TaxTMI 
TaxTMI 
2025 (4) TMI 1421
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....d in law and void ab -initio. ii. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the order of the Ld. Assessing Officer of treating the Appellant as assessee in default' in view of the provisions of section 201(1) read with Section 191 of the Act and the judgment of Jagran Prakashan Limited Vs DCIT (TDS) (21 Taxman.com 489) (All HC) as there is no finding by the learned Assessing Officer with respect to the failure of deductees to pay tax directly, which is a jurisdictional pre-requisite. Ground No. 2 That the Ld. CIT(A) grossly erred in confirming the order of the Ld. Assessing Officer ('AO') wherein the Appellant was held liable to deduct tax at source under Section 194H from the discounts allowed to its distributors on sale of starter kits and recharge vouchers (RCVs) under Section 194H of the Income-tax Act 1961('IT Act.) i. That the Ld. CIT (A) grossly erred in not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/credit to payee's account and that the discount allowed is not payment/credit made to the Channel partners account; ....
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....he provisions of Section 194H are not attracted. That the decision of the Hon'ble Supreme Court is squarely applicable in the case of the Appellant following an identical model, viii. It is stated that the Appellant had duly deducted tax under Section 194H with respect to payments made distributors of postpaid SIM cards for valid activation of postpaid connections. The CIT(A) appeal has failed to appreciate the distinction between prepaid distribution model where SIM cards are sold to be distributor and postpaid distribution model wherein the distributors model wherein the distributors assist in rendering of postpaid services. 3. Ground No.3 That the Ld. CIT(A) grossly erred in confirming that the Appellant is an 'assessee in default' for alleged non deduction of tax at source under the provisions of Section 194J of the Act on interconnect usage charges ('IUC') paid b the Appellant to other telecom operators: i. That the Ld. CIT(A) has erred in not appreciating that this Hon'ble Tribunal has decided the issue of deduction of tax at source on Inter-Connect Usage Charges ('IUC') which a telecom operator pays to another in the case of Bharti Airtel Vs. I....
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.... Section 201 read with Section 201(1A) is passed in violation of the principles of natural justice. 6. GROUND 6: That no TDS demand can be raised under section 201(1) of the Act. i. That on the facts and circumstances of the case and in law, the order of the learned TDS Officer, as upheld by learned CIT(A), is bad in law in so far as it seeks to recover tax demand under section 201 of the Act in contradiction to the settled principle that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. ii. Without prejudice to Ground No 6.1 above, on the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the action of the learned TDS Officer in raising demand under section 201(1) of the Act even though taxes would have been paid on income earned by the payees (being other telecom operators) on the IUC payments received by them from the Appellant. Such action of the learned TDS Officer has resulted in double recovery of taxes, which is against the rules of taxation principl....
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....e grounds or sub-grounds are in the alternative and is without prejudice to each other. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 3. The brief facts of the case are that the assessee is a limited company registered under the companies Act, 1996, engaged in the business of providing telecommunication services across the country, including Delhi in terms of the license granted by the Department of Telecommunication Government of India. To provide telecommunication services amongst others tata teleservices sells service products such as Recharge coupon Vouchers (RCVs) and starter kits. RCVs are the pre-paid vouchers used for selling talk time to the pre-paid subscribers. The starter kits are the new connections containing "Removable user Identity Module RUIM cards) or subscribers Identity Module (SIM Cards) for providing the telecommunication connection. For selling service products the company enters into a channel partner agreement with the distributors who are also known as channel partner....
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....hly sale reports and other information relating to business Minimum performance targets for distributors were also set by assessee which reserved right to terminate agreement unilaterally - Ultimate agreement was entered into between subscribers and assessee creating legal relationship between them Whether, on facts, relationship between assessee and its distributors was Whether, on facts, relationship between assessee and its distributors was that of principal and agent and, consequently, amount of discount offered by assessee to its distributors was in nature of commission liable to tax deduction at source under section 194H-Held, yes" 6.1 Following the above decision, the demand raised by the AO under section 194H is confirmed. 6.2 So far as invoking section 194) is concerned, on perusal of the facts, it is clear that the appellant had received technical services in lieu of getting roaming services from the net work of another operators through an automated process undertaken by a series of highly advanced telecom network equipment but the same requires constant human intervention to make the process of roaming services effectively operational, thereby, I am of....
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....416 (Madras) 4. Supreme Court of India in the case of Commissioner of Income -tax, Delhi v. Bharti Cellular Ltd [2010] 193 Taxman (SC). 8. In view of the above foregoing discussion, we think it proper to set aside the appeal in the light of the decisions, referred supra. We order accordingly. 9. Ground No 2;-This issue relates that whether the assessee would be under a legal obligation to deduct tax at source u/s 194H of the Act from the discounts allowed to its distributors on sale of starter kits and recharge vouchers? The Hon'ble Supreme Court in case of Bharti Cellular Ltd, vs ACIT Circle civil Appeal No 7257 of 2011 held as under :- 41. Thus, the term 'agent' denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants a....
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....stributor, it is to be generally regarded as different from that of an agent. The distributor buys goods on his account and sells them in his territory. The profit made is the margin of difference between the purchase price and the sale price. The reason is, that the distributor in such cases is an independent contractor. Unlike an agent, he does not act as a communicator or creator of a relationship between the principal and a third party. The distributor has rights of distribution and is akin to a franchisee. Franchise agreements are normally considered as sui generis, though they have been in existence for some time. Franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacturer, i.e., a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franchisee's operations are closely regulated, and this possibly is a distinction between a franchise agreement and a distributorship agreement. Franchise agreements are extremely detailed a....
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....cting the legal position of his principal by the making of contracts, or the disposition of the principal's property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and examining the indicia mentioned in clauses (a) to (d) in paragraph 8 of this judgment. It is in the restricted sense in which the term agent is used in Explanation (i) to section 194H of the Act. 42. In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the prepaid coupons or starter-kits to the distributors. Section 194H of the Act is not applicable to the facts and circumstances of this case. Accordingly, the appeals filed by the assessee - cellular mobile service providers, challenging the judgments of the High Courts of Delhi and Calcutta are allowed and these judgments are set aside. The appeals filed by the Revenue challenging the judgments of the High Courts of Rajasth....
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....t did not require human intervention and roaming services were automated processes and, hence roaming charges did not qualify as fees for technical services - It was noted that human intervention by skilled technical personnel was an integral and unavoidable part of roaming services provided by host telecom operators to assessee and these services could not be rendered effectively or efficiently without continuous human monitoring, coordination, troubleshooting, and expertise - Whether, thus, roaming services involved human intervention and technical expertise at various levels and, consequently, charges paid by assessee for such services constituted fees for technical services under section 194J as provision lucidly spells out that consideration can also be in one lump sum - Held, yes [Paras 18, 19 and 20] [In favour of revenue] 2. SUPREME COURT OF INDIA in the case of Commissioner of Income-tax, Delhi v. Bharti Cellular Ltd [2010] 193 Taxman 97 (SC) has observed as under :- Section 194J of the Income-tax Act, 1961- Deduction of tax at source - Fees for technical/professional services - Assessee was a cellular service provider - It had an interconnect agreement w....
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....of the Karnataka High Court, the said view would be binding on the appellant-revenue. Learned predecessor Division Bench had directed the counsel for the appellant-revenue to obtain necessary instructions from the CBDT as to the way forward. 4. Mr. Zoheb Hossain, learned standing counsel for the revenue has handed over a letter dated 21st April, 2022 written by JDIT(OSD)(L&R), New Delhi addressed to the Commissioner of the Income Tax, High Court Cell (Judicial), New Delhi. The said letter is taken on record. The said letter reads as under :- "To, The Commissioner of Income Tax (Judicial), High Court Cell, Delhi Respected Sir, Sub: Urgent Instructions required in the case of Commissioner of Income Tax (TDS-2) vs M/s Tata Teleservices Ltd. [ITA No. 1417/2018]- regarding. Kindly refer to your e-mail dated 11th April 2022 on the above- mentioned subject. In this regard, I am directed to convey that SLP in the case of CIT (TDS), Bangalore vs. Vodafone South Ltd. (2016) 72 Taxmann.com 347 (Kar) has not been approved by Board for the following reason: "As it has been repeatedly established in various cases, involving the issue of liability of deduction of TDS us 194J for....
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.... same question in the case of one assessee and question its correctness in the case of some other assesses. Revenue cannot pick and choose " 7. Admittedly, the Karnataka High Court and various Tax Tribunals have taken the view that there is no human intervention involved in providing the interconnect services whether it be for data link or roaming. 8. The Supreme Court in Berger Paints India Ltd. vs. Commissioner of Income Tax, (2004) 135 Taxman 586 has held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessee without just cause. 9. Keeping in view the aforesaid mandate of law and the letter dated 21st April, 2022, this Court is of the view that the appellant-revenue has consciously elected not to challenge the aforesaid judgment of the Karnataka High Court, which hold that no TDS is required to be deducted by the assessee on payment of interconnect user charges as it cannot be categorized as fee for technical services. 10. Consequently, this Court is of the view th....
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....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 also find that the said decision has been followed Ground 3 is allowed. 16. In its ground No.4, assessee is aggrieved on the levy of interest u/s. 201 (1A) of the Act. This is a consequential ground. We have already held that assessee is not at default for deduction of tax on roaming charges and interest levied on the assessee on such amount u/s. 201(1A) of the Act, stands deleted. However, in so far as interest u/s. 201(1A) of the Act in relation to discounts/ commission on prepaid sim cards and talk time is concerned, we have remitted the issue back to the file of the AO for consideration afresh in accordance with the judgment of Hon'ble Jurisdictional High Court in the case of Bharti Airtel Ltd. (supra). AO is directed to revise the levy of interest accordingly. Ground nO.4 of the assessee is partly allowed for statistical purpose. 7. The aforesaid shows that the Tribunal by re....
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....tock Exchange and the Apex Court, ultimately, found that no TDS on such payment was deductible under Section 194J of the Act. But the learned Counsel for the appellants - Revenue attempted to contend that in paragraphs 7 and 8 of the above referred decision of the Apex Court, it has been observed that if a distinguishable and identifiable service is provided, then it can be said as a "technical services". Therefore, he submitted that in the present case, roaming services to be provided to a particular mobile subscriber by a mobile Company is a customize based service and therefore, distinguishable and separately identifiable and hence, it can be termed as "technical services". 11. In our view, the contention is not only misconceived, but is on non existent premise, because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Company to another mobile service provider Company. Hence, we do not find that the observations made are of any help to the Revenue. 12. As su....