TaxTMI 
TaxTMI 
2015 (7) TMI 1321
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.... -do- 620/14 2007-08 72,76,055 16,74,702 89,50,757 -do- 621/14 2008-09 2,29,44,396 23,52,177 2,52,96,573 -do- 601/13 2009-10 3,78,97,612 99,42,782 4,78,40,394 CIT (A)-II, Bangalore, dt.26.02.2013 602/13 2010-11 4,02,57,300 61,23,340 4,63,80,640 -do- 956/14 2011-12 6,16,82,646 88,97,181 7,05,79,827 CIT(A), Mysore 957/14 2012013 1,61,82,748 11,34,929 1,73,17,677 -do- In all these appeals assessee has taken common grounds totalling to four each of which has different sub-numbered paras. Ld. Counsel for the Assessee at the out set submitted that he was not pressing ground no.1 and accordingly ground no.1 is dismissed as not pressed. 02. Ground 2 of assessee assails the order of AO which was confirmed by the CIT (A) wherein it was treated as one in default for non-deduction of tax on discounts extended to distributors of prepaid simcard / talktime. Ld. AR submitted that prepaid e-cards for recharging were sold to its distributors on principal to principal basis and noton a principal to agent basis. As per the Ld. AR, the distributors to whom assessee had sold sim cards were....
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....ed by the distributors appointed by the assessee at a rate below the market price printed thereon. Distributors sold these to the retailers who were the final sellers to the customers. As per the AO, the distributors were commission agents acting on fixed margins and had fixed responsibilities as was clear from the contractual agreement entered by the assessee with the distributors. AO was of the opinion that the rights in prepaid cards vested with the assessee and the relationship between the assessee and the distributor was not that of principal to principal. Distributors were subject to restrictions placed by the assessee. Service on the cards sold by the distributors were subject to compliance with formalities stipulated by the assessee. Though the assessee argued that the distributors were not permitted to act on behalf of the assessee and were not exclusive distributors of assessee's products alone, such contentions were not accepted by the AO. Assessee also brought to the notice of the AO clauses in the agreement with its distributor which specifically mentioned that its relationship was not of a principal to agent, but of principal to principal. AO was of the opinion that a....
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....e failed to deduct tax at source under section 194H of the Act. Accordingly, an order came to be passed on November 24, 2008, under section 201(1) of the Act treating the assessee as assessee in default. Interest was also levied under section 201(1A) of the Act. 3. In I. T. A. Nos. 637-644 of 2013 the assessee is M/s. Bharti Airtel Ltd. The assessee is a public limited company engaged in the business of telecom operations. A survey was conducted by the respondent in the business premises of the assessee to verify the compliance of TDS provisions by the assessee for the assessment years 2005-06 to 2008-09 on February 27, 2008. Here also after considering the terms and conditions stipulated in the agreement entered into between the assessee and the distributors, the assessing authority was of the view that there is a principal and agent relationship between the two parties and, therefore, discount/commission made to such parties was liable for deduction of tax at source under section 194H of the Act. 4. In I. T. A. Nos. 256-263 of 2012, the assessee is M/s. Vodafone Essar South Ltd. It is in the business of cellular services. In the course of its business, the asses....
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.... created any relationship of principal and agent. On the contrary, it makes it clear that there is a relationship between principal and principal. What is sold by the assessee to the distributor is the right to receive the services. In the invoice raised, the MRP and the amount of discount are mentioned. MRP minus the discount is the sale price. In the accounts, there is no reference to this discount portion at all. Under the terms of the agreement, there is no liability on the part of the assessee to make any payment to the distributor. On the date of sale, no income has accrued to the distributor. It is only if and when the distributor sells the sim cards/pre-paid/e-coupon/e- topups either to the sub-distributor or to the retailer, he may earn income, which is chargeable to tax. Therefore, there is no liability cast on the assessee under section 194H of the Income-tax Act to deduct tax at source on a future income to be earned by the distributor and, therefore, all the three authorities were in error in holding it otherwise. 9. Sri N. Venkataraman, learned senior counsel appearing for Vodafone, submitted that in order to find out the application of section 194H of Income....
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....agent is factually incorrect and, therefore, he submits that the authorities were justified in passing the impugned order. Consequently, he contended that the terms and contents of the agreement between the parties clearly demonstrate that neither these channel partners nor the distributors had any freedom in the matter of selling the products, which is supplied to them by the assessees. There was a complete control, which will clearly establish that it is not in a relationship of principal and principal but it is a relationship of principal and agent. When three fact finding authorities have recorded a question of fact, no case for interference is made out. He also submitted that as is clear from the invoice raised, though the price of the sim cards/pre-paid/e-coupon/e-topups is Rs. 100, it is sold for Rs. 80, Rs. 20 being the discount given to the distributor, which is in the nature of a commission paid by the assessee to the distributor and, therefore, section 194H is attracted as rightly held by the three authorities and, therefore, he submits that no case for interference is made out. 11. Sri Venkataraman, learned senior counsel pointed out that the assessment year in....
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.... form of it. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the concessionaire at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. For section 194H to be attracted, the income being paid out by the assessee must be in the nature of commission or brokerage. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. The word "discount" 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. 42. The word "discount" is normally used to describe a deduction from the full amount or value of something, especially a price. Cash dis....
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....arge cards and any other products. The sales tax liability on the products sold by the distributor from its premises shall solely vest with the distributor. That the insurance liability for the entire stock-in-trade in the premises at the address under reference will be of the distributor and the liability for any loss or damage due to any fire, burglary, theft, etc., will be of the distributor. 46. Clause 23 sets out the relationship. It provides that the distributor understands that it is an independently owned business entity and this agreement does not make the distributor, its employees, associates or agents as employees, agents or legal representative of the assessee for any purpose whatsoever. The distributor has no express or implied right or authority to assume or to undertake any obligation in respect of or on behalf of or in the name of the assessee or to bind the assessee in any manner. In case, the distributor, its employees, associates or agents hold out as employees, agents or legal representatives of the company, the distributor shall forthwith upon demand make good any/all loss, cost, damage including consequential loss, suffered by the assessee on this ac....
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..... Clause 10.4 provides that the channel partner shall be solely liable for any state and local taxes including sales tax, in relation to this agreement. TTSL shall have no liability or obligation for any state or local Income-tax liability of the channel partner or any person assigned/ appointed by the channel partner. Clause 15.2 provides that TTSL shall have no obligation to take back any products sold to channel partner. Clause 21.1 stipulates that the channel partner shall alone be responsible for all loss and damage arising out of or relating to the operation of the channel arrangement or arising out of the acts of commissions or omissions of the channel partner or any of its dealers, operators, agents, servants or personnel in connection with rendering of services by the channel partner. 50. In the case of Vodafone Essar South Ltd., clause 17.2 of the agreement stipulates that the relationship of the parties is that of seller and buyer and it is hereby expressly agreed and clarified that this agreement between VESL and the distributor is on principal to principal basis and neither party is, nor shall be deemed to be, an agent/partner of the other. Nothing in this agr....
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....e has paid for. The dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement, the concessionaire cannot return the milk under any circumstance, which is another clear indication that the relationship was that of principal to principal. Even if the milk gets spoiled for any reason after delivery is taken, that is to the account of the concessionaire and the dairy is not responsible for the same. The concessionaire becomes the owner of the milk and the products on taking delivery of the same from the Dairy. He thus purchased the milk and the products from the Dairy and sold them at the MRP. The difference between the MRP and the price which he pays to the Dairy is his income from business. It cannot be categorised as commission. The loss and gain is of the concessionaire. The Dairy may have fixed the MRP and the price at which they sell the products to the concessionaire but the products are sold and ownership vests and is transferred to the concessionaires. The sale is subject to conditions and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missi....
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....o the subscribers to whom the 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 card 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 assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the sim card, on its own but wi....
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....re- paid card, the assessee raises invoices and updates the accounts. In the first instance, the sale is accounted for Rs. 100, which is the first account and Rs. 80 is the second account and the third account is Rs. 20. It shows that the sales is for Rs. 100, commission is given at Rs. 20 to the distributors and the net value is Rs. 80. The assessee's sale is accounted at the gross value of Rs. 100 and, thereafter, the commission paid at Rs. 20 is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and the distributor is that of service and, therefore, section 194H of the Act is attracted. 61. However, in the first instance, if the assessee accounted for only Rs. 80 and on payment of Rs. 80, he hands over the pre-paid card prescribing the MRP as Rs. 100, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of Rs. 20 if not reflected anywhere in the books of account, in such circumstances, section 194H of the Act is not attracted. 62. In the appeals before us, the assessees sell pre-paid cards/vouchers to the distributors. At th....
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....d in his hands. The deduction of Income-tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal. 63. It was contended by the Revenue that, in the event of the assessee deducting the amount and paying into the Department, ultimately if the dealer is not liable to tax it is always open to him to seek for 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 pay....
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....discount account and distributor's account. Second method is to credit the sales account with the net amount after the discount and debit the distribuor's account also of the net amount after discount. In the second instance discount will not be reflected in the books of account at all. In the first instance, discount will be shown separately in the books of account. However in both cases what would be debited to distributor's account is the net after discount. In other words debiting the distributor's account, with the net amount cannot lead to a conclusion that the sales account also reflected the net amount and not the gross invoice amount. How the assessee has treated the sales in its books is of great importance in view of para 60 and 61 of judgment cited above. Though the Ld. AR has strongly argued that irrespective of the treatment in the books of account, there would be no liability of the assessee u/s.194H of the Act and the jurisdictional High Court has held the discounts as not a commission, the directions given by the Hon'ble jurisdictional High Court reproduced by us above, paras 60 and 61 of the judgment, will not in our opinion justify the conclusions sought to be dr....
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....ied that unless there was human intervention in a service, it would not become technical in nature. Ld. AR further submitted that roaming charges were different from interconnect charges and there was no element of human intervention therein. Ld. AR pointed out that in assessee's case AO had relied on the remand report obtained in the case of M/s. Bharti Cullular Ltd in Civil Appeal No.6692, dt.12.04.2010, and had wrongly come to a conclusion that constant watch and monitoring was required and there was necessity of human intervention when the calls fell through for any reason. As per the Ld. AR even presuming that there was a necessity of human intervention in establishing interconnect facilities, there was no such necessity in providing roaming facilities to the customer. As per the Ld. AR lower authorities fell in error in holding that a telephone system could not work on its own and required human intervention at all times. 11. Per contra, Ld. DR strongly supporting the orders of lower authorities submitted that in assessee's case it was an admitted position that human intervention was required for maintaining, various interconnect systems which was a prerequisite for provid....
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....Act but dictionary meaning of word "technical" as per Cambridge dictionary is knowledge, machines or methods used in science and industry.' The work technical is derived from the word technique which means 'a particular or a special way of doing something. He further described how roaming services is technical services, which is reproduced as under "If the subscriber of Rajasthan Circle goes to Maharashtra when he reaches Maharashtra, the network of Maharashtra catches signals from his mobile and identifies IMSI (International Mobile subscriber Identity) of the Subscriber. The network of Maharashtra circle shall automatically find out from IMSI of the subscriber as to whether service provider of Maharashtra has a roaming agreement with service providers of Rajasthan circle or not. If yes, they only it shall send signals to service provider of Rajasthan to authenticate the subscriber. If there is no contract between service provider of Maharashtra and Rajasthan, roaming services shall not be allowed to the subscribers. This means that starting points for roaming services is essentially a contract between two services providers. The service providers of Rajasthan circle shal....
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....fficer on page 27 to 30 of the order. The ld ITO(TDS), therefore held as under:- (1) Roaming is not possible unless an agreement is entered into between the two service providers. (2) Entire Roaming facility is based on IMSI which consists of MNC (Mobile Network Code a unique code allotted to assessee) and SIM which is also issued by the assessee. (3) Roaming services is a highly technical service which is possible with the use of equipment such as MSC, VLR, Radio Network, Tower, BTS, BSS and highly advanced technology. (4) It is a technical arrangement between the two telecom service providers to connect their equipments, network and services to enable their customers to have access of telecom network wherever they move. (5) All the necessary arrangements are being made by the Home Service provider to enable its subscriber to get connected in all other circles. The subscriber need not interact act for any roaming services with other service provider. It is the technology established between two service providers which executes roaming system. (6) The subscriber has to get roaming activated through Home Service Provider. Only th....
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....chnical services of other telecom service provider to facilitate the subscriber to access telephone wherever he visits and therefore it is required to deduct TDS from the payments made to obtain these services." The ld. ITO(TDS) considered the following decisions on which the assessee claimed that roaming charges is not covered U/s 194J of the Act. (i) Skycell Communication Ltd. 251 ITR 53 (Madras) (ii) Bharti Cellular Limited ITA No. 1120/2007) (iii) DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). (iv) ITO Vs. Moving Pictures Company India Ltd. 20 SOT 120 (Delhi). (v) Kotak Securities Ltd. Vs. Addl.CIT 25 SOT 440 (Mum). The above case laws referred by the assessee were found distinguishable to the ITO(TDS). He further relied on the decision in the case of Canara Bank Vs. ITO 305 ITR (AT) 189 where the Hon'ble ITAT Ahmadabad Bench has distinguished the order of the Skycell Communications Ltd. and held that clearing charges paid to SBI through MICR centre by rendering managerial service which falls within the definition of technical services and liable to be deducted TDS U/s 194J of the Act. He further conside....
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.... that the roaming facility provided by the other telecom service provider to the Home Service Provider (the appellant) to facilitate the subscribers of the appellant company, to access mobile services, wherever they visit, was a technical service. In this regard, I agree with the reasoning given, for the above finding by the ld. A.O., in para 3.5 of his order. which is already reproduced in earlier para of this order. Further, it is observed that the ld. AR has again relied on the decision in the case of Skycell Communications Ltd. and the decision of Hon'ble Delhi High Court in assessee's own case. However, in this connection, I agree with the detailed observations of the Ld. A.O. given in para 3.6 of his order (on pages 33 and 34) that the facts of above two cases are different, as compared to the facts of the present case and hence, the decisions given in those cases are not applicable in the present case. Therefore, I find no merit in the submissions of the ld AR for the reasons discussed in the order of the ld A.O. The ld CIT(A) confirmed the order of the ITO(TDS) U/s 194J of the Act but allowed the benefit of Hon'ble Supreme Court decision in the case of Hindusta....
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....er in visited network is captured in a file called TP, i.e. transferred account procedure for GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. * TAP file contains details of calls made by subscriber, viz., location, calling party, time of call and duration, etc. * TAP/CIBER files are rated as per tariffs charged by visiting network operator. * Such TAP/CIBER file is transferred to home network of subscriber (i.e. to Hexacom). * Home network (i.e. Hexacom) then bills these calls to the Hexacom's subscriber and pays roaming charges based on the TAP to the visited network operator (i.e. Airtel). The roaming operator charges as per the roaming agreement with Hexacom, whereas the subscriber is billed as per the tariff subscribed. * The entire process is automatic. It is concluded that the above transaction flow that the service of providing airtime by visiting telecom circle is directly to the subscriber and not to Hexacom. The subscriber of Hexacom uses the network set up by the visiting circle and instead of amount being recovered from the roaming subscriber, the visiting circle sends the air minutes to be recovered from....
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.... the technical networks basically to be able to do business. In fact DOT mandates that it should be so connected. There is no payment made for connecting the networks. Payments are made for calls which the roaming subscriber makes. If no calls are made no payment is made in spite of the fact that the networks are inter connected. He further relied on the decision in the case of CIT Vs. Bharti Cellular Ltd. 319 ITR 139 (Del) wherein it has been held by the Hon'ble Delhi High Court that roaming services not involving human interference and is not technical services as contemplated under Explanation 2 to Section 9(1)(vii) of the Act and not liable for tax deduction at source U/s 194J of the Act. This view has been earlier held by the Hon'ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT (2001) 251 ITR 53 (Mad) order dated 23/2/2001 wherein the Hon'ble High Court has held that provisions of Cellular mobile telephone facility to subscribe is not a technical service. Deduction of tax at source need not to be made from subscriptions U/s 194J of the Act. He further relied on the decision in the case of Jaipur Vidyut Vitran Limited Vs. DCIT (2009) 123 TTJ 888 (JP Tri....
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.... decision in the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon'ble Supreme Court. The Hon'ble Supreme Court has held as under:- "In cases requiring examination by technical experts, the Department ought not to proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with technological advancement, the Department ought to examine technical experts so that the matters could be disposed of expeditiously. Further, this would enable the appellate forum, including the Supreme Court, to decide the legal issues based on the factual foundation. Held accordingly, remanding the matters for determination with technical assistance, that in these cases, in which a cellular provider under an agreement pays interconnect/access/port charges to BSNL/MTNL, the question whether the cellular provider has rendered technical services and has to deduct tax at source, depended on whether the charges were for technical services, and this involved determination of whether any human in....
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....A); submissions of the assessee as well as going through the process of providing roaming services; examination of technical experts by the ACIT TDS, New Delhi in the case of Bharti Cellular Ltd.; thereafter cross examination made by M/s Bharti Cellular Ltd.; also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03/09/2013 and also various judgments given by the ITAT Ahmadabad Bench in the case of Canara Bank on MICR and Pune Bench decision on Data Link Services. We find that for installation/setting up/repairing/servicing/maintenance capacity augmentation are require human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also signifies charges for connecting two entities. The Coordinate Bench also considered the Hon'ble Supreme Court decision in the case of Bharti Cellular Ltd. in the case of i-GATE Computer System Ltd. and held that Data Link transfer does not require any human intervention and charges received or paid on account of this is not fees for technical services as envisaged in Section 194J read with....