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2009 (4) TMI 209 - AT - Income TaxDeduction Of Tax At Source u/s 194H - business of providing cellular mobile telephone services - services of post-paid and pre-paid mobile connection - principal-to-principal relationship - Whether pre-paid mobile connection services liable to deduct tax at source u/s 194H? - Non Deduction of any tax in respect of monetary transactions arising out of providing prepaid cellular services to the consumers - Assessee concluded before the TDS authority that the relationship between the assessee and the distributors is 'principal to principal' basis and, therefore, the assessee is not required to deduct tax at source u/s 194H and the assessee cannot be considered as an assessee in default u/s 201(1) - TDS Officer did not agree with the assessee-company - he held that the assessee-company is liable to deduct tax at source u/s 194H while giving margin to the bulk distributors on pre-paid mobile service products and passed orders u/s 201(1) and u/s 201(1A) and demanded the amount of tax involved and interest thereon. HELD THAT:- The assessee-company has made a lot of reliance on the contention regarding the freedom of pricing. It is the case of the assessee-company that the distributors are free to fix the selling price but the price should not exceed the MRP. The revenue says that there is no such freedom in fixing the sale price. As far as the present case is concerned, earlier it was BPL and thereafter BPL Hutch and now it is M/s. Vodafone Essar Cellular Ltd. In the earlier 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. 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 as far as these matters are concerned. Both circumstances either in the case of agency or in the case of principal-to-principal relationship, if the distributor is deciding for his own best reasons to sell the goods even below the cost price, he can do so, so long as he is willing to bear the loss. Every businessman has a right to sell the goods for a loss even if the loss erodes his capital. Therefore, these are all not matters exactly to decide the crucial issue, i e., whether the assessee is bound by the provisions of law contained in Section 194H. One of the most important decisions relied on by the assessee-company in support of its arguments is the decision in idea Cellular Ltd's case [2008 (3) TMI 355 - ITAT DELHI-A]. The case considered by the Hon'ble Bench is exactly similar to the case now placed before us. After examining the issues in a very exhaustive manner, the Hon'ble Bench has come to a conclusion that the agreement between the assessee and the distributors in that case is creating a legal relationship of seller and buyer and not that of principal to agent and in such circumstances, the provisions of Section 194H are not attracted and no tax need to be deducted at source by the assessee. The Hon'ble Bench has held that the delivery of SIM Cards and every pre-paid facilities provided by the telephone company to its distributors are nothing else but sale of such products and the telephone company and its distributors are acting on the platform of principal-to-principal relationship.
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