TaxTMI 
TaxTMI 
2019 (5) TMI 1001
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....le 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 departmental representative submitted that this appeal is squarely covered by....
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....e 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 products offered by the competitors of the company. PMAs further appointed the retailers ....
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....ction 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 by the parties. Clause 3 of the agreement specifically provides that the rela tionship created by the agreement is t....
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.... 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 considered view the legal relation ship between the assessee and PMA is that of seller and purchaser. We do not find any condition in th....
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....ecoration 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 services rendered (not being professional) ; (ii) for any services in the course of buying and selling of goods or in relation to any transaction relating to any asset, valuable article or thing. 9. Co....
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.... 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 ICL may create in future. (h) The PMA has to comply with all requirements of ICL in respect of invoicing and accounts, maintenance of brand image and provide monthly sales reports return and other information relating to business. (i) The representative of the ICL, under the agre....
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....r 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 the distributor : 1. Vijay Traders v. Bajaj Auto Ltd. [1995] 6 SCC 566 ; 2. CCE v. DCM Textiles [2006] 195 ELT 129 (SC) 3. Moped India Ltd. v. ACCE [1986] 23 ELT 8 (SC) ; 4. Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 (Guj). (ii) The fact that there is a specification of the price at which goods are transferred between the....
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....n 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 the distributor has to maintain detailed records and accounts ; and -The fact that the distributor has to submit accounts to the principal. 20. Two provisions, which would be relevant for determining the issue and to decide the real nature of transaction between the parties are section 4 of the Sale of Goods Act and section 182 of the Indian Contract Act. Section 4 of the Sale of Goods Act defines "sale". Therefore this provision becomes material provision to determine as to whether the ....
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.... 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 like the assessee in the present case is asked to deduct tax at source in respect of commissions paid to their agents, viz., distributors, it does not affect them. The concerned distributors can always file their Income-tax returns and claim the credit for the payments already made on their behalf by the assessee. On the other hand, such a provision serves public purpose inasmuch as, viz., such distributors who would be otherwise liable to pay tax, but are evading the tax, would come under the Income-tax Act. We may clarify that we have not answered the legal question influenced by th....
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....sent 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 third party, i.e., passen ger. (c) Similarly, by virtue of such a transaction, i.e., issuance of traffic documents by a travel agent to passenger, it enables the principal, i.e., air line to issue the same to the third party, which is the passenger. 25. Another argument was raised in the said case, viz., that the assessee airline was not paying income by way of commission, as "the supplementary commission" was retained by the travel agent and thus, section 194H of the Act was not attracted. This contention was brushed aside in the following manner (pages 55) : "This brings us to the second leg of the transaction as to whether income by wa....
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....iz., 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 subscriber. Further, deal ings between the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/defect in service. (c) entering into the ultimate agreement between the subscriber and the assessee (clause 15 of the agreement). 28. It is to be borne in mind that the nature of the service provided by the assessee to the ultimate consumers/subscribers, whether it is prepaid or postpaid SIM card-remains the same. In the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs. In the case of post-paid, SIM card transaction is entered into directly between the assessee and the subscriber and the subscribe....
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....is 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 Assessing Officer's order . . . ) 32. We may now refer to the three decisions of various Benches of the Tribunal which have taken a view contrary to the one held by the Tribunal in impugned decision. In Vodafone Essar Cellular Ltd. [2009] 317 ITR (AT) 234 (Cochin), the Cochin Bench has discussed the issue much elaborately in the following manner (pages 251, 255, 257, 258, 260) : "The assessee-company has made a lot of reliance on the conten tion regarding the freedom of pricing. It is the case of the assessee- company that the distributors are free to fix the selling price but the price should not exceed the MRP. The Revenue says that there is no such freedom in fixing the sale price. As far as the present case is concerned, earlier it was BPL and thereafter BPL ....
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....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 the distri butors is not the sale of any product or goods. The distributors are providing facilities and services to the general public for the avail ability of devices like SIM cards to have access to the mobile phone network of the assessee-company. Therefore, it is beyond doubt that all the distributors are always acting for and on behalf of the assessee company. Only for the reason that the distributors are making advance payment for the delivery of SIM cards and other products and distributors are responsible for the stock and account of those cards, it is not possible to hold that the distributors are not acting for the assessee-company but the distributors are acting on their own behalf. Such a proposition is inconceivable in the facts of the present case. It is always possible for the telep....
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.... 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 is equiv alent to paying of commission/brokerage to the distributors. The assessee has always raised a contention, that too in the light of the judicial pronouncements including that of M. S. Hammed [2001] 249 ITR 186 (Ker) that the assessee-company had no occasion to deduct tax at source as the assessee-company was not making any payment to the distributors or crediting the account of the distributors for any services rendered to it. But that occasion was removed by the assessee itself by conscious wordings of the terms of the agreement. The assessee-company can collect the net sale proceeds along with TDS element from he distributors while distributing the pre-paid products to the distributors. The distributors shall file their returns before the concerned authorities and depending upon the working results, they can adjust the TDS collect....
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....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 between the distributor and the consumer. This is because the distributor does not have anything to provide "as service" to the consumer. These are all features of agency relationship. (5) Other matters explained by the assessee as, there was no pay ment by the assessee in cash or cheque by way of commission to the distributors or not crediting the accounts of the distributors for any commission, delivering the products only after getting the price in full, are all matters of assessee's indoor management. (6) Service cannot be sold or purchased and it can only be pro vided. The operational features explained by the assessee-company are necessary in running a mammoth system of providing mobile telephone services over a large geographical area. The distributors provide essential services to the assessee-company in running such a huge operational system. The distributors are....