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TMI Blog2015 (3) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... recharge vouchers (RCVs) and the starter kits by the appellant to its channel partners (distributors/ dealers); 2. not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/ credit to payee's account. 3. not appreciating the true spirit of Section 194H wherein the discount allowed has to qualify as income chargeable to tax under the Act; 4. not appreciating the true spirit of Section 194H as envisaged in Chapter XVII-B (Deduction at source) of the Act, irrespective of the relationship between the deductor and the deductee. 5. holding that principal agent relationship existed between the appellant and its channel partners without appreciating the fact that the said relationship is on principal to principal basis inasmuch as starter kits/ RCVs were sold on a principal to principal basis and Sales Tax and Service Tax as applicable were levied and paid in the course of the said transactions of sale and that ownership/property in the said starter kits/RCVs passed on from the appellant to its channel partners; 6. holding that principal-agent relationship existed between the appellant and its channel partners without appreciating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, apart from other clauses they stipulate not be sold more than the printed M.R.P. According to the AO, the discount i.e. the difference between the MRP and the selling price to the distributor amounted to payment of commission to distributors which was liable TDS u/s 194H of the Act. Since the assessee company had not deducted the tax, show cause notice was issued in this behalf. 2.4 In reply, the assessee contended that the real nature of these transactions being of sale to distributors on principal to principal basis, the discount amounted to simply a business discount against prior payment. The transactions were purely of sale and not of principal and agent and the discount was not commission in nature. Therefore, it was not liable for TDS u/s 194H of the Act. 2.5 The AO however, rejected the assessee's explanation and held that relationship between the assessee and the distributor was that of principal and agent; discount was held as commission in nature which was liable for TDS. Assessee was consequently held to be in default u/s 201(1) and interest thereon u/s 201(1A) was also levied. 2.6 Aggrieved, the assessee preferred first appeal where the ld. CIT(A) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's liability created u/s 201(1) of the I.T. Act in respect of such distributors/ channel partners who have certified that they have filed their return of income for the concerned assessment year and their total income declared therein was including the business income from the purchase and sale of prepaid products of the appellant company (Starter Kits and Recharge Coupon Vouchers of TTSL). In this regard, the ld. AR has filed a chart giving yearwise details of such distributors/ channel partners alongwith the relevant supporting documentary evidences, which were also sent to the ld. AO during the remand proceedings, and which have been admitted as additional evidences under Rule 46A of the I.T. Rules, as discussed in para 2.22. above. Therefore, the AO is directed to factually verify the correctness/ totaling etc. of the said claim, after giving an opportunity of hearing to the appellant and to allow relief according to the decision given above in this para.'' In the present appellate proceeding, the appellant submitted that during the period under consideration the discount of Rs. 4000/- only was paid to M/s. Vigil Network and they are assessed to tax. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest u/s 201(1A) for the period stated from the end of the month in which the TDS return was required to be filed by the appellant and to the date of filing of return of income by the distributor/ channel partner of the appellant.'' 2.9 Aggrieved, both the parties are before us. The assessee is against rejection of its claim about its impugned transactions with distributors being sale as principal to principal and holding the same to be commission on relationship of principal and agent and liability u/s 194H. The Revenue is against admission of additional evidence and grant of relief following Hindustan Coca Cola judgment without proper verification of distributor's income tax records. The respective grounds raised by both the parties are mentioned above. 2.10 The ld. Counsel for the assessee reiterated the facts and circumstances of the case and contends that the company sells the SUK's both postpaid and prepaid, and the RCVs to the respective distributors in bulk. The distributors being the bulk purchasers, the company allows them a cash discount for buying the products in bulk i.e. the margin between the maximum retail price and the price at which the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of relationship between the assessee and the distributors (channel partners) was in respect of sale of SKUs and RCVs came up before Hon'ble Karnataka High Court by way of batch of appeals in which the assessee was one of the party (ITA No. 158 of 2013). By a consolidated order dated 2-12-2014 published in 52 Taxman.com31 wherein Hon'ble Karnataka High Courts considered all the available judgements rendered by various judicial authorities and are referred in the said order, some of which are as under:- (i) Bharat Sanchar Nigam Ltd. and another vs. Union of India, 282 ITR (SC). (ii) CIT vs. Qatar Airways (2011) 322 ITR 253 (Bom.) (iii) CIT vs. Mother Dairy India Ltd. (2013) 358 ITR 218 (Del.) (iv) CIT vs. Singapore Airlines Ltd. and Others (2009) 224 CTR 168 (Del.) (v) CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.) (vi) Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.) (vii) Bharti Cellular Ltd. vs. ACIT and another (2013) 354 ITR 507 (Cal.) Thus Hon'ble Karnataka High Court considered all these judgments on the same issue. Besides on other principles of law relied on following judgments. (i) Bhavani Cotton Mills Ltd. vs. State of Punjab and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, who ever ultimately sells the said right to customers is not entitled to charge more than the MRP. The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the subdistributors/ retailers. As at the time of sale of prepaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in determining revenue. Accordingly, TTSL has not considered the amount representing the Discount as its revenue and as such no payment of any income from such revenue can be said to be made by it to Distributors/ Channel Partners. It is thus submitted that since no income is paid by TTSL to Distributors/ Channel Partners, sect 194H is not applicable and the assessment order and order in appeal are required to be set aside.'' 2.14 It is further contended that that Hon'ble Karnataka High Court judgment is in details and fully considered the import of CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.) and Kerala High Court in the case of Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.). Therefore, it is latest judgment on the issue which holds the field on meaning and scope of the impugned transactions. Alternatively even if it is assumed that if any divergence of opinion among judicial pronouncements exist; in that case also the view which is favourable to assessee should be applied following Hon'ble Supreme Court judgments in the cases of: i. CIT v Vegetable Products Ltd 88 ITR 192 (SC) ii. CIT vs. Vatika Town ship (P) Ltd. 367 ITR 466 (SC) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted. 2.18 Thus assessee is liable for TDS u/s 194 and the demand u/s 201 and 201(1A) has been rightly raised. Besides revenue's stand is endorsed by Hon'ble Delhi and Kerala High Court in the cases of Idea Cellular and Vodafone Essar Cellular ltd. (supra). Consequently there are more judgments in favor of the revenue then assssee. It is pleaded that the order of authorities below on this issue may be upheld. 2.19 Apropos revenue appeals it is pleaded that it was for the assessee to have raised alternate claim before AO about the applicability of Hindustan Coca Cola judgment and file necessary evidence. The assessee was thus not prevented by sufficient cause, therefore, the admission of additional evidence is in contravention of the rule 46A. Therefore the same should be held to be inadmissible. 2.20 In rejoinder ld. Counsel for the assessee contends that it has been nowhere pointed by any authority that assessee accounted for the Discount in its books. It can be inferred from a simple logic that the goods are sold against advance payment of goods i.e. MRP - Discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the Hon'ble Karnatak High Court judgment and not in para 60 as proposed by ld. DR. ii. When assessee is not holding any income payable to distributors the question of deducting TDS u/s 194H does not arise. Therefore the facts, circumstances, accounting treatment and nature of relationship between assessee and its distributors qua the impugned sales fall within the ambit and observations at para 61 of the order. In view of the foregoings we have no hesitation to hold that: iii. What is sold by the assessee service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. iv. Distributor may also sell the right to sub-distributors who in turn may sell it to retailers, thus the property in goods is transferred in favour of the distributor. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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