TaxTMI 
TaxTMI 
2015 (4) TMI 765
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.... "1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) vide appellate order No. 327/ P/08-09 has erred in deleting the addition of Rs. 46,48,960 under the head 'dealers scheme and incentive' which was made under section 40(a)(ia) by accepting the contention of the assessee that it was an incentive for enhancing the sales and no service part was involved in it. 4. It is prayed that the order of the learned Commissioner of Income-tax (Appeals) be cancelled and that of the Assessing Officer may be restored. 5. That the appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed of." 5. The only issue arising in the appeal is in relation to the allowability of expenditure claimed under the head "dealer's scheme and incentives" at Rs. 46,48,960. 6. The brief facts of the case are that the assessee was engaged in the business of sale of mobile connection of M/s. ....
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....lso given by the assessee. This agreement does not reveal anything regarding the formula at which commission/brokerage has been paid by HESL to the assessee. The assessee could not separately give the method as per which it receives commission/brokerage, despite being asked for it, nor could it explain the method at which it pays to its dealers payment reflected under "dealer's scheme and incentives". The Assessing Officer further observed as under : "However, the assessee's representative stated that SIMs are sold to dealers at rates less than their MRP. In this regard four invoices were obtained from the assessee in which SIMs with their MRP at 99 were sold to the assessee's dealers at the rate of Rs. 84. It was further explained that when these SIMs gets activated then on the basis of number of SIMs activated by each dealers, further amount is paid to each dealer which is reflected under the title 'dealer's scheme and incentives'. A list of a few dealers for a small period, showing number of activations by each was also given by the assessee. In this list, ac....
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....n necessitated for security reasons. All the companies are required to obtain these forms. It is stated by the assessee that the distributor, i.e., the asses see, asked the dealer to get the form filled up from the customers which are sent to the company directly. According to the Assessing Officer, such documents come within the purview of the services and hence the provisions of section 194H are applicable. In my view, the sale cannot be effective until the consumers furnished the prescribed form. It is a statutory regulation and is to be complied with by all the companies. It is part of the sale. It is not the choice of the assessee that any SIM can be given without getting the prescribed form. The SIMs are activated when the company gets those prescribed forms. The assessee has given additional amounts to the dealers as part of the sales. As per section 194H, commission of brokerage includes any payment received directly or indirectly by the person acting on behalf of another person for services rendered or for any services in the course of buying and sale of goods. In the present case, the dealers are not providing any services in the course of buying and selling of goods. The....
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....n by the hon'ble Kerala High Court in Vodafone Essar Cellular Ltd. v. Asst. CIT (TDS) [2011] 332 ITR 255 (Ker). Similar issue has been laid down by the hon'ble Calcutta High Court in Bharti Cellular Ltd. v. Asst. CIT [2011] 354 ITR 507 (Cal). 11. The learned authorised representative for the assessee stressed that the facts of the present case were different and reference was made to the observation of the Assessing Officer at page 4 of the assessment order. Further it was pointed out that in the absence of principal to principal relationship there is no merit in holding that such expenditure was subject to tax deduction at source. Reliance was placed by the learned authorised representative for the assessee on the following decisions : (i) Government Milk Scheme v. Asst. CIT [2006] 98 ITD 306 (Pune) ; (ii) Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202 (Guj) ; and (iii) CIT v. Mother Dairy India Ltd. [2012] 249 CTR (Delhi) 559. 12. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the allowability of expenditure booked under the head "dealer's scheme and incentives"....
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....the Act. The hon'ble High Court observed as under (page 164) : "27. We, thus, come back to the central question, which is to be addressed, viz., the nature of relationship. Reverting back to this aspect, in the present case, we are of the opinion that the legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee. It is created by : (a) Activation of the said SIM card by the assessee in the name of the consumer/subscriber. (b) Service provided by the assessee to the subscriber. Further, dealings between the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/ defect in service. (c) Entering into the ultimate agreement between the subscriber and the assessee (clause 15 of the agreement). 28. It is to be borne in mind that the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is....
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....M cards/recharge coupons received by it from the distributor.' 31. Thus, 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 subscriber inasmuch 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. Further, clause 25(f) lays down that on termination of agreement, PMA or its authorised 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' . . . 34. We thus answer the question, as formulated, in favour of the Revenue and against the assessee. As a consequence, these appeals are allowed and judg....
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....ting to any asset, valuable article or thing, not being securities ; What is clear from Explanation (i) of the definition clause above is that commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for the services rendered. We have already taken note of our finding in BPL Cellular's case above referred that a customer can have access to mobile phone service only by inserting SIM card in his handset (mobile phone) and on the assessee activating it. Besides getting connection to the mobile network, the SIM card has no value or use for the subscriber. In other words, SIM card is what links the mobile subscriber to the assessee's network. Therefore, supply of SIM card, whether it is treated as sale by the assessee or not, is only for the purpose of rendering continued services by the assessee to the sub scriber of the mobile phone. Besides the purpose of retaining a mobile phone connection with a service provider, the subscriber has no use or value for the SIM card purchased by him from the assessee....
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....ract which is the subscriber connection arranged by the distributor for the assessee. The terminology used by the assessee for the payment to the distributors, in our view, is immaterial and in substance the discount given at the time of sale of SIM cards or recharge coupons by the assessee to the distributors is a payment received or receivable by the distributor for the services to be rendered to the assessee and so much so, it falls within the definition of commission or brokerage under Explanation (i) of section 194H of the Act. The test to be applied to find out whether Explanation (i) to section 194H is applicable or not is to see whether the assessee has made any pay ment and if so, whether it is for services rendered by the payee to the assessee. In this case there can be no dispute that discount is nothing but a margin given by the assessee to the distributor at the time of delivery of SIM cards or recharge coupons against advance payment made by the distributor. The distributor undoubtedly charges over and above what is paid to the assessee and the only limitation is that the distributor cannot charge anything more than the MRP shown in the product, namely, SIM card or re....