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2011 (6) TMI 502 - AT - Income TaxDis-allowance u/s 40A(3) - payments made by the assessee, a distributor of 'Reliance' communication products, to its principal - assessee contended that there is no doubt with regard to the genuineness of the expenditure, which is sought to be disallowed with reference to the mode of payment, i.e., by deposit of cash in the bank account of the principal - Held that:- The facts and circumstances of the assessee's business are identical to that in the case of S. Rahumathulla (2010 (4) TMI 905 - ITAT COCHIN), whereat the tribunal observed that it had found, with reference to the decisions of BSNL & Ors. v. Union of India & Ors.[2006 (3) TMI 1 - Supreme court] that the relationship between the assessee (franchisee-distributor) and service-provider) (Reliance Communications Infrastructure Ltd.), both de facto and de jure, as one of 'principal' and 'agent'. The franchisee-distributor was, thus, at all times acting only for and on behalf of the service-provider, as a link in the service chain and, thus, the payments by it to the principal-service provider are only in terms of and in pursuance to the service arrangement. The SIM cards and other service products are not 'physical' products or 'goods' in that sense, but only 'service products', toward services for an access to the telephony services provided by the service-provider, who only activates the same. The payments made by the franchisee-distributor to the principal are only on his (the latter's behalf); it being only entitled to a commission for the services rendered. The question of no separate payment being made by the payee-principal to the payer-agent, i.e., toward the remuneration or commission. Thus the provision of s. 40A(3) was found as not applicable in the facts and circumstances of the case - Decided in favor of the assessee
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