Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (3) TMI 1023 - ITAT JAIPUR

2015 (3) TMI 1023 - ITAT JAIPUR - [2015] 42 ITR (Trib) 121 (ITAT [Jai]) - Liability for TDS u/s 194H - discount on sale of recharge vouchers (RCVs) and the starter kits by the appellant to its channel partners (distributors/ dealers) - Held that:- The relationship between assessee and its distributors qua the sale of impugned products is on principal to principal basis; the consideration received by assessee is sale price simpliciter. There is no relationship of Principal and agent between asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncome Tax, Bangalore [2014 (12) TMI 642 - KARNATAKA HIGH COURT] - Decided in favour of assessee.

Non providing details of 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 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dv. 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 pertains to deciding the issue of applicability of Section 194H and assessee's liability thereunder u/s 201(1) and 201(1A) of the I.T. Act. 2.1 The common grounds raised by the assessee in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee'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 relationsh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uted between the appellant with its channel partners unequivocally demonstrate that the relationship between the appellant and the channel partners is in fact on principal to principal basis. 7. not appreciating the recognition of the principal of trading in services and the concept of discount under Service Tax Law administered by Central Board of Excise and Customs, the other wing of the Ministry of Finance; 8. Without prejudice to above, holding that the interest u/s 201(1A) of the Act would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s for its prepaid and post-paid products. Starter Kits and RCVs are sold for pre-paid connections to distributors in bulk. They are sold to the distributors against on a discount on the M.R.P. printed MRP on these products. In other words, these products are sold to distributors at a discounted price against prior cash payment as per terms of business 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rest liability u/s 201(1A) of the Act. 2.8 However, the ld. CIT(A) accepted the alternative plea of the assessee by admitting the additional evidences relying on Hon'ble Supreme Court decision in the case of M/s. Hindustan Coca Cola Beverages (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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rd 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 income from the purchase and sale of the products of the appell .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

submitted that during the period under consideration the discount of ₹ 4000/- only was paid to M/s. Vigil Network and they are assessed to tax. Accordingly, in view of the above decision of Hon'ble Supreme Court, the demand raised u/s 201(1), i.r.o. such discount payment need to be deleted. In the light of the above, I also tend to agree with the alternative plea of the appellant and the AO is hereby directed to give the relief i.r.o. liability of ₹ 3396/- raised u/s 201(1), afte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o the date of filing of return by the deductee.'' Therefore, respectfully following the said decision of Hon'ble Tribunal, it is held that the appellant is liable to pay interest u/s 201(1A) of the I.T. Act for the period starting from the end of the month in which the appellant was supposed to make TDS in the case of a distributor/ channel partner till the date of filing of the return of income for the concerned A.Y. by that distributor/ channel partner.'' While following th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

me 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 prepa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l be more than the maximum retail price. The distributors main the stocks of the products and replenishes the stock as per their business requirements. In case of RCVs also, the Company sells at a price which is less than a maximum retail price. Company also gives cash discount on these bulk sales. Almost every State has declared these SIM cards as item of goods and is shown as declared goods in the Schedules to the respective State Value Added Tax (for short 'VAT') leviable on sales. Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ccordance 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to commission which is liable for deduction of tax u/s 194H. 2.11 Ld. Counsel for the assessee further contends that the very issue i.e. the nature 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 Ka .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

one 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 Another, AIR 1967 SC 1616 (SC). (ii) Ge India Technology Cen. (P) Ltd. vs. CIT (2010) 327 ITR 456 (SC) (iii) CIT vs. Eli Lilly and Company (India) (P) Ltd. 312 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

010) 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 cann .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a sim-card. When he pays for the simcard, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 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 w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

isen 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. The sale is subject to conditions, and stipulations. This by itself does not show and establish princ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

unted 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, th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng income, distributors incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Secti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at ₹ 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 ₹ 20/- which is allowed as discount by the assessee to the distributor. There is no re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of 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 betw .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 in its hand. It is further evident from the assessee's written submission at page 33 of the assessee as under- ''In the facts of the prese .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing 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 j .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uld 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) 2.15 Thus looking from every angle the nature of transaction between assessee and distributors is in the nature of principal to principal and not of principal and agent. The alleged discount is not in the commission of commission but in fact if discounted sale value against prior payment. There is no income held by th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al 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 th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eaded that assessee's case falls in the category example set out in para 60 of the High Court order which holds that if assesses 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

here 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

's case squarely falls in para 61of the Hon'ble Karnataka High Court which holds that 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 no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 rev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s pleading before lower authorities in this behalf and its written submissions filed before us. They are neither controverted by the authorities below nor by the ld. DR. Consequently the assessee's case falls in para 61 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 na .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 them in his own right as a principal and not as an agent. v. The assesseer may ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ibutor. 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version