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TMI Blog2012 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... t the provisions of sec. 194H are applicable for the amounts paid to the distributors on sale of "Prepaid cards". (b) Whether the Ld CIT(A) is justified in holding that the provisions of sec. 194J is applicable on the amounts paid to other telephony operators towards roaming charges. (c) Whether the Ld CIT(A) is justified in confirming the alternative contention raised in the remand proceeding that the provisions of sec. 194I shall apply alternatively to the payment of roaming charges. At the time of hearing, the Ld A.R raised an alternative plea that the assessee shall not be required to deduct tax at source once again, once the tax on the said income has been paid by the deductees. For this proposition, the assessee has placed reliance on the decision of Hon'ble Supreme Court in the case of "Hindustan Coco-cola Beverages Pvt Ltd (293 ITR 226, Page 268-270). He submitted that the said alternative plea was also raised before Ld CIT(A), but the first appellate authority did not offer any comments thereon. 3. The facts relating to the first issue, i.e. regarding the applicability of sec. 194H on the amounts paid to the distributors on sale of "Prepaid cards" are stated in brief. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of such income to the account of payee in cash or by the issue of cheque or draft or by any other mode whichever is earlier deduct income tax there on at the rate of 10 percent. Explanation (1) of this clause defines commission or brokerage as under: 'Commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered.... This makes it clear that even if the amount is not paid in cash or cheque but if it credited to other persons account the tax is required to be deducted. The definition of commission also states that even if the amount is received indirectly by a person acting on behalf of another person for services rendered it amounts to commission/brokerage which attracts TDS u/s 194H of the Act. All the three conditions laid down in Sec. 194H as discussed above are applicable to the payment made by the assessee. 1. The amount is indirectly received by the distributor. 2. The amount is received by the distributor for services rendered. 3. The assessee has debited the expenses by crediting distributors account." 6. According to the AO, the assessee is selling the Prepaid c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee are also not applicable to the facts of instant case. Instead, the AO, at page 11 of the order relating to the F.Y 2007-08 (A.Y 2008-09), has observed as under:- "Further in assessees own case reported in 294 ITR 283 (Kolkatta) it has been decided that the relation between assessee and distributor are that of Principal and Agent and not Principal to Principal. The price difference carries nomenclature of the Commission and not as discount claimed by the assessee. Apart from the ownership of such prepaid cards, the assessee company is strictly regulating as to the manner of business operations by the franchisees while selling such cards from time to time vide investigation (sic. Inventory) checking by the auditors appointed by the company and inspection of records. The assessee only pays commission to the franchisee for the services rendered by them. The price difference is nothing but a payment of commission by the assessee to its franchiesees." Accordingly, the AO held that the assessee is liable to deduct tax at source on the amounts paid to the distributors of Prepaid Cards either by way of margin on the face value or by way of sales incentive (i.e., both in cash an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a transaction/agreement. Such goods cannot be sold further. IMPORTANT 3.3.2 That the concept of merchandise has changed because of technological advancement has been recognized by the Hon'ble Supreme Court (PB 349-352). 3.2.3 The assessee, who had bought rights of various decoders, recorded movies on beta-cam tapes and transferred them as telecasting rights to Star TV for five years and claimed the benefit of the deduction under section 80HHC of the Income-tax Act, 1961, in relation to the profit therefrom. 3.2.4 The Assessing Officer (AO) held that the assessee was not entitled to deduction u/s.80HHC, inter alia, on the ground that the export was not of merchandise or goods as contemplated under section 80HC, but was merely an export of "rights" in the film. 3.2.5 Before the Hon'ble Supreme Court, Revenue, submitted that the assessee in this case was not engaged in the export of goods and merchandise; that the film recorded on beta-cam tapes did not qualify either as "goods" or "merchandise". In this connection, it was urged that the beta-cam tape (cassette) was only a medium of transfer; that there was no "sale" of the film in beta-cam format and that the assessee had only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by any of the High Courts needs to be explained. 3.5 The decision of the jurisdictional High Court in Ahmedabad Stamp Vendors - 257 ITR 202 (Guj) has to be analysed as to whether it applies to the proposition which is being made out. PB page 139. 4. Prepaid product The prepaid product is captured in the prepaid start up pack. It captures therein the "Right to use Airtime" to the extent of specified minutes or a "promise to provide specified minutes of Airtime" to the owner of the start up pack It is not any provision of electro magnetic waves, but t is a Right to enable the prepaid customer to expend the minutes paid for. The start up pack comprises of SIM card and in this SIM is captured the right to use airtime for specified minutes. The property in the SIM card remains that of the company and it is similar to a bottle of soft drink The SIM card can be recharged with additional airtime as in the case of soft drink bottle. This "Right to use Airtime" for a specified minute or the "promise to deliver such Airtime" is a product which is transferred on payment of money from the assessee-company to the distributor at a price say Rs.97/-. This product is the right to use air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries vs STO 40 STC 42 (copy at PB page 187-200) Discussed in the Gujarat High Court decision - PB 133. 5) The owner of the SIM card is the company. This is not in doubt and as explained this is similar to a Coco-cola bottle. In the SIM card right to use airtime is captured and it is the right to use airtime which is transferred. 6) As explained the "Right to use services" for a specified time can be sold, and the promise to provide such service will be that of the company. 7) For the reasons explained above, distributor of prepaid product is not an agent but is an independent Principal. 6. High Court decisions distinguished 6.1 Decision of the Delhi High Court in Idea Cellular Ltd 325 ITR 148 (Del) The basic proposition in the Delhi High Court was: - that in the case of supply and delivery of SIM cards and other recharge coupons, there is no sale and purchase of goods but only services, - that decision of the Ahmedabad High Court was no applicable as it covers the transactions of purchase and sale of goods, - that on termination of the agreement the stock was returned back to the service provider. 6.1.1 IT has been explained that in view of the judgment of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the decision of the Ahmedabad High Court 257 ITR 202. Kerala High Court in the case of Vodafone has disagreed that the decision of the AHMEDABAD High Court in Stamp Vendors Association and also of the Kerala High Court in the case of Kerala Stamp Vendors Association 282 ITR 7 addition the case of MS Hameed vs. Director of State Lotteries in 249 ITR 186. 6.3 Bharti Cellular Limited (PB page 386-393) The decision of Calcutta High Court in the case of Bharti Cellular Ltd High Court cannot be relied upon - 6.3.1 The decision is based upon the understanding "property in the Start up pack, prepaid coupons after even the transfer of delivery of franchise remains with the appellant assessee.(PB page 391) 6.3.1.1 This is incorrect because the property in the sim card remains with the company but nothing else and start up pack and coupons has the merchandise "Right to use airtime". 6.3.2 The Hon'ble High Court has also noted incorrectly that the payment is given by the franchise after collecting the same from retailer (PB page 392) 6.3.2.1 This is incorrect. The payment is made in advance by the distributor/franchise and not after recovery from retailer. 6.3.3 Control is imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Sc which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different. High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution." Similar position has been reiterated again by the hon'ble jurisdictional High Court in the case of Consolidated Pneumatic Tool Co. (India) Limited v. CIT [1994] 209 ITR 277 (Bom) by holding that the decision of other High Court is not a binding precedent for courts, authorities or Tribunals outside its territorial jurisdiction/. Again the hon'ble Bombay High Court in Geoffrey Manners and Co. Ltd. v. CIT [1006] 221 ITR 695 has followed the earlier two afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot prove fatal to character of merchandise, capable of being transferred to the relationship of Principal to Principal The jurisdictional High Court in Ahmedabad Stamp Vendors applies squarely to the facts and fundamentals in this appeal the provisions of Section 194H do not apply. Without prejudice the tax cannot be recovered from the assessee in view of the decision of the Hon'ble Supreme Court in Hindustan Coco-cola Beverages 293 ITR 226. 10. On the other hand, the Ld D.R invited our attention to all the relevant observations made by the AO and Ld CIT(A) and contended that the payment made to the distributors of Prepaid cards falls in the category of commission liable for deduction of tax at source u/s 194H of the Act. He also submitted that the AO has rightly distinguished the case law relied upon by the assessee. 11. We have heard the rival contentions and carefully perused the record. The Ld A.R strongly placed reliance on the decision of Jurisdictional Gujarat High Court in the case of Ahmedabad Stamp Vendors Association, supra and submitted that the decision rendered therein squarely applies to the facts of the instant case. In effect, the contention of the Ld A.R is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des everything of use or value which can be an object of trade and commerce. .... Indian law does not make any distinction between tangible property and intangible property. "Goods" may be tangible or intangible property. A program would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customised satisfies these attributes, the same would be goods. Unlike the American courts, the Supreme Court of India has also not gone into the question of severability. What is essential for an article to become goods is its marketability." Thus, it is very much clear that the meaning of "Goods" varies from statute to statute. 13. Thus, we notice that the decisions relied upon by the assessee are not direct on the issues considered in the instant cases. They have been rendered in different contexts. It is a well settled proposition of law that a judgment is to be read with reference to the context and the facts obtained in that case, i.e. the court only decides the question which was referred to it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derstand the purpose and back ground of making payment of "Roaming charges". The Government of India has created various Circles for the purpose of issuing license to the cellular operators. Accordingly the subscribers can use the services provided by the cellular operators within that circle (Let us call it as "Home Circle"). When a subscriber moves to some other circle (Let us call it as "Outside circle"), the concerned cellular operator cannot provide services to that subscriber in that circle and hence the subscriber cannot use their cell phones in the outside circle. In order to tide over this problem, all the cellular operators operating in different circles normally enters into agreements in order to see that the subscriber continues to receive the services. Such kind of arrangement was made possible due to technical advancement. In view of the said agreements and arrangements between the cellular operators, the subscribers receive uninterrupted services. 16. We are aware that the subscriber is charged with outgoing calls only when the phone is used within the Home circle. However, if he uses the phone in an outside circle, he shall be charged both for incoming calls and ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices of the most preferred roaming partner of the subscriber's home network will be selected. - Under, the manual selection, the subscriber can choose the roaming partner whose services he would like to use out of the ones which are available in that area (subscriber can only choose the roaming partner with whom, Airtel has tie-up) - Visiting network (e.g. Vodafone) locates mobile device and identifies that it is not registered with its system, i.e. VLR - Visiting network automatically contacts home network of Airtel subscriber, i.e. HLR and requests service information about roaming device using MSI number - MSI number is a unique subscriber identity number granted to the customer at the time of subscription. - Visiting network maintains temporary subscriber record for the said mobile device and provides an internal temporary phone number to the mobile device. - Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. - The entire process above is automatic and does not involve any human intervention at any stage. - The Airtel subscriber in Mumbai, who is temporarily registered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of- (a) fees for professional services, or (b) fees for technical services, or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein: Provide......... ..... .......... (A) ... .... ........ ....... (B) .... ..... ...... ..... .... (i) ... ... .... .... .... .... (ii) ... ... ... ... ... ... ... (iii) ... .... .... .... .... ... (iv) ... ... ... ... ... Provided further ... ... ... ... ... ... ... Provided also ... ... ... ... ... ... ... ... (2) (3) Explanation. - For the purposes of this section, - (a) .. ... ... .. ... ... .. (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9". Explanation 2 clause (vii) to sub-section (1) of Section 9 states: Quote "(vii) income by way of fees for technical services payable by - (a) ...... ... ... ... ... ... ... ... (b) ... ... ... ... ... ... ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merged with Bharti Airtel Limited) 251 ITR 53. (PB 290-294) Sky Cell Communications Limited 251 ITR 53 (Madras): This case law has been distinguished by Revenue on the ground that in the case of roaming the payment is made by one operator to the other while in the matter of Sky Cell the payment was made by the subscribers to the company i.e. Sky Cell Communications Limited. In our view the above understanding of Revenue is not correct as; a) The service in both the cases remains same i.e. telecom service; b) In the case of Sky Cell, the payment was made by the subscriber to the company for telecom service and in the present case also the payment is made by the assessee company to the other operator on behalf of the subscribers only. We would like to reiterate here that the payment to other visiting operators is based upon the airtime used by roaming subscribers who would use the network of other mobile operators. c) The principle enunciated by the judgment of Skycell was that, even if the service is rendered with the help of machines, it does not become technical services for the purpose of section 194J of the Act. d) Even if for a moment it is considered that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove referred case was in regard to applicability of Section 194-I to the Roaming charges. At page 208 para 29, it was held - "Our conclusion in regard to Section 194-I is that the payment of Roaming charges by the assessee to the other service provides cannot be considered as rent within the meaning of the explanation below Section 194-I. Therefore, there was no liability on the part of the assessee to deduct tax from the same under that Section" 3.9.4 In this decision the issue of Section 194-J was also raised however since the CIT(Appeals) had confirmed the applicability of Section 194-J the Hon'ble ITAT restored the matter for a fresh decision. Double collection of tax 4. Without prejudice we submit that the Bharti Hexacom Limited (the operator) who has received the roaming charges from Bharti Airtel Limited (please refer to page 11 of the order) has paid tax on the income earned by him. We enclose herewith copies of relevant evidence i.e., declaration from Bharti Hexacom Limited and copies of income tax returns (page 127 to 128 of paper book) to show that Bharti Hexacom, Limited is a regular assessee and therefore the tax was paid by him. In the circumstances the AO canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not technical expert in this regard, in our view, the right course of action would be to seek opinion of a technical expert on the modalities of operations of roaming facility. 21. Accordingly, we are of the view that this issue needs to be examined afresh by obtaining proper technical assistance. Accordingly, we set aside the orders of the learned CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the issue afresh after obtaining opinion of the technical experts in this regard. 22. The next issue pertains to the applicability of provisions of Section 194I to roaming charges. It is pertinent to note that the AO has raised an alternative contention before the learned CIT(A) in remand proceeding that the provisions of section 194I shall also apply to payment of roaming charges and the said view was also confirmed by the learned CIT(A). In our view, the opinion of the technical experts will assist in deciding the applicability of section 194I of the Act to the impugned payment. Accordingly, we set aside this issue also to the file of the AO. 23. The assessee has raised an alternate plea without prejudice to the earlier grounds that the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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