TaxTMI 
TaxTMI 
2019 (5) TMI 1001
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.... while adjudication the appeals in the case of Vodafone Essar Mobile Services Ltd. for FY 2007-08 to 2010-11 in Appeal No.36/10-11, 35/10-11, 12/10-11 and 578/10-11 dated 6/9/2011, the finding the Revenue on the issue of similar nature was sustained by the Ld CIT(A). (4) in accepting the contention of the assessee that payment is made by the distributors to the assessee and not by the assessee to the distributors. Here, the payment in question is not the value of Recharge Vouchers, but the element of margin retained by the distributors during the course of sale transaction of Recharge Vouchers." 3. The brief facts of the case shows that the above appeal is involving an order u/s 201 (1) read with section 201 (1A) of the income tax act passed by the learned Joint Commissioner Of Income Tax, range 51, New Delhi on March 25/2010 wherein he has held that assessee has failed to deduct tax at source on discount for maximum retail price extended to its distributor as it has failed to withhold taxes at source under section 194H of the act. On appeal before the learned CIT - A the appeal of the assessee was allowed and therefore revenue is in appeal before us. 4. The learned ....
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....x act does not apply for the above reasons the learned authorised representative further relied on the decision of the honourable Karnataka High Court in case of Bharati Airtel Ltd and others vs DEPUTY COMMISSIONER OF INCOME TAX 52 taxmann.com 31. The assessee further relied upon the decision of the coordinate bench (Jaipur) in ITA number 64 - 65 - 66/2013 dated 29/5/2015 for squarely covered the issue in favour of the assessee. 6. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case the issue is squarely covered against the assessee by the decision of the honourable jurisdictional High Court in case of CIT VS IDEA CELLULAR LTD 325 ITR 148 wherein it has been held that the payment made by the assessee constitutes the commission and tax is required to be withhold u/s 194H of the income tax act. All the arguments raised by the assessee also been considered by the honourable Delhi High Court with respect to the sale of the goods and principal to principal transaction of the assessee as under:- 4. From this clause the Assessing Officer came to the conclusion that distributors were not free to sell similar pro....
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.... and agent". Therefore, what was paid to the PMAs was not commission or brokerage and was not subject to deduction of tax at source under section 194H of the Act. The Tribunal has arrived at the aforesaid findings in the following manner : "14. In order to ascertain whether the PMAs were acting as agents of the assessee or were outright purchasers of goods supplied by the assessee, it is necessary to discuss the distinction between the con tract of sale or contract of agency. The essence of contract to sale is the transfer of title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of goods as a debtor for the price to be paid and not an agent for the proceeds of the sale. On the other hand, the essence of agency to sell is the deli very of goods to a person, who is to sell them, not as his own pro perty but as the property of the principal who continues to be the owner of goods and who is therefore liable to account for the pro ceeds. The true legal relationship between the assessee and the PMAs has to be inferred from the nature of contract, its terms and condi tions and the nature of respective obligations undertaken ....
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....ted by him is remitted to the principal after deduction of his commission and expenses relating to sale of the goods. The assessee is not making any reimbursement of the expenditure incurred by the PMA and his retailers. This also suggests that the agreement between the assessee and PMA is that of seller and purchaser. Agreement also provides certain conditions relating to protection of intellectual pro perty rights of the assessee. The other conditions stipulated in the agreement including termination clause do not throw any light so as to suggest that the agreement between the assessee and PMA is that of principal and agent. In the case of Gordon Woodroffe and Co. Ltd. v. Shaik Majid and Co., AIR 1967 SC 181 held that even an agent can become a purchaser when agent pays the price to the principal on his own responsibility. In the case before the goods are sold to the PMA who in turn transfer goods to retailer to be sold to the end users. The retailers are appointed by the PMA though with the approval of the assessee but they are working under the instructions of the PMAs. Termination of the retailers is co-terminus with the termination of the agreement with the PMA. In our consid....
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....rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA ; (iii) Where any income is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the pro visions of this section shall apply accordingly." 8. It is clear from the aforesaid provision that tax is to be deducted at source by a person responsible for paying any income by way of commission or brokerage. The expression "commission" or "brokerage" has been defined in the Explanation, which 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 and selling of goods or in relation to any transaction relating to the following services : (i) for servi....
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...."principal and agent" relationship : (a) Full legal and equitable title and interest in pre-paid SIM card and recharge coupons delivered to the distributors at all times remains with the assessee. (b) The distributors store the SIM card and recharge coupons in such a way as to clearly indicate at all times that the pre-paid SIM card/recharge coupons are owned by ICL and is not allowed to remove, obscure or delete any mark placed on prepaid SIM card/recharge coupons. (c) The distributor is not free to sell the similar products offered by the competitors company without the written consent of the assessee. (d) PMA is allowed to appoint the retailers only after the written approval from the assessee. (e) The maximum price of SIM card/recharge coupon is also decided by ICL. (f) It is the responsibility of the PMA to obtain all relevant informa tion concerning a subscriber and to forward the same to ICL and unless that is done, no activation of SIM card can be done. (g) The ICL has the right to use service marks, trademarks, trade names, copyrights, logos (collectively the intellectual property) or any other copy right that ....
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....ent pointed out by the Revenue, which were not material to determine the controversy. His submission was that the following three conditions were to be fulfilled in order to attract the provisions of section 194H of the Act : (a) expenses of principal-cum-agent-relationship, which was lacking in this case ; (b) payment or credit by the assessee to its distributors, which attribute was again missing ; and (c) the amount, which the Revenue claims to be subject to TDS under section 194H must be shown to the income of the recipient, which ingre dient again was missing. 15. Dilating on the first ingredient, viz., there was no relationship of "principal and agent", the learned counsel submitted that the transaction in question between the assessee and the PMAs was that of outright sale in view of the following characteristics : (i) The fact that payment for goods is made by a distributor to the principal upfront, prior to the realization by the distributor of the proceed ings of the sale made by him has been recognized, in the following deci sions, as a crucial factor in establishing that the transaction is one of a sale by the principal to th....
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....ment). (vi) The distributor is not liable to pay to the respondent the price at which he effects the sale to the retailer/subscriber (clause 10 of the PMA agreement). 18. Our attention was also drawn to clause 3 of the PMA agreement, which specifically negates the existence of a "principal and agent" relationship. This clause is of particular relevance especially considering the decision of the Supreme Court in the case of Indian Oil Corporation v. Consumer Protection Council [1994] 1 SCC 397. 19. His further submission was that the aspects highlighted by the learned counsel for the Revenue between the assessee and the PMAs were of no consequence inasmuch as it was held by the Supreme Court in the case of Bhopal Sugar Industries Ltd. v. STO 40 STC 42 (SC) and the Gujarat High Court in the case of Ahmedabad Stamp Vendors Association [2002] 257 ITR 202, that the following factors would not be relevant to determine as to whether an agency exists : -The fact that the distributor is subject to operational control by his principal ; -The fact that the distributor is subject to geographical controls by his principal ; -The fact that th....
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....ed by Davey L. J. as follows : 'Commission is prima facie the payment made to an agent for agency work, usually according to a scale, it may be on ad valorem scale, but not necessarily on ad valorem scale. It is the most general word that can be used to describe the remuneration paid to an agent for an agency work other than a salary'-Drielsma v. Manifold [1894] 3 Ch 100 (CA)' Again, a 'commission' is the recompense of reward of an agent, factor, broker or bailee, when the same is calculated as a percentage on the amount of his transaction or on the profit to the principal- Sunderland v. Day 145 NE 2d 39, 41 ; 12111.2d. 50. 'Commission' generally denotes the compensation which an agent receives on sales- National Paper and Cordage Co. v. Atlantic Carton Corporation 127 N. E. 2nd 196 332, Mass. 651. 'Commission' is compensation paid to another for services rendered in the handling of another's business or property and based proportionately upon the amount or value thereof-Rubinstein v. Rubinstein 109 NYS 2d 725, 734." 22. Before we part with, we would like to point out that if the cellular operators....
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.... 449 (SC) at pages 456-457. This cited with the approval in Qamar Shaffi Tyabji v. CEPT [1960] 39 ITR 611 (SC) at pages 615, 616. (iv) There is no necessity of a formal contract of agency, it can be implied which could arise from the act of parties or situations in which parties are put." 24. At this stage itself, we may point out that in the aforesaid case, this court held relationship between the Airlines and the travel agents as that of "principal and agent". After examining in detail the operational aspect of the transaction, the significant aspects which were referred by the court, having semblance with the present case as well : (a) The legal relationship was created between the passenger (to whom the travel agents were selling tickets and the concerned airline) as on the basis of the said ticket, the passenger was entitled to travel in the concerned airline. Any request made by the passenger was to be forwarded by the agent to the traffic carrier/airline to enable the carrier to extend such services to the customer. (b) By entering into such a legal relationship on behalf of the principal (the airline) by issuing the traffic documents to a....
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....to them, if any, under section 197 of the Act would be avail able. We allow the following appeals and set aside the impugned judgments passed by the Tribunal in each of these appeals and remand the matter to the Tribunal for examining all other aspects of the matter as also the consequences which would flow therefrom." 26. In view thereof, the argument of the learned counsel that section 194H is not applicable, as there is no "payment or credit" by the assessee to its distributor is to be rejected. Likewise, the argument that the amount must be shown to be the income of the respondent also does not hold good. 27. We, thus, come back to the central question, which is to be addressed, viz., the nature of relationship. Reverting back to this aspect, in the present case, we are of the opinion that the legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee. It is created by : (a) activation of the said SIM card by the assessee in the name of the consumer/subscriber. (b) service provided by the assessee to the subs....
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....eement for any reason, PMA shall discontinue the marketing/distributing/offer ing for sale, idea chitchat prepaid services, and shall forthwith return to ICL the entire stock of pre-paid SIM cards/recharge coupons remaining with him and/or his authorized retailer. ICL shall pay to PMA for such pre-paid SIM cards/recharge coupons received by it from the distributor." 31. Thus, even if advance payment is made by the PMA on receipt of the SIM cards, qua those SIM cards, it does not amount to "sale" of goods. The purpose is to ensure that the payment is received in respect of those SIM cards, which are ultimately sold to the subscriber inasmuch as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them. This is an antithesis of "sale". There cannot be any such obligation to receive back the unsold stocks. Further, clause 25(f) lays down that on termination of the agreement, the PMA or its authorized retailer appointed by it, is not entitled to any compensation for cost or expenses incurred by it in either setting up or promotion of its business, etc. No such clause was required in case of "sale". (To be taken from ....
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....h the Government of India. Nobody else can be given the right to operate as cellular telephone service providers. The ulti mate service is provided by the assessee-company to everyone and everywhere. 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 ques tion of passing of any ownership or title of the goods from the asses see-company to the distributor or from the distributor to the ultimate consumer. The distributors are acting only as a link in the chain of service providers. The assessee-company is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. In between providing of that service, it is necessary for the company to appoint distributors to make available the pre-paid products to the public as well as to look after the documentation and other statutory matters regarding the mobile phone connection. So, what is the essence of service provided by the distributors ? The essence of service rendered by th....
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....fferent from the post-paid package so as to qualify the former for exemption from operation of section 194H. It is beyond any dispute that the essence of service rendered to the pre-paid and post-paid consumers are one and the same. There is no difference. The only difference is technical. The difference exists only in billing system and revenue collection, etc. In both the cases the assessee-company is providing the service. Distributors are helping to reach such services to the ultimate consumers. In both the systems, there is documentation. In both the systems, the distributors render similar types of services to the assessee-company. Of course account ing the revenue collection and related matters are different. The essence of post-paid and pre-paid services rendered by the assessee- company is the same and the relationship between the assessee and the customers is also the same. Therefore, if post-paid scheme is sub ject to section 194H, it is quite unlikely that pre-paid system would be outside the purview of section 194H . . . The next question is whether the commission/brokerage allowed by the assessee-company at the stage of raising the invoice i....
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....very of SIM cards and other recharge coupons, there is no sale and purchase of goods, but only of providing services ; (2) The hon'ble Kerala High Court in the case of Kerala Stamp Vendors Association v. Office of the Accountant General [2006] 282 ITR 7 and M. S. Hameed v. Director of State Lotteries [2001] 249 ITR 186 (Ker) and the hon'ble High Court of Gujarat in the case of Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 have treated the subject transactions as transaction of pur chase and sale of goods ; (3) The assessee-company as a service provider is always the owner of the above products which is meant only as devices to have access to the mobile phone network system maintained and operated by the assessee-company ; (4) The services provided by the assessee-company through various distributors is regulated by law. Carrying on the business of providing service is subject to so many statutory compliance require ments, like verification of the identity of the consumer and the related documentation, etc. The assessee-company is having all lawful obli gations to a pre-paid consumer, even though the direct deal is betwee....