TMI Blog2010 (8) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... ice rendered by them and the same amounts to "commission" within the meaning of that term contained under Explanation (i) to section 194H of the Act - Decided against the assessee - ITA Nos. 1742, 1759, 1761to1764, 1773 & 1780/2009 - - - Dated:- 17-8-2010 - RAMACHANDRAN NAIR C. N., GOPINATHAN P. S. JJ S.E. Dastur, Niraj Sheth and A. Kumar for the Appellant. P.K.R. Menon and Jose Joseph for the Repondent. JUDGMENT The judgment of the court was delivered by C. N. Ramachandran Nair J.- The questions raised in the eight connected appeals filed by the very same assessee pertaining to the assessment years 2004-05 to 2007-08 are the same and, therefore, the appeals were heard together and we proceed to dispose of the same by this common judgment. The assessee is a mobile cellular operator which succeeded to the business of Hutchison Essar Cellular Ltd. which had taken over the business of BPL Mobile Cellular Ltd. which was one of the companies which started mobile cellular operations in Kerala. The assessee carries on the business of rendering mobile telephone services to the customers through appointment of distributors in the State. The assessee has two types of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax at source and remittance of the same on the commission paid under the prepaid scheme to the distributors, the Assessing Officer treated the assessee as an assessee in default and demanded tax in terms of section 201(1) of the Act. For the further consequence that is, delay on the assessee's failure to deduct and remit tax in time, the Assessing Officer levied interest through separate orders under section 201(1A) of the Act. Accordingly two sets of separate orders are issued both under section 201(1) and 201(1A) of the Act against the assessee for the assessment years 2004-05 to 2007-08 which led to these appeals. All the lower authorities including the Tribunal consistently found against the assessee both on facts and on questions of law and accordingly these appeals are filed before us wherein the substantial and the only question arising for consideration is whether the so-called "discount" given by the assessee to the distributors for the various services rendered by them under the prepaid scheme of getting connections and serving the subscribers of mobile phones amounts to "commission" within the meaning of section 194H of the Act. If the answer to this question is in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (MRP). In other words, if distributors so choose, they are permitted to pass on part of the discount or commission received by them to retailers or customers. But for this, the terms of the distribution agreement as seen from the records remain unaltered even after the assessee succeeded to the business of the previous company. Before the Income-tax Appellate Tribunal as well as before the Assessing Officer, the assessee canvassed the position that the under prepaid scheme the assessee is selling the products namely, SIM cards and recharge coupons etc., at a discounted price to the distributors and besides the discount given at the time of sale against advance payment, assessee is neither paying any commission or charges, nor crediting any amount in the account of the distributors. Before the Tribunal, the assessee heavily relied on the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of Idea Cellular Ltd. [2009] 313 ITR (AT) 55 which was in favour of the assessee and the Department relied on the decision of the Kolkata Bench of the Income-tax Appellate Tribunal in the case of Bharti Cellular Ltd. [2007] 294 ITR (AT) 283 However, the decision of the Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be better to extract the finding of fact by the Tribunal with regard to the accounting entries instead of stating it in our own words. Accordingly we extract hereunder the findings of the Tribunal on the accounting entries which are the following (Vodafone Essar Cellular Ltd. v. Asst. CIT [2009] 317 ITR (AT) 234 (Cochin)) : "The assessee-company is crediting the sales account by the gross amount and not by net proceeds. For example, the MRP of a pre-paid card is Rs. 100 margin availed of by the distributor is Rs. 20. The net proceeds available to the assessee is Rs. 80. Let us see how the assessee is accounting for the above. When the SIM card is given to the distributor, the assessee-company is crediting the sales account for an amount of Rs. 100. The assessee is debiting the cash account with Rs.80 being the cash paid by the distributor. The assessee-company is debiting the commission account for Rs. 20. This is the margin enjoyed by the distributor. As far as the assessee-company is concerned, it has given a commission of Rs. 20. On delivery of a pre-paid card of Rs. 100, the assessee is adjusting the payment of commission through accounts and invoice. In the first inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n without deduction or with deduction at lower rates. Therefore, we are unable to accept the contention of the senior counsel that the possibility of distributors selling the products at below the MRP leading to higher recovery of tax will stand in the way of the assessee recovering tax at source or collecting tax from the distributors on the discount passed on to them at the time of sale of the products, if the transaction is subject to deduction at source under section 194H of the Act. Further, it is common knowledge that recovery of tax at source is not the actual tax payable by the recipient who is free to claim refund of TDS amount with interest, if excess tax is recovered under the TDS scheme. 5. The main question to be considered is whether section 194H is applicable for the "discount" given by the assessee to the distributors in the course of selling SIM cards and recharge coupons under the prepaid scheme against advance payment received from the distributors. We have to necessarily examine this contention with reference to the statutory provisions namely, section 194H which is extracted hereunder for easy reference : "194H. Any person, not being an individual or a Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BPL Cellular Ltd. in Kerala. So much so, there is no sale of any goods involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of SIM cards or recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee. The terms of the distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification and documentation which responsibility is entrusted by the assessee on the distributors under the agreement. It is pertinent to note that besides the discount given at the time of supply of SIM cards and recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. Even though the assessee has contended that the relationship between the assessee and the distributors is principal to principal basis, we are unable to accept this contention because the role of the distributors as explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission within the meaning of Explanation (i) on which tax is deductible under section 194H of the Act. The contention of the assessee that discount is not paid by the assessee to the distributor but is reduced from the price and so much so, deduction under section 194H is not possible also does not apply because it was the duty of the assessee to deduct tax at source at the time of passing on the discount benefit to the distributors and the assessee could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of section 194H of the Act. This proposition is supported by the decision of the Supreme Court cited by the standing counsel for the respondent in J. B. Boda and Co. P. Ltd. v. CBDT reported in [1997] 223 ITR 271 wherein the Supreme Court has held as follows (page 281) "a two-way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case." Standing counsel for the Department referred to our decision in CIT v. Director, Prasar Bharti r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to sale of stamp paper by licensed stamp vendors wherein also the finding of this court following the decision of the Gujarat High Court in Ahmedabad Stamp Vendors Association's case [2002] 257 ITR 202, is that the transaction is sale of goods and so much so, no deduction of tax is called for under section 194G of the Act. So far as the lottery ticket is concerned, the transaction is different and the Supreme Court has held that the transaction is sale of goods and so much so, the decision rendered by this court has no application in regard to commission paid by the assessee to the distributors in the form of discount which we have found to be in essence and substance for rendering services. The next judgment relied on by the petitioner which is in Kerala Stamp Vendors Association's case [2006] 282 ITR 7 (Ker) rendered by one of us (C. N. Ramachandran Nair J.), relates to sale of stamp paper by the licensed vendors. Here again, this court by relying on the decision of the Gujarat High Court in Ahmedabad Stamp Vendors' case [2002] 257 ITR 202 held that the transaction is a sale. On a reconsideration of this judgment, we feel this court's judgment may require reconsideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ism, there would have been massive evasion of tax by the recipients of various kinds of income. The trend in legislation is to increase coverage for recovery of tax at source and on a steady basis various services are brought under the TDS scheme so that tax evasion is avoided. We have already taken note of the provision under section 197 of the Act which mitigates against hardship if any in recovery of tax inasmuch as a payee is entitled to approach the Department and apply for certificate to receive any amount which would be otherwise subject to deduction of tax at source without recovery of any tax or on recovery at lesser rates. We are of the view that the grievance if any against recovery of tax by the assessee is on the distributors, and they are already on the roles of the Department because the assessee is making deduction of tax at source for payment of commission made under the post paid scheme. As already pointed out, if distributors have any grievance against the assessee recovering tax for the commission paid in the form of discount in respect of prepaid services, any such distributor is free to approach the Department for getting his grievance redressed by filing an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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