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2017 (10) TMI 380 - AT - Income TaxTDS u/s 194H - “cash discount” allowed to the distributor to be treated as “commission” paid/allowed by the assessee-deductor to the distributors - non deduction of tds - A.O. was of the opinion that there exists ‘principal to agent relationship’ - Proceedings u/s 201(1) as well as levy of interest u/s 201(1A) - deductibility of TDS for post-paid and non-deductibility of TDS for pre-paid services - Held that:- While giving a finding in the case on hand we have also carefully gone through the distributorship agreements. We are unable to accept the contention of the assessee that the distributor has complete right and control over the matter of providing talk-time to ultimate subscribers; distributor can of course insist upon assessee while making a request to provide talk-time through e-module etc., but the final decision has to be taken by assessee, only upon verification of consumer details which in turn has to be provided by distributor. Assessee can terminate the contract at any time by giving thirty days time without assigning any reason and distributor has to return all equipment and furniture supplied by the VESL upon termination of such contract. Other conditions such as maintaining the confidentiality and limitation of assigning rights or obligations to third party by distributor would also indicate that distributor is merely acting as an agent i.e., as a connecting link between assessee and ultimate subscriber. We therefore held that though distributor commits assessee to subscribers and exercise his authority to ensure arranging connection to subscriber, it will not alter the situation since the overall context in which such power is given to distributor has to be looked into in the circumstances of the case and the role of distributor can only be said to be a middleman between service provider on one hand (assessee herein) and ultimate consumer on the other hand. In other words the distributor can only be termed as an agent of assessee in which event providing service to ultimate consumer through the medium of distributor cannot be said to be a sale of service by assessee to the distributor. Distributor is merely a link between assessee and ultimate consumer/subscriber and distributor can at best enforce obligation on the part of assessee to provide connection/talk-time to subscriber which itself would not change the characteristic of transaction from ‘principal to agent’ to ‘principal to principal’. We therefore hold that the order passed by Assessing Officer, as confirmed by Ld CIT (A), by holding that assessee is a defaulter u/s 201(1) and consequently liable to pay interest u/s 201(1A) of the Act, subject to certain conditions as prescribed by Hon’ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd (2007 (8) TMI 12 - SUPREME COURT OF INDIA ), is in accordance with law.- Decided against assessee Penalty levied by TDS Officer u/s 271C - ‘reasonable cause’ - Held that:- No doubt assessee has not specifically submitted before the Tax Authorities that non-deduction of tax at source was based on it’s understanding of provisions of section 194H of the Act, which in turn constitutes a ‘reasonable cause’. But the fact remains that by the time the assessee was under obligation to deduct tax at source for the AYs under consideration, there were judgments in favour of assessee and even after the decisions of Hon’ble Delhi High Court and Kerala High Court, Hon’ble Karnataka High Court had taken a different view of the matter which implies that non- deduction of tax was based on such understanding of relevant provisions of the Act in which event penalty is not imposable u/s 271C of the Act. We therefore set aside the order passed by AO as well as Ld CIT (A) on this aspect and hold that penalty u/s 271C is not imposable. - Decided in favour of assessee
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