TMI Blog2015 (3) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... deductee regarding filing of I.T. Returns before the AO (TDS) during the proceedings - whether incomplete and unverified information could not have been considered as additional evidence under Rule 36A of Income Tax Rules? - Held that:- Apropos the revenue appeal since we have held that sec. 194H is not applicable there remains no substance in revenue appeals. In any case there is no infirmity in the order of Ld. CIT(A) in admitting the additional evidence in the light of Hon'ble Supreme Court judgment in the case of Hindustan Coca Cola (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) and following his past orders. - Decided against revenue. - ITA Nos.309/JP/2012, 502, 503, 504 & 505/JP/2011, ITA Nos.536 to 539/JP/2011 - - - Dated:- 13-3-2015 - R. P. Tolani, JM And T. R. Meena, AM,JJ. For the Appellants : Shri Tarun Gulati, Siddharth Ranka Shashi Mathew, Adv. For the Respondent : Smt Neena Jeph, JCIT ORDER Per: R P Tolani: The above mentioned appeals have been filed by the assessee and the Revenue against two different orders of the ld. CIT(A)-III, Jaipur dated 20-12-2011 and 11-03-2011 for the assessment years 2005-06 and 2006-07 to 2009-10. These appeals pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.2 The common grounds raised by the Revenue in its appeals are as under:- 1. The assessee company did not provide the details of deductee regarding filing of I.T. Returns before the AO (TDS) during the proceedings. 2. The details provided before the ld. CIT(A) did not reflect the correct figure of commission shown by the deductee in their I.T. Returns as the ld. CIT(A) directed the AO to verify the figures. 3. Many of the deductees did not have PAN and therefore, the claim of filing of I.T. Return by them could not have been considered. 4. Incomplete and unverified information could not have been considered as additional evidence under Rule 36A of Income Tax Rules. 2.3 Brief facts of the case are that the assessee is a telecommunication service provider, it sells its products to distributors in bulk against prior payments such as Starter Kits and the Recharge Coupon Vouchers (RCV). Starter Kits are the new connections containing a 'Removable User Identity Module'' (for short RUIM Cards/ Sim Cards). According to the assessee, the Starter Kits and the Recharge Coupon Vouchers are sold to its various distributors as per the terms of business agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erages (P) Ltd. and directed the AO to verify whether the distributor had paid tax on their income qua the sale of assessee's products. It was further directed that chargeability of interest should be suitably reduced as per direction given. The relevant observations of the ld. CIT(A) are as under:- ''2.3.1 As far as the alternative grounds i.e. grounds No. 3rd and 4th are concerned, wherein the benefit of the decision of Hon'ble Supreme Court given in the case of M/s. Hindustan Coca Cola Beverage (P) Ltd. is sought for, in respect of the demand raised u/s 201(1) of the act is concerned, the same has also been found as decided by my predecessor while disposing the above referred appeal of the appellant. The findings given in this regard are being reproduced as under:- ''2.3.2 However as far as the alternative grounds i.e. Grounds No. 2,3, 4, taken by the appellant are concerned, I find merit in the contention of the ld. AR that when the concerned distributor / channel partner of the appellant had filed its return of income for the relevant assessment year and had also certified that the total income declared therein by it was including the business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier appellate order, as under:- ''2.3.3. As far as the alternative ground i.e. Ground No. 5 is concerned, I find merit in the contention of ld. AR that the ld. AO had erred in levying consequential interest u/s 201(1A) of the I.T. Act for the period from the due date of payment of tax to be withheld till the date of issuance of the assessment order under consideration and that instead the AO should have taken the period from the due date of filing of tax return by the payee. In this regard, on perusal of the decision given by the Hon'ble ITAT Bangalore Bench in the case of ITO vs. M/s. Intel Tech India (P) Ltd. 2009-TIOL -355-ITAT-Bang, it is seen that the Hon'ble ITAT has held in that case that ''in the instant case, the deductor was required to deduct the tax at source and therefore, the deductor was an assessee in default since a deductee has filed the return and has disclosed the transaction in the return of income and that shows no tax was payable on such transaction. Therefore, the default will end on the date when the deductee has filed the return. Hence, the deductor will be liable to interest u/s 201(1A) only upto the date of filing of retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective State Value Added Tax (for short 'VAT') leviable on sales. The States levy the VAT on the sale of these products, which pre-supposes element of sale in the transaction and levy of statutory VAT thereon. Both constitutional validity of VAT and its applicability in SUKs and RCVs has been upheld by the Superior Courts. Thus the Courts in the back drop of scope of VAT levy, have ruled that these products are liable for VAT as the nature of transaction between the assessee and its distributor was sale of simplicitor by way of transfer of property in goods in accordance with sale of goods. VAT is chargeable on the discounted sale price, keeping in view of these facts and circumstances of the case, it is self contradictory and beyond comprehension that same transaction for States of sale in nature and for Central Govt. it is not so and treated as principal agent transaction against payment of commission. More so, when the commission is not even paid by assessee as its discounted sale price against the prior payment then this approach leads to a direct contradiction on the interpretation of same transaction by the competent Courts and distorts the legal meaning of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.) and by Kerala High Court in the case of Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.), the Hon'ble Karnataka High Court dealt with these cases while deciding the real nature of the impugned transactions. The Hon'ble High Court on the issue of relationship of telecommunication companies and other distributors qua the sale of these products held as under:- ''58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold. 59. The telephone service is nothing but service. SIM cards, have no intrinsic sale value. It is supplied to the customers for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes the point clear: On delivery of the prepaid card, the assessee raises invoices and updates the accounts. In the first instance, sale is accounted for ₹ 100/-, which is the first account and ₹ 80/- is the second account and the third account is ₹ 20/-. It shows that the sales is for ₹ 100/-, commission is given at ₹ 20/- to the distributors and net value is ₹ 80/-. The assessee's sale is accounted at the gross value of ₹ 100/- and thereafter, the commission paid at ₹ 20/- is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted. 61. However, in the first instance, if the assessee accounted for only ₹ 80/- and on payment of ₹ 80/-, he hands over the prepaid card prescribing the MRP as ₹ 100/-, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of ₹ 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted. 62. In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distributor and he is not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal.'' 2.13 It is further pleaded that the the issue of accounting of the discount in terms of para 60 of Hon'ble Karnataka High Court reproduced above was not applicable to assessee and did not arise in its case. Besides, it has not been disputed by the Department that the assessee sold its products like SKUs and RCVs against advance payment at a corresponding sale price of discounted value. Thus in assessee's case what is sold is already at discounted price, therefore, it never held any income of distributors i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions may be upheld and orders of authorities below may be reversed on this issue. 2.16 Apropos revenue appeal is vehemently contended that it is only after ld. AOs order on holding of transaction as principal to agent assessee had to recourse to alternate legal remedy which is permissible under the law. To pursue this alternate remedy assessee had no choice but to file additional evidence. Since it was prevented by a reasonable cause of holding the belief that it transactions were of sale, ld. CIT(A) rightfully exercising powers u/r 46A admitted the same. Revenue grounds are further misconceived in as much as ld. CIT(A) has not decided the issue and asked the ld. AO to duly verify the evidence and ensure whether the relevant income tax is paid by the distributor along with direction about calculation of interest. Consequently there is no infirmity in the order of ld. CIT(A) qua the grounds agitated by the revenue. 2.17 Ld. DR on the other hand vehemently argues that Hon'ble Karnataka High Court in the above case has rendered the judgment on the basis of contracts of those units which are not similar to the terms of contracts in this case. Consequently the Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the distributor is not earning any income. This discount of ₹ 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted. In view the copious material on record supporting the assessee stand and there being no rebuttal thereof, there is no substance in the plea of ld. DR that case is covered in para 60 of Karnatak High Court order. It further reflects that Hon'ble Karnatak High Court has considered all the relevant issues and earlier Judgments of Delhi and Kerala High Court which took a different view. Thus Karnataka High Court has rendered an uptodate judgment. 2.21 Rejoining the revenue appeal it is pleaded that while admitting additional evidence ld. CIT(A) followed the past history. Hon'ble Supreme Court in Hindustan Coca Cola has rejected the idea of double taxation i.e. recovering TDS again from the payer when the relevant income tax is already paid by the payee. The exercise of powers u/r 46A by ld. CIT(A) to implement supreme court order cannot be called in question more so when the AO has been restored with his power of verification. There is neither prejudice nor loss to revenue by this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income has not accrued or arisen to the distributor, there is no primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorized as commission. Merely because sale is subject to agreed conditions and stipulations cannot convert the relationship of principal to principal into that of principal and agent relationship. 2.23. We find merit in the contention of ld. Counsel that there is no jurisdictional high court judgment on this issue. Hon'ble Karnataka High Court Judgment is elaborate, detailed, considers the previous Delhi and Kerala High Court judgment against the assessee and is latest comprehensive adjudication on the issue. Even if it is held that there exist divergence of judicial opinion a view favourable to the assessee is to be adopted as held by Hon'ble Supreme Court in Vegetable Products Ltd. And Vatika township case (supra). From this angle also in these facts and circumstances Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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