TMI Blog2013 (1) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... held that both taxes could not possibly apply to the transaction in question and based on the above determination of intent, concluded that the transactions relating to SIM cards were held not taxable to sales tax and these proceedings stood concluded. As decided in IDEA Mobile Communication Ltd. v. CCEC, Cochin [2011 (8) TMI 3 - SUPREME COURT OF INDIA] that the amount received by the telecom company from its subscriber towards the SIM card would form part of the taxable value for the levy of service tax in relation to the activation charges, which were undeniably in the nature of a service, since the SIM card was never sold independent from the above service and was hence considered part and parcel of such service. The dominant intent of the transaction was clearly to provide services and not to sell any goods. It was thus held that value of the SIM card formed part of the activation charges since no activation was possible without a valid functioning SIM card. It was precisely for this reason that the sales tax authorities had withdrawn their attempt to tax such services to the sales tax. Consequently, it held that the sale and supply of SIM cards to subscribers, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.K. Ambastha for the Respondent. ORDER 1. All the appeals arise out of orders passed u/s 201(1) and 201(1A) of the Income-tax Act, 1961 [the Act]. The above appeals arise under the following facts and circumstances: 2. The assessee is a company. It is engaged in the business of providing telecommunication services across the country. The telecommunication services include basic telephones, ISD, NLD, Broadband and CDMA mobile services. The assessee is duly licensed to establish, maintain and operate telecommunication services and other value added services in various telecom circles in India under licenses granted by the Government of India through Department of Telecommunications (DOT). 3. To market its products and services the assessee appoints persons who are called Channel Partners ['CP' for short]. The CPs are appointed for specified geographical areas. The terms of the Agreement between the assessee and CP need to be specified as the same is of importance for deciding the issues that arise for consideration in these appeals. A copy of Channel Partner Agreement [CPA] dated 16-4-2008 between assessee and one M/s. Aastha Distributors represented by Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trade discounts, commissions and other monetary compensation that Channel Partner is entitled to receive for distributing the Products and Services, which will keep changing periodically due to various factors including changing nature of market and the same will be informed by TTSL to Channel Partner from time to time, as set forth in the Schedule B . (h) The responsibilities, duties and obligations of the assessee and that of the CP are as follows: 7. Responsibilities, duties and obligations of TTSL TTSL shall be responsible for the following and accordingly shall: 7.1 Endeavour to provide Channel Partner with such marketing information and periodic Products and Service features which in TTSL's opinion will assist Channel Partner in the performance of its/his/her obligations hereunder. 7.2 Use its best efforts to provide good coverage and grade of Service consistent with market requirements. 7.3 Endeavour to make available and provide to Channel Partner, Products and Service consultations and brochures and other aids, as have been published by TFSL. The quantities will be established by TTSL. 7.4 Make the Consideration to Channel Partner, as contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such dealers/retailers and/or of any applicable law/s. 8.4 Channel Partner agrees to and accordingly shall: (i) Obtain necessary license, permits and the like from the concerned statutory and/or local bodies in respect of Channel Partner's operation under this Agreement, including any specific licenses/permits required for playing channel/pipe music in the Outlets and other business outlets in connection herewith and ensure its continued validity and strict compliance thereof; (ii) Diligently and faithfully can out all its/his/her obligations and duties as a channel partner and at all times protect and promote the interest of TTSL; (iii) Not commit breach or violate any of the terms and conditions of this Agreement and shall also honors and follow such instructions as may be issued by TFSL from time to time; (iv) Accept and abide by any change in the terms and conditions of this Agreement including but not limited to the scope of service, which may in the absolute discretion of TTSL become necessary due to any change in law, rules and regulations or due to market dynamics, or due to any change in the terms or conditions of the said licenses granted by the DOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement material, etc. as specified by TTSL from time to time, which shall be used for the purpose of promotion and distribution of Products and Services. All such POP materials shall have TTSL logo and shall be printed' only after specific written approval of TTSL. However, any tax liability/ies, as may be applicable from time to time with respect to display of such POP materials in the Outlets shall be borne by the Channel Partner; (vi) Participate in all programmes and promotions and other activities, which TTSL may require Channel Partner to participate from time to time; (vii) At all times co-operate with and render all assistance to the representatives TTSL and report promptly to TTSL within 24 hours of any information, which may come to Channel Partner's notice regarding customer complaints or claims or feedback with respect to the Products and Services, Customer needs and interests and local market conditions and shall maintain a separate registers in respect of the same and the communications to TFSL. (viii) Provide a interest free security deposit as may be decided by TTSL from time to time, as a security for due performance and observance of all the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, the entire burden including costs and expenses shall be strictly borne by Channel Partner. Channel Partner agrees to indemnify and keep TTSL indemnified in respect hereof. (ii) Channel Partner shall maintain all requisite records, registers, account books etc. which are obligatory under any applicable law and shall provide such information as may be required under any law to any authority. (iii) Channel Partner shall furnish a mandatory indemnity to TTSL in the format provided in Appendix 2 herein. 8.7 Channel Partner shall ensure that neither Channel Partner nor the dealers/retailers appointed by Channel Partner or anyone under any of them: (i) Make/s or give/s directly or indirectly, orally or in writing, any guarantees, representations or warranties, express or implied, with respect to the Products and Services, rate packages in the Products and Services, to the Customers or any Person, save and except as may have been expressly authorized by TTSL. (ii) Offer the Products and Service to anyone at rates or prices other than those specified by TTSL or provides incentives or subsidies, which have the effect of doing so. (iii) Engage or do or cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has received or will receive anything of value of any kind from Channel Partner or its officers, directors, employees or agents (collectively Channel Partner personnel ) in connection with this Agreement and that no TTSL personnel have a business relationship of any kind with Channel Partner or Channel Partner personnel. (i) Clause 10 of the Agreement provides for consideration payable by assessee to CP. The gist of this clause in so far as it relates to starter packs and RCVs is that the assessee will supply Starter Kits and RCVs to Channel Partner under sale invoices at a discount from the Maximum Retail Price (MRP). Clause 10.4 of the CPA provides that CP is liable to pay State and local taxes including Sales-tax in relation to the Agreement. (j) Clause 15.2 provides that assessee shall have no obligation to take back products sold to CP. 4. As far as the present appeals are concerned, we are concerned only with mobile telephone services provided by the assessee to its customers through CP. In particular, we are concerned with the Starter Kits and RCVs that are provided by the assessee to CP who, in turn, provide them to the customers to enable them to use the mobile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call time credit which you then use up when phoning people. Once the credit is used up you must buy some more to use the phone. 8. As explained above, it is the card which enables the Assessee to provide and the customer to use the pre-paid/post-paid mobile telephone services. 9. As already explained, the Assessee to enable customers to avail of the services it provides appoints persons who are called Channel Partners (CP for short). CPs are appointed for various areas or regions. A customer who wishes to use the services of the Assessee approaches the CP. The CP gets all the required details of the customer. The customer is then given a starter pack which contains the terms and conditions subject to which the services will be provided and availed by the customer. It also contains the SIM card and the telephone number correlating to a particular SIM card number. 10. When the customer avails of prepaid mobile telephone services, he can purchase recharge vouchers from the CPs. The recharge vouchers will enable the customer to use the mobile telephone services equivalent to the value of the recharge vouchers. 11. Apart from Starter packs and Recharge vouchers, the CP al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01(lA) of the Act. The CIT(A) concurred with the view of the AO. Aggrieved by the order of the CIT(Appeals) upholding the applicability of section 194H in respect of difference between the MRP of Starter Kit/packs and RCVs and the price at which they were given to the CP, the assessee preferred appeals being ITA Nos.308 to 310/Bang/2011 for assessment years 2006-07 to 2008-09. 14. Apart from the above, the assessee has arrangement with several banks whereby the customers of the assessee, who also hold Credit Card of such banks, can make payment for services utilized by them from the assessee through Credit card. The banks agree to render payment processing services to the assessee in consideration for the assessee making payment of fee to the bank. The assessee does not make any payment to banks. When a customer makes payment by credit card of a bank, the bank processes payment to the assessee after retaining for it the fees for processing the payment and remits the remaining sum to the assessee. According to the Revenue the fee retained by the bank is also in the nature of commission and therefore the assessee ought to have deducted tax at source on such payment u/s 194H of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are nothing but Bill Discounting Charges and would fall within the definition of the term interest as envisaged U/S-2(28A) of the IT Act 1961. Thus ordinarily, if at all any TDS provisions apply, it could be only 194A. However clause (iii) to sub section (3) to section 194A specifically provides that the provisions of sub section (1) shall not apply to such income credited or paid to any banking company. 8. I have carefully considered the arguments of both the A.O and the appellant. I found that the stand taken by the appellant is in order and accordingly the demands raised by the A.O U/S-201(1) 201(1A) as mentioned below are cancelled. Assessment Year : 2005-06 Demand raised U/S 201(1) Rs. 38,940/- Interest U/S 201(1A) Rs. 18,922/- Total Rs. 57,862/- Assessment Year : 2006-07 Demand raised U/S 201(1) Rs. 69,449/- Interest U/S 201(1A) Rs. 2 6,016/- Total Rs. 95,465/- Assessment Year : 2007-08 Demand raised U/S 201(1) Rs. 58,253/- Interest U/S 201(1A) Rs. 14,808/- Total Rs. 73,061/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. (2) The provisions of sub-section (1) shall not apply - (a) To such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette , specify in this behalf; (b) Where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees. Explanation : For the purposes of this section, - (i) Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the CPA which refers to the fact that the CP has to pay sales tax. It was also highlighted that the CP is liable for all loss, pilferage, damage to the products and was also liable to take insurance on the products. The above features in the CP, according to the learned counsel for the assessee, clearly show that there was no contract agency between the assessee and the CP. It was also argued that the assessee gives the product to the CP at a particular price which is less than the MRP. The assessee does not have control on the price at which the CP sells the products to the customers. It was therefore argued that assessee does not know as to what is the commission in respect of which it has to deduct tax at source u/s 195H of the Act. Our attention was drawn to the invoice, a copy of which is placed at page 328 of the assessee's paper book. It was pointed out that the invoice clearly declares that the goods are being sold by the assessee to CP. It was pointed out that on delivery of RCV (recharge vouchers) starter kit, there is a transfer of ownership in goods from the assessee to the CP. It was also submitted that SIM card is specific and ascertained goods and on delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com Service Provider to the distributors was in the nature of commission of attracting the provisions of sec.l94H of the Act. He pointed out that in the aforesaid cases on the terms of the Agreement between the distributor and the Telecom Service Provider, the court found that there was relationship of principal-agent and therefore applicability of sec.l94H was upheld. It was his submission that in the present case there was transfer of ownership in the SIM card from the assessee to the CP and therefore those decisions will not have any application to the facts of the present case. 23. The learned Departmental Representative submitted that Starter kits and SIM card are not tangible properties. It was his submission that SIM card merely enables the customer to avail services provided by the Telecom Services Provider. According to him, SIM card and RCV cannot be considered as goods. He placed strong reliance on the decision of the Hon'ble Delhi High Court in the case of IDEA Cellullor Ltd. (supra), Vodafone Essar Cellular Ltd. (Ker.). His submission was that the attempt by the learned counsel for the assessee to distinguish those cases on the ground that the business model in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the entire value of the transaction relative to SIM cards, including the activation charges. 26. There was a challenge to double taxation of the transactions relating to SIM cards. The Hon'ble Supreme Court in BSNL v. UOI [2006] 3 SCC 1 dealt with this issue. The Hon'ble Supreme Court held that the question as to what a SIM card actually represented was a question of fact and in determining the issue, the principle to be kept in mind was as to what was the intention of the parties regarding the SIM card transaction. If the parties intended that the SIM card would be a separate object of sale, it will be open to the sales tax authorities to levy the tax. However, if the sale of the SIM card was merely incidental to the services being provided and only facilitated the identification of the subscriber and other details, it would not be assessable to the sales tax. Consequently, the Supreme Court held that both taxes could not possibly apply to the transaction in question and based on the above determination of intent, only one or the other tax would apply. Accordingly, the Supreme Court remanded the matter in the above decision in the BSNL case to the sales tax authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court had occasion to deal with the aforesaid issue and in that context in its Judgment pronounced on 15th February, 2002 in Escotel Mobile Communications Ltd. v. Union of India and Others, reported in (2002) Vol. 126 STC 475 (Kerala), it was stated in paragraph 36 that a transaction of selling of SIM Card to the subscriber is also a part of the service rendered by the service provider to the subscriber. The Kerala High Court in the facts and circumstances of the case observed at paras 36 and 47 as under: - 36. With this perspective in mind, if we analyse the transaction that takes place, it appears to us that there is no difficulty in correctly understanding its facts. The transaction of selling the SIM. card to the subscriber is also a part of the service rendered by the service provider to the subscriber, Hence, while the State Legislature is competent to impose tax on sale by a legislation relatable to entry 54 of List II of Seventh Schedule, the tax on the aspect of services rendered not being relatable to any entry in the State List, would be within the legislative competence of Parliament under Article 248 read with entry 97 of List I of the Seventh Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers for providing telephone service to the customers. This aforesaid stand of the Sales Tax authority is practically the end of the matter and signifies the conclusion. 18. The sales tax authorities have themselves conceded the position before the High Court that no assessment of sales tax would be made on the sale value of the SIM Card supplied by the appellant to their customers irrespective of the fact whether they have filed returns and remitted tax or not. It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same. If the article is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to tax such services to the sales tax. Consequently, it held that the sale and supply of SIM cards to subscribers, including the activation charges, was indeed intended and dealt with by both parties as services and not as sale of goods. Therefore, the charge of service tax in this regard was upheld by the Court. 31. The aforesaid judgment of the Hon'ble Supreme Court should be considered as settling the issue as to whether the transactions relating to supply of SIM cards between telecom operators and the subscribers would be charged to just the one tax i.e. the service tax and not the sales tax. 32. As far as the decisions relied upon by the learned counsel for the assessee are concerned, we are of the view that in the light of the later decision of the Hon'ble Supreme Court, those decisions can no longer be considered as binding. We are of the view that the decision of the Hon'ble Delhi High Court in the case of Jai Drinks (P.) Ltd. (supra) as well as the decision of the Hon'ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association (supra) stand on a different footing. Inasmuch as in both the aforesaid cases, there was a tangible asset whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion payments. It was the contention of the assessee before the lower authorities that the assessee only receives the payment form the bank/credit card companies concerned, after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or crediting of the account of the banks or any other account before such payment by the assessee. Considering these submission of the assessee, the CIT(A) accepted the claim of the assessee for deduction of the amount of Rs. 16,34,000 on the following reasoning- '9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling within the purview of S.194H. Even though the definition of the term commission or brokerage used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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