AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 174
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act for Financial year 2008-09 was passed beyond time limit prescribed u/s 201(3) of the Act. 2. The CIT(A) failed to appreciate and ought to have held that any order passed beyond reasonable period is barred by limitation and thus void-ab-initio. 3. The Appellant prays that the TDS officer be directed to consider it invalid and same be quashed. Without Prejudice to Ground I, GROUND II: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the order passed by the TDS officer of holding the Appellant as 'assessee-in-default on non-deduction of tax at source on discount allowed to the prepaid distributors u/s 194H of the Act on distribution of 'right to prepaid service* and not appreciating the submissions made by the Appellant on net accounting in its books of accounts as directed by the Hon'ble Tribunal while remitting the matter back to his office. 2. He failed to appreciate and ought to have held that: * The relationship between the Appellant and the prepaid distributors is on 'Principal to Principal' basis and therefore no liability of deducting tax at source ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n law, the CIT(A) erred in upholding the order of TDS officer in not appreciating the fact that taxes on the impugned transactions has been paid by the recipient parties (i.e. distributors and the telecom operators) by filing their return of income. 2. The CIT(A) further erred in not appreciating that the appellant has submitted all the relevant details/documents evidencing payment of taxes to the TDS Officer. 3. The appellant therefore prays that the impugned demand on the said transactions be deleted. GROUND No.V ""1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the order of the TDS Officer of treating appellant as an assessee-in-default u/s.201(1) of the Act and thereby levying interest u/s.201(1A) of the Act. 2. The CIT(A) erred in not appreciating that the interest u/s.201(1A) is only compensatory in nature and that it can be levied only when there is default in payment of the taxes. 3. The CIT(A) erred in not appreciating that where the appellant had no liability of deducting tax at source, the issue of deposit of taxes and consequential interest u/s.201(1A) of the Act does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le and, therefore, calculated TDS at 10% under the provisions of section 194H of the Act. 5. Similarly, the assessee has not deducted TDS on roaming charges, where there is inter-connectivity charges in respect of roaming from one state to another state of the country and, therefore, provisions of section 194J of the Act are applicable. As the assessee has not deducted TDS, therefore, the assessee is held as the assessee in default in respect of non-deduction of TDS u/s.194H and 194J of the Act on payment of commission and fees for professional or technical services and passed order u/s.201(1) & 201(1A) of the Act. 6. The above action of the AO was confirmed by the ld CIT(A). The matter was travelled upto the Tribunal and on considering the submissions of both the sides, the matter was remitted back to the file of the AO for verification of evidences filed by the assessee and passed a fresh order. 7. In pursuance to the direction of the Tribunal, the ACIT (TDS) proceeded to pass order on the basis of evidences furnished by the assessee. The Assessing Officer observed that the assessee having failed to deduct tax as required under section 194H is a defaulter within the mean....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable in cases where there is no payment made by the assessee and it is not relevant whether the assessee was engaged in the business selling of goods or rendering services. 10. The ld. Counsel further submitted that the difference between the sale price to retailer and the discounted price which the distributor pays to assessee cannot be categorised as commission for the purpose of section 194H of the Act or otherwise. That though Explanation (i) to section 194H of the Act inter alia states that "commission or brokerage" includes any payment received or receivable directly or indirectly the said section makes it clear that payment has to be of income by way of commission. That in the present case the assessee has not made any such payment. 11. Ld A.R. also relied on the recent judgment of Hon'ble Bombay High Court in the case of CIT(TDS) vs Vodafone Cellular Ltd in ITA No.1152 of 2017 and others order dated 27.1.2020, wherein, before the Hon'ble High Court, the issue for consideration was whether the ITAT was justified in holding that TDS provisions under section 194H of the Income tax Act, 1961, are not attracted on discounts given by the assessee to the distributors of p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of ITO vs Vodafone Essar Cellular Ltd(2011) 12 taxmann.com 45 (Chennai), wherein, it was held that the discount given was nothing but commission within the meaning of explanation (i) of Section 194H on which tax was deducible and since the assessee did not deduct tax under section 194H of the Act, the assessee was held defaulter within the meaning of section 201(1) of the Act. 14. We have heard the rival submissions and perused the records of the case as well as plethora of judgments cited by ld counsel for the assessee. In the present case, the assessee is engaged in business of providing telecommunication services in various parts of India. The assessee, under prepaid arrangement, has extended discount to prepaid cards to distributors. The arrangement between the assessee and the prepaid distributors for distributor of right to prepaid service is on a 'principal to principal' basis. Under this arrangement, at each level of the distribution chain, the party distributing the right to prepaid service retains a margin for its efforts and risks assumed, while the telecom operator, being the service provider assumes the responsibility for provision of services to the subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 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 prepaid 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 distributors is not the sale of any product or goods. The distributors are providing facilities and services to the general public for the availability of devices like SIM Cards to have access to the mobile....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rk. Therefore, supply of Sim Card, whether it is treated as sale by the assessee or not, is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Besides the purpose of retaining a mobile phone connection with a service provider, the subscriber has no use or value for the Sim Card purchased by him from assessee's distributor. The position is same so far as Recharge coupons or E Topups are concerned which are only air time charges collected from the subscribers in advance. We have to necessarily hold that our findings based on the observations of the Supreme Court in BSNL's case (supra) in the context of sales tax in the case of BPL Cellular Ltd. (supra) squarely apply to the assessee which is nothing but the successor company which has taken over the business of BPL Cellular Ltd. in Kerala. So much so, there is no sale of any goods involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subsc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the assessee to the distributor at the time of delivery of Sim Cards or Recharge coupons against advance payment made by the distributor. The distributor undoubtedly charges over and above what is paid to the assessee and the only limitation is that the distributor cannot charge anything more than the MRP shown in the product namely, Sim Card or Recharge coupon. Distributor directly or indirectly gets customers for the assessee and Sim Cards are only used for giving connection to the customers procured by the distributor for the assessee. The assessee is accountable to the subscribers for failure to render prompt services pursuant to connections given by the distributor for the assessee. Therefore, the distributor acts on behalf of the assessee for procuring and retaining customers and, therefore, the discount given is nothing but commission within the meaning of Explanation (i) on which tax is deductible under Section 194H of the Act. The contention of the assessee that discount is not paid by the assessee to the distributor but is reduced from the price and so much so, deduction under Section 194H is not possible also does not apply because it was the duty of the assessee to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ling 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 of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub-distributors/retailers. As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome, 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 turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stributor, 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." 3) We may also refer to the decision of the Hon'ble Karnataka High Court in the case of M/s. Bharti Airtel Limited vs. DIT (in ITA Nos. 637-644 of 2013 vide order dated 14.08.2014, where similar issue was considered by the Hon'ble High Court as under: 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a 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 lime of sale of prepaid card by the assessee to the dist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 payer to deduct the tax at source and remit the same to the Department. 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 lax 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal High Court in the case of Bharati Airtel Ltd (supra), we hold that the assessee is not required to deduct tax under section 194H of the Act on the prepaid SIM Cards and hence, the assessee is not in default as per provisions of section 201(1) of the Act. 23. Similar, with regards to provisions of section 194J of the Act in respect of roaming charges, we find that this issue is squarely covered in favour of the assessee by the judgment of Hon'ble Delhi High Court in the case of Bharti Cellular Ltd (supra) and respectfully following the same, we hold that the assessee is not required to deduct tax u/s.194J of the Act and consequently, the assessee shall not be treated as an assessee in default u/s 201(1) of the Act. Once, the assessee is treated as assessee not in default u/s.201(1), the interest u/s.201(1A) is not required to be charged. We, accordingly, allow the grounds of appeal raised by the assessee. 25. Before parting, we may herein deal with a procedural issue that though the hearing of the captioned appeal was concluded on 7.2.2020, however, this order is being pronounced much after the expiry of 90 days from the date of conclusion of hearing. We find that Rule ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yond ninety days, was necessitated by any "extraordinary" circumstances. 26. We find that the aforesaid issue after exhaustive deliberations had been anwered by a coordinate Bench of the Tribunal viz; ITAT, Mumbai 'F' Bench in DCIT, Central Circle-3(2), Mumbai vs JSW Limited & ors (ITA No.6264/Mum/18 dated 14.5.2020, wherein, it was observed as under: " 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed "while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". The extraordinary steps taken suo motu by Hon'ble jurisdictional ....