TaxTMI 
TaxTMI 
2023 (2) TMI 1456
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....vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void ab-initio Validity of re-opening of the assessment proceedings: 2. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the validity of the reassessment proceedings under section 147 read with section 143(3) of the Act initiated by the learned Assistant Commissioner of Income-tax, Circle 6(2). New Delhi ('learned AO') without appreciating the facts involved in the case of the Appellant. 3. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in not observing that the present reassessment proceedings are bad in law in the absence of any omission and/or failure on part of the Appellant to disclose fully and truly all the material facts leading to escapement of income chargeable to tax, without appreciating the fact the additions made and confirmed in the re-assessment order were specifically dealt with and analysed in depth during the course of the original assessment proceedings. Addition on account of discount extended to dist....
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.... the applicable DTAAS 9. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the aforesaid disallowance appreciating that the provisions of Section 40(a)(ia) are applicable only in case of payments made to residents. Non grant of deduction under section 80-IA of the Act 10. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in dismissing the ground raised by the Appellant on allowance of deduction under Section 80- IA of the Act by alleging that the Appellant has not claimed such deduction on the enhanced income in the requisite Form 10CCB without appreciating that the said ground is now academic as appropriate deduction has already been granted to the Appellant by the learned AO vide rectification of the re-assessment order passed for subject AY Penalty proceedings under section 271(1)(c) of the Act 11. That on the facts and circumstances of the case and in law, the learned CIT (A) has erred in not directing the learned AO to drop the penalty proceedings under Section 271(1)(c) of the Act." 3. Heard and perused the record. 4. At the time of argument th....
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....ture of discount and not commission which would attract section 194H is not acceptable since in subsequent years, the assessee itself had issued Circular (H. O. instruction No.772/13,11 & 771/14.3.11) directing deduction of tax in terms of section 194H on the discount given to distributors/ franchisees. In the submission filed on 17/3/2015 during the course of the assessment proceedings for A.Y. 2012-13 the assessee contended that instructions had been issued to the field formations regarding strict adherence to TDS u/s. 194H on payment under discount scheme to adherence to TDS u/s. 194H on payment under discount scheme to Franchisees/ Distributors. The assessee had further submitted that any cases of non- compliance are duly reported by the Branch Tax Auditors u/s. 44AB and taken into account for voluntary disallowance u/s. 40 (a) (ia while framing the computation of income at the. central level. Thus the assessee itself accepted the factum and voluntarily deducted the TDS u/s 194H on the discount in the subsequent year. Thus, taking the cognizance of this fact and consistency, it is clear that for A.Y.2007-08, the assessee is under default for not deducting the TDS u/s 194H of th....
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....ect of the discount so allowed to the franchisees. (iv) No evidence regarding sale effected through BSNL'S own Customers Services Centers (CSCs) has been furnished. (v) As per the sales and Distribution Policy, 2006 of the assessee company, discount of 6.5% is prescribed for prepaid recharge coupons. 8.4 Further, the issue has been settled in favour of the Revenue by the jurisdictional High Court of Delhi in the case of Idea Cellular Limited (2010) 325 ITR 0148 wherein it was held that the relationship between the assessee, who was also a telecom service provider like the assessee in the present case, and the distributors was one of Principal-to-Agent. It was further held that the discounts offered to distributors were in the nature of commission and thereby liable to TDS u/s. 194H of the Act. 8.5 In view of the above, it is held that as the assessee has failed to deduct tax at source, in terms of provisions of section 194H of the I.T. Act, 1961 from the discount given to the distributors / franchisees, the-same is disallowable u/s 40(a)(ia). During the course of assessment proceedings for A.Y.12-13, the assessee furnished copy of its Sales a....
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....strates that the said relationship is principal to principal and not principal to agency. It was submitted by Ld. AR that the case are more akin to the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel (supra). xxxx 11. We have carefully considered the submissions made by the rival parties and the material available on record. It is-claimed by Ld CIT (DR) that the decision of Hon'ble Delhi High Court in case of Idea Cellular (supra) supports the contentions raised by the lower authorities. On the other hand, Ld AR claims that decision of Hon'ble Karnataka High Court in case of Bharti Airtel (supra) supports the claim made by the appellant. We have been addressed at length by both the sides. First moot issue to be decided is whether there is any variance in views expressed by both these High Court decisions. Hon'ble Jurisdictional High Court in case of Idea Cellular (supra) concluded that the relationship between parties in that case was principal to agent premised upon following reasoning: "23. We, thus, come back to the central question, which is to be addressed viz., the nature of relationship. Reverting back to this aspect; ....
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....s not attracted, though the decision was rendered in the context of liability of sales tax." The vital fact which Hon'ble jurisdictional High Court has found relevant is that a legal relationship is established between the telephone service provider and the consumer i.e the subscriber to its products. Hon'ble Jurisdictional High Court has also followed the dictum of Hon'ble Apex Court in appellant's case i.e BSNL vs UOl reported in AIR 2006 SC 1383 to hold that this is not a case for sale of goods but a case of providing telephone services and hence there/ban be no sale of goods from the service provider to its distributor so as to create a principal to principal relationship. 11.1 Contrary to above view is the decision of Hon'ble Karnataka High Court (supra) which holds that a right to service can be sold. The relevant observations of the Hon'ble Karnataka High Court read as under: "56. In the Idea Cellular Ltd. case (supra), the Delhi High Court proceeded on the footing that the assessee is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. They had appointed distributors....
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....use it by himself. He may also sell the right to sub distributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent The seller may have fixed the MRP and the pace at which they sell the products to the distributors but the products are said and ownership vests and is transferred to the distributors. However, whoever 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 arise....
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....f Asstt. CIT v. Bharti Cellular Ltd. 12007] 105 ITD 129 and Delhi High Court in the case of CIT v. Idea Cellular Ltd. [2010] 325 ITR 148/189 Taxman 118. Whereas this decision was already considered by the learned CIT(A) and having regard to the factual matrix of the ease, it was held that the assessee has followed a systematic method of accounting as given in AS-9, and therefore, it has to be treated as a trade discount only. 9. It is not in dispute that the assessee has riot deducted tax at source. As per third proviso to S.194H which is inserted by the Finance Act, 2007, no deduction need to be made on any commission or brokerage paid by BSNL to its Public Call Office franchisee, and this proviso was held to be clarificatory in nature by the Hon'ble Punjab and Haryana High Court in the case of CIT v. Bharat Sanchar Nigam Ltd. [2013] 35 taxmann.com 260/216 Taxman 277. Having regard to the circumstances of the case, I notice that the assessee being public sector undertaking stands on a different footing and the view taken in the case of Idea Cellular Ltd. [supra] cannot be applied, since the relationship between the BSNL and the franchisee stands on a different footing....
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....ng with them even before mobile telephone services became popular. Moreover, as upheld by Hon'ble Punjab & Haryana High Court in the case of appellant itself (supra) that "...... the above extracts from the Board Circular would show that the amendment in the Section 194 H was brought about because, as admitted by the CBDT itself, very few of the recipients had a tax liability. " Even co-ordinate bench of Delhi ITAT in case of appellant vide order 18th November 2014 (supra) has held that "in any event, the issue also seems to be covered on merits, in favour of the assessee by decision of Hon'ble Punjab & Haryana High court in the case of CIT Vs. Bharat Sanchar Nigam Ltd....." xxxx Respectfully following the above decision rendered by a coordinate bench of this court we find that disallowance made u/s 40(a)(ia) is not sustainable in the instant: case. Grounds 4, 5 & 6 of the appeal are accordingly disposed of in favour of the assessee." 6. The ld DR could not controvert anything, on fact or law to distinguish. Accordingly, following the aforesaid findings in favour of the assessee in preceding and succeeding years, the issues are decided in favour of the assessee....
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....ion of ITAT in case of Bharti Airtel Limited (supra), in that case coordinate bench of this court after deep 'examination of the issue i.e after considering and going through the process of providing roaming services; examination of technical experts and its cross examination and also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03rd September 2013, has held that payment of IUC Charges is not "Fee for Technical Services" or "Royalty" within the meaning of its definition as per section 9(1)(vi) and 9(1)(vii) of the Act. While reaching the above conclusion the co-ordinate 9(1)(vii) of the Act. While reaching the above, conclusion the co-ordinate bench also took into consideration retrospective amendments made to section 9 by Finance Act, 2012. Relevant head notes of this decision as reported in (20160 67 taxmann.com 223 (Del) are reproduced below. "Section 9, read with sections 1941 and 195, of the Income-tax Act, 1961, 2 read with article 12 of Model OECD Convention - Income - Deemed to accrue ''or arise in India (Royalties and Fees for technical sendees) - Assessment years 2008-09 to 2011-2012 - Assessee, as part of its Int....