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2015 (6) TMI 448 - ITAT JAIPUR

2015 (6) TMI 448 - ITAT JAIPUR - TMI - Liability to deduct tds - commission to the distributors in relation to the distribution of pre-paid talk time - Held that:- It is undisputed fact that the assessee has been issuing bills after allowing the discount on MRP in net and charged service tax on it. There is no transfer of income from assessee to distributors but MRP is fixed on the prepaid services. At the time of sale, the distributors received the sale proceed either from the retailers or cust .....

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ay of these sale transactions is sale of service embedded or encrypted on SIM cards, and treating same as 'Principal to Principal transaction'. Thus assessee is not liable for deduction u/s 194H. Therefore we reverse the orders of lower authorities on these issues and delete the demand. - Decided in favour of assessee. - ITA Nos. 64, 65 & 66/JP/2013 - Dated:- 29-5-2015 - R. P. Tolani, JM And T. R. Meena, AM,JJ. For the Appellant : Shri Alok Basant For the Respondent : Shri Rajesh Ojha ORDER Per .....

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ax under the provisions of Chapter XVII B of the Act on the trading margin that the distributors could have potentially earned from sale of pre-paid talk time/prepaid products and recharge coupons. 1.1. The Ld. CIT(A) has grossly erred in not appreciating the fact that the appellant was not responsible for paying any income by way of commission to the distributors in relation to the distribution of pre-paid talk time and accordingly, there was no obligation on the appellant to deduct tax under t .....

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ellant and the prepaid distributors is that of a 'Principal and Principal' in the context of distribution of pre-paid talk time and merely relying upon the incorrect assumptions, allegations of Ld. A.O. who in turn relied upon irrelevant and extraneous considerations while omitting to consider relevant facts, considerations and correct legal position. 1.4 The Ld. CIT(A) has in the facts and circumstances of the case and in law, erred in not taking cognizance of the fact that wherever any .....

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of section 194G and 194H in the Act simultaneously and in absence of a specific provision, the appellant was under no obligation to withhold taxes on the trading margin that the distributors could potentially make from further sale of talk time. 1.6 The Ld. CIT(A) has grossly erred by not considering the contentions advanced by the appellant in its written submissions dated October 8, 2012 including the judgment by the Hon'ble Supreme Court in the case of CIT v. Ahmadabad Stamp Vendors Asso .....

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natural justice and hence, liable to be quashed. 3.1 On the facts and circumstances of the case and in law, the Ld CIT(A) has erred in passing the impugned order in gross violation of the principles of natural justice and due process of law since no reasonable opportunity was granted to the appellant to put forth its contentions which is evident from the fact that the detailed written submissions, dated October 8, 2012, filed by the appellant were not even discussed nor negated in the impugned o .....

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ppellant to be an 'assessee in default' to the extent of taxes that would have been paid by the payee on their own and ought not to have held that the appellant had failed to discharge its onus when addresses and PAN were duly made available within the time-frame allowed by the Ld. A.O. 5. Without prejudice, the Ld. CIT(A) erred in facts and in law in dismissing the ground of the appellant that no interest under section 201(1A) of the Act can be charged when the tax due has already been .....

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3 of the appeal is against not appreciating the relationship between the appellant and the pre paid distributors is that of a Principal and Principal and ground No. 2 of the appeal is against not considering the submissions made by the assessee and in ground No. 4, alternatively the recipient had shown the receipt in their income. The assessee is a telecommunication service provider company. There was a survey by TDS wherein on 05/10/2006 as per Assessing Officer, the assessee made payments to d .....

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eductor, this is only a trade discount and not a commission. The relationship between the assessee and distributors is a principal to principal, therefore, no TDS is liable to be deducted on discount as no income has been transferred to the distributors by the company. The submission of assessee was not found convincing to the ITO (TDS). He referred Section 194H of the Income Tax Act, 1961 (in short the Act) and the assessee was treated in default for non-deducting and depositing TDS. He worked .....

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he amount of non deduction from financial year 2006- 07/2007-08/2008-09. Your good self has stated that as per agreement it is evident that there is principal agent relationship between you and your dealer and therefore TDS is required to be made U/s 194H of the Act. However, your goodself has not painted out any specific terms and condition which suggest that there is principle agent relationship. It is thus requested to provide specific detail, so that detailed explanation can be submitted to .....

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e called our channel partner. But the distributors of prepaid products shall not deal with postpaid products the number of distributors of the prepaid products is far higher than the channel partners. In post paid category, channel partners acts on behalf of Rainbow in terms of creating a contract for supply of services, collects security deposits, renders outsourced value added services to mobile subscribers etc. thus the Channel partners are the agents of Assessee Company and the relationship .....

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roducts and are permitted to deal with other competitors products (with prior permission) Thus, the transaction between the company and the distributor of prepaid products is on principal to principal basis. 3. The discount margin given to the distributor on the retail price of the prepaid products cannot be termed as commission paid, within the meaning of section 194H. It is a general trade practice, in many lines of activities of trade, commerce and industry, that when the products are sold th .....

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created between the company and the distributors. The reliance was placed on cases of Gujarat High Court in the case of Ahmadabad Stamp Vendors Association 257 ITR 202, Kerala High court in the case of M.S. Hameed 249 ITR 186 and the Delhi Tribunal in the case of Idea Cellular Ltd. 5. The explanation provided in Section 191 clarifies that the principal officer shall be deemed to be an assessee is default U/s 201(1A) only when he does not deduct the whole or any part of the tax and such tax has n .....

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ca Cola Beverages (P) Ltd. Vs. CIT 293 ITR 226 (SC). (ii) CIT Vs. Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. 287 ITR 354 (Raj.) (iii) NHK, Japan Broadcasting Corporation Vs. DCIT 305 ITR 137 (Delhi). (iv) Manglore Refineries and Petrochemicals Vs. DCIT 113 ITD 85/311 ITR 91 (AT)(Mum). (v) CIT Vs. Eli Lilly and Company India Pvt. Ltd. & Ors. 312 ITR 225. (vi) Rajya Vidhyut Prasaran Nigam Ltd. 287 ITR 354 (Raj.) (vii) TRO Vs. Bharat Hotels Ltd. 28 DTR 27 (Bangalore). After considering the ass .....

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he property does not sell it as his own property but sells the same as the property of the principal and under his instructions and directions. In the instant case, the commodity involved is inextricably linked to a set of services which are identified and sold under a brand name. A distributor for STL prepaid cards does not sell them as his own property but as that of the company. What is being traded is not a mere physical item but access to a cellular network which is at all times the propert .....

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e principal becomes owner of goods and exerts full control over the operations thereon; in the instant case, the various restrictions and conditions imposed on the distributors renders them mere agents and not independent principals. iv. In a discount sale, once goods are sold there cannot be any restriction by one principal on another as to how and where to sell these goods. The distributorship agreements in the instant case clearly denote a geographical area of operation and the manner in whic .....

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erwise deal in similar products of other competitors during the continuance of the agreement and for one year after termination. Thus, once a distributor signs the agreement, he becomes an exclusive representative of the assessee company. Since the terms of the agreement forbid him from displaying or dealing in similar products, he cannot be considered an independent principal. In his interaction with retailers and customers, he is a promoter and marketer of the assessee's particular brand o .....

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the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- "02.3 I have duly considered the submissions of the Ld. AR and the material available on record. The issue is squarely covered in favour of department by the following decisions of High Court and Tribunal:- 1. ACIT Vs. Bharti Cellular Ltd. (61 DTR 225) (Cal) 2. Vodafone Essar Cellular Ltd. Vs. ACIT (332 ITR 255) (Ker) 3. CIT Vs. Idea Cellular Ltd. .....

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ectfully following the aforesaid decisions, I uphold the finding of the A.O. and dismiss the ground of the appellant. 03. The appellant raised an alternative plea that the A.O. ought not to have held the appellant as "assessee in default" to the extent of taxes paid by the payees in view of the Hon'ble Supreme Court decision in the case of Hindustan Coca Cola Beverages P. Ltd. (293 ITR 226). 03.1 The claim of the appellant has been considered by the ITO, TDS as discussed in point 1 .....

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laiming the benefits of decisions of Hon'ble Supreme Court. Since the appellant failed to discharge this onus, the alternative plea raised by it, is dismissed." 5. Now the assessee is in appeals before us. The ld AR for the assessee has reiterated the arguments made before the ld CIT(A). He further submitted that the assessee's appeal is squarely covered by the recent decision dated 13/3/2015 of the Hon'ble Jaipur Bench of ITAT in the case of Tata Teleservices Ltd. Vs. ITO in IT .....

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e that the sale bill issued net after allowing the discount on MRP. Therefore, no money was transferred to distributors by the assessee. The assessee had paid service tax on it as services provided by the assessee. The distributors only can sell the prepaid services/goods up to maximum MRP to the retailers or customers directly. He further drawn our attention on audit report at page 25 that service rendered are recognized as service are rendered and are net of discount and service tax. Therefore .....

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bmitted that on this commission, the assessee has deducted TDS and paid to the government exchequer. 7. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee has been issuing bills after allowing the discount on MRP in net and charged service tax on it. There is no transfer of income from assessee to distributors but MRP is fixed on the prepaid services. At the time of sale, the distributors received the .....

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