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2023 (2) TMI 1250 - ITAT MUMBAITDS u/s 194H - disallowance of discount given to prepaid distributors u/s. 40(a)(ia) of the Act for non-deduction of tds - HELD THAT:- We find that assessee in the course of its business appoints prepaid distributors (i.e. distributors). The assessee supplies prepaid sim cards and recharge vouchers to its distributors at a discounted price. The assessee supplies prepaid sim cards containing the talk time worth at a higher figure than the discounted price to the distributors. The distributors supply them to the retailers and retailers sell the same to the ultimate customer / user. The distributors make payment of the discounted price in advance to the assessee and there is no payment of any kind made by the assessee to its distributors. The distributors would sell to the retailers after adding its margin and the retailers would sell to the customer after adding his margin. The ultimate price to the customer / user is subjected to the Maximum Retail Price (MRP) fixed by the assessee. It is pertinent to note that the distributor does not earn any income just by obtaining the prepaid sim cards and recharge vouchers from the assessee. From the perusal of the distributors agreement, we find that the distributor is allowed to distribute to its retailers at any price between the consideration paid to the assessee and the MRP fixed by the assessee. The distributor possesses complete freedom of pricing. Hence, the first tranche of the transaction is selling of prepaid sim cards and recharge vouchers containing the talk time for a higher value by the assessee to the distributors, on which the distributor does not earn any income at all. As stated supra, the distributors earn income only when the said sim cards and recharge vouchers were sold at a price higher than its purchase price (i.e. the price paid by the distributor to the assessee herein). Hence, it is highly impossible to determine the amount of income that would accrue to the distributor on which tax ought to have been deducted by the assessee u/s. 194H of the Act. Hence, the entire TDS computation mechanism fails in this case. Thus we hold that the sale of prepaid sim cards / recharge vouchers by the assessee to distributors cannot be treated as commission / discount to attract the provisions of section 194H of the Act and hence there cannot be any obligation on the part of the assessee to deduct tax at source thereon and consequentially there cannot be any disallowance u/s 40(a)(ia) of the Act. TDS u/s 194J - Disallowance of roaming charges paid / payable to other telecom operators u/s. 40(a)(ia) for nondeduction of tax at source - HELD THAT:- We find that the Chandigarh Tribunal in the case of DCIT vs. Idea Cellular Ltd [2018 (6) TMI 1646 - ITAT CHANDIGARH] held that it does not require any human intervention and charges received or paid on account of this is not fees for technical services as envisaged in section 194J read with section 9(1) (vii) read with Explanation-2 of the Act. We find that in the absence of any change in facts or law, the payments made for interconnection are not fees for rendering any technical services as envisaged in section 194J of the Act. Therefore, no tax is deductible at source u/s 194J of the Act on payment of roaming charges to the OTOS and the assessee therefore cannot be treated as an assessee in default. Decided in favour of assessee.
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