TaxTMI 
TaxTMI 
2018 (5) TMI 1912
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....d the decision rendered therein will apply mutatis and mutandis to other appeals also. ITA No.340/Chd/2013: 4. Briefly stated the assessee is a telecommunication service provider. TDS Inspection/survey u/s 133A of the Act was carried out at the business premises of the assessee on 20.1.2010, during the course of which it was noticed that the person responsible (PR) had not deducted tax at source from the payment made towards incentives on prepaid Sim cards sold to distributors and also on the roaming charges paid to other service providers. The AO held that the assessee was liable to deduct tax on both the payments since the incentives paid to distributors was in the nature of commission requiring TDS u/s 194H of the Act ,while the roaming charges paid to other telecommunication providers was in the nature of service charges paid requiring TDS u/s 194C of the Act. Accordingly the assessee was held to be an assessee in default for not deducting tax at source and consequently demand was created on the assessee u/s 201(1)/(1A) of the Act as under: Section Demand u/s 201(1) Demand u/s 201(1A) Total 194C Rs. 422489/- Rs. 101197/- Rs. 523686/- 194H ....
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.... facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduction of tax amounting to Rs. 50,465,972/- u/s 194H on the difference between the distributor's price and sale price of the prepaid card alleging the difference to be in the nature of commission. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned AO 1.3 The learned AO had erred both on facts and in law demanding the tax amounting to Rs. 50,465,972/-, in spite of the fact that the amount has been subject to tax in the hands of distributors. The learned Commissioner of Income Tax (Appeals) has further erred in not considering the information filed by the company to substantiate that the distributor has already paid tax on the disputed amount."." 8. During the course of hearing before us the Ld. counsel for assessee, at the outset, stated that ground No.1.3 raised was not being pressed since the Ld.CIT(Appeals) had agreed with the contention of the assessee that since the payees had paid taxes on the impugned income the assessee should not be treated as an assessee in def....
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.... the distributors was not in the nature of commission for the purpose of tax deduction at source u/s 194H of the Act. The Ld. counsel for assessee further pointed out that even the Hon'ble Rajasthan High Court in the case of Bharti Hexacom Ltd. dt.11-07-17,reported in 87 taxmann.com 295(Raj). which was a subsidiary of the assessee, had decided the issue in favour of the assessee. Further the Ld. counsel for assessee pointed out that various Benches of the I.T.A.T. had decided the issue in favour of the assessee following the aforesaid decisions of the Hon'ble Karnataka High Court and Hon'ble Rajasthan High Court: 1) M/s Bharti Hexacom Limited vs ITO (TDS)-II ITA No.656/JP/2010 dt.12-06-15 2) M/s Tata Tele Services Limited ITA No.309/JP/2012,502 to 505/JP/2011 Dated 13.3.2015 3) M/s Bharti Hexacom Limited vs DCIT (TDS) ITA Nos.258 to 262/Gau/2013 Dated 29.6.2015 4) Vodafone Essar Gujarat Limited vs ACIT ITA No.386/Ahd/11 dated 7.7.2015. 11. The Ld. counsel for assessee further pointed out that there was no Jurisdictional High Court decision on the issue and in such a situation the principle of construction of law demanded that the d....
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....was generated in his hands and deduction of income tax at source being a vicarious responsibility there was no obligation to deduct TDS in the absence of a primary responsibility to pay tax. The relevant findings of the Hon'ble High Court in this regard are as under: "From the aforesaid clauses, it is clear that there is no relationship of principal and agency. On the contrary, it is expressly stated that the relationship is that of principal to principal. Secondly the Distributor/Channel Partner has to pay consideration for the Product supplied and it is treated as sale consideration. There is a Clause, which specifically states that after such sale of Products, the Distributor/Channel Partner cannot return the goods to the assessee for whatever reason. It is the Channel Partner and the Distributor who have to insure the products and the godowns at their cost. They are even prevented from making any representation to the retailers unless authorized by the assessee. What is given by the assessee to its Distributor/ Channel Partner is a trade discount. It is not commission. 52. In Qatar Airways case it was held that, when the airlines sell the air tickets it wo....
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....re, it was held that there is no relationship of principal and agent and the consideration paid to the concessionaire is not commission. 55. In the Singapore Airlines case, the relationship of principal and agent was not in dispute. At no point in time the travel agent obtains proprietary rights to the Traffic Documents/Air Tickets. There is no value or price paid by him on which the travel agent gets a deduction. The price or value is received by the assessee-airline through the medium of the travel agent from the passenger which is also one of the facets of the services offered by the travel agent. The price or value of the Traffic Document received by the travel agent for and on behalf of the assessee-airline is held in trust. Thus the money retained by the travel agent is commission. The airline paid standard commission to the travel agent on which assessee- airline deduct tax at source. The dispute was only in respect of the money or monies which the travel agent retains over and above the net fare. In that context, the Delhi High Court held that, under an agreement only one relationship exists and the transaction is a singular transaction which is executed between th....
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....who wants to have its service initially, has to purchase a simcard. When he pays for the sim-card, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be sold. What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor 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. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, who ever ultimately sells the said right to customers is not entitled to charge more than the MRP. The income ....
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.... consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time 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 to 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 distributor. 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 ....
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....ent. If the payee is not in possession of the net income which is chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of tax 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 attrac....
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....ee u/s 201(1) and 201(1A) of the Act is, therefore, directed to be deleted. 16. Ground of appeal Nos.1 to 1.2 are therefore, allowed while Ground No.1.3 is dismissed. 17. Ground Nos.2 to 2.1 relate to the issue of TDS on roaming charges and read as under: 2) The learned AO had erred both on facts and in law in applying the provisions of Section 194C of the Income Tax Act, 1961 to the transaction of national and international roaming charges paid to other telecom operators on account of roaming charges incurred by the appellant's subscriber on their network and creating a demand of Rs. 4,22,489/- holding the assessee company to be in default. The learned Commissioner of Income Tax (Appeals) has erred in not deleting the demand raised u/s 194C / 201(1) and has erred in restoring the matter back to the file of the AO to determine the applicability of Section 194J of the Act.\ 2.1) The learned AO had erred both on facts and in law in not taking cognizance of the certificate issued by the Income Tax department u/s 195(2) of the Income Tax Act in respect of the charges paid to international telecom companies on account of the charges incurred by the subs....
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....deducting tax at source, the Ld.CIT(Appeals) directed the Assessing Officer to give a fresh opportunity to the assessee to submit requisite details and further directed that the demand be reduced to the extent the details were produced before the Assessing Officer. 19. Ld. counsel for assessee thereafter stated that it had no grievance against the aforesaid directions of the Ld.CIT(Appeals) since the Ld.CIT(Appeals) had only restored the issue to the Assessing Officer for considering the same afresh in the light of the directions of the Hon'ble Apex Court in the case of M/s Bharati Cellular (supra) on the issue of TDS on roaming charges and also on the alternate contention raised by the assessee of no tax to be deducted at source where payees have paid taxes on the same, for verification of facts relating to the same. The Ld. counsel for assessee stated that it was, therefore, making no arguments on the grounds raised in 2 to 2.1 before us. In view of the same, ground of appeal Nos.2 to 2.1 are treated as dismissed. 20. In effect the appeal of the assessee is partly allowed. ITA No.216/Chd/2013: 21. The assessee has raised the following grounds: 1)....
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....assessee. our decision rendered therein at para 19 of our order above will apply to the above grounds also, following which the ground Nos.1 to 3 raised by the assessee are dismissed. The appeal of the assessee is, therefore, dismissed. ITA No.217/Chd/2013: 23. The assessee has raised the following grounds: 1) The learned Asstt. Commissioner of Income Tax (TDS) (AO) has erred both on facts and in law in applying the provisions of Section 194H of the Income Tax Act to the discount given to distributors on sale of pre-paid products, being, "right to use Airtime for a specified value". The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.1) The learned AO has erred both on facts and in law in treating the business relationship between the company and the distributor as principal to agent as against the actual relationship of principal to principal. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.2) The learned AO has erred both on facts and in ....