TaxTMI 
TaxTMI 
Principal-Agent Relationship in Telecom Sector and TDS u/s 194H: A Supreme Court Verdict
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....rs to deduct tax at source u/s 194-H of the Income Tax Act, 1961, on amounts perceived as commissions paid to franchisees/distributors. The appellants, comprising various cellular service providers, challenged conflicting High Court rulings on this matter. The judgment extensively analyzes the nature of the relationship between service providers and their franchisees/distributors, determining whet....
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....'s analysis hinges on interpreting Section 194-H and the nature of the relationship between the appellants and their franchisees/distributors. Key points include: * Definition and Scope of Section 194-H: * Section 194-H mandates tax deduction on income by way of commission or brokerage. * Explanation (i) to Section 194-H clarifies that "commission or brokerage" includes payme....
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....em at a profit determined by market conditions, not influenced by the appellants. * Revenue's Argument and Legal Precedents: * The Revenue's reliance on the Singapore Airlines Limited case was differentiated, emphasizing that the latter involved a clear principal-agent relationship under IATA regulations. * The Court noted that the appellants do not credit or pay income to franchis....
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....tors. The appeals filed by the cellular service providers were allowed, and the judgments of the High Courts of Delhi and Calcutta were set aside, while the appeals by the Revenue were dismissed. Comprehensive Summary The Supreme Court, in its judgment, clarified that cellular mobile telephone service providers are not liable to deduct tax at source u/s 194-H on the discounts offered to their fr....