TMI Blog2008 (3) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... duciary position in relation to the principal. Whether the PMAs were acting as agents of the assessee or were outright purchasers of goods supplied by the assessee - In the case before the goods are sold to the PMA who in turn transfers goods to retailer to be sold to the end users. The retailers are appointed by the PMA though with the approval of the assessee but they are working under the instructions of PMAs. Termination of the retailers is coterminus with the termination of the agreement with PMA. In our considered view the legal relationship between the assessee and PMA is that of seller and purchaser. We do not find any condition in the agreement from which it can be inferred that PMA stands in a fiduciary position in relation to the assessee. It is admitted by the Revenue that the agreement in substance is the agreements entered into between the assessee and the PMA is in the nature of contract to sale and not contract of the agency. Therefore, the discount allowed by the assessee to PMA will not fall in the definition of commission or brokerage. The legal issue arising out of additional ground raised relates to the issue whether tax can be collected from the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Appellant : A.K. Singh For the Respondent : Yogesh Jha and Vikas Dhamia ORDER K.D. RANJAN, ACCOUNTANT MEMBER 1. These appeals by the assessee for assessment years 2003-04 2004-05 and cross-appeal by the Revenue for assessment year 2003-04 arise out of separate orders of Commissioner of Income Tax (Appeals)-XXX, New Delhi. These appeals were heard together and for sake of convenience are disposed off by this consolidated order. 2. The first common issue for consideration in assessee's appeals relates to deduction of tax at source under Section 194H of the Act. The assessee company is engaged in the business of providing cellular mobile, telephone services to subscribers. The subscribers used the 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. The assessee offers discount for prepaid calling services to its distributors. A survey was conducted under Section 133A of Income-tax Act, 1961 at the premises of Idea Cellular Ltd., New Delhi. The assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the distributor was that of principal and agent, amount of discount offered to prepaid distributor was in nature of commission and liable to tax deducted 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(1A) on amount of commission so paid by the assessee. 4. Before Ld. CIT(A) it was submitted that the assessee was engaged in the business of providing the cellular services. The provision of service was essentially based on infrastructure available with the assessee. Therefore, the distributor of the service had to essentially revert back to the assessee who had a required permission and set up to activate the service. PMAs appointed retailers without approval of ICL and hence the assessee did not have any control on appointment of retailers by distributors. Therefore, it could not be said that there existed principal- agent relationship between the assessee and the distributors. In so far as the maximum price chargeable on SIM Card was concerned, it was nothing but equivalent to the maximum retail price chargeable on goods. This criterion could least be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of commission by an agent is constructive payment and hence even if there is no credit in the accounts of the assessee at the time of such constructive payment TDS obligation would arise. He accordingly held that the Assessing Officer was justified in holding that the assessee was in default under Section 20(1) in so far as the provisions of Section 194H were concerned. 7. Before us, Ld. AR of the assessee referring to the agreement made between the assessee and M/s Goel Sons, the PMA has submitted that as per Clause 3 of the agreement there is no relationship of principal and agent between the assessee and the PMA. The said clause specifies that the relationship created is that of independent contracting parties. As per Clause 2 of the agreement the PMA and the assessee are two different entities. Clause 10 of the agreement gives complete freedom to sale the goods at prices lower than that stipulated. Therefore, PMA can sell the goods at his own rates subject to the condition that the value to the end users does not exceeds the price higher than the maximum retail price indicated on the pack. Further as per Clause 18 of the agreement the rates and values of prepaid SI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the principal on his own responsibility. Since the PMAs have paid the price as per the bills issued suggests that the relationship between the assessee and PMA is that of principal and principal and not of principal and agent. 10. On the other hand, ld. DR submitted that their existed a relationship of principal and agent between the assessee and PMA. As per Clause 5(a) of the agreement M/s Goel Sons, the PMA has deposited with assessee a sum of Rs. 2 lacs on account of security deposit. In case of relationship of purchasers and sellers no such deposit is required. The appointment by the assessee of PMA or agent for marketing distribution and offering sale of Idea products is in form and not is substance. As per Clause 6(b) the assessee has full legal and equitable title and interest in all and any of the prepaid SIM cards/recharge coupons delivered to PMA shall remain in ICL and shall not pass to PMA. This suggests that prepaid SIM cards/coupons were not sold to PMA. The assessee exercises right for passing over of title to PMAs. Clause 8 of the agreement defines the functions of PMA. It gives details of code of conduct imposed on the agent. Further Clause 11(c) imposes fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss risks of PMAs which are part of any commercial agreement. Ld. AR of the assessee concluded his argument that the relationship between the assessee and PMA is not of principal and agent. The agreements entered into with various distributors are commercial agreements. Therefore, provisions of Section 194H are not applicable when no amount of commission has been paid by the assessee. 12. We have heard both the parties. Under Section 194H any person not being an individual or a Hindu undivided family who is responsible for paying, on or after the first day of June 2001 to a resident, any income by way of commission or brokerage shall at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by issue of a cheque or draft or by any other mode, which ever is earlier, deduct income tax thereon at the specified rate. The term commission or brokerage has been defined in the explanation and includes any payment received or receivable directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions under Section 194H. 13. From above decision it is clear that discount allowed on transactions resulting in outright purchases cannot be treated as brokerages or commission. There should be in existence the relationship of principal and agent in order to bring the discount in the ambit of commission or brokerage. Section 182 of Indian Contract Act 1872 defines the term agent and principal. An agent is a person employed to do any act for another or to represent another in dealing with third person. The person for whom such act is done or who is so represented is called the principal. An agent in whom the principal places trust and confidence stands in a fiduciary position in relation to the principal. 14. In order to ascertain whether the PMAs were acting as agents of the assessee or were outright purchasers of goods supplied by the assessee, it is necessary to discuss the distinction between the contract of sale or contract of agency. The essence of contract to sale is the transfer of title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of goods as a debtor for the price to be paid and not an agent for the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditions are generally found in commercial agreements. Clause 9 provides for appointment of retailer by PMA. Further Clause 10 deals with the price at which PMA shall acquire the prepaid SIM cards/recharge vouchers. The retailers can sell the recharge vouchers to end user at any price not exceeding the maximum retail price. The assessee will receive the fixed amount including service charges. In case of a agent the price collected by him is remitted to the principal after deduction of his commission and expenses relating to sale of the goods. The assessee is not making any reimbursement of the expenditure incurred by the PMA and his retailers. This also suggests that the agreement between the assessee and PMA is that of seller and purchaser. Agreement also provides certain conditions relating to protection of intellectual property rights of the assessee. The other conditions stipulated in the agreement including termination clause do not throw any light so as to suggest that the agreement between the assessee and PMA is that of principal and agent. In the case of Gordon Goodroffe Co. Madras Ltd. v. Shaik MA Mazid and Co. held that even an agent can become a purchaser when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91) 94 CTR (Cal) 46 : (1992) 193 ITR 457 (Cal); CIT vs. Kannan Devan Hill Produce Co. Ltd. (1987) 63 CTR (Ker) 28 : (1986) 161 ITR 477 (Ker); CIT vs. M.P. Agro Morarji Fertilizers Ltd. (1988) 73 CTR (MP) 180 : (1989) 176 ITR 282 (MP); CIT vs. Mahendra Mahendra Ltd.-SLP dismissed (2000) 242 ITR (St) 187. Learned Authorised Representative of the assessee also submitted that issue relating to charging of tax being purely legal issue can be raised at any time. Reliance was placed on decision of Hon'ble Supreme Court in the National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). On the other hand, ld. DR opposed the admission of additional ground for the reason that it is a mere presumption that PMAs have paid the taxes unless the facts are verified it cannot be assumed that taxes have been paid by the distributors. No evidence has been filed by the assessee to prove that taxes have been paid by the distributors on the amount of discount paid by the assessee to them. Replying to the query to the argument, Ld. AR of the assessee agreed that issue requires verification; however, it will be gross injustice if taxes are collected twice on the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 22. The facts of the case stated in brief are that the assessee paid interconnect/port charges to MTNL, Bharti Telephone, BSNL, VSNL, Data Access Spectranet etc. These expenses were debited under the head PSTN charges and Leased Line charges . The Assessing Officer after going through the definition of terms interconnection, access charges port charges and PSTN came to the conclusion that payments made by the assessee whether by way of the fixed fee for use of ports of MTNL or proportionate payment determined by time usage of MTNL network and factoring in the pulse rate were, in pith and substance a techno- managerial support services rendered to the assessee by MTNL. Therefore, the payments made were in nature of technical services and accordingly provisions of Section 194J were applicable. Since the assessee had not deducted tax at source the shortfall was calculated at Rs. 31,13,890/- and interest under Section 201(1A) was also charged. 23. The matter was carried in appeal before Ld. CIT(A). It was argued that an agreement was entered into by the assessee and MTNL, according to which following was agreed: Each party i.e. DOT as well as the licensee does hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The provider has to provide directly through human interface the cerebral activity either a technical (technical, managerial, technical or consultancy) or professional service. He placed reliance on the decision of Hon'ble Madras High Court in the case of Sky Cell Communications Ltd. He accordingly came to the conclusion that interconnectivity services were not in nature of technical services. Accordingly provisions of Section 194J were not applicable. 25. Before us, ld. DR submitted that interconnect charges are in respect of use of network of others. Ld. CIT(A) has deleted the addition without appreciating the technical aspects relied upon by the Assessing Officer. The assessee had entered into agreement with MTNL. As discussed by Assessing Officer the agreement entered into between the assessee and MTNL is in nature of fee for technical services and, therefore, provisions of Section 194J are applicable. On the other hand, ld. AR relied on the order of ITAT Chandigarh Bench in the case of HFCL Motel Ltd. v. Income Tax Officer 99 TTJ 440 and decision of ITAT Delhi Bench 'I' in the case of M/s Escotel Mobile Communications Ltd. in ITA No. 2154, 2155 2156/Del/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies subscribing to the cellular network are required to make TDS under Section 194J or not and whether the service provided by the cellular mobile telephone companies to its subscriber was technical services or not, and the Hon'ble Madras High Court held that it cannot be treated as fee for technical services. In the case before us, the assessee is providing service to its subscribers and certain calls are routed by making use of the network of BSNL and for that purpose, the call charges received by the assessee from its subscribers are shared with BSNL. In our view, the said service cannot be treated as technical service and the provisions of Section 194J are not applicable. The orders of the lower authorities are vacated. Since, we have held that the provisions of Section 194J are not applicable, we do not see any reason to deal with the alternative plea of the assessee. 27. In the case of M/s Escotel Mobile Communications Ltd., ITAT Delhi Bench 'I' New Delhi followed the decision of Hon'ble Madras High Court in the case of Sky Cell Communications Ltd. (Supra) and also the decision of ITAT Chandigarh in the case of HFCL Infotel (Supra). Since the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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