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2015 (5) TMI 508 - ITAT DELHI

2015 (5) TMI 508 - ITAT DELHI - TMI - TDS u/s 194H - Disallowance of discounts/ incentives paid to its buyers - CIT(A) deleted the addition - whether discounts/ incentive was in the nature of commission so as to attract TDS and disallowance can be made u/s 40a(ia)as held by CIT(A)?- Held that:- As relying on case of the Idea Cellular [2010 (2) TMI 24 - DELHI HIGH COURT] we endorse the finding of the ld CIT(A) that the payment made by the assessee to its sub-distributors constituted commission an .....

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t CIFF ID incentives are the payments made by the assessee to its employees etc and DMS and Market expenses are also the expenditure made by it and it is only the First Call First Recharge (FCFR) incentive which is the “Commissions” which was passed on to the dealers/ retailers. And so this amount/ discount/ incentive alone attracts provision of TDS u/s 194H of the Act, we endorse this finding of the ld CIT(A).

However we find force in the argument of the ld DR that the ld CIT(A) gav .....

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re more than ₹ 2,500/-. In such circumstances it would be just and proper to set aside the order of the ld CIT(A) and remand the matter back to the file of AO to examine and verify whether the commission/ discount/ incentive given by the assessee to its dealers are correct and we direct that AO shall examine and verify this fact aspect and the amount disbursed if it falls below ₹ 25,00/- it shall not attract TDS and the amounts disbursed which is more that ₹ 2,500/- shall attra .....

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. 2. In this appeal the revenue has raised following grounds:- 1. On the facts and in the circumstances of the case, the ld CIT(A) has erred in law in deleting the addition of ₹ 15,84,800/- made by the Assessing Officer on account of discounts/ incentives paid to its buyers by the assessee firm which is not the case as the assessee was the distributor of post paid connections and not of pre-paid connections. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in law .....

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he sum of ₹ 3,06,460/- by applying the provisions of Section 40a(ia) of the Act on a/c of non-deduction of TDS therefrom and non payment the the same to the credit of Central Govt. 3. The effective grounds raised by the revenue is Ground No.1. Apropos deletion of addition of ₹ 15,84,800/- made by AO on account of discounts and incentives paid to its buyers by the assessee firm since the assessee was the distributor of post paid connections and not of pre-paid connection and the groun .....

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Essar South Ltd. It was observed by the AO, that the assessee had debited discount/incentives at ₹ 15,84,800/- in its P&L account out of the commission amounting to ₹ 16,15,873/- received during the year. As per AO, the assessee was the distributor of the post-paid connections of the telecom company. It was intimated by the assessee that the assessee firm used to give the discounts/scheme & incentives to the wholesalers and retailers as per directions of the telecom company; .....

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the assessee to disburse discount/ incentives, copies of distribution agreement/contract regarding trading of SlM cards, recharge coupons, etc. and procedure for the said claim. The AO relying on the decisions in the case of M/s. Vodafone Essar Cellular Ltd. vs. ACIT, ITA No.1742 of 2009 (Ker), ACIT vs. Bharti Cellular Ltd. 1051TD 129(Kol) and other Court rulings held that the assessee firm got commission of ₹ 15,15,873/- which was subjected to TDS also; and so expenses claimed on disburs .....

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s an agent of the company and its activities whatsoever are on behalf of its principal telecom company. Similar agreement (CMU agreement: Pre-paid) dated 01-08-2006 existed between HESL and the appellant firm. It is further observed that the company had replaced it with a new agreement (Distributorship agreement) dated 28-03:-2007 so as to absolve itself from the liability of its distributors which have been discussed in the preceding paras. Therefore, the appellant firm's status in pre-paid .....

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ge or commission paid to the assessee. Further the appellant in its written submissions has admitted the fact that the payments to the extent of ₹ 15,84,800/- were in the nature of 'commission', which were passed on to the dealers and retailers. It is observed that the details of total claim of total claim of ₹ 15,84,800/- are as under:- Rs.13,01,133/- is F.C.F.R incentive Rs.2,03,155/- is CIFFID Incentive and ₹ 80,152/- is DMS & Market expenses It is observed that .....

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uch commission has been passed on. Admittedly, the appellant has not deducted tax on payment of commission as prescribed U/s 194H of the Act. The appellant has furnished the desired list which is made part of this' order as Annexure 'A', the details of the same are summarized as under:- No. Of Dealers/ retailers Discount/ Incentives less than ₹ 2500/- Discount/ Incentive more than ₹ 2500/- Total in (Rs.) 1 to 49 Rs.9,94,673/- Rs.3,06,460/- Rs.13,01,133/- From the details .....

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ove ₹ 2,500/-, provisions of section 194H are clearly attracted and the appellant was under legal obligation to deduct T.D.S. on such payments made but the same has not been done. Therefore the claim of expenses made by the appellant to the-extent of ₹ 3,06,440/- in its Profit & Loss Account are not allowable and hence the addition of ₹ 3,06,440/- is hereby made U/S 40a(ia) of Act, 1961. The A.O is directed to give effect to these directions. Ground No. 1 to 3 are allowed a .....

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py of distribution/ contract, detail of commission/ compensation paid co-relating the discount/ incentive were not produced before him. And since the commission is given by the Telecom Company to the assessee firm is not against the discount or incentives but service rendered by the assessee under the post paid scheme. And since the Telecom Company have deducted tax at source on the commission under the post paid service, not the compensation in the mode of reimbursement against the discount/ in .....

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The question whether the assessee is dealing with post paid or prepaid is immaterial. In both post-paid and pre paid the assessee company or the distributor has to deduct TDS as per the order of the Hon ble Delhi High Court as stated in the case of the Idea Cellular (2010) 325 ITR 148 (Delhi). The ld CIT(A) after observing that the assessee is into distributor of pre-paid connections has held:- From the language of this clause of the agreement, it is clear that the appellant firm was purely a di .....

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by the appellant firm should be examined from the angle of its business expediency and its genuineness. On examination of bills and records, it is observed that the appellant firm has actually passed on such commission (incentive/ discount) to dealers and retailers and such payment was expedient to the business requirements to remain in the competitive market. Therefore, the expenses so claimed prima facie are allowable and A.O. is not justified in disallowing the entire amount of ₹ 15,84, .....

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by way of commission or brokerage. The expression "commission" or brokerage has been defined in the Explanation, which includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying and selling of good or in relation to any transaction relating to the following services: (i) for services rendered (not being professional) and )ii) for any .....

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stributors. The Assessing Officer noted that under the agreement the distributors were required to store the SIM cards and recharge coupons in such a way as to clearly indicate all times that the pre-paid SIM cards/recharge coupons were owned by the assessee. They were not allowed to remove, obscure or delete any marks placed on the prepaid SIM cards/recharge coupons. The terms of the agreement further provided that without the written consent of the assessee the distributors (PMAs) shall not di .....

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ducts offered by the competitors of the assessee. The PMAs further appointed the retailers after the written approval of the assessee. The maximum price of SIM cards/ recharge coupons was also decided by the assessee. It was also found that under the agreement, it was the responsibility of the PMAs to obtain all the relevant information concerning a subscriber and to forward the same to the assessee; Unless that was done, no activation of SIM card could be done. Further, the assessee had the rig .....

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targets for the distributors were also set by the assessee and it reserved the right to terminate the agreement unilaterally. The Assessing Officer came to the conclusion that the transaction between the assessee and the pre-paid distributors were selling pre-paid SIM cards/ recharge coupons on behalf of the assessee. Consequently, the amount of discount offered to the pre-paid distributors was that of principal and agent at all times and the pre-paid distributors were selling pre-paid SIM card .....

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timate consumer/ subscriber, who was sold the SIM cards by the agents further appointed by the PMA with the consent of the assessee. It was created by : (a) activation of the 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 subscriber and the assessee. The nature of service provided by the assessee to the ultimate consumers/subscribers, whether it was pre-paid or post-paid SIM card remained the .....

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advance payment was made by the PMAs on receipt of the SIM cards, qua those SIM card it did not amount to "sale" of goods. The purpose was to ensure that the payment was received in respect of those SIM cards are to be returned to the assessee and the assessee was required to make payment against them. This was an antithesis of sale . There could not be any such obligation to receive back the unsold stocks. Further, clause 25(f) laid down that on termination of the agreement, the PMA o .....

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constituted commission and tax had to be deducted at source on such payment and we find that Vodaphone company deducted TDS u/s 194H of the Act, on the payment of ₹ 16,15,873/- as the payments are in the nature of brokerage or commission paid to the assessee. Further the assessee in its written submissions has admitted the fact that the payment to the extent of ₹ 15,84,800/- were in the nature of commission, which were passed on to the dealers and retailers. The ld CIT(A) has rightly .....

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