2021 (12) TMI 1369 - AT - Income Tax

TDS u/s 194H - Demand u/s 201(1) and 201(1A) - TDS recovery mechanism regarding the alleged commission paid to pre-paid mobile distributors in its telecom services - as vehemently contended that there exists no principal to agent relation between the assessee and its distributors giving rise to commission element qua the pre-paid recharge coupons - HELD THAT - We find no merit in the assessee s instant former substantive grievance since the CIT(A) has duly taken note of hon ble jurisdictional high court decision in M/s. Vodafone Essar South Ltd. 2013 (10) TMI 934 - ANDHRA PRADESH HIGH COURT - Their lordships have upheld the departmental stand pertaining to applicability of section 194H involving identical prepaid recharge coupons issued to the distributors. It further appears that the said assessee was the assessee s group concern only. We thus adopt their lordships foregoing detailed reasoning mutatis mutandis and reject the instant former substantive grievance. As the legislature has itself incorporated section 201(1) first proviso in the Act vide Finance Act 2012 w.e.f. 1.7.2012 that an assessee shall not be treated to be the assessee in default for having not deducted TDS provided it furnishes the accountant s certificate qua its payee to have furnished the latter return of income u/s. 139; taking into account such sum for computation followed by payment of due taxes thereupon; respectively. Case law CIT Vs. Ansal Landmark Township 2015 (9) TMI 79 - DELHI HIGH COURT holds the foregoing proviso r.w.s. 40(a)(ia) second proviso (inserted in the Act vide Finance Act 2012 w.e.f. 1.4.2013) to be carrying retrospective effect being curative in nature. We thus restore the instant issue for the Assessing Officer s factual verification in the very terms. This identical first and foremost substantive grievance is partly accepted for statistical purposes. Applicability of royalty for the purpose of TDS deduction on domestic auto-roaming charges paid to other telecom operators - applicability of the impugned royalty provision 9(1)(vi) - HELD THAT - We find no merit in the Revenue s instant stand. It is made clear that section 194J (1)(c) of the Act stipulating TDS deduction on royalty makes it clear in Explanation (ba) that royalty shall have the same meaning as in Explanation 2 clause (i) to (vi) of sub-section (1) of section 9 of the Act. There is no indication in the Assessing Officer s TDS recovery order or in the CIT(A) s findings as to whether the assessee s impugned payments made to the spectrum holder(s); as the case may be satisfies any of the foregoing clauses defining royalty or not. All the assessees have availed is a standard facility without any customisation. The Revenue s case is that the assessee fails to dispute the Govt. of India s action collecting royalty qua spectrum (supra). We observe that the said stipulation between assessee s payee(s) and Govt. to this effect does not in any way mean that it itself has made any royalty payment to very payee(s) for utilizing/uplinking the spectrum in question. The Revenue s last argument invoking TDS mechanism going by the assessee suo moto deduction in Assessment Years 2015-16 and 2016-17 (supra) does not ipso facto attract the impugned statutory provisions. We lastly conclude that the specific definition prescribed by the legislature in the Act regarding payment of royalty would override the agreements and corresponding terminology employed between the Govt. of India Telecom Department with the corresponding spectrum allottees going by stricter interpretation as per hon ble apex court s decision in Commissioner of Customs Vs. Dilip Kumar Co. 2018 (7) TMI 1826 - SUPREME COURT We accordingly proceed to decide the assessee s instant identical latter substantive ground in both these appeals against the department.

Summary

Issues:
1. Applicability of TDS recovery mechanism under sections 201(1) and 201(1A) of the Income Tax Act, 1961 for alleged commission paid to pre-paid mobile distributors.
2. Interpretation of the first proviso of section 201(1) of the Act regarding TDS deduction and its retrospective effect.
3. Determination of "royalty" for TDS deduction on domestic auto-roaming charges paid to other telecom operators.

Analysis:
1. The judgment pertains to two assessee's appeals against the Commissioner of Income Tax (Appeals)-8, Hyderabad's order involving TDS recovery mechanisms under sections 201(1) and 201(1A) of the Income Tax Act, 1961. The primary issue was the alleged commission paid to pre-paid mobile distributors by the assessee. The Tribunal rejected the assessee's contention that there was no principal-agent relationship, citing a high court decision and upheld the department's stand on the applicability of TDS under section 194H. The Tribunal adopted the reasoning of the high court and dismissed the assessee's grievance on this issue.

2. The second issue revolved around the interpretation of the first proviso of section 201(1) of the Act and its retrospective effect. The Tribunal referred to a case law holding that the proviso, along with section 40(a)(ia) second proviso, has a retrospective effect. Consequently, the Tribunal restored the issue for factual verification by the Assessing Officer, partially accepting the assessee's grievance for statistical purposes.

3. The final issue concerned the determination of "royalty" for TDS deduction on domestic auto-roaming charges paid to other telecom operators. The Tribunal analyzed the definition of "royalty" under section 9(1)(vi) of the Act and found that the payments made by the assessee did not satisfy the clauses defining royalty. The Tribunal emphasized that the specific legislative definition of royalty would override any agreements or terminology used between the parties. Relying on a co-ordinate bench order and a Supreme Court decision, the Tribunal ruled in favor of the assessee on this issue, concluding that the payments did not attract TDS deductions as claimed by the Revenue.

Overall, the Tribunal partly allowed the assessee's appeals on the issues discussed, providing detailed analysis and legal interpretations for each aspect of the judgment.