2010 (2) TMI 24 - HC - Income Tax

TDS under section 194H – commission - assessee-company is engaged in the business of providing cellular telephone network through a card called Subscriber Identification Module (SIM). Prepaid or post paid connections are provided to the subscribers through distributors called “Prepaid Market Associates (PMAs)” appointed by the assessee - On the basis of facts and the types of control exercised by ICL on its prepaid distributors, the Assessing Officer came to the conclusion that transaction with ICL and prepaid distributors were that of Principal and Agent at all times and prepaid distributors were selling a prepaid SIM Card/recharge coupon on behalf of the ICL. Consequently, amount of discount offered to prepaid distributor was in nature of commission and liable to tax deduction at source under Section 194H of the Income-tax Act. He accordingly treated the assessee as defaulter Under Section 201(1) and charged interest under Section 201(1 A) on amount of commission so paid by the assessee. – held that - Service cannot be sold or purchased and it can only be provided. The operational features explained by the assessee-company are necessary in running a mammoth system of providing mobile telephone services over a large geographical area. The distributors provide essential services to the assessee-company in running such a huge operational system. The distributors are linking agents in the chain of delivery of services to consumers. Therefore, the relationship is not of a principal to principal – Assessee is liable to deduct TDS – Decision in favor of revenue – against the assessee