TaxTMI 
TaxTMI 
2020 (5) TMI 485
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....of the Assessing Officer passed under section 201(1) /201(1A) of the Income Tax Act, 1961 ["Act" in short] on the ground that the order passed by the TDS Officer is bad in law and void-ab-initio", since such order has been passed beyond the limitation period specified under section 201(3) of the Act. As no TDS under section 194H of the Act was deducted on the discounts allowed on prepaid services as distributor margin, the Assessing Officer passed order under section 201(1)/201(1A) of the Act. Before the ld. CIT(A), it was a submission of the assessee that the assessee was covered by the provisions of section 201(3) of the Act and hence, the order under section 201(1) of the Act cannot be passed beyond the limitation period. Clause (i) to section 201(3) of the Act specifies that no order shall be made under sub-section (1) of section 203 of the Act deeming a period to be an assessee in default for failure to deduct the whole or any part of the tax from a resident in India, at any time after the expiry of two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed. Here, the assessee has not ded....
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....T(A) that the said order may be followed to decide the issue in favour of the assessee. By extracting the relevant portion of the order and following the same, the ld. CIT(A) held that the provisions of section 194H of the Act are not attracted in the case of the assessee and no tax at source was deductible provided the assessee satisfied the conditions relating to treatment of discount in the books of accounts. We have gone through the detailed order passed by the Tribunal, wherein, it was observed and held as under: "3.6 With regard to the discount offered by the assessee to their distributors is a commission or not, in assessee's own group case for the assessment year 2007-08 and 2008-09 in I.T.A. Nos. 1415 & 1416/Mds/2009 dated 01.04.2011, the Coordinate Benches of the Tribunal has held that the assessee was liable to deduct tax at source on the amount of commission/discount allowed to the distributors under section 194H for both the years under consideration and since it has failed to do so, therefore, the Assessing Officer had correctly created demand under sections 201(1) and 201(1A) of the Act and the ld. CIT(A) was not justified at all to delete such demands. ....
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.... is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom 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....
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....ship. 60. The following illustration makes the point clear: On delivery of the prepaid card, the assessee raises invoices and updates the accounts. In the first instance, 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 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 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 prepaid 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 accounts, in such circumstances, Section 194H of the Act is not attracted. ....
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....hands of the distributor and he is not under any obligation to pay any tax as no income is generated 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....
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....17, the Hon'ble High Court of Judicature for Rajasthan Bench at Jairpur decided the issue in favour of assessee both in assessee's appeal as well as Revenue's appeal. The relevant observations of the Hon'ble High Court are as under: "44. Now, the first question which has come up for our consideration is, 'whether in the facts and circumstances of the case the learned Tribunal was right and justified in holding that assessee was liable to withhold tax at source under S. 194H of the Income Tax Act, 1961 amounting to Rs. 19,74,842/- (including interest) in respect of sales to its distributors, which are on principal to principal basis and wherein property in the goods is transferred to the distributor'. 45. Taking into account the provisions of Section 182 of the Contract Act and the arrangement which has been entered into between the company and the distributor and taking into account the provisions of Section 194H, the Tribunal while considering the evidence on record, in our considered opinion, has misdirected itself in considering the case from an angle other than the angle which was required to be considered by the Tribunal under the Income Tax Act. The Tribunal....
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....e margin of retailer and will reduce the margin from 10% to anything between 1% to 10%. There is no restriction by the assessee to give commission amount to the retailer. (iv) Regarding area of operation, it is the business policy of the assessee to give Distributor-ship for a particular area. Only on that basis, it will be erroneous to hold that it is on Principal to Principal basis. For deciding the relation-ship on Principal to Principal basis, the criteria will not be of area of operation but agreement entered into between the parties. (v) Regarding the change in price it is always between the assessee or the company and the Distributor to decide who will absorb the loss. In that view of the matter, the findings arrived at by the Tribunal is erroneous. (vi) Regarding the return of goods after expiry date, it is always the understanding between the manufacturer and company that the product is not for preparation or consumed before expiry date, the consumed items cannot be allowed otherwise manufacturer will invite criminal liability. To avoid any criminal liability or any criminal act is done for taking back the goods, will not deter the relat....
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....view of the matter any proceedings under Section 201 or 201(1A) are misconceived. In that view of the matter, this issue is also answered in favour of assessee. 51. Contention regarding provisions of Section 271 of the Act, in view of our answer in favour of assessee, this issue is also required to be answered in favour of assessee. Even otherwise as rightly held by the Supreme Court in CIT Vs. Eli Lilly & Co. (India) P. Ltd.(supra), the penalty could not have been levied in all the appeals filed by assessee Coca Cola. M/s Bharti Hexacom Ltd. 52. Regarding the other appeals of Cellular Companies the questions are required to be answered as discussed hereinabove. The relationship is not of agent. It is principal to principal basis. The payment is received by the company and the amount of commission is never paid to the agent or the Distributor. Therefore, no TDS is required to be deducted. We also accept the contention raised by Mr. Jhanwar that even otherwise in view of divergent judicial views, one in favour of the assessee is required to be adopted as per settled law. Taking into consideration the above conclusion, the first issue is required to be answ....