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2015 (5) TMI 796 - CALCUTTA HIGH COURT

2015 (5) TMI 796 - CALCUTTA HIGH COURT - [2015] 375 ITR 566 (Cal) - TDS 194H - commission or discount - discount allowed by the appellant to the distributors in respect of starter packs and recharge coupons for its prepaid service - whether amounted to payment by the appellant of commission or brokerage within the meaning of section 194H ? - Held that:- The agreement between the assessee, who has been referred to therein as ‘HTEL’ and Poddar Communications, who has been referred to in the agreem .....

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he shall keep the assessee informed as regards any infringement or violation of the intellectual property rights of the assessee; (f) he shall maintain the branch image of HTEL and shall not do anything which may tarnish or spoil or reduce the value of the assessee; (g) he shall keep the assessee informed as regards feed back received from the customers and shall also keep the assessee informed as regards the purchases and inventory; (h) he shall pay the service tax to the assessee as may be as .....

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The terms and conditions noticed above leave no manner of doubt that the relationship between Poddar Communications and the assessee appearing from the agreement relied upon by Mr. Khaitan is that of an agent and principal. Poddar Communications appears to have been employed to act on behalf of the assessee for the purpose of feeding the retailers and through them to sell the services to the consumers. Thus the appellant was a person responsible for paying commission and, therefore, .....

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ing an appeal preferred by the revenue pertaining to the assessment year 2004-05. The assessee has come up in appeal. The following questions were formulated at the time when the appeal was formally admitted:- 1.Whether the Tribunal was justified in law in holding that the discount allowed by the appellant to the distributors in respect of starter packs and recharge coupons for its prepaid service amounted to payment by the appellant of commission or brokerage within the meaning of section 194H .....

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as justified in law in rejecting the said contention of the appellant? Mr. Khaitan, learned Senior Advocate appearing for the appellant restricted his submissions to the question as to whether there was, in fact, a relationship of principal and agent between the assessee and his buyers or that the goods were sold on principal to principal basis. Mr. Khaitan added that once this question is resolved, the questions formulated at the time of admission of the appeal have to be consequently answered. .....

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ent by way of Account Payee cheque or Banker s Draft or in such other manner as HTEL may agree; (k)Pay the Service tax to HTEL as may be assessed and levied from time to time; (17) NO CREATION OF THIRD PARTY OBLIGATIONS The Service Provider shall not assume or create any obligations on HTEL s behalf without any prior written permission or incur any liability on behalf of HTEL or in any way pledge or purport to pledge HTEL s credit or accept any contract binding upon HTEL without HTEL s prior wri .....

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the above discussion, we are unable to accept Mr.Joshi s submission that the present agreement is merely for distribution of Ciba products through the assess-firm. What is described as entrustment of goods and agreement for distribution really commences with the payment of price of all the goods supplied and delivered by the assessee-firm to the importers, and since the agreement authorises the assessee-firm to sell all these goods for itself, the phrase entrustment must be held to be in law not .....

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uses 19 and 30, the assessee-firm held the goods delivered to it in trust for and on behalf of the importers. Under the circumstances, it must be held that the finding made by the Tribunal that the above agreement was an agency agreement was not correct. The true fact is that the agreement made between the assessee-firm and the importers mentioned above was not an agreement of agency as was necessary for levying income-tax on the assess-firm in respect of the sum of ₹ 50,000 mentioned in t .....

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dealings between the parties. He also drew our attention to the judgment in the case of Moped India Limited Vs Assistant Collector of Central Excise reported in 1986(1) SCC 125 wherein the following views were taken:- 7. That takes us to the second question, namely, whether the Division Bench was right in taking the view that the commission of ₹ 110, 145 and 165 per moped in respect of different varieties of mopeds sold to the dealers could not be said to be trade discount. Mr. Nariman, l .....

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e amount is trade discount or not, whatever be the name given to it. If we look at the terms of the agreement, it is clear that the agreement was between the appellants and the dealers on principal to principal basis. The clauses of the agreement which we have set out above clearly show beyond doubt that under the agreement, the mopeds were sold by the appellants to the dealers and the dealers did not act as agents of the appellants for the purpose of effecting sales on behalf of the appellants. .....

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appellants until they arrived at the premises of the dealer and this again would show that the dealers acted as principal to principal in purchasing the mopeds from the appellants. The dealers were also liable under Clause 6 of the agreement to maintain adequate organisation for sale and service of the mopeds, including show rooms, service stations, repair shops, spare parts, salesmen etc. and the mechanics were also to be trained at the cost of the dealers. The relationship between the appellan .....

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the dealers were clearly trade discount liable to be deducted from the price charged to the dealers for the purpose of arriving at the excisable value of the mopeds . He also drew our attention to the judgment in the case of Bharti Airtel Ltd. Vs. Deputy Commissioner of Income-Tax reported in (2015) 372 ITR 33 (Karnataka) wherein the following views were taken:- 59) 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 t .....

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of income to the distributors by reselling the pre-paid cards to the sub-distributors/retailers. As at the time of sale of pre-paid card by the assessee to the distributor, 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 d .....

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o the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur expenditure for the purchase of prepaid cards. Only after the resale of those pre-paid 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 .....

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on that the assessee sells sim cards to the distributor and allows a discount of ₹ 20, that ₹ 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 .....

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The relationship between the assessee and the distributor is that of principal to principal 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 d .....

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n taken. Such judgments include a judgment of this Court. Mr. Bhowmik, learned advocate, appearing for the Revenue drew our attention to those judgments, wherein a contrary view was taken. They are the judgments in the case of C.I.T. Vs. Idea Cellular Ltd. reported in (2010) 325 ITR 148(Delhi), wherein the following view was taken:- …that the legal relationship was established between the assessee and the ultimate consumer/subscriber, who was sold the SIM card by the agents further appoin .....

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ssee to the ultimate consumers/subscribers, whether it was pre-paid or post-paid SIM card remained the same. The SIM cards wereprepaid which were sold by the assessee to the consumers through the medium of PMAs. In the case of post-paid SIM cards, the transaction is entered into directly between the assessee and the subscriber and the subscriber was sent a bill periodically depending upon the user of the SIM card for the period in question. In both the cases, the legal relationship was created b .....

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s 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 or its authorised retailer appointed by it, was 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 cause of sale . The payment by the assessee constituted commission and tax had to be deducted at source on such pa .....

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tion of commission as defined under Explanation (i) to section 194H. Since permission given to agents was to withhold 15 per cent out of advertisement charges collected by them from the customers, and payable to Doordarshan, it was nothing but a payment made to agents in advance by Doordarshan before remittance of net advertising charges to them by the agents. Irrespective of the pattern of account maintained by Doordarshan, what happened when the agent paid 85 per cent of the advertisement char .....

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tant Commissioner of Income- Tax(TDS)(Kerala) reported in (2011) 332 ITR 255, wherein the following view was taken:- …the distributor acted on behalf of the assessee for procuring and retaining customers and, therefore, the discount given was commission within the meaning of Explanation (i) on which tax was deductible under section 194H. The judgment of this Court is in the case of Bharati Cellular Limited Vs. Assistant Commissioner of Income-Tax and Another reported in (2013) 354 ITR 507 .....

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ed by the assessee, and (iv) the rate at which the franchisee sold to retailers and that at which the assessee sold to the franchisee, was also regulated and fixed by the assessee. From the conditions in clauses 16, 16.1, 16.2 and 16.3 of the agreement, it emerged though the nomenclature had been used as franchisee, the agreement was essentially that of the principal and agent albeit the stipulation in clause 16.2. In the real sense, the franchisee acted on behalf of the assessee for selling sta .....

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tained therein which include (a) that the service provider shall keep the premises open for the purpose of rendering and performing services during the office hours; (b) he shall maintain at least one telephone line and email connectivity; (c) he shall maintain minimum support staff; (d) he shall not correct, amend or remove any signets from the products of the assessee; (e) he shall keep the assessee informed as regards any infringement or violation of the intellectual property rights of the as .....

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to be in competition of the business of the assessee; (j) he shall comply with all instructions and directions of the assessee; and (k) he shall not transfer or assign or sub-licence any of its rights and obligations. In consideration of the service to be rendered by him, he shall get a commission at the rates as per the policy to be adopted by the assessee from time to time. The terms and conditions noticed above leave no manner of doubt that the relationship between Poddar Communications and .....

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her the compensation received by the assessee was a revenue receipt or a capital receipt. The contention was that the compensation had been received by the assessee because the agency was surrendered for some of the territories. In lieu of such surrender, the compensation was paid by the principal. It is in that context, the question was considered and it was held that the sum paid to the assessee did not partake the character of compensation at all. We do not find any applicability of this judg .....

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ase of Moped India Limited (Supra) was whether the discount granted amounted to commission. It was found by the Apex Court that the dealers were wholesale buyers of the mopeds manufactured by the appellants and since the transactions between them were on principal to principal basis, it was difficult to appreciate how the appellants could possibly be said to have any interest, direct or indirect in the business of the dealers. If it could be said that the dealings and transactions between the as .....

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