TMI Blog2013 (9) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted at source. However, in case of pre paid scheme, the assessee allows certain margin to the distributors while supplying the Sim cards and recharge coupons and this margin is treated by assessee as discount on which no tax has been deducted at source. The assessee’s claim is that it was a case of sale of Sim cards and recharge coupons to the distributors at discount and therefore the payment were not for rendering any services and thus could not be considered as commission – Held that:- Relying upon the decision of Hon’ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. [2010 (8) TMI 691 - KERALA HIGH COURT], it has been held that transaction of the assessee, with the distributor for supply of Sim cards and recharge coupons under the pre paid scheme is not sale – In a similar case Hon’ble Supreme Court in case of BSNL and another Vs. Union of India reported [2006 (3) TMI 1 - Supreme court] upheld the contention of the assessee that there was no sale involved. Applicability of provision of section 194J regarding deduction of tax at source in relation to roaming charges and inter-connect usage charges paid by the assessee to other cellular operators - Payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices or for any professional or managerial services – No applicability of section 194J – Decided in favor of Assessee - ITA No.3681, 3877, 3878,3682/Mum/2011 - - - Dated:- 19-4-2013 - Rajendra Singh and Vivek Varma, JJ. For the Appellant : Shri Anil Bhalla For the Respondent : Shri Pravin Varma ORDER:- Per: Rajendra Singh: These cross appeals are directed against differenct ordres both dated 17.2.2011 of CIT (A) for assessment years 2009-10 and 2010-11. The dispute raised in these appeals relate to application of TDS provisons to the transaction of the assessee with the distributors in relation to roaming charges and inter-connect usage charges, and in relation to expenses incurred on account of outsourcing of manpower supply. As the disputes raised in both the appeals are mostly common, these cross appeals are being disposed of by a single consolidated order for the sake of cconvenience. 2. We first take up the dispute relating to applicability of provisions of section 194H for deducting tax at source on transactions of the assessee with the distributors in relation to the prepaid Sim cards and e-recharge vouchers. The assessee is a cellular operator. A s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was entered into directly between assessee and the subscribers and the bill was sent periodically by the assessee to the subscriber. In case of prepaid connections, the Sim cards are sold to the consumers through the medium of distributor/retailers. The AO also noted that in case the Sim cards were not sold the same were required to be returned to the assessee who is required to make payment against the Sim cards so returned. Therefore the transaction was not that of sale but only for providing services in connection with the pre paid connection for which the distributors were given commission. The AO also referred to the judgment of Hon ble High Court of Delhi dated 19.2.2010 in Income Tax Appeal no. 143 and 784 of 2009 in case of IDEA Cellular Ltd. in which it was held that the relation between assessee and the distributor was that of principal and agent and the payment made by the assessee was of the nature of commission, which was covered under the provisions of section 194H. The AO, therefore, held that the margin money provided to the distributor was of the nature of the commission on which tax was required to be deducted by the assessee u/s 194H. The total tax which was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for the services rendered by them like getting the subscribers identified or doing the documentation and enrolling them as mobile subscribers to the assessee. It was the assessee who was accountable to the subscribers for rendering prompt services. The unsold Sim cards were required to be returned to the assessee against which the assessee was required to make payment, which was antithesis of sale as noted by Hon ble High Court of Delhi in case of IDEA Cellular Ltd. (Supra). The Hon ble High Court also observed the fact that the distributor was supposed to make payment in advance did not make any difference to the nature of transactions, in view of other terms of agreement. It was thus, held in these cases that the margin money given by the assessee to the distributor at the time of delivery of Sim card and recharge coupons was nothing but commission for the services rendered as distributor was only acting as middleman, rendering services on behalf of the assessee. It was accordingly held by the High Courts that provisions of section 194 H was applicable. 2.3 Considering the above judgments, CIT (A) confirmed the decision of AO treating the assessee as assessee in default u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Ahmedabad Stamp Vendors Association (Supra) had been considered by the Hon ble High Court of Kerala in the case of Vodafone Essar Cellular Ltd. (332 ITR 255), and Hon ble High court of Kolkata in the case of Bharti Cellular Ltd (244 ITR 1J) and after considering these judgments the stand of revenue had been upheld. However, it was argued that at the time of delivering the judgment by the High Courts, the judgment of Supreme Court in case of Ahmedabad Stamp Vendors Association (Supra) was not available. Therefore, in view of the judgment of Hon ble Supreme Court upholding the judgment of Hon ble High Court of Gujarat in case of Ahmedabad Stamp Vendors Association (Supra), the position has changed and therefore following the Supreme Court judgment in case of Ahmedabad Stamp Vendors Association (Supra). it has to be held that the margin allowed to the distributors was discount and not commission. 3.1 The learned AR also referred to the judgment of Hon ble High Court of Bombay in case of Qatar Airways (332 ITR 253) in which the agents were authorized to sell the air tickets at any rate between fixed minimum commercial price and the published price, and the difference had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at case the property in the goods passed on to the vendors who were having custody and title over the goods and therefore the transaction was principal to principal basis. The transaction in that case was also liable to sale tax but the same had been exempted by the Government. In the present case there was no sale tax leviable and transactions were only subject to service tax. In this connection it was pointed that Sim cards stocked by the distributor were the sole property of the service provider i.e. the assessee company. The distributor could not use the Sim cards and this right was only given to the ultimate consumer who activated the connection by using the secret no. provided in the Sim cards. It was only the ultimate consumer or the assessee company who had the authority to uncover this secret no. and bring the card into activation. Therefore, it could not be said that once the delivery of Sim cards were given, it becomes the property of the distributor. It was also pointed out that in terms of the distribution agreement. It was the distributor who enrolled the subscriber with proper verification and documentation. The assessee was not paying any amount for this service oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of B. Suresh (Supra) was distinguishable as in that case telecast rights were sold, whereas in the present case there was no sale of right to use the air time to the distributor. Therefore, it was argued that the above judgment did not support the case of the assessee. It was accordingly, urged that order of CIT (A) should upheld. 5. We have perused the records and considered the rival contentions carefully. The dispute is regarding applicability of provisions of section 194 H regarding deduction of tax at source in relation of the margin money allowed by the assessee to the distributors on supply of pre paid Sim cards and recharge coupons. The assessee is rendering mobile telephone services to the customers through appointment of distributors. The assessee had two different types of transactions. In the first category the assessee gave connections to customers and charged them on monthly basis by raising bills. This is called post paid scheme, In the other category falls the pre paid scheme in which the assessee collects the money in advance from the distributors who supply the pre paid Sim cards and recharge coupons to the customers through the retail chain. In both the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the distributor in the pre paid scheme was not sale of goods but for services rendered because as per distribution agreement, the enrollment of subscribers with proper verification and documentation was the responsibility of the distributor and the assessee had not paid any amount to the distributor in the pre paid scheme other than the margin allowed to the distributors. Therefore, the margin allowed was nothing but for services rendered by the distributor whose role was that of a middleman between the service provider and the assessee. The distributor actually canvassed business for the assessee and only through the distributors and retailers the assessee got subscribers for the mobile service. Thus the role of distributor was like an agent and the relationship between assessee and distributor was not principal to principal . The assessee had also argued before the High Court of Kerala that the distributors were free to charge any amount from the subscribers or the retailers below the MRP and therefore the distributors could pass part of the margin to the retailers and subscribers. It was thus argued that in case tax was deducted on the margin money part of which may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided in the Sim cards and it was the ultimate consumers or the assessee company who had the authority to uncover the secret number and bring the card into activation. Therefore mere supply of Sim cards to the distributors could not be considered as transfer of property in the Sim cards to the distributors. The assesse had also argued that in case of pre paid scheme the assessee was not making actual payment and therefore the assessee had no occasion to deduct tax at source. The assessee was neither paying amount nor making any credit entry in the accounts of distributor for rendering services. The High Court however did not accept the contentions raised and observed that margin money was fixed and paid to the assessee in advance and assessee therefore could easily deduct tax at source and collect the net proceeds along with TDS from the distributors while distributing the pre paid products to the distributors. The High Court, therefore, held that margin money was nothing but commission for services rendered and it was not a case of sale of goods as it was a case of service which could not be sold or purchased but could only be rendered or provided. The high Court accordingly, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration. We are however unable to accept the arguments advanced. Only on the ground that judgment of Hon ble High Court of Gujarat in case of Ahmadabad Stamp Vendors Association (Supra) has been upheld by Hon ble Supreme Court cannot be the basis for holding that the present case is covered by the said judgment if the facts are distinguishable. In case of sale of stamps the property in the stamps passes to the licensed vendor on delivery of stamp papers to them, which is not so in this case as the property in the Sim cards is not transferred to the distributor. It has, however, been argued by the learned AR that the assessee in this case was selling the right to use the air time which was captured in Sim cards and which had been transferred to distributor which was Similar to the value of stamp captured in stamp papers which had been transferred to the licensed vendors and therefore transfer of right to use air time has to be considered as the sale of goods. The learned AR has placed reliance on the judgment of Hon ble Supreme Court in case B. Suresh ( Supra) for the said proposition. We have carefully perused the said judgment and find that the same is distinguishable. In that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not applicable to the case of the assessee. 5.7 In view of the foregoing discussion and for the reasons given earlier we hold that margin allowed by the assessee to the distributors was of the nature of commission which was liable for deduction of tax at source. Accordingly we confirm the order of CIT (A) on this issue. 6. The second dispute is regarding applicability of provisions of section 194J relating to deduction of tax at source on roaming charges and inter-connect usage charges paid by the assessee to third party service providers. These payments had been treated by the AO as payment towards professional and technical services on which tax is required to be deducted u/s 194J. Since, the assessee had not deducted tax at source, the AO treated the assessee as assessee in default in respect of the amounts not deducted at source u/s 201 (1) of the IT Act. The assessee was thus held in default for a sum of Rs. 145870615 in assessment year 2009-10 and Rs. 5351932 in assessment year 2010-11 in relation to roaming charges. Similarly, the AO treated the assessee in default in respect of tax not deducted at source amounting to Rs. 97904934 and Rs.37983088 for assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case involves revenue running into Crores, technical evidence would help the Tribunal and Courts to decide matters expeditiously based on factual foundation The learned Attorney General who is present in Court, has assured us that our directions to CBDT would be carried out at the earliest. 6.2 CIT (A) therefore held, that the issue regarding applicability of provisions of section 194 J to roaming charges and inter-connect usage charges was required to be examined in the light of the judgment of Hon ble Supreme Court in case of CIT Vs Bharti Cellular Ltd. (Supra). CIT (A), accordingly, set aside the order of AO and restored the matter back to him for passing afresh order after necessary examination in the light of the observation of Hon ble Supreme Court in case of CIT Vs Bharti Cellular Ltd. (Supra) and in accordance with law. Aggrieved by the decision of CIT (A) both the parties are in appeal. The assessee has disputed the applicability of provisions of section 194 J and also has challenged the decision of CIT (A) to restore the matter to the file of the AO, whereas the department is aggrieved by the decision of CIT (A) to restore the matter to AO on the ground that CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be an anfractuous exercise. Considering the fact that CIT (A) has set aside the matter following the judgment of Hon ble Supreme Court and assessment has already been framed by the AO, we do not consider it a fit case to interfere with the order of CIT (A) on this issue. Accordingly, the ground raised by both the parties are dismissed. 7. The third dispute which is relevant only to the appeal by department in assessment year 2009-10 is regarding applicability of provisions of section 194J to the payments made by the assessee for outsourcing manpower supply. The AO during the assessment proceedings noted that the assessee had made the following payments towards the outsourcing expenses as under:- I. BASL Salary and Wages and CTC reimbursement Rs.101486330 II. BASL Non CTC reimbursement Rs.11219182 III. Outsourced Manpower expenses Rs.4152473 Total of Rs.116857985 7.1 The AO noted that the assessee had deducted tax at source on the above payments at the rate of 2% u/s 194 C (2). The AO observed that the provisions of section 194 C(2) were applicable only towards payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax was required to be deducted in case of the assessee. CIT (A) was satisfied with the explanation given. It was observed by him that the manpower supplied by the assessee was just graduate and under graduate persons and work assigned to them was of clerical level or routine work. Therefore CIT (A) held that by no stretch of imagination, the work done by these persons could be classified as professional services or technical services or managerial services. The payment was for supply of manpower having no professional qualification. CIT(A), therefore, held that the provisions of the section 194 J were not applicable. Accordingly, he set aside the order of Assessing Officer, aggrieved by which, revenue is in appeal before the tribunal. 7.3 Before us, the learned AR for the assessee reiterated the submissions made before the lower authorities whereas Learned Dr placed reliance on the order of AO. 7.4 We have perused the records and considered matter carefully. The dispute is regarding applicability of provisions of section 194 J to the payments made by the assessee for outsourcing of manpower from the sister concern. The AO treated these payments for professional and technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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