2018 (11) TMI 49 - AT - Income Tax

TDS u/s 194H - discount allowed to the prepaid card distributors in respect of supply of SIM card/Recharge vouchers (SIM/RV) - treatment of the assessee as assessee in default - Held that - In assessee s own case having considered the contentions on either side and the orders of the learned AO first and second appellate authorities the Hon ble jurisdictional High Court reached a conclusion that to the transaction between the assessee and the distributors in respect of sale of the SIM/RV cards provisions of Section 194H are applicable. The authorities below rightly concluded that the provisions of Section 194H are applicable to the facts of the case and there should have been tax deducted at source in respect of the said transaction. The assessee said that the assessee cannot be branded as the assessee in default u/s 201(1) read with Section 194H in the absence of any evidence that the prepaid distributors have not offered for tax the discount availed by them from the appellant we are of the considered opinion that it is a verifiable fact and learned AO has to verify whether the prepaid distributors have offered or not for tax the discount availed by them from the assessee. AO for verification of the fact whether or not the prepaid distributors offered for tax the discount availed by them from the assessee. Non deduction of the TDS u/s 194J on the payments of roaming charges - Held that - The payments in question shall not be recorded as payment towards fee for technical services and only such payments as are for services which are specialized exclusive and utmost to users/consumers qualified as fee for technical services in terms of Explanation 2 to Section 9(1)(vii) so as to attract TDS u/s 194J. On this premise in assessee s own case a coordinate bench of this Tribunal held that in the absence of any human intervention during the actual roaming process payment would not be fee for technical services and cannot be regarded as payments to Section 194J are applicable. While respectfully following assessee s own case for the immediately preceding year we are of the considered opinion that this demand cannot be sustained and has to be deleted. Interest levied u/s 201(1A) to the tune it is needless to say that interest is consequential in nature and on the amount to be found chargeable on the verification of the fact as directed in the preceding paragraphs.

Summary

Issues involved:
1. Non-deduction of TDS u/s 194H on discounts allowed to prepaid card distributors.
2. Applicability of Section 194H to transactions between the assessee and distributors.
3. Non-deduction of TDS u/s 194J on roaming charges.
4. Human intervention requirement for transportation of calls between networks.
5. Interest levied u/s 201(1A) of the Act.

Issue 1: Non-deduction of TDS u/s 194H on discounts to distributors
The case involved the assessee challenging the imposition of liability under Sections 194H and 194J of the Income-tax Act. The Hon'ble jurisdictional High Court concluded that Section 194H was applicable to transactions between the assessee and distributors, where discounts were allowed. The court held that there should have been tax deducted at source in such transactions. The matter was remanded to the AO to verify if the prepaid distributors offered the discount for tax, as contended by the assessee.

Issue 2: Applicability of Section 194H to transactions
The contention revolved around whether the relationship between the assessee and distributors constituted a principal-agent relationship, affecting the applicability of Section 194H. The High Court's decision favored the application of Section 194H, as per the transactions between the parties. The Tribunal upheld the lower authorities' conclusion that tax should have been deducted at source in these transactions.

Issue 3: Non-deduction of TDS u/s 194J on roaming charges
Regarding the non-deduction of TDS under Section 194J on roaming charges, the Tribunal examined the requirement of human intervention for the transportation of calls between networks. The Tribunal found that human intervention was not necessary during the process of call transportation, except for network installation and maintenance. Based on previous decisions and technical verifications, it was held that the payments for roaming charges did not qualify as Fee for Technical Services under Section 194J.

Issue 4: Human intervention requirement for call transportation
The Tribunal analyzed the necessity of human intervention for the transportation of calls between networks. It was established that human intervention was primarily required for network installation, maintenance, and monitoring, rather than for the actual transportation of calls. Previous decisions and technical verifications supported the conclusion that human intervention for specific services did not categorize the payments as Fee for Technical Services under Section 194J.

Issue 5: Interest levied u/s 201(1A) of the Act
The interest levied under Section 201(1A) was considered consequential and subject to verification of the chargeable amount. The Tribunal allowed the appeal in part for statistical purposes, indicating that the demand for TDS on roaming charges was not sustainable and should be deleted upon review.

This comprehensive analysis of the judgment highlights the key legal issues addressed by the Appellate Tribunal ITAT DELHI in the case, providing a detailed understanding of the decision-making process and legal interpretations involved.