had also obtained services of Installation Service Providers to install Dish Antenna, Set-Top Box, etc. at the subscriber's premises similar to Tata Sky. That the Hon'ble Tribunal observed that the installat....
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....ioned 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 various jobs for subscribers and correspondence received from the subscribers are required to be kept for life time with the assessee as per TRAI guidelines. The assessee has entered into an Agreement with IRON Mountain ('IM') to provide services in relation to secure maintenance of the Assessee's documents like Agreements, invoices, work order, etc. For this service the assessee company paid installation charges of Rs. 10,80,620/-, Rs. 10,80,620/- and Rs. 48,14,142/- respectively in 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. 49. The AO on perusal of details in this regard was of the view that the work relating to Document management is carried out by technically skilled persons as....
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....al 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 deducted tax under section 194C while making payment for these services and the Income-tax Authorities alleged that these are technical / managerial services and should be subject to TDS under section 194J of the Act. That on appeal, the CIT(A) had held in favour of the assessee. That on appeal by the Incometax Authorities to the Tribunal, the Hon'ble Tribunal noted that the work assigned to the service provider was not a technical or professional work which required special skills but simple, basic and repetitive nature of work and accordingly subject to tax under section 194C of the Act. 53. The relevant observations of the Hon'ble Tribunal are reproduced herein below: "The assessee made the payment for these services after deducting TDS under the provisions of section 1 94C of the Act believing these are basic type o....