TMI Blog2011 (5) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... per Sim card. Thus this receipt of discount at the rate of 7 is in real sense commission paid to the franchisees. Hence all the trappings of liability as agent, of the franchisee towards assessee subsists, there has been indirect payment by the assessee to the franchisee of the commission and the same is attractable under section 194H - Decided against the assessee - IT APPEAL NO. 222 OF 2006 - - - Dated:- 19-5-2011 - KALYAN JYOTI SENGUPTA AND KANCHAN CHAKRABORTY, JJ. JUDGMENT K.J. Sengupta, J. The above appeal was decided to be heard by an order dated 17-8-2006 passed by the Division Bench of this Court against the judgment and order dated 4-4-2006 passed by the Income-tax Appellate Tribunal, "B" Bench in two appeals being ITA 1678 and 1679 of 2005 relating to assessment years 2003-04 and 2004-05. At the time of admission though no substantial questions of law was formulated at the hearing of the appeal this Court formulated the following substantial question of law : "Whether on the facts and in the circumstances of the case and on a true and proper construction of the agreement between the assessee and the franchisee, the learned Tribunal was justified in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale from the assessee. 4. The Assessing Officer thereafter found that the assessee-company had paid commission of Rs. 3,08,00,435 in between 2nd August to 31-3-2003 on sale of starter packs and rechargeable coupons to 16 franchisees and such commission in the financial year 2003-04 was Rs. 5,66,76,134. The Assessing Officer has, therefore, treated the assessee a defaulter for not deducting TDS and has accordingly computed the quantum of such undeducted Tax under section 201(1) and interest chargeable thereon under section 201(1A) at Rs. 20,09,151 in the financial year 2002-03 and 32,60,471 in the financial year 2003-04. 5. The assessee being aggrieved by the said order of the Assessing Officer preferred appeal before the Commissioner of Income-tax (Appeals) who allowed the appeal and held that there was no principal and agent relationship between the assessee and its distributors, and their business activities and entities are independent. The Revenue being aggrieved by the said decision preferred appeal before the learned Tribunal and the learned Tribunal reversed the judgment and decision of the Commissioner of Income-tax (Appeals) and restored the decision of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Revenue while supporting the findings of the learned Tribunal and the Assessing Officer contends that if all the terms and conditions of the agreement between the assessee and franchisees are read carefully it would appear that the relationship between the appellant and the franchisees are not principal to principal and the same is principal and agent. The learned Tribunal on interpretation of the relevant clauses have found the relationship between the assessee and the franchisee is that of a principal and agent and such interpretation are neither absurd nor illogical hence this Court will not re-interpret the same. Therefore, the difference of the listed price of the Sim cards and pre-paid coupons, and the price under the agreement required to be paid by the franchisee, is indirect payment of commission in case of a pre-paid Sim card recharge coupons. 11. He contends that this issue has already been decided by the Delhi High Court in case of CIT v. Idea Cellular Ltd. [2010] 325 ITR 128/189 Taxman 118 and also by the Kerala High Court in case of Vodafone Essar Cellular Ltd. v. Asstt. CIT [2010] 194 Taxman 518. 12. Under these circumstances this Court will not int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch measure cannot be ascribed to be attributes of the relationship of principal and agent. 18. In this case, while agreeing with the contention of the learned counsel for the Revenue, reading one of the standard agreements produced before this Court it does not appear that the same intends to create relationship in the nature of principal to principal. Dr. Pal, of course has emphasized placing clauses 16.1, 16.2, 16.3 that the dealings of transaction embodied in the agreement is in the nature of principal to principal. 19. We are of the view that the above clauses viz. 16, and others cannot be read in isolation of other clauses of the said agreement. True intention of the parties has to be gathered on careful reading of the entire agreement. In the process we see the recital of the said agreement which exposit basic purpose and it reads as follows : "Whereas on the aforesaid representation made by franchisee to BML, the Parties hereby enter into agreement whereby the franchisee is to provide the agreed services on the terms and conditions appearing hereinafter." [Emphasis supplied] 20. Clause 4 of the said agreement provides obligation of the franchisee. "4.1 The franchi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom time to time. The rates are subject to variation during the term of this Agreement at the sole discretion of BML, and shall be intimated to the Distributor from time to time." [Emphasis supplied] 21. On reading of the aforesaid relevant and salient clauses of the said agreement following features are to be found : (i) Property in the start up pack, pre-paid coupons after even after transfer and delivery to franchisee remains with the appellant assessee, (ii) the franchisee really act as a facilitator and/or instrumentality of providing services by the assessee to the ultimate subscriber, (iii) the franchisee has no free choice to sell it and everything is being regulated and guided by the assessee, (iv) the rate at which the franchisee will sell to retailers and that at which is realized by the assessee to the franchisee, is also regulated and fixed by the appellant-assessee. 22. As we read above conditions with the clauses 16, 16.1, 16.2 and 16.3 of agreement to our comprehension it emerges though nomenclature has been used franchisee the agreement is essentially that of the principal and agent albeit the stipulation in clause 16.2. In real sense the franc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section shall apply accordingly." [Emphasis supplied] 24. In Explanation (1) of the said section provides inclusive definition of commission or brokerage and the same may be received or receivable indirectly also by person acting on behalf of another person or service rendered. 25. In usual business transaction commission is paid by the principal to agent after services is rendered. But by aforesaid Explanation, commission which is receivable in future is within its sweep. 26. It appears from the records in this case that the transaction in case of pre-paid Sim cards, and rechargeable Coupons, sufficient stocks are to be kept by franchisee, and then the same are to be sold to the retailers at a rate stipulated by the assessee, say at Rs. 324 and the retailer is allowed to sell it to the ultimate customer at the maximum price again fixed by the assessee, say at Rs. 330. The assessee is to realize lesser rate say at Rs. 317 per Sim card from franchisee. Thus discount of Rs. 7 is given. Therefore after selling all the Sim cards and Pre-paid Coupons to the retailers the franchisee is to make payment of sale proceeds to the assessee after deducting a discount of Rs. 7 per Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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