TMI Blog2013 (4) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.2 The Ld. AO(TDS) has erred both on facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduction of tax amounting to ₹ 2,875,880/- u/s 194H of the Act on the difference between the price at which the prepaid card is sold to the distributor and the price at which the end customer buys alleging the difference to be payment of commission. The ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.3 That appellant is aggrieved by the order of the AO (TDS) to recover the tax of ₹ 2,875,880/- inspite of the fact that such tax have been paid by the distributor on the corresponding income declared by him. 1.4 The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 1,754,290 u/s 201(IA) of the Act. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the A.O. 2. The appellant craves leave to add, alter or amend the ground of appeal at a later stage. 3. In ITA No.94(Asr)/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that such payment is not for any work undertaking for the assessee company and do not fall within the provision of Section 194C of the Act. 2.2. That Ld. CIT(A) has further erred both on facts and in law in upholding the action of the Ld. A.O. 2.3 The Ld. AO(TDS) has erred both on facts and in law in demanding the tax amounting to ₹ 26,072/- inspite of the fact that the amount has been subject to tax in the hands of the other telephony operators. 2.4. The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 10,788/-- u/s 201(1A) of the Act. The Ld. CIT(A) has further erred on fact and in law in upholding the action of the A.O. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage. 4. In ITA No.95(Asr)/2012 for the assessment year 2008-09, the assessee has raised following grounds of appeal: 1. The Ld. AO(TDS) has erred both on facts and in law in applying the provisions of section 194H of the Income Tax Act to the transaction of supply of prepaid vouchers to the distributors. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which the prepaid card is sold to the distributor and the price at which the end customer buys alleging the difference to be payment of commission. The ld. CIT(A) has further erred both on facts and in law in upholding the action of the Assessing Officer. 1.3 That appellant is aggrieved by the order of the AO (TDS) to recover the tax of ₹ 31,296,725/- inspite of the fact that such tax have been paid by the distributor on the corresponding income declared by him. 2. The Ld. AO(TDS) has erred both on facts and in law in charging interest of ₹ 6,047,465 u/s 201(IA) of the Act. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the A.O. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage. 6. In ITA No.97(Asr)/2012 for the assessment year 2010-11, the assessee has raised following grounds of appeal: 1. The Ld. AO(TDS) has erred both on facts and in law in applying the provisions of section 194H of the Income Tax Act to the transaction of supply of prepaid vouchers to the distributors. The Ld. CIT(A) has further erred both on facts and in law in upholding the action of the learned Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year 2005-06 pertaining to assessment year 2006-07 and our decision herein below in this appeal shall be applicable in all other appeals in the common grounds in all other appeals mentioned herein above. 10. The brief facts in the grounds of the assessee for the assessment year 2006-07 are that during the year under consideration, the assessee who is termed as Person Responsible (PR) has declared gross revenue i.e. sale of SIMs and Recharge Coupons. The assessee was given a show cause notice as to why difference of sale amount and market value may not be treated as commission paid to the distributor and show cause as to why amount of such tax deductible alongwith interest u/s 201(IA) may not be charged from you. Thereafter, the explanation of the assessee and the findings of the A.O. as per page 1 to 4 of the order are reproduced for the sake of clarity as under: 2.1 In response to above, the PR vide his reply received on 23.04.2010 furnished details of Maxmum Service Charge (MSC), Distributor Price and Difference. In the said detail the PR has stated to have charged ₹ 33,85,46,683/- from the Distributors for the goods of the value of ₹ 38,95,46,683/- and balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell the retailer at ₹ 1530/- or whatever price at his discretion, keeping in view the competitive pressure, thus keeping a margin/spread of ₹ 30/- respectively which is him income from trading.. The retailer will in turn either sell it at ₹ 1590/- as his discretion, keeping in view the competitive pressure, so however the maximum price does not exceeds ₹ 1600. Whatever retailers recover over ₹ 1530/- will be his income from trading. The income for the retailer in the example above will spread between the price paid by him to the distributor and that recovered from the customer. 9. Revenue is booked in the accounts for the amount recovered from the distributor and not the amount recovered by the distributor from the subscriber. 10. The talk time gets activated instantly, as soon as SUK is supplied to end customer. 2.2. The PR has also argued his case by relying on the various judgments. The PR has mainly relied on the judgment of the ITAT, Delhi Bench and Hyderabad Bench in the case of Idea Cellular. In addition to above the PR has also relied on some of the following main judgments. (i) Ahmedabad Stamp Vendors Association Ltd. v. UOI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributor of the assessee for Airtel prepaid cards does not sell them as his own property but as that of the company. What is being delivered is not a mere physical item but an access to the cellular network, which is the property of the PR s company for all times. (ix) While freedom of pricing is not the sole determinative factor for a principal to principal relationship, it is pertinent to note that there was no freedom of pricing as per the agreements existed between the distributors and the assessee. (x) In a principal to principal sale transaction, the distributor becomes owner of goods and exerts full control over the operations thereon; in the instant case, various restrictions and conditions imposed on the distributors render them mere agents and not independent principals.; (xi) In a discount sale, once goods are sold there cannot be any restriction by one principal on another as to how and where to sell these goods. The distributorship agreements in the instant case clearly denote a geographical area of operation and the manner in which the goods should be sold. (xii) In case of purchase on discount there cannot be any restriction on the manner in which the stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law: Whether on a true and correct appreciation of the relationship between the assessee and its distributor, the learned Income Tax Appellate Tribunal erred in holding that the payments paid by the assessee is not commission as envisaged under section 194 of the Act? 12. The Hon ble Delhi High Court vide order dated 19th Feb; 2010 in ITA Nos. 145 784 of 2009 answered the above question of law in favour of Revenue. The relevant part of the decision of Hon ble Delhi High Court as reproduced by the A.O. at page 11 is reproduced for the sake of clarity as under: 28. We are in agreement with the view taken by the said Bench. Identical view is taken by Calcutta Bench in the case of Assistant Commissioner of Income Tax vs. Bharti Cellular Ltd. [(2007) 294 ITR (AT) 283 (Kolkata)]. Both these Benches specifically rejected the arguments of the assessee, based on Ahmedabad Stamp Vendors Association (supra), Kerala Stamp Vendors Association (supra) and Bajaj Auto Ltd. (supra) distinguishing those judgments and holding that they are not applicable in the given situation. We agree with the same. 29. We thus answer the question, as formulated in favour of the Revenue and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the assessee has furnished confirmations from payees to form of their PANs/acknowledgment of their returns and declaration to the effect that they had included amount received from the assessee as their income and had paid taxes thereon, the assessee could not be treated as assessee in default in terms of section 201(1). Further, the instruction F.No.275/201/95- IT(B) dated 29 January, 1997 issued by CBDT reads as under: I am directed to state that the Board is of the view that no demand visualized u/s 201(1) of the Act should be enforced after the tax deductor has satisfied the officer incharge of TDS that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest u/s 201(IA) of the Act till the date of payment of taxes by the decuteee assessee or the liability to charge interest u/s 201(1A) of the Act till the date of payment of taxes by the deductee assessee or the liability of penalty u/s 271C of the I.T. Act.: 3.2.In both the cases i.e. judgment of Hon ble Delhi High Court and Instructions issue by the Board the PR was liable to satisfy the undersigned by furnishing the required proof that the taxes on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vodafone Essar 235 CTR (Ker) 393 has also held similarly. 3.3. The counsels of assessee during the course of proceedings before me has contended in the alternative that in view of the decision of Hon ble Supreme Court in case of M/s. Hindustan Coca Cola Beverages Ltd. 293 ITR and the CBDT Instruction F.No.275/201/95- IT (B) dated 29.01.1997 the assessee may not be treated in default to the extent tax is already recovered from the distributors. They also filed a list of 205 such distributors. 4. I have considered this plea also and find in absence of any evidence as to their returns files, tax paid and the due accounting of such commission in their respective books of accounts, the decision cannot be applied. Here, I would like to completely agree with the A.O. who in his assessment order, on this issue, has rightly held that the assessee P/R had to satisfy the A.O. in this regard as to how the taxes were already paid by the distributors. However, the assessee would be free to approach A.O. as and if such evidence are in its possession for appropriate legal relief, if applicable. 4.1 In view of the above, respectfully following the decisions of Hon ble High Courts of Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee itself and not the customers. 6.1 Customers have nothing to do with other operators and are concerned with assessee company who bills them and reimburses other operators. In view of this the contention of assessee that other operators provide such facility to customers is not acceptable. Roaming facility is only a part of entire package of services which goes with the connection of a mobile phone. The case of M/s. Sky Cell Communications Ltd. as relied by the assessee is in respect of application of section 194J of I.T.Act, not applicable in this case as the A.O. has applied the provisions of section 194C of the I.T.Act. 6.2. The arrangement between assessee and other communication operators to provide roaming facility is nothing but a work undertaken by them for assessee under a contract or arrangement agreed upon by both the parties. Further, the reliance of A.O. in the ratio of the case of M/s. Bharat Sancha Nigam Ltd. decided by the Supreme Court 282 ITR 273 is also valid. In this case the Hon ble Supreme Court has held as under: The license clearly manifests that it is one for providing telecommunication service and not for supply of any goods or transfer of rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Qutar Airways 332 ITR 253 (Bom.) [PB 355-356] which lays down the trigger for application of Section 194H of the Act. 2.2.4 In this context the decision of Gujarat High Court in Ahmedabad Vendors Association 257 ITR 202 (Guj.) [PB 339-349] is of great significance. This decision of the Gujarat High Court has been affirmed by the Hon'ble Supreme Court recently, after the decisions of these High Courts 2012 TIOL 68-SC-IT. [PB 94-95] DECISION OF HON BLE SUPREME COURT IN AHMEDABAD STAMP VENDORS ASSOCIATION - PRINCIPLE IN DECISION OF GUJARAT HIGH COURT NOT CONSIDERED IN PROPER CONTEXT. HOW IS THE RELATIONSHIP OF PRINCIPAL TO PRINCIPAL ESTABLISHED? 2.3 The decision of Kochi Tribunal in the case of Vodafone Essar Cellular 217 ITR (AT) 234 Cochin did not follow the decision of the Ahmedabad Stamp Vendors Association on the ground that the Stamp transactions have been treated as transactions of purchase and sale of goods. It will be shown that indeed there is purchase and sale of Right to use talktime. 2.3.1 The decision of the Kerala High court in Vodafone Essar Cellular Ltd. 332 ITR 255 [PB 357-369], as per para 6, 12th line states: Quote The second de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dors even though there were several restrictions placed on the stamp vendors regarding the manner in which the licensed stamp vendors can carry on their business. The Court in that case while observing that there is no payment of commission by the Government to the Stamp Vendor brought out the distinction between the discount offered at the time of purchase of a product and the commission which principal pays to his agent and held that such discount was not commission. 2.4.3 After discussing various case laws specifically Bhopal Sugar Industries Vs. STO (1997) 40 STC 52 (Supreme Court) [PB 142-155] the difference between relationship of agency and sale between Principal to Principal was determined. 2.4.4 The Hon'ble Gujarat High Court also held that the restrictions imposed on the distributor vendor were of no consequence for the determination of the relationship principal to principal, which was what was confirmed by the Hon'ble Supreme Court in Bhopal Sugar Industries. (Discussed in PB 145) Hon'ble Gujarat High Court noted the following on PB 347 para 13- Quote There is no dispute about the fact that the licensed vendor has to pay the price of the stamp p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different from the transaction of stamps as per the facts noted in 257 ITR 202 (Guj.). [PB 339-349]. 2.5.1 What is being transferred is Right to use Airtime . The fact that services will be rendered by another party is of no consequence to determine Principal to Principal relationship. Right to use the services is a valuable transferable right. Whoever has this product can made a call and get in touch. 2.5.2 What is important to be noted here is that the stamp paper is a mere acknowledgement of payment having being made to the Government of India, and the purchaser of stamp paper takes over this right of having paid the stamp duty or right to use the stamp of specified value, the value of which had been paid by the stamp duty vendor in bulk at the time of first purchase from the government authorities. 2.5.3 This contract of having paid the duty and having received the duty is taken over by the ultimate buyer of stamps from the stamp vendor. It is acknowledged that there is a time gap between the transfer of stamp for value from the government to the stamp vendor and from the stamp vendor to the customer and the point of time of affixing of stamp at a later d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther to the end customer for his use. 2.5.8.8 Like it has been noted by the Gujarat High Court that no commission was paid by the Government, here also there is no payment of the impugned amount by the company to the distributor. 2.5.9 The objective of this exercise of comparison is to show that since the Hon'ble Supreme Court has confirmed the decision of Ahmedabad High Court it has to be given lot of credence and accepted as a precedence, and because of the similarity it has to be held that the appellant company has only provided discount and not commission to the distributor of prepaid cards. 2.5.10 Another factor considered by the Hon'ble High Court of Ahmedabad is that no sales tax is levied on the transfer of stamp paper. 2.5.10.1 In the case of prepaid card since service tax is applicable sales tax is not leviable. 2.5.10.2 The absence of charging of sales tax cannot take away of dilute the substance of transaction of transfer of Right to use talk time . Absence of sales tax does not make this product, any lesser product than the one on which sales tax is levied. This merchandise is capable of being transferred even though sales tax is not levied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods and merchandise; that the films recorded on beta-cam tapes did not qualify either as goods or merchandise . In this connection, it was urged that the beta-cam tape (cassette) was only a medium of transfer; that there was no sale of the film in beta-cam format and the assessee had only transferred the right to use for a period of five years and since the title remained with the assessee, the impugned transaction fell outside section 80HHC. 3.1.6 It was held at page 154: [PB 168-169] The basic requirement of section 80HHC is earning in foreign exchange and retention of profits for export business. Profits are embedded in the income earned. Earning of income depends on sale of goods and services. Today the different between the two is getting blurred with globalization and cross-border transaction. Today with technological advancement on has to change our thinking regarding concepts like goods, merchandise and articles. In the case of B. Suresh, the assessee had bought rights of various decoders and had recorded movies on beta-cam tapes which were transferred as telecasting rights to start T.V. for five years (it has a limited life). Hence, such right would ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of B. Suresh 313 ITR 149 (SC) which was not noted by any of the High Courts needs to be followed. [PB 165-169]. 3.5 The decision of the High in Ahmedabad Stamp Vendors -257 ITR 202 (Guj.) as approved by the Hon'ble Supreme Court is of great importance and it applies to the proposition which is being made out. 3.6 The Hindustan Petroleum advertisement substantiates this fact. PB 81. 4 NATURE OF PREPAID PRODUCT - The prepaid product is captured in the prepaid start up pack. - It captures therein the Right to use Airtime to the extent of specified minutes or a promise to provide specified minutes of Airtime to the owner of the start up pack. - It is sold to distributors on receipt of advance payment. - It is not any provision of electro magnetic waves, but it is a Right to enable the prepaid customer to expend the minutes paid for. - The start up pack comprises of SIM Card and in this SIM is captured the right to use airtime for specified minutes. - The property in the SIM card remain that of the company and it is similar to a bottle of soft drink. - The SIM card can be recharged with additional airtime as in the case of soft drink bottle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 [PB 194-200]. There also the decision of Kolkata Tribunal was overruled. The decisions of the Hon'ble Supreme Court which need to be taken into consideration are: 6.1 THE HON BLE SUPREME COURT IN AHMEDABAD STAMP VENDORS ASSOCIATION 2012-TIOL-68-Supreme Court-IT[PB 94-95] 6.1.1 This decision of the Hon ble Supreme Court has come after the decision of the High Court of Delhi and Kerela and Kolkata and Bangalore Tribunal and has to be given full due and followed. 6.1.2 We reiterate that there is similarity in the business model between the business of sale of Right to use Airtime of prepaid cards and the transaction of supplying stamps. There is a relationship of Principal to Principal and not Principal to Agent. 6.1.3 In the case of Ahmedabad Stamp Vendors Association where the value of stamp duty is captured in the stamp, which becomes operational at a later stage when the distributor of stamp gives it to the party wanting to use it for a transaction. The stamp value becomes operational when at a later date transaction requiring stamping is entered. 6.1.4 Similarly in case of prepaid card distributor, the right to use airtime which is captured in a SI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugar Industries 40 STC 42 [PB 142- 145] has not been considered in proper perspective by the I.T.A.T. decisions referred to by CIT(A), nor by the High Courts. This decision is of great importance to determine the preconditions of the Principal to Principal relationship. This has been appreciated by the Hyderabad Tribunal and Pune Tribunal. Therefore, this decision of the Hon'ble Supreme Court must be followed. PROPOSITION 7 Decision of other High Courts are not binding on this Hon'ble tribunal. 7.1 CIT V. THANA ELECTRICITY SUPPLY LIMITED 206 ITR 727(BOM) The decisions of the High Court are binding on the subordinate courts and authorities of Tribunals under its superintendence throughout the territories in relation to which it exercised jurisdiction. It does not extend beyond its territorial jurisdiction. 7.2 Consolidated Pneumatic Tool Co. (India) Ltd. V. CIT 2009 ITR 277 (Bom.) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. That status is reserved only for the decision of the Supreme Court which are binding on all courts in the country by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of Article 141 of the Constitution. Similar position has been reiterated again by the Hon'ble jurisdictional High Court in the case of Consolidated Pneumatic Tool Co. (India) Limited V. CIT [1994] 209 ITR 277 (Bom.) by holding that the decision of other High Court is not a binding precedent for courts, authorities or Tribunals outside its territorial jurisdiction. Again the Hon'ble Bombay High Court in Geoffrey Manners and Co. Ltd. V. CIT [1996] 221 ITR 695 has followed the earlier two aforenoted judgments for holding that the decisions of a High Court are not binding precedents either for other High Courts or Tribunals outside the territorial jurisdiction of that High Court. From the above judgments of the Hon'ble jurisdiction High Court, it is apparent that only the judgments rendered by the Hon'ble Supreme Court or the jurisdictional High Court are binding on the Tribunal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rendered a judgment in a Sales tax case wherein it was held that there is no sales tax liability on sale of SIM Cards and recharge coupons sold through the distributors and it does not involve sale of goods. In such case it has been held that there cannot be a principal to principal relationship therefore provisions of Section 194H were held applicable. 8.2.2 The fact that such a product is no exigible to VAT because it is not a conventional product in VAT law, cannot prove fatal to a business relationship of principal to principal. 8.2.3 ACCOUNTING ENTRIES Another main issues considered was the accounting entries passed. The accounting entries are entirely different in the appellants case Refer page 31 and 32 of this synopsis- for prepaid entries by appellant PB page 313 the accounting entries passed by Vodafone Kerala. 8.2.4 Business relationship of principal to principal is an independent relationship established by conduct of the parties and cannot break down on account of the fact that the services of telecom connectivity and use of airtime are to be provided by telecom service provider company after the product has been sold. 8.2.5 As explained the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Firstly, the distributor can sell at any rate to retailer and to that extent there is factual mistake. 9.1.2.3 Secondly the example of prices is incorrect. It is not possible to determine the margin each person in the distributor chain has kept. Without prejudice as per the Hon'ble High Court the impugned amount on which tax is not deducted is ₹ 7/- (324-317), in fact the revenue is seeking to hold assessee is default on ₹ 13/- (330-317). 9.1.2.4 Thirdly, the Hon'ble High court has erred on facts to say that the franchisee collects the payment from retailer and gives to the company. In fact, the distributor has to pay in advance at the time of collecting the prepaid pack. Refer : Business Model Annexure A- Page 30 of this Synopsis, para 2.1 and agreement clause 28 para 73. 9.1.2.5 All these factual errors show that the Hon'ble Kolkata High Court did not have any basis to determine these incorrect facts which have been relied upon to come to the decision against the company. [refer I.T.A.T. -105 ITD 129 (Kol.)] CONTROL IMPOSED 9.1.3 The substance of the transaction has been ignored on the basis of control clauses of the agreement by whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Number is made available to the A.O., it would not be unreasonable on the part of the assessee to ask A.O. to have the payments verified from the records of the A.O. s within whose jurisdiction the payees are assessed. In such cases, the assessee could not be held to be in default and the taxes could not be recovered from the assessee. The action of the A.O. in holding the assessee company to be in default in respect of tax is therefore, contrary to the law in land. GROUND NO. 2 TO 2.2 APPLYING PROVISIONS OF SECTION 194J TO THE TRANSACTION OF ROAMING CHARGES RS. 26,072/- 1. Facts as to Roaming Service Roaming service. Airtel subscriber in Amritsar travelling to Jaipur switches on his mobile device after reaching Jaipur (in case of air travel). Where the subscriber travels by land be automatically receives a message transferring to the roaming network on visiting another telecom, circle. The subscriber has a choice of manual network selection or automatic network selection. Under automatic network selection, the services of the most preferred roaming partner of the subscriber s home network will be selected. Under, the manual selection, the subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have used the network of other mobile operators. The payment or reimbursement made to other network operators thus, do not fall into any category of TDS provisions. 3. Order of CIT(A) CIT(A) has confirmed that roaming charges are subject to TDS u/s 194C. CIT(A) has relied upon the following two judgments. 3.1 M/s Kurukshetra Darpans (P) Ltd. Vs. CIT, Karnal 169 Taxman 344 PB page 350-354:- We submit that the fact in Kurukshetra Darpans were entirely different in the case mentioned by the A.O., which cannot be in way applied to the roaming charges. 3.1.1 The question in the aforesaid case was that whether payments made by the assessee to the licensor for obtaining TV Signal for distribution through the cable network owned by the assessee is covered under the definition of work which includes broadcasting and telecasting as provided under Section 194C of the Income-tax Act, 1961. 3.1.2 A perusal of Section 194C Explanation (iv) will show that work has been defined as follows: (iv) work shall include- (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting and telecasting; (c) Carriage of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract is to obtain broadcasting and telecasting of TV channels and thereafter its distribution amongst ultimate customers through the cable network of the assessee. . For the reasons recorded above, we have no hesitation in concluding that the Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of section 194C of the Act on payments made to the licensor for obtaining TV signals, Cable TV Network owned by the assessed. 3.1.6 It is clear that the aforesaid case cannot be, by any stretch of imagination, applied to the roaming transactions as the same was in relation to the broadcasting and telecasting which is clearly covered under Section 194C of the Act. 3.2 The CIT(A) has also relied on the judgment of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Limited (BSNL) 282 ITR 273. This inference of the CIT(A) is totally misplaced and out of context. The issued in the case of BSNL was to determine the applicability of sales tax on telecom services. 4 SUMMARY The action of the A.O. is trying to cover payment made to another telecom company for Airtime used by the subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into between the assessee and its distributors. The assessee company, by virtue of the licence issued by the Department of Telecommunications, Govt. of India, is engaged in providing Mobile telephone services to the public at large. The Govt. of India is allotting the licence to various parties in the filed on the basis of geographical specifications. The assessee is operating on all India level and therefore provides services in various States. The services provided by the assessee-company in the purpose of sales, administration and control. The assessee company either of its own or through outsourcing establishes the infrastructure facilities for providing Cellular services. 26. The assessee is offering two types of services to the public. The first of its kind is postpaid mobile services whereby the customers are opening account with the assessee company and makes the payment on monthly basis or so against the bills issued by the assessee company. In that case, the assessee company provides services to its customers at the first instance and thereafter issues bills and realizes the proceeds. The assessee company has appointed a number of distributors to manage the distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not permitted to sell the products to the ultimate consumers beyond the MRP. The assessee company is delivering these products to the distributors for a specified margin. For example, if the MRP is ₹ 100/- the assessee company may deliver the same to its distributors at ₹ 80/-. This is the invoice price of the assessee company. The assessee company collects this invoice price in advance from the distributors. The distributors are permitted to deliver these products to the ultimate consumers at a price of their choice but not exceeding ₹ 100/- per unit which is the MRP. The margin earned by the distributors being the difference between the sale price and invoice price is the remuneration of the distributors in this chain of transactions. Therefore, the basic question to be decided in these appeals is whether this margin of the distributors is commission or brokerage coming within the purview of section 194H of the I.T. Act, 1961 or the margin is a discount as claimed by the assessee company which is outside the purview of that section. The questions whether the assessee is in default and is liable to proceed u/s 201(1) and 201(1A) are only consequential to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the court has held that the relationship between the predecessor of the assessee-company and distributors are relationship of parties involved in providing service of pre-paid telephone services to the ultimate consumers. 50. While relying on the above judicial pronouncements, the assessee company has very much relied on the flexibility of pricing given to the distributors as per the latest agreement. It is the case of the assessee company that there was no occasion for the assessee company to make any payment to the distributors or to credit their accounts for services rendered by them. While the case of the assessee company is compared to the case of lottery tickets agents and stamp vendors, there are few vital differences. In the case of stamp vendors, even if he is purchasing stamp paper from the Government Depot at a discounted price, the stamp vendors cannot sell the stamp papers at below the denomination printed on it. The stamp worth ₹ 100/- is always sold to the general public at ₹ 100/- and not for any lesser price or any discount. Government remunerable and stamp vendors by providing a margin which is given at the time of the delivery of the stamp p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are responsible for the stock and account of those cards, it is not possible to hold that the distributors are not acting for the assessee company but the distributors are acting on their own behalf. Such a proposition is in-conceivable in the facts of the present case. It is always possible for the telephone company itself to provide all these services directly to the consumers as the Department of Telecom was doing; but such a direct service is not feasible now-adays. Therefore, the assessee has made out a business solution to appoint distributors to take care of the operational activities of the company for providing service. The distributor is one of the important links in that chain of service. 52. Another important feature is that the SIM Cards stocked by the distributors are still the property of the service provider, the assessee company. The permissive right to use SIM Cards to get access the phone network of the assessee company is given only to the ultimate consumer who activates the connection by using the secrete number provided in the SIM Card. It is only for the ultimate consumer or the assessee company who has the authority to un-cover the secrete number an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company is providing the service. Distributors are helping to reach such services to the ultimate consumers. In both the system, there is documentation. In both the system, the distributors render similar types of services to the assessee company. Of-course, accounting the revenue collection and related matters are different. The essence of post-paid and pre-paid services rendered by the assessee company is the same and the relationship between the assessee and the consumers is also the same. Therefore, if post-paid and pre-paid services rendered by the assessee company is the same and the relationship between the assessee and the customers is also the same. Therefore, if post-paid scheme is subject to section 194H, it is quite unlikely that pre-paid system would be outside the purview of section 194H. 58. In the case of pre-paid scheme, the ultimate consumer pays in advance and in turn distributors also pay in advance. In the post-paid scheme, the ultimate consumer is paying after availing the service and the distributors are also paying afterwards in one case money is received in advance and in the other case services are rendered in advance. Billing and collection ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The assessee has always raised a contention that too in the light of the judicial pronouncements including that of M.S.Hameed and others vs. Directors of State Lotteries and others 249 ITR 186 (Ker) that the assessee company had no occasion to deduct tax at source as the assessee company was not making any payment to the distributors or crediting the account of the distributors for any services rendered to it. But that occasion was removed by the assessee itself by conscious wordings of the terms of the agreement. The assessee company can collect the net sale proceeds along with TDS element from the distributors while distributing the pre-paid products to the distributors,. The distributors shall file their returns before the concerned authorities and depending upon the working results, they can adjust the TDS collected by the assessee company against their tax liability or the refund due. The fact that the distributors may some time deliver the products for a price less than the MRP is not at all an impediment in deducting the tax at source. The distributors may deliver the products at a lesser price, but even then for the purpose of section 194H, as the above example, the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cards and other service products are in the nature of commission and therefore, the assessee is liable to deduct tax at source u/s 194H. As the assessee has not complied with the provisions as stated above, the assessee is liable to be visited with the consequences provided u/s 201(1) and 201(1A) of the I.T.Act. The assessee company fails in its appeals filed before us. 23.1. In the present case, the issue before us is identical as in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra). We are bound to follow the decision of co-ordinate Bench decided in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra) which has dealt all the decisions relied upon by the assessee in the present case. 23.2. As regards the issue in the present case being identical as in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra), as already mentioned there is no dispute to the nature of transactions entered into between the assessee and the distributors. The assessee by virtue of the license issued by the Department of Telecommunications, Govt. of India, is engaged in providing Mobile telephone services to the public at large. The assessee has offered two types of services to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law which has been done in the present case. Now the question arises whether the assessee and its distributors are doing sale and purchase of goods or providing services through various agents. This question has been answered and affirmed by the Hon ble High Court of Kerala in the case of M/s. BPL Mobile Cellular Ltd. vs. State of Kerala and others in Writ Petition No.29202 of 2005, where the Hon ble High Court has held that there is no sale or purchase of goods. The assessee is doing exactly the same business. Therefore, it is not possible to hold that the SIM Cards and re-charge coupons delivered by the assessee company to its consumers and made available by them to the ultimate considers in the State of Kerala are goods. 23.5. The co-ordinate Bench of Cochin in the case of Vodafone Essar Cellular Ltd. vs. ACIT (supra) has dealt the decision in the case of Kerala State Stamp Vendors Association vs. Office of the Accountant General and others reported in 282 ITR 07 (Ker.); M.S,Hameed and Others vs. Director of State Lotteries and others 249 ITR 186 (Ker) and that of Ahmedabad Stamp Vendors Associations vs. Union of India 257 ITR 202 (Guj) and in the case of Idea Cellular L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SIM Cards to get access the phone network of the assessee company is given only to the ultimate consumer who activates the connection by using the secrete number provided in the SIM Card. There is no case of any purchase and sale in the matter of pre-paid SIM Cards,/re-charge coupons. In fact, the legal obligation in respect of providing pre-paid mobile services is between the assessee company and the ultimate consumer. In view of human conduct and behavior, the transaction between the parties has to be taken into consideration which, in fact, is delivering service relating to mobile telephone system, which the assessee-company is doing. The assessee company is operating under the license issued by the Govt. of India. 23.8. We find no difference between post-paid and pre-paid system even though post-paid and pre-paid are two different methods employed for providing services and collecting revenue, the nature and content of the service rendered under both the methods is one and the same. As far as the ultimate consumer is concerned, they are getting the service of mobile telephone, whether he is subscribing to the schme of post-paid or the scheme of prepaid. The assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is engaged in the business of providing cellular mobile telephone services in Kolkata under the brand name AIRTEL . The assessee provides such premises through its distributors by selling to them Starter Pack and Rechargeable Coupons which is commonly known as SIMCARD and pre-paid Card (as there is no dispute regarding post-paid Card Mobile holders). These SIMCARDS and rechargeable coupons were purchased by the distributors/franchisees appointed by the assessee at a fixed rate below the market price on such SIMCARD and the same was further sold to the retailers by whom it was ultimately sold to the customers. The A.O. while perusing the TDS return filed by the assessee observed that the assessee had paid commission on starter packs and recharge coupons to 16 parties, herein called Franchisees and though the assessee had deducted TDS on commission and deposited the same during period from April, 2002 to July, 2002, such deduction of tax at source was discontinued by the assessee treating the payment to such franchisees not as commission but as discount which was outside the ambit of TDS under section 194H. 3. Observing the above discontinuance of deduction of tax at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any for the SIMCARDS and since both the assessee and the franchisees have independent business entity, it would be incorrect to hold that the discount allowed by the assessee to the franchisees on the sale made by it as a commission. The Ld. CIT(A) on the basis of above observation and also following the decision of Gujarat High Court in the case of Ahmedabad Stamp Vendors Association has vacated the order of the A.O. and has held that the discount allowed to the franchisees are outside the purview of section 194H. 7. The revenue is aggrieved with such order of the Ld. CIT(A) and has now come in appeal by taking following grounds of appeal in both the years.: (i) That the Ld. CIT(A) accepted additional evidence filed by the assessee during the course of hearing. No opportunity under rule 46A of the Income Tax Rules was given to the A.O. before passing the order under section 251. (ii) That the Ld. CIT(A) erred in allowing full relief to the deductor considering the benefit allowed to the agents as discount allowed to them. The persons who sales the starter packs and rechargeable coupons needs to get them appointed by the cellular company through a series of formalities imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the fact of the present case. It has, therefore, been contended by the Ld. Departmental Representative that since the assessee has itself considered such payments as commission in the nature in earlier years and from the perusal of the agreement between the assessee and the franchisees/distributors, it is evident that such agreement was meant for of principal and agent relation, the action of assessee, not deducting tax at source just on the basis of different opinion and changing the nomenclature of such commission cannot be held justified. The Departmental Representative has, therefore, submitted that the order of the A.O. should be restored. 9. In his rival submission, the ld. counsel for the assessee has relied heavily on the order of the Ld. CIT(A) and has submitted that the assessee is having two types of cards i.e. Post-paid Cards and Pre-paid Cards and in the case of pre-paid card the distributor/franchisee has to pay the price of the recharge coupons, less discount provided to them and this is not a case where the franchisee collects the recharge coupons from the assessee, sells them to the customers and then deposit the sale proceeds to the assessee after deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 which is before us and the assessee from August 2002 onwards has treated such payment as discount in nature. Since the assessee has claimed that it was offering discount to its franchisee and the A.O. is of the opinion that such payment to franchisee is in the nature of commission, we are of the view that the nature of payment can well be examined with help of agreement between the assessee and the franchisee. 12. We find from the perusal of the agreement between the assessee and the franchisees, that the franchises were working for the assessee in a capacity of agents. While forming such opinion, we get support from the following paras of agreement entered by the assessee with one of the franchisee Shri Ashok Kumar Singh which is also available at page 22 onwards in the paper book. Some of the relevant paras of agreement reads as under: 4.1. The FRANCHISEE shall maintain a suitable establishment for the conduct of its business and the performance of its obligations under this Agreement. The FRANCHISEE shall use its best efforts to actively provide effective ways to both BML and the subscribers to the Service of BML 4.8. The FRANCHISEE shall use its best efforts and end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he FRANCHISEE as specified by BML to the FRANCHISEE in the form of manuals, bulletins, circulars or letters issued, amended and/or updated by BML from time to time. The FRANCHISEE shall ensure the availability to subscribers of the Pre-paid Services, a level of service standards strictly in accordance with BML s standards and specifications in terms here above is a material obligation under this Agreement. 13. From the perusal of above clauses of agreement between the assessee and the franchises, it is evident that these franchisees are commission agents acting on fixed margins and fixed responsibilities, as evident from Para 4.8 of the agreement which is again reproduced for the sake of clarity: 4.8.The FRANCHISEE shall use its best efforts and endeavours to market and promote the Pre-paid Services to meet the growing demands of the subscribers. At no point of time shall any right, title or interest pass to the FRANCHISEE in respect of the Prepaid Cards for the Pre-paid Services given to the subscribers for connection to the service and all right, title ownership and property rights in the such cards shall at all times vest with BML. 14. On a plain reading of above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directive issued by the assessee to franchisee generally or specifically. 18. Apart from above fact, we have also taken into consideration the fact that the franchisee price and payment for services is being decided from time to time by the assessee itself which clearly suggests that these are commission in nature and not discount as contemplated by the assessee and is also evident from clause No.8.1 of the agreement between the assessee and the franchisee which is being reproduced hereunder for the sake of clarity: 8.1. The FRANCHISEE s price and payment for services will be specified by BML from time to time. The rates are subject to variation during the term of this agreement at the sole discretion of BML and shall be intimate to the distributor from time to time. The assessee has relied heavily on Paras 16.1 and 16.2 in support of its claim that both the assessee and the Franchisees are independent business entity and is solely principal to principal basis. The relevant paras reads as under: 16.1. The FRANCHISEE understands that it is an independently owned business entity and this agreement does not make the FRANCHISE, its employees associates or agents as em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with its Franchisee or relationship of principal and agent. We find that in the case of principal to principal relationship within the restriction of maximum retail price, a principal enjoy full freedom of fixing sale price and also becomes owner of the goods purchased by it from another businessman. However, in this present case Franchisees/Distributors do not have any independence whatsoever to do so by reducing their margins. 21. Apart from above, in case of sale on discount, once the goods are sold there cannot be any restriction imposed by on principal on the other principal in regard to the manner and the area of sales of such goods sold. There can also not be any restriction on the manner in which the stock purchased by one principal has to be kept by it in case of purchase on discount. Whereas in the present case the assessee74 company has got all right to regularly monitor operation of Franchisee/monitor or investigate the manner in which business operations are carried on by such franchisees which is not possible in case of sale on discount. In the present case before us the assessee has entered into an agreement with Distributors/Franchisees allowing later to sell the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of Section 44AA. (iii) the expression securities shall have the meaning assigned to it, in clause(h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (iv) where any income is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly From the perusal of Explanation (1) to section 194H, it is well apparent that the franchisee appointed by the assessee are only buying and selling Pre-paid and SIMCARDS on and behalf of the assessee. It is also worthwhile to note that service condition on such Pre-paid and SIM CARD purchases by the ultimate customers is always decided by the assessee and is subject to variation from time to time as per policy of the assessee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee are distinguishable and are not identical facts involved in the present case. Whereas in the recent judgment Jaipur Tribunal in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. ITO [2005] 98 TTJ (Jp.) 1 has held that when the assessee having sold goods to its distributors to operation in specified territories only and sale of goods at fixed margins is under the supervision and control of the assessee, the transaction between the assessee and the distributors were on principal and agent basis and not on principal-to-principal basis and , therefore, the assessee is liable to deduct tax at source under section 194H in respect of payment to Distributors. 28. We observe that the facts involved in the present case are identified to the facts of the case disposed of by the Jaipur Tribunal in the case of Hindustan Coca Cola Beverages (P.) Ltd. as in this case also the assessee has sold Pre-paid Cards to its distributors to operate in specified territories only and sale of goods by franchisee gives them fixed margins decided by the assessee and the business operation of such franchisee is always under the supervision of the assessee and therefore such transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), who has rightly confirmed the action of the Assessing Officer. 23.13. As regards the decision in the case of Hindustan Coca Cola Beverages Ltd. vs. CIT reported in 293 ITR 226 and Instruction F.No.275/101/95/-IT(B) dated 29th January, 1997, the A.O. has rightly held that the assessee is liable to satisfy the A.O. by furnishing the required proof that the taxes on the amount received from the assessee has been paid by the distributor which he has failed to do vide para 2.3. of his order. In the facts and circumstances, the order of the ld. CIT(A) is confirmed and the appeal of the assessee for the impugned year is dismissed. 24. Since the facts in all the appeals and in all the years are identical except the ground of non-deduction of TDS and other roaming charges during the assessment year 2007-08. Our decision hereinabove for the assessment year 2006-07 shall be applicable in all other years and accordingly all the grounds of all the years mentioned hereinabove i.e. for the assessment years 2006-07 to 2010-2011 are dismissed. 25. As regards the issue on account of roaming charges for the assessment year 2007-08 is involved, the assessee has contended that no TDS wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further stated that the agreement between assessee and other communication operators to provide roaming facility is nothing but a work undertaken by them for assessee under a contract or arrangement agreed upon by both the parties. Further the reliance of A.O. in the ratio of the case of M/s. Bharat Sancha Nigam Ltd. decided by the Hon ble Supreme Court 282 ITR 273 is also valid. In this case the Hon ble Supreme Court has held as under: The license clearly manifests that it is one for providing telecommunication service and not for supply of any goods or transfer of right to use any goods. It is expressly prohibits transfer or assignment. The integrity of license cannot be broken into pieces nor can the telecommunication service rendered b them be so mutilated. Not only this position flows from the terms of contract, this also flows from section 4 of the India Telegraph Act which provides for grant of license on such conditions and in consideration of such payments as it thinks fit, to any person to establish. maintainer work at telegraph . The integrity of establishing, maintaining and working is not to be mutilated. 26. In view of the above legal and factual discu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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