TMI Blog2018 (5) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tribunal in the case of Bharat Sanchar Nigam Ltd. vs. Addl. CIT (2017 (10) TMI 1093 - ITAT DELHI) the issue under consideration has been decided in favour of the assessee. The provisions of roaming services do not require any human intervention and therefore, the payment of roaming charges does not fall under the net of TDS provisions u/s. 194J of the Act. - Decided in favour of assessee. - ITA Nos. 3328 to 3332/Del./2015 AND S.A. No. 315 to 319/Del./2015 - - - Dated:- 15-3-2018 - Shri Bhavnesh Saini, Judicial Member And Shri L.P. Sahu, Accountant Member For The Assessee : Sh. Sparsh Bhargava, Advocate And Ms. Rachna Yadav, Advocate For The Revenue : Sh. S.R. Senapati, Sr. DR ORDER Per L.P. Sahu, A.M.: All these appeals at the instance of assessee are directed against separate orders of the ld. CIT(A)-41, New Delhi dated 13.03.2015 for A.Yrs. 2007-08 to 2010-11 and dated 12.03.2015 for A.Y. 2011-12. The assessee has also moved stay petitions in all these appeals. 2. Since issue(s) involved in all these appeals are common and the assessee has raised common grounds, all the appeals were heard together and are, therefore, being disposed of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant is an 'assessee in default' for alleged non deduction of tax at source under the provisions of Section 194 J of the Act on interconnect usage charges paid by the Appellant to other telecom operators; i. That the Ld. CIT (A) completely failed to appreciate that there was no human intervention while concluding a successful call, for which alone payment was made by the Appellant to other operator, ii. That the Ld. CIT (A) completely failed to appreciate the fact that no human intervention of the nature of managerial or consultancy services in any case was involved in providing interconnect usage charges; iii. That the Ld. CIT (A) completely failed to appreciate that there was no use of equipment by the Appellant of the other operator and therefore, the payment made by the Appellant to the other operators would not be regarded as 'Fee for Technical services' iv. That the Ld CIT (A) complete y failed in appreciating that the payment for interconnection was for use by the other operator of a standard facility; C. That the Ld. CIT (A) completely failed in appreciating that the Hon'ble Income Tax Appellate Tribunal, Jaipur Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid vouchers to distributors in bulk against advance payments. According to the assessee the starter kits and the recharge coupon vouchers are sold to its various distributors as per the terms of business agreements on principal to principal basis at a discounted price than MRP with the agreed rider that no product shall be sold at a price more than MRP and thus, such transactions are not liable for TDS u/s. 194H of the Act. According to the Assessing Officer, the discount, i.e., the difference between the MRP and the selling price, to the distributor amounted to payment of commission to the distributors which was liable to TDS u/s. 194H of the Act. The Assessing Officer further noticed that discounts on pre-paid SIM Cards/recharge coupons had already been held to be subjected to TDS as commission within the meaning of section 194H. The Assessing Officer following the similar stand taken in the case of assessee for F.Y. 2004-05 and F.Y. 2009-10 and the decision of Hon ble jurisdictional High Court in the case of Idea Cellular Ltd., 325 ITR 148, held the discounts allowed on Starter Kits liable to TDS and since the assessee failed to deduct the tax at source, held the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of section 194H on discounts given on marketing and distribution of the product i.e. start up kits (SDKs), Recharge Vouchers,(RCVs/EVCs) etc. 6.2 A remand report was called from the AO with respect to the core issue under dispute for the relevant year. Vide remand report dated 04.02.2014 and 02.06.2014 the AO observed that as per the agreement with the distributors, the discount granted to distributors on sale of RCVs/SUKs etc. are commission and should be subjected to TDS u/s 194H of the Act. Vide submission dated 11.02.2015, the appellant filed a rejoinder to the remand report wherein it stated that: We draw attention of your Honour that the AO has failed to appreciate the true facts that the primary agreement with the Channel Partners is to buy sell appellants products on a principal to principal basis and any ancillary or connected services apart from the primary arrangement would fall under service area for which they would be remunerated in form of commission or incentives. The appellant sell its product to the Channel Partners allowing discount on the primary transaction. Appellant has been deducting appropriate TDS on all commission / incentives or cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2011 as well as the written submission of the appellant is examined and the issue has also been discussed threadbare during appellate proceedings with the Id AR of the appellant. After going through ail the facts and material before me I observe that the appellant is a telecommunication service provider in respective telecom circle under licences granted by the Department of Telecommunication, Govt. of India. In order to provide telecom services, the appellant sells service products such as Starter Kits, SIM Cards and Recharge coupon vouchers (RCVs). To distribute these products, the appellant enters into business arrangement with various distributors or channel partners for both its prepaid post paid products. 6.6 In order to come to a definite conclusion on the issue at hand, I propose to first look at the scope and ambit of section 194H of the Act and then analyse the transaction between the appellant and Channel Partners as to whether it falls within the purview of the said section. In this context, it would be necessary to extract the relevant portions of section 194H of the Act. The said provision reads as under:- 194H. Any person, not being an individual or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r person for which the person rendering service either receives or is entitled to receive, directly or indirectly, payment from that another person to whom the service is rendered. 6.9 It is clear that the transaction, in issue, would fall within the provisions of section 194H only if there is; (i) a principle-agent relationship between Tata Teleservices Ltd. (TTSL) and Channel Partners; (ii) the payments made by TTSL to Channel Partners, who is a resident is an income by way of commission; (iii) the income by way of commission should be paid by TTSL to Channel Partners for services rendered by the latter or for any services in the course of buying or selling of goods and, (iv) the income by way of commission may be received or be receivable by the Channel Partners from TTSL either directly or indirectly. 6.10 Thus first question that needs to be answered is whether there exists a principal and agent relationship between TTSL and its Channel Partners. For this purpose it would be relevant to analyse the definition of an agent in section 182 of the Contract Act. Section 182 of the Act states that:- An agent is a person employed to do any act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The Channel Partner will also pay an interest free security deposit and [clauses 6.1,4 and 8.5 (viii) which is determined by TTSL. (iii) Full legal rights and interest in all the product and services shall remain at all times with TTSL (Clause 1(h), 1(1)] and all IPR including trademarks, design etc. will be the exclusive property of TTSL and the channel Partner will not have any right/ownership on it (Clause 13.1). (iv) Channel Partners shall appoint retailers/dealers in the service area as per the approval of TTSL (Clause 8.4 (vi)). (v) TTSL reserves exclusive right to bring about charges in terms and condition of the agreement with Channel Partners (Clause 2.3), (vi) Marketing Standards will be as per the specification laid down by TTSL {Clause 8.5 (ii),(iv)(v),(vi). (vii) The Channel Partners shall not misuse the confidential information about consumers collected by it and trade secrets of TTSL (Clause 8.4 (v)). (viii) The rates and values of SIM Cards/recharge vouchers etc. shall be as per the policy of TTSL and shall be subjected to change/modification, at the sole discretion of TTSL. Channel Partners shall remain bound by the prices as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cards. 6.17 It is only for the ultimate consumer or the appellant who has the authority to uncover the secret number and activate the SIM Cards. Thus the argument given by the appellant that once delivery of SIM Cards is taken, it becomes the absolute property of the distributors is fallacious and misconceived. 6.18 The various clauses of the agreement mentioned above clearly indicate that ownership of these products are never transferred to the Channel Partners. Hence the transaction in question is not sale purchase between the appellant and Channel Partners. The Channel Partners are appointed as distributors and are offered discount on the products, The discounts thus are in the nature of commission or brokerage. 6.19 From the above discussion on various parameters of the agreement, it is also established that the Channel Partners acts on behalf of TTSL whereby a legal relationship is established between TTSL and the third party i.e. the consumers. By entering into such a legal relationship on behalf of the principal and by issuing the products to a third party through authorized retailers the Channel Partner makes TTSL liable to a legal action by the cell pho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the appellant has allowed the cash discounts on which it has a reasonable cause and a bonafide based on the legal positions that there is no application of TDS under the Act. Under no circumstances can the aforesaid two transactions be clubbed together to hold that discount/margin so allowed to the Channel Partners is commission for their services being rendered to be covered under section 194H. 6.24 In view of the above submission it would be relevant to analyse whether any income way of commission has been paid by the appellant to the Channel Partners, it is not disputed that any amount which the Channel Partners would receive over and above the value of RCVs/SUKs and other ancillary product, charged by TTSL would be assessed in the hands of the Channel Partners as profits, gains or income. Vide submission dated 11.02.2015, the Id AR has twisted the facts as per his convenience. It has been claimed that the nature of transaction between Channel Partners and TTSL are 'trading transaction' whereby Channel Partners make bulk purchase of the products after making full payments before taking delivering of the products on which discounts are offered. Thus the Id AR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed between the Channel Partners while acting on behalf of the principal cell phone service provider or TTSL, in selling the SUKs/RCVs to a third party (through retailers) which is the cell phone user, and thereby creating a legal relationship between the principal i.e. TTSL and the third party which is the customer who purchases cell phone connection. 6.26 The contention of the appellant that the Delhi High Court judgment in the case of Idea Cellular Ltd., 325 ITR 145 (Del) is not applicable to the present case, is also not acceptable as in view of analysis and discussions in the preceding paras by me. I hold that the facts of the present case are very much similar to that of the case of Idea Cellular. 6.27 After considering the arguments put forth by the appellant during appellate proceedings and after perusing the provision of the agreement, it leaves no doubt whatsoever that the relationship between TTSL and Channel Partners is that of a principal and agent. I have also considered the judgment of Delhi, Kolkata Kerala High Court in the case of Ideal Cellular Ltd. 325 ITR 148 (Del), Bharti Cellular Ltd. Vs ACIT 244 CTR 185 (Cal) and Vodafone Esaar Cellular Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eader(CLH),C-DOT} on 29.09.2010. Based on the above statement, order u/s 201 of the Act was passed in FY 2002-03 in the case of Vodafone Essar Mobile Services which categorically elucidates the vast exercise of obtaining experts opinion though was not carried out in the case of Tata Teleservices Ltd. prominence could very well be drawn in the case of Tata Teleservices Ltd. as well considering the backdrop of the case. Nevertheless, considering the paucity of time left during the proceedings u/s 201(1) of the Act of FY 2006-07, the expert's opinion was not cross examined by M/s Tata Teleservices Ltd. for the following convincing reason: It is pertinent to report here that, considering the non compliance during the course of proceedings u/s 201(1) of the Act, the then AO had to issue a letter dated 11.03.2011 on this count and the case was again fixed for hearing for 14.03.2011 alongwith a remark therewith that the proceedings would be completed based on material available on record. In response to the letter dated 11.03.2011, the ARs of M/s Tata Teieservices Ltd. filed its letter dated 17.03.2011 wherein it was emphasized that the issue of notice u/s 201(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the TDS on IUC charges, rather the deductor company denied the applicability of TDS on IUC charges till 23.03.201 1.Therefore, it is clear that the deductor company had driven the proceedings to the fag-end of the FY. It can also be seen from the above facts that the Revenue did not deny the opportunity of cross examination of the expert's opinion during the proceedings, but it was the ARs of the deductor company ,iv/70 had taken the proceedings till 30.03.2011 by not complying with the requirements during the proceedings and not disclosing and providing the TDS made on IUC charges till 29.03.2011. In view of the facts, during the appellate proceedings, the deductor company has no ground to take the plea of granting no opportunity to cross examine the expert's opinion on IUC. This ground may kindly be rejected accordingly considering the facts of the case. 11.2 After considering the remand report and the rejoinder filed by the appellant it is observed that during assessment proceedings u/s 201(1)/201(1A) of the Act, the AO noticed that TTSL has not deducted TDS on account of payment to various parties for the IUC paid to them. The ld AO considered the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Hutchison Essar (to whom payment of ₹ 12,06,69,183/- has been made), Tata Communication (to whom payment of ₹ 44,10,85,189A has been made) and Reliance Communication (to whom payment of ₹ 15,62,20;843/- has been made) no evidence is brought on record to prove that TDS has been deducted or the exemption u/s 197 is not available hence the payments made on account of IUC charges for these service providers would be subject to TDS u/s 194J. For non deduction of TDS u/s 194J in the case of payment of IUC charges to Reliance Communication, Hutchison Essar and Tata Communication, the appellant will be considered assessee in default u/s 201(1) of the Act. 7. The ld. AR of the assessee filed a detailed written synopsis before us, which we think appropriate to reproduce hereunder: Deduction under Section 194J 1. The issue of deduction of tax at source on Inter-Connect Usage Charges ('IUC') which a telecom operator pays to another has been decided by this Tribunal in the case of Bharti Airtel v. ITO (TDS) [2016] 60 Taxmann.com 223 (Delhi Tri). Further, the decisions of the Bangalore and Jaipur Tribunal in favour of the assessee have been affirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Airtel Ltd. vs. CIT, Anr., [2015] 372 ITR 33 (Karn) while considering an identical issue in the facts of the Appellant has inter alia held that 'right to service can be sold' and as such the supply of sim cards and recharge vouchers can be on the basis of principal to principal and in the facts of the case, there would not be a relationship of agency. The Hon'ble High Court has further held that where the transaction is recorded net of discount price, there shall be no liability to deduct tax. Similar view has been taken by the Rajasthan High Court in the case of the Appellant itself in M/s Hindustan Coco-Cola Beverages v. Jaipur (decision dated 11.07.2017 in DB ITA 205/2005). 6. The Karnataka High Court in Bharti Airtel Ltd. (supra) distinguished the other decisions at Paras 56 to 58 to hold that principal to principal relations exists in the facts before them as the right to service, being the prepaid talk time, is being sold to the distributor who then further sells it or uses it for himself and earns an income only when the same is sold is for a profit (refer to para 59 and 62). 7. Further, it is submitted that the Karnataka High Court has given an explicit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd interest of the products have never been transferred to the distributors and remains with the Idea. Further, distributors are also bound with specific conditions regarding the storage/display of the products, however, in the Appellant's case the title is passed to the distributor immediately on the acceptance of delivery to the distributor's warehouse and there are no conditions regarding storage/display of products. [Refer to submission dated 11.02.2015 @pg. 452-456 of the paper book]. vi. In case of Idea Cellular, there was neither a separate payment nor deduction of tax on activities carried out on behalf of Idea. Whereas, in the present facts, it is undisputed that separate amounts on which IDS has been deducted has been paid. A chart distinguishing the case of Idea Cellular (supra) from the case of the Appellant is produced below for reference: Sr. No. Heading Extract of Delhi HC Idea Judgment In the case of Idea Cellular Limited ( Idea ) In the case of Tata Teleservices Limited ( TTSL ) 1. Business Model Para 2: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs ( PO ) raised by the Distributor and the Products will be shipped by TTSL 'Free on road' ( FOR ) destination basis to the Distributor's designated warehouse or location space on the distributor's PO. TTSL will be responsible for all freight charges and insurance cover till the Products reach the Distributor's warehouse. - Title and risk of loss or damage in the Products will pass to the Distributor upon acceptance of deliver at the Distributor's warehouse. The Distributor should not reject the products once shipped by TTSL pursuant to PO issued by the Distributor. 3. Relationship with Distributor Para 8: PMA is allowed to appoint the retails only after the written approval from the assessee. The PMA has to provide monthly sales reports return and other information relating to business Company reserves the right to terminate the agreement unilaterally The Hon'ble HC hold that relationship between Idea and distributors is of principal and agent based on certain conditions which generally prevail in agency relationship -Distributors are not allowed to appoint retailers without appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gically deduced therefrom. It is equally well settled that a little difference in facts or additional facts may lead to a different conclusion. o CCE vs. Alnoori Tobacco Products and Anr., (2004) 6 SCC 186- The Hon'ble Supreme Court of India relying on its earlier decision and some English decisions by the House of Lords held that a decision cannot be relied upon if the factual situation of the decision relied upon is different from that of the case in discussion. The Court further held that Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper (Refer to paras 11 to 14). o Bharat Sanchar Nigam v. Union of India (2006) 3 SCC 1 There is no constructive res judicata in tax proceedings. Where a new ground is urged, the Court has to consider it on merits if it has not been raised earlier. (Para 16, 20) If the parties intend that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authority to levy Sales Tax. (Para 87) 9. Further, decision in the case of Bharat Sanchar Nigam Ltd., vs. Addl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its colour from the questions involved in the case in which it is rendered and white applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. Further, it is submitted that the Hon'ble Tribunal, Kolkata Bench in Vodafone East Ltd. vs. DOT, (TDS) in ITA Nos. 1499-1502/Kol/2015 and 136-137/Kol/2016 decision dated 26.10.2017, decided the issue in the assessee's favour on the basis of the agreement in question and has held that the transaction between the assessee and the distributor for recharge coupons was in the nature of sale and purchase. Therefore, the amount of discount cannot be equated with the commission as envisaged under Section 194H of the Act. Therefore, the decision of the Hon'ble Tribunal in BSNL Tribunal case (supra) will not apply in the present case. 10. It is submitted that the sale of right to service is akin to sale of goods and tradeable commodity. Therefore, the cases relied upon by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench in Vodafone East Ltd, vs. DOT, (IDS) in ITA Nos. 1499-1502/Kol/2015 and 136-137/Kol/2016 decision dated 26.10.2017. 8. On the other hand, the ld. DR relying on the orders of the authorities below, also filed a written synopsis, which reads as under : 1. In gist, the appellant assessee has raised grounds of appeal on the issues of tax deduction at source u/s 194H of IT Act 1961 from the discounts allowed to its distributors on bulk sale of starter kits and recharge vouchers (RCVs) and the said appellant assessee has also raised grounds of appeal on the issues of tax deduction at source u/s 194J of IT Act 1961 on Interconnect usage charges paid by the appellant to other telecom operators. 2. Ld. AO (Assessing Officer) while following the direction of Hon'ble Supreme Court in civil appeal No. 6692 dated 12.08.2010 in the case Vodafone Essar Mobile Services Ltd. has considered the expert opinion of two C-DOT Officials Shri Tanay Krishna ,Group Leader ( Project Planning) Shri Ashok Mittal ,Group Leader (CLH),C-DOT on 29.09.2010 by examination and Cross-examination to find out extent nature of human interventions which is inevitable on an assortment of area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not produce any No TDS certificate u/s 197 of IT Act and also did not produce a certificate and prove that deductee-assessee had in fact paid TDS on behalf of said appellant assessee and as such CBDT Circular No. 8/2009 has not been followed and the stands taken by Ld. AO and supported by Ld. CIT (A) on the issues of section 194J of I.T. Act 1961 hold good legally valid factually consistent /reasonable against appellant assessee. 5. The appellant assessee at grounds of appeal ( D F)( for example F.Y.2006-07) has raised that no examination and cross examination of experts has been done in its case before Ld. AO and nor before Ld. CIT(A) regarding issues u/s 194J of I.T. Act 1961 and if at this stage the examination and cross examination of experts is to be allowed to the appellant assessee , then same should be done before Ld. AO, or Ld. CIT(A). 6. Regarding the grounds of appeal on this issues u/s 194H of I.T. Act 1961 from the discounts allowed to its distributors on bulk sale of starter kits and recharge vouchers (RCVs), It is respectfully submitted that by considering all facts and laws both by Ld. AO and Ld. CIT(A) have categorically hold that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Hence, The orders of the Ld. Assessing officer confirmed by Ld. CIT(A) on issues of application of S.194H S.194J of I.T. Act 1961 based on correct facts Laws including Jurisdictional Hon'ble High Court decision in Ideal Cellular Ltd. 325 ITR 148 (Del) may be upheld Appeals of appellant assessee may be dismissed. 9. We have considered the rival submissions of the parties and perused the entire material available on record. We have also gone through the decisions relied upon by the learned Authorised Representative and the learned Departmental Representative. The stand of the assessee on the first issue is mainly based on the decision of Hon ble Karnataka High Court in the case of (1) Bharti Airtel Ltd. (2) Vodafone Essar South Ltd. vs. DCIT and Tata Teleservices Ltd. vs. CIT, 372 ITR 33 (Karn) whereas the stand of the Revenue is based on the decision of Hon ble jurisdictional High Court in the case of Idea Cellular (supra). As could be seen, the Assessing Officer has treated the assessee as assessee in default alleging non deduction of tax at source under section 194H, on the reasoning that it has paid commission to the distributors for selling the starter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riber and the subscriber is sent bill periodically depending upon the user of the SIM card for the period in question. In both the cases, legal relationship is created between the subscriber and the assessee that too by entering into specific agreement between these two parties. 24. In contrast, the legal position when the goods are sold by principal to its distributors creating principal and principal relationship would be entirely different. On the sale of goods, the ownership passes between the manufacturer and the distributors. It is the responsibility of the distributor thereafter to sell those goods further to the consumers-the ultimate users. The principal/manufacturer does not come in picture at all. Of course, he may be liable for some action by the consumer because of defective goods, etc., which is the result of other enactments conferring certain rights on the consumer or common law rights in his favour as against the manufacturer. We may also point out that in its classic judgment in the case of Bharat Sanchar Nigam Ltd. Anr. vs. Union of India Ors. (2006) 201 CTR (SC) 346 : AIR 2006 SC 1383, the Supreme Court held that electromagnetic waves or radio of freque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er two occasions, there was no clause on pricing in the agreements entered into between the predecessors of the assessee company and the distributors. It is in the latest agreement between the assessee and its distributors that the clause on pricing has been inserted that the distributors are free to determine the ultimate sale price subject to MRP. 34. We do not think that this so-called pricing freedom is so crucial in examining the exact nature of the business relation between the assessee company and its distributors. The pricing factor is also a matter of mutual consent between the parties. Even in the case of an agency, there can be a clause by which an agent is authorized to sell the goods for a price less than the MRP. Even in a case of principal-to-principal, there may be a clause that the distributor cannot sell a product for a price less than the MRP unless a consent is given by the manufacturer. The matter of pricing in both the cases, i.e., principal-to-principal and principal to agents can be a matter of mutual consent between the parties and even a matter of negotiation after the execution of the agreement. There are no hard and fast rules of any legal proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers as the Department of Telecom was doing; but such a direct service is not feasible nowadays. 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 to the phone network of the assessee company is given only to the ultimate consumer who activates the connection by using the secret number provided in the SIM card. It is only for the ultimate consumer or the assessee company who has the authority to uncover the secret number and bring the card into activation. This unique situation negates the argument of the assessee company that once delivery of the SIM card is taken, it is the absolute property of the distributors. No, this is a misconception. 56. In the case of post-paid scheme, the assessee company is treating the benefits enjoyed by a distributor as commission and deducting tax at source. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liver 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 s. 194H, as in the above example, the margin available to the distributor is ₹ 20, which is to be treated as commission, and the assessee has to consider that amount for the purpose of quantifying the element of TDS. The assessee company has to collect the net price along with the above-stated TDS element. Therefore, the argument that there was no occasion as in the case of M.S. Hameed (supra) has no relevance here. The situation considered by the Hon ble High Court was different. In that case one party is State Government. Without executing an authority in conformity with the statutory and administrative rules, nobody can become an agent of the Government. Further, the Court has considered the subject transaction as that of purchase and sale of goods. But, in the present case, there is no failure of any procedural provisions as apprehended by the assessee company. 65. We have come to the above conclusion specifically on the following grounds : (1) In the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhopal Sugar Industries Ltd. (supra), Kerala Stamp Vendors Association (sic) 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 against the assessee. As a consequence, these appeals are allowed and judgment of the Tribunal on this aspect is set aside. No costs. 10. In view of the above decision, it is seen that the vital feature which Hon ble Jurisdictional High Court has found relevant is that a legal relationship is established between the telephone service provider and the consumer i.e the subscriber to its products. Hon ble Jurisdictional High Court has also followed the dictum of Hon ble Apex Court in the case of BSNL vs UOI reported in AIR 2006 SC 1383 to hold that this is not a case for sale of goods but a case of providing telephone services and hence there can be no sale of goods from the service provider to its distributor so as to create a principal to principal relationship. The Hon ble jurisdictional High Court further observed that the assessee could not be able to differentiate the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a simcard. When he pays for the sim-card, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be sold. What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to subdistributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts offered by the appellant is in nature of commission which does attract rigors of section 194H. 12. Even otherwise, in the decision of Hon ble Karnataka High Court reported in (2015) 372 ITR 33 (Kar) (supra), Hon ble High Court remitted the case back to the AO for deciding the same afresh in the light of following two illustrations to decide the applicability of section 194H : In the first instance, sale is accounted for ₹ 100/-, which is the first account and ₹ 80/- is the second account and the third account is ₹ 20/-. It shows that the sales is for ₹ 100/-, commission is given at ₹ 20/- to the distributors and net value is ₹ 80/-. The assessee s sale is accounted at the gross value of ₹ 100/- and thereafter, the commission paid at ₹ 20/-is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted. However, in the first instance, if the assessee accounted for only ₹ 80/- and on payment of ₹ 80/-, he hands over the prepaid card prescribing the MRP as ₹ 100/-, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in favour of the Revenue thereby confirming the decision reached by the ld. CIT(A) on this count. Accordingly, the grounds of appeal raised on the first issue deserve to be dismissed. 16. Adverting to the second issue regarding non-deducting of TDS on payment of IUC, keeping in view the similar nature of charges, i.e., roaming charges paid, this Bench of Tribunal in the case of Bharat Sanchar Nigam Ltd. vs. Addl. CIT (ITA No. 920/Del./2017 (supra), the issue under consideration has been decided in favour of the assessee, observing as under : 17. We have carefully considered the facts of the case and the material available on record and we find that the issue in dispute is directly covered by the decision of ITAT in case of Bharti Airtel Limited (supra). In that case co-ordinate bench of this court after deep examination of the issue i.e after considering and going through the process of providing roaming services; examination of technical experts and its cross examination and also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03rd September 2013, has held that payment of IUC Charges is not Fee for Technical Services or Royalty within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia by FTOs - FTOs also did not have any Permanent Establishment in India - Whether thus no income could be deemed to accrue or arise to FTO's in India and hence under article 7 also income could not be brought to tax in India - Held, yes - Whether further in absence of permanent establishment of FTOs in India, payment of 'IUC' to FTOs could not be deemed to accrue or arise in India under any of clause of section 9(1) read with section 5(2) - Held, yes [Paras 74 78][In favour of assessee] To the similar effect are other decisions cited by Ld AR. The Ld CIT(DR) has not been able to controvert the fact that the issue in dispute is no more res integra considering the above binding precedents. Moreover, a perusal of sample agreement for payment of IUC charges between BSNL and Cable Wireless UK in the instant case also clearly shows that a standard facility for availing interconnectivity services while roaming was availed by the appellant in the instant case. This does not require any human intervention. Respectfully following the above judicial precedents, we hold that payment for IUC Charges is not chargeable to tax in India in the hands of the nonresident reci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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