TaxTMI 
TaxTMI 
2022 (5) TMI 1462
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....s.21,45,41,917/-, respectively, on account of non deduction of taxes on margin of profit given to the prepaid distributors on sale of prepaid talk time and also non deduction of taxes on roaming charges. The demand raised also includes Rs.9,26,035/- and Rs.21,37,550/- for A.Y. 201011 and 2011-12 respectively, as demand raised in the ITD software for defaults found in filing of quarterly returns. 3. Aggrieved the assessee filed appeal before the Ld. CIT(A) who confirmed the order of the Assessing Officer. 1) Sale of prepaid talk time: 4. The AO treated prepaid distributor as an agent of the company to whom the company sold the prepaid cards at a rate lower than the MSC (Maximum Service Charge) printed on the prepaid card as an outright sale, thus resulting in a spread between the two values. The AO has applied the provisions of Section 194H to such a spread and has consequently held this spread as a commission given to the distributors. On this commission, the AO has determined that the company should have deducted tax which was not done and therefore, he computed the tax in default u/s 201(1) & 201(1A) to be Rs.3,49,35,242/-. 5. The AO relied on the decision of Hon'ble ....
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....p between telecom service provider and the PMA was of principal-to- agent thus the discount offered was treated as commission. - In the facts of the present case, telecom service provider has paid commission for the services provided under the agreement and also withheld tax on the same. 2. Non- compete Clause "2.............. The terms of agreement further provided that without written consent of ICL the distributors (PMAs) shall not directly or indirectly: (i) Market, solicit, sell, offer and accept offers for telephony services that compete with ICL's telephony services. (ii) Induce or refer any actual or prospective subscriber of ICL's telephony services to subscribe to any Competitive Telephony Services. (iii) Provide any Company or Customer information/data to any competitive entity" - There is no non-compete clause in the agreement entered between the assessee and the distributor. - In the case of CIT v. Idea Cellular, it is evident from the non-compete clause that the distributors were in complete control of the telecom service provider, establishing principal- agent relationship. - However, in the assessee's contract, there is no non-comp....
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....reless upon termination or expiration of this Agreement ("Termination This is based on standard market practice wherein all unused stock is returned to the telecom service provider because he is no more the distributor however no refund is paid on the unused talk-time. Assistance"). The Termination 7. In this background, we have gone through the order of the ld. CIT(A) wherein the following facts emerge: * The reason given by AO, the submission of the appellant and the judicial pronouncements discussed by AO as well as by the appellant are considered. The appellant submitted that from January, 2007 it appoints distributors for sale of prepaid connection that includes recharge vouchers, electronic top-up, internet and other modes of electronic services. For this purpose, the appellant enters into arrangements in the form of agreement with the distributors on a principal-to-principal basis. Under this arrangement, the appellant transfers its pre-paid products to its distributors at a discount and the distributors in turn distribute the same to the retailers. The retailers, thereafter, transfer the same to the ultimate subscribers. At each level of the distributio....
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....th Ltd. and M/s Idea Cellular Ltd. it has been held that the sale of prepaid SIM Cards is done through agreement entered into between the assessee and his dealers and hence the agreement establishes principal and agent relationship between the two parties and therefore, any discount, commission made to such parties are liable for deduction to tax at source u/s 194H of the Act. In the case of BSNL Vs. UOI 282 ITR 273 the Hon'ble Supreme Court held that telephone service is nothing but a service. There is no sales element apart from the obvious one related to the hand set. It is also held that the SIM Card sold to the customer is not goods sold but supplied as a part of service. Against this principle of the Hon'ble Supreme Court the appellant relied on the decision in the case of Bharti Airtel Ltd. Vs. DCIT (2014) 52 Taxmann.com 31(Kar), wherein it is held that "Sale of SIM cards involves sale of right to services. Therefore, the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. Moreover, where SIM card is sold at discounted price, there is no payment of commission or brokerage to the distributor. Hence, TDS u....
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....n the case of Idea Cellular Ltd., we decline to interfere with the order of the ld. CIT(A). 2) Non-deduction of Tax u/s 194J on the Roaming Charges: 9. The other ground raised by the assessee pertains to non deduction of tax u/s 194J on the roaming charges paid by the appellant to other telecom operators. 10. The appellant relied on the decision of Hon'ble Delhi High Court in appellant's own case in respect of 'inter connection charges'. The contention of the appellant is that treatment of roaming charges as 'fees for technical services' on the basis of human intervention is not correct as manual interference exists only at the time of set up and fault repair. 11. For A.Y. (2010-11), the AO raised a demand u/s 201(1) & section 201 (1A) of Rs. 4,15,684/- on an amount of Rs.26,46,126/- being the amount of roaming charges paid to Idea Cellular Limited. Similarly, for A.Y. 2011-12, on an amount paid on account of roaming charges Rs. 12,73,37,034/-, the AO raised demand of Rs.204,72,785/-. As per the Ld.CIT(A), 12. The AO also provided a copy of the expert's opinion to the appellant for cross examination. The contention of the appellant was that roaming charges are no....
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....Planning) at C-DOT, Delhi and Mr. Ashok Mittal Group Leader (CLH) at C-DOT, Delhi was conducted in the office of the CITTDS, New Delhi (CIT-TDS) on September 29, 2010, wherein, their statements were recorded and thereafter, the appellant was also given an opportunity to cross examine the technical experts. Subsequently, the AO passed an order u/s 201(1)/201(1A) dated 31.12.2010 concluding that human intervention is required in the process of interconnection. 16. The AO held that although the exercise of obtaining expert's opinion during the proceedings u/s 201 of the Act was not carried out in appellant's case, considering similar facts of the case, prominence can very well be drawn. The appellant argues to distinguish the findings of the expert opinion in the case of VEMSL on the ground that in the roaming transaction process, there is no delivery of service by any human. The appellant admits that human intervention is required to maintain robust network to ensure break down free service to the subscriber. It is mentioned that technical support staff is used for correcting the system to keep the network in robust condition. The appellant contended that the maintenance of networ....
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....your statement, it appears that the phases described thereon are restricted to merely setting up of the inter-connect between the networks of the two operators and not during actual carriage of the cal by one operator for the other. Please confirm. Yes. Q.6. With reference to your comments under clause (d) in answer to Question 6 of your statement is the network monitoring undertaken specifically for the point of interconnect or such monitoring is required for the telecom network as a whole? Monitoring is undertaken by the operators for their own network upto the point of interconnect. Failures in the network are thrown up automatically by the system but human intervention is required or attending to them, i.e. for reading the message and taking corrective action. Q.7. From 0perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical expert are required for interconnect arrangement. Please confirm whether such services are required for provision of inter-connect services, i.e. carriage of calls from one network to another, or are primarily for fault detection and removal. ....
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....card of Home Service provider he can access other network. 9) As per the agreement the other, service provider raises bill on the Home Service provider and only the Home Service Provider is liable to pay the amount irrespective of payment made by subscriber. The subscriber and service provider of other circle are no way liable for any thing with each other. 10) If the subscriber does use SIM of Home Service provider he cannot access telecom operator of other circle unless he purchases new SIM card. 11) It is clear from the bills raised by telecom operator of other circles that they have changed service tax to assessee and the assessee has paid the same. This simply means that services were provided by one operator to other and not to customers directly. The Service Tax Act has also recognized roaming services as taxable services the Finance Bill, 2007. 12) The entire system is to be monitored/managed by the highly stalled technical. A small technical problem can disturb the connectivity of entire region. To avoid such eventuality the entire process is being monitored by skilled persons. 13) This clearly shows that the service provider of....
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.... which is not visible to human. * Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. * The Hexacom's subscriber in Mumbai, who is temporarily registered as Airtel's subscriber makes calls in Mumbai and the minutes are registered in his identity for which he has to pay through Hexacorn Jaipur. * Alternatively, a called from Jaipur makes a call to Hexacom's subscriber which is routed to the home network of Hexacom subscriber in Jaipur. * Home network then forwards all incoming calls to the temporary phone number which terminates at the device of roaming, subscriber (in Mumbai) who is now using the services of the visiting network (i.e., Airtel): * The entire process above is automatic and does not involve any human intervention at any stage. Billing process * Usage of roaming subscriber in visited network is captured in a file called TP, i.e. transferred account procedure for GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. * Tap file contains details of calls made by subscriber, viz., location, callin....
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....system, the professional people are required to monitor the telecom network to be in a robust condition in order to do business for self. This monitoring does not have any connection with roaming charges paid by the subscriber. If a telecom network breaks down there is no business and thus no payment. Existence of IMSI is only a facility to communicate and does not result the roaming services provided on a standard facilities to be a technical service. The whole roaming process is automatically and there is no human interference in it. The human interference is required to maintain the robust network only to ensure break down free service to the subscriber. The network owner has to maintain for itself, its network in robust condition. The technical support of the staff is required to maintain the equipment and gazettes but it is not a service for roaming facility provided to the subscriber. There is commercial arrangement to connect the technical networks basically to be able to do business. In fact DOT mandates that it should be so connected. There is no payment made for connecting the networks. Payments are made for calls which the roaming subscriber makes. If no calls are made n....
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....technical services governed by Section 194J of the Act. He further relied on the decision of ITAT Ahmadabad Bench in the case of Canara Bank v. ITO 305 ITR (AT) 189 wherein MICR charges paid to SBI held not to be covered U/s 194J read with Section 9(1)(vii) Explanation-2. He also relied on the decision of Hon'ble Bangalore ITAT in the case of Bangalore Electricity Supply Co. Ltd. v. ITO (TDS) [2012] 20 ITR (Trib) 265 wherein payment made by State Load Dispatch Center (SLDC) is held not liable to be deducted TDS U/s 194J of the Act. The ld AR further relied on the decision of Hon'ble Mumbai ITAT in the case of Maharastra State Electricity Distribution Co. Ltd. v. Addl. CIT[2012] 25 taxmann.com 164, Siemens limited 30 taxmann.com 200, ITAT Kalkata Bench Decision in the case of Right Florists Pvt. Limited ITA No.1336/Kol/2011 and ITA Delhi bench decision in the case of Delhi Transco Ltd. (ITA No. 755(Del)/2011 A.Y. 2005-06. He also relied on the decision in the case of DCIT v. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon'ble Supreme Court. The ....
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....he Tribunal by applying principles of "Nositur a sociis'" particular because the word technical service in Section 9(1)(vii) read with Explanation-2 in between word managerial consultancy services. Finally he opined that such setting up/installation, repairing, servicing, maintenance are separate activities, they are back office functions and are require human intervention. But the roaming process between participating entities is fully automatic and does not require any human intervention. Accordingly, the interconnected uses charge will not attract the provisions of Section 194J read with Section 9(1) (vii) read with Explanation-2 thereto. Therefore, he prayed to delete the addition. 10. At the outset, the ld Sr. DR vehemently supported the order of the ld CIT(A). ............ 14. Reading of the above order clearly show that fact - situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd. (supra) would squarely apply. We al....
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....re considered, the decision of the Tribunal would be unsustainable and consequently, the questions may arise for consideration before this Court in the present appeals. 9. We may record that in the decision of the Apex Court in the case of Bharti Cellular Ltd.(supra) the Apex Court after having found that whether human intervention is required in utilizing roaming services by one telecom mobile service provider Company from another mobile service provider Company, is an aspect which may require further examination of the evidence and therefore, the matter was remanded back to the Assessing Officer. Further, in the impugned order of the Tribunal, after considering the above referred decision of Bharti Cellular. Limited, the Tribunal has further not only considered the opinion, but found that as per the said opinion the roaming process between participating entities is fully automatic and does not require any human intervention. Therefore, we do not find that the aforesaid decision in the case of Bharti Cellular Ltd. would be of any help to the appellants - Revenue. 10. In the another decision of the Apex Court, in the case of Kotak Securities Ltd. the matter was pe....
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.... we do not find that any substantial question of law would arise for consideration. Hence, the appeals are dismissed. [2016] 241 TAXMAN 497 (KARN),[2016] 290 CTR 436 (KARN)" 21. After considering the entire issue, the Hon'ble High Court held that "after going through the order of the Assessing Officer, ld. CIT(A) submissions of the assessee as well as going through the process of providing roaming services, examination of technical experts by the ACIT TDS, New Delhi in the case of Bharti Cellular Ltd., thereafter cross examination made by M/s. Bharti Cellular Ltd., also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03.09.2013 and also various judgments given by the ITAT Ahmadabad Bench in the case of Canara Bank on MICR and Pune Bench decision on Data Link Services, it was found that for installation/setting up/repairing/servicing/maintenance capacity augmentation are required human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. It was held that the term Inter Connecting User Charges (IUC) also signifies charges for connecting two....
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....details in ITD software. 26. The ld. CIT(A) relied on the order in the case of M/s Hindustan Coca Cola Beverage (P) Ltd. Vs. CIT (2007) 163 Taxman 355 (SC) and held that once the deductee has paid the taxes, there is no liability on the deductee with regard to the tax payment. The issue raised by the revenue before us is pertains to Section 201(1A). We need to differentate between the provisions to Section 201(1) and Section 201(1A) which has been inserted by Finance Act 2012 w.e.f. 01.07.2012. 27. The said provisions of Section 201(1A) reads as under: "(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on....