TMI Blog2014 (6) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... nd four years from FY 2003-04 and 2004-05, but within six years from the relevant financial year –Decided against Assessee. Treatment of discount offered to distributors as commission - TDS not deducted u/s 194H of the Act - Held that:- Following Commissioner of Income Tax-XVII Versus Idea Cellular Ltd. [2010 (2) TMI 24 - DELHI HIGH COURT] - the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is prepaid or post-paid SIM card remains the same. In the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs - even if advance payment is made by the PMA on receipt of the SIM cards, qua those SIM cards, it does not amount to "sale" of goods - The purpose is to ensure that the payment is received in respect of those SIM cards, which are ultimately sold to the subscribers in as much as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them - This is an antithesis of "sale" - There cannot be any such obligation to receive back the unsold stocks - Decided against Assessee. Assessee in default u/s 201 of the Act – No payment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive A.Ys. Even though separate orders are passed, issues are common, therefore, these appeals are heard together and decided by this common order. 2. We have heard Ld. Counsel and learned CIT/D.R. and also perused the written submissions placed by the Ld. Counsel running into pages 1 to 20 elaborately explaining the contentions. 3. Briefly stated facts are that the assessee-company is engaged in the business of providing cellular mobile telephone services to its customers in Andhra Pradesh through a net work of distributors. In order to verify its compliance towards TDS provisions, a survey was conducted in the business premises of the assessee on 13.10.2009. A.O. found that assessee company is not deducting tax at source in case of commission payments made to distributors on prepaid connections. Assessee has claimed that the commission allowed to distributors is in the nature of discount only and therefore, provisions of section 194H the Income Tax Act, 1961 are not applicable. A.O. analysed the transactions and held that like in postpaid mobile connections, on the prepaid connections also assessee is giving discount and accordingly, he held that assessee is liable for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. We have heard both the parties and perused the material on record. In the present case a common order was passed u/s 201(1) 201(1A) on 02/04/2008 for the AYs 2001-02, 2002-03 2003-04. The contention of the assessee s counsel is that in view of the judgment of the special bench in the case of Mahindra Mahindra Vs. DCIT, 122 TTJ 577 (SB)(Mum.), the order passed by the Assessing Officer is barred by limitation as the order has not been passed within a period of 4 years from the end of the relevant AY. We have carefully gone through the judgment of the ITAT Special Bench, Mumbai in the case of Mahindra Mahindra (supra) wherein it was held that maximum time limit for passing the order u/s 201(1) and 201(1A) is the same as prescribed under section 149 of the Act, i.e., 4 years or 6 years from the end of the relevant AY, as the case may be depending upon the amount of income in respect of which the person responsible is sought to be treated as the assessee in default. The order passed u/s 201(1) or 201(1A) cannot be held as barred by limitation if it is passed within 4 years from the end of the relevant AYs or 6 years as the case may be. In the present case, time limit av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though the orders are passed beyond four years from FY 2003-04 and 2004-05, but within six years from the relevant financial year, accordingly, this ground of the assessee raised in A.Y. 2004-05, 2005-06 as ground No.1 is rejected. 8. Ground No.2 in A.Ys. 2004-05 and 2005-06 and ground No.1 in others years is on the issue of treating discount offered by the assessee to the distributors as in the nature of commission within the meaning of section 194H and accordingly holding that assessee is in default for nondeduction of tax at source under section 201 read with section 194H of the I.T. Act. 9. At the outset, Ld. Counsel fairly admitted that this issue is covered against the assessee by the decision of the Hon ble High Court of Delhi in assessee s own case reported at (2010) 230 CTR (Del.) 43. It was held by the Hon ble Delhi High Court as under : The argument of the counsel that s. 194H is not applicable, as there is no payment or credit by the assessee to its distributor is to be rejected. Likewise, the argument that the amount must be shown to be the income of the respondent also does not hold good. The legal relationship is established between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cards are to be returned to the assessee and the assessee is required to make payment against them. This is an antithesis of sale . There cannot be any such obligation to receive back the unsold stocks. Further, cl. 25(f) lays down that on termination of agreement, PMA or its authorized retailer appointed by it, is not entitled to any compensation for cost or expenses incurred by it in either setting up or promotion of its business, etc. No such clause was required in case of sale . Thus, the Tribunal erred in holding that the payments paid by the assessee are not commission as envisaged under s. 194H . Accordingly, as the issue is covered against the assessee, order of the Ld. CIT(A) stands confirmed. Accordingly, relevant grounds are rejected. 10. Ground No.3 in A.Y. 2004-05 and ground No.2 in other years is an alternate ground without prejudice to ground No.1/2 discussed above, which is as under: 3.1. On the facts and in circumstances of the case and in law, the CIT(A) erred in upholding the action of the A.O. without appreciating the fact that where mechanism to deduct tax fails, appellant cannot be held to be assessee in default under section 201 of the Act. 2. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; * The payer should be a person responsible for paying such income to the payee; * The time of credit or payment should also be taken. In the case of the Appellant, each of the above conditions are missing, and hence, following the ratio of the Supreme Court in CIT vs. Srinivasa Shetty B.C. (128 ITR 294) (SC), the Kerala High Court in M.S. Hameed vs. Director of State Lotteries 249 ITR 186 (Ker.) (SLP of Department being dismissed) and the Bombay High Court in CIT vs. Qatar Airlines 332 ITR 253 (Bom.), the appellant cannot be treated as assessee-in-default u/s. 201 r.w.s. 194H of the Act. Further, if it is held that the appellant should deduct tax at source u/s. 194H of the Act at the time of receiving the purchase price from the Distributor, it would amount to importing section 206C of the Act which governs tax collected at source in section 194H of the Act. The appellant also craves to rely on the recent judgment of the Hon ble Delhi Tribunal in the case of SRL Ranbaxy Ltd. vs. ACIT (2011) 50 SOT 173 (TDel.) (Refer page No.75 to 88 of the PB), wherein inter alia it was held that obligation of TDS u/s. 194H of the Act arises only at the time of payment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made in the books of accounts are not determinative factor and the entire transaction is to be considered. She relied on the decision of Delhi High Court and A.P. High Court which analysed the accounting treatment in the books of accounts and submitted that the arguments cannot be sustained. 13. We have considered the issue and perused the contentions. We are not in agreement with the arguments of the Ld. Counsel as these arguments are already considered by various High Courts in detail, particularly, Hon ble Delhi High Court in the decision cited (supra) in assessee s own case. Hon ble High Court of Delhi has considered this argument in assessee s own case i.e., Commissioner of Income Tax vs. Idea Cellular Ltd. (2010) 230 CTR (Del.) 43 vide paras 21 and 22 as under : 21. Another argument was raised in the said case, viz., that the assessee airline was not paying income by way of commission, as the supplementary commission was retained by the travel agent and thus, s. 194H of the Act was not attracted. This contention was brushed aside in the following manner : 23. This brings us to the second leg of the transaction as to whether income by way of commission has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the A.O. the entries passed by the assessee are as under : Entries on issue of recharge Top-up and prepaid vouchers as mentioned below : For Rs.100/- MRP Trade Margin is @ 4% on issue of the recharge to distributor. For MRP 100 At the time of issue to Distributor Distributor Prepaid Card Advance Service Tax Dr. Cr. Cr. 96 86.66 9.34 On Receipt of payment Bank Distributor Dr. Cr. 96 96 On recharge by subscriber Airtime Revenue Prepaid card Advance For credit of talk time to subscriber Dr. Cr. 4 4 15. Thus, as can be seen from the entries on which there is no dispute, there is a constructive payment of Rs.100/- and Rs.4/- are charged by the assessee at the time of credit on talk-time to subscriber. Even the provisions of section 194H consider the constructive payments i.e., payments made indirectly also. Therefore, the argument that assessee has not paid or credited the amount does not hold good as there is constructive payment in this regard in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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