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2015 (7) TMI 175 - ITAT JAIPUR

2015 (7) TMI 175 - ITAT JAIPUR - [2015] 42 ITR (Trib) 686 (ITAT [Jai]) - Non-deduction of tax u/s 194H - transaction of prepaid card sold to distributor and price at which the end customer buys alleging the difference to be payment of commission - Held that:- Recently this Bench has decided similar issue in the case of Tata Tele Services,[2015 (3) TMI 1023 - ITAT JAIPUR] which is identical to the assessee’s case. The facts of the case has been demonstrated by the AR that the assessee was issuing .....

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ng/maintenance capacity augmentation are require human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also signifies charges for connecting two entities.

The Coordinate Bench also considered in i-GATE Computer System Ltd. [2015 (1) TMI 236 - ITAT PUNE] the Hon'ble Supreme Court decision in the case of Bharti Cellular Ltd.[2010 (8) TMI 332 - .....

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ny technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee’s appeal is allowed on this ground also.- Decided in favour of assessee. - ITA No. 656/JP/2010 - Dated:- 12-6-2015 - SHRI R.P. TOLANI & SHRI T.R. MEENA, JJ. For the Appellant : Shri Anil Bhalla & Shri P.C. Parwal (CA) For the Respondent : Smt. Rolee Agarwal (CIT) ORDER PER: T.R. MEENA, A.M. This is an appeal filed by the assessee against the order dated 22/02/2010 .....

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ing Officer (TDS) has erred both on facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduction of tax amounting to ₹ 55,00,794/- u/s 194H on the difference between the price at which the prepaid card is sold to the distributor and the price at which the end customer buys alleging the difference to be payment of commission. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholdi .....

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f roaming charges. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 2.1) The learned Assessing Officer (TDS) has erred both on facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduction of tax amounting to ₹ 10,18,92,350/- u/s 194J on the amount paid to other telephony operators for roaming charges incurred by the appellant .....

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f Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage. 2. The ground No. 1 of the appeal is against confirming the addition on transaction of prepaid card sold to distributor and price at which the end customer buys alleging the difference to be payment of commission. Liable to be deducted TDS U/s 194H of the Income Tax Act, 1961 (in sho .....

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gents and has deducted TDS in respect of the amount of commission paid to these distributors. In the case of prepaid products, the distributors distribute Airtel s retail package products like prepaid SIM card, recharge coupons and mobile products. The assessee provided these services through them by supplying to them Starter Pack and Rechargeable Coupons, which is commonly known as SIM card and prepaid card. These SIM cards And rechargeable coupons are purchased by the distributors appointed by .....

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as per the provisions of Section 194H of the Act on commission paid to these distributors but the assessee had not deducted any tax at source on the plea that there is principal to principal relationship between them and also prepaid product and services were sold to the distributor at a discounted price and as such no commission was paid to them. The ld ITO(TDS) tabulated month wise details of MRP and dealer price and difference between MRP and dealers price for the F.Y. 2008-08 on page 2 of th .....

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show cause notice vide letter dated 29/1/2009 U/s 201(1) and 201(1A) of the Act, which was replied by the assessee vide letter dated 11/2/2009, which has been reproduced by the ITO(TDS) from page 14 to 17 of its order. After considering the assessee s reply, it has been held that as per clause 9.2 of the agreement, it is clear that there was a principal and agent relationship between them and the assessee was paying fixed commission to these distributors in garb of discount. The entire ownershi .....

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got all the right to regularly monitor the operations of distributor, monitor or investigate the manner in which business operations are carried on by such distributor, which is absent in the case of sale on discount. The assessee company can direct the distributors about the manner in which such product would be sold in the market. Nomenclature given by the assessee as discount is nothing but commission paid by the assessee to distributor for service rendered by them. He further analysed the c .....

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9) where the facts are identical to present case, it was held by the Hon ble ITAT, Kolkata that the price difference i.e. net receipt by the distributor is commission in nature and not discount. Failure by the assessee to deduct tax at source U/s 194H made him assessee in default and the A.O. was justified in making demand U/s 201(1) and interest U/s 201(1A). He further relied upon the decision of Hon ble ITAT, Jaipur Bench in the case of Hindustan Coca Cola Beverages Pvt. Ltd. 97 ITD 105 wherei .....

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uct TDS, it is deemed default U/s 201(1) and 201(1A) of the Act. The ld ITO(TDS) calculated the payment U/s 201(1) U/s 194H at ₹ 55,00,794/- and interest thereon U/s 201(1A) at ₹ 4,41,020/-. 3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- 2.3.1 I have carefully considered the facts of the case and submissions of Ld. AR. On perusal of the relevant records .....

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any was liable to make TDS u/s 194H of the IT Act in respect thereof. In this regard, I find that this issue is directly covered against the appellant company by the decision of Hon ble ITAT, Cochin Bench in the case of M/s Vodafone Essar Cellular Ltd. Vs. ACIT (2010) 35 DTR (Coh)(Trib) 393 and by the recent decision of Hon ble Delhi High Court in the case of CIT V/s Idea Cellular Ltd. (2010) 35 DTR (Del.) 219, in which the Hon ble High Court has held that the discount offered by the assessee to .....

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he appellant. Accordingly, it is held that the appellant company was liable to make TDS u/s 194-H of the I.T. Act on the difference between the market price of the aforementioned prepaid products and the discounted price, at which they were given to the distributors. Alternatively, the ld CIT(A) allowed the appeal by considering the Hon'ble Supreme Court decision in the case of M/s Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT 293 ITR 226 (SC) and Assessing Officer was directed to verify t .....

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different distributors who in turn sell on out right basis to retailers. The ld AR explained the nature of prepaid product. The distributors sold its product to retailer and price is left to the retail chain as per competition and market forces. The prepaid product which gives a right to use airtime of a specified value, is to be taken as a good or merchandise capable of being transferred. The Hon ble Gujarat High Court had described in case of Ahmadabad Stamp Vendors 257 ITR 202 (Guj). There a .....

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this case that beta-cam tape (cassette) was only a medium of transfer; that there was no sale of the film in beta-cam format and that the assessee had only transferred the right to use for a period of five years and since the title remained with the assessee, the impugned transaction fell outside section 80HHC. He further argued that difference between the two is getting blurred with globalization and cross border transaction with help of technology. In this context the right to use airtime and .....

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pilferage or damage. This proves that the property in this case stands transferred. It is of no consequence that the service to be provided which is captured in the startup pack is to be delivered at a later stage. He also drawn our attention on sample of challan and invoice raised by the company on the distributors to show that a product or merchandise which has to right to use talk time upto a specified value has been sold. (PB 348-353). The ld AR further argued that the provisions of Section .....

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lkata High Court decided this issue but Hon ble Karnataka High Court recently decided the case of Bharti Airtel Limited by considering all above cases of various High Courts and decided the case in favour of the assessee. Ld. AR further has drawn our attention on the decision of ITAT Jaipur Bench in the case of M/s Tata Tele Services Limited ITA No. 309/JP/2012, 502, 503, 504 & 505/JP/2011. In this decision on identical facts and issues the Hon ble ITAT has held that the sale of prepaid prod .....

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he principles that in case of divergence of judicial opinion, a view favour of the assessee is to be adopted as held by the Hon'ble Supreme Court in Vegetable Products Limited 88 ITR 192 and Vatika Township Pvt. Ltd. 367 ITR 456. He further drawn our attention on decisions of Hon ble Karnataka High court in the case of Bharti Airtel Ltd., therefore, he prayed to allow the appeal on this ground. 5. At the outset, the ld Sr. D.R. has vehemently supported the order of the ld CIT(A) and argued t .....

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t amount on MRP has been fixed on prepaid card sold. The assessee has not transferred any income to the distributor but the distributor was allowed to avail the airtime to the extent of MRP price. In books of account, the assessee had credited these receipts on net basis. The finding on the case of Tata Tele Services is reproduced as under: 2.23. We find merit in the contention of ld. Counsel that there is no jurisdictional high court judgment on this issue. Hon ble Karnataka High Court Judgment .....

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e. Respectfully following the same we hold that: a. 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. b. There is no relationship of Principal and agent between assessee and distributors as held by authorities below their orders are reversed. c. Looking at the transaction being of Sale/Purchase and relationship being of principal to principal the discount d .....

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ng charges paid by the assessee being a fee for technical services. The ld ITO(TDS) observed that the assessee had paid roaming charges to other mobile operators. The assessee is providing GSM mobile services to its subscribers. The mobile subscribers of the company have been given the facilities of getting connected/avail of telecommunication facility, when they are not in the area being covered by the assessee company, through other mobile operators. To avail such services, the assessee compan .....

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m the word technique which means a particular or a special way of doing something. He further described how roaming services is technical services, which is reproduced as under:- If the subscriber of Rajasthan Circle goes to Maharashtra when he reaches Maharashtra, the network of Maharashtra catches signals from his mobile and identifies IMSI (International Mobile subscriber Identity) of the Subscriber. The network of Maharashtra circle shall automatically find out from IMSI of the subscriber as .....

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asthan circle shall then authenticate the subscriber. The service provider of Rajasthan circle has the data of subscriber which will be sent to Maharashtra circle and date of Rajasthan subscriber shall be stored in the Visitor Location register of Maharashtra circle. This data enables the services provider of Maharashtra to verify various aspects such as whether subscriber enjoys the ISD facilities or not etc. After completing this aspect, the subscriber who has gone to Maharashtra can access th .....

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e ld ITO(TDS) has further observed that the entire process of roaming is thus highly technical and can be executed only if there is a contract between two service providers. The entire system is being operated/managed by highly skilled professionals. A small technical fault can disturb the entire system. Therefore, highly technical persons are constantly monitoring the system. The entire process depends on IMSI which is a unique number comprising of MCC (Mobile Country Code), MNC (Mobile Network .....

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t to the subscriber. Thus roaming service is a highly technical service and therefore while making payments the assessee was required to deduct TDS which it had not done. The ITO(TDS) gave reasonable opportunity of being heard to the assessee vide letter dated 29/01/2009, which has been replied by the assessee vide letter dated 11/02/2009 and 12/2/2009, which has been reproduced by the Assessing Officer on page 27 to 30 of the order. The ld ITO(TDS), therefore held as under:- (1) Roaming is not .....

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s to connect their equipments, network and services to enable their customers to have access of telecom network wherever they move. (5) All the necessary arrangements are being made by the Home Service provider to enable its subscriber to get connected in all other circles. The subscriber need not interact act for any roaming services with other service provider. It is the technology established between two service providers which executes roaming system. (6) The subscriber has to get roaming ac .....

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facility. (8) The subscriber does not require to change the SIM card but by using the SIM card of Home Service provide he can access other network. (9) As per the agreement the other service provider raises bill on the Home Service provider and only the Home Service provider is liable to pay the amount irrespective of payment made by subscriber. The subscriber and service provider of other circle are no way liable for any thing with each other. (10) If the subscriber does use SIM of Home Servic .....

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anaged by the highly skilled technical. A small technical problem can disturb the connectivity of entire region. To avoid such eventuality the entire process is being monitored by skilled persons. (13) This clearly shows that the service provider of another region to whom roaming charges are paid is not providing services directly to ultimate customer but it is providing services to another telecom operator to facilitate its customers. (14) The provision of section 194J refers to any sum paid by .....

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fore it is required to deduct TDS from the payments made to obtain these services. The ld. ITO(TDS) considered the following decisions on which the assessee claimed that roaming charges is not covered U/s 194J of the Act. (i) Skycell Communication Ltd. 251 ITR 53 (Madras) (ii) Bharti Cellular Limited ITA No. 1120/2007) (iii) DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). (iv) ITO Vs. Moving Pictures Company India Ltd. 20 SOT 120 (Delhi). (v) Kotak Securities Ltd. Vs. Addl.CIT 25 SOT .....

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considered the Hon ble ITAT Ahmadabad observation that the definition of fees for technical services is very wide, which covers within its ambit any managerial, technical or consultancy services rendered by a person. The MICR facility provided by the SBI, which identified, read and cleared the cheque through its special kind of machines. Therefore, the same is fees for technical services. The service of this nature, in our opinion involves human skill as well as computerized machines. It is not .....

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a fee for technical services and liable to be deducted TDS U/s 194J of the Act. The ITO(TDS) rejected the assessee s request to apply the Hon'ble Supreme Court decision in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT (supra) as payees has not filed its return of income. Therefore, the benefit of Hon'ble Supreme Court decision cannot be given. Accordingly, he created the demand U/s 201(1) on roaming charges of ₹ 10,18,92,350/- and interest thereon U/s 201(1A) of the A .....

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ment with the roaming service provider and is, therefore, liable for payment of roaming charges on its own behalf, as per the terms and conditions of the agreement. Hence, whether, later on, it charges for roaming services from its customers or not, this fact is not relevant and does not exempt the appellant company from the liability of TDS. Further, I find that the ld. A.O. has correctly held that the roaming facility provided by the other telecom service provider to the Home Service Provider .....

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se. However, in this connection, I agree with the detailed observations of the Ld. A.O. given in para 3.6 of his order (on pages 33 and 34) that the facts of above two cases are different, as compared to the facts of the present case and hence, the decisions given in those cases are not applicable in the present case. Therefore, I find no merit in the submissions of the ld AR for the reasons discussed in the order of the ld A.O. The ld CIT(A) confirmed the order of the ITO(TDS) U/s 194J of the A .....

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ices and therefore, the amount paid for roaming is technical fee in terms of Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act. The ld AR explained the roaming service and submitted that Hexacom subscriber in Jaipur travels of Mumbai switches on his mobile device after reaching Mumbai. Where the subscriber travels by land he automatically receives a message transferring to the roaming network on visiting another telecom, circle. * Visiting network (e.g. Airtel in Mumbai) locat .....

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the mobile device which is not visible to human. * Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. * The Hexacom s subscriber in Mumbai, who is temporarily registered as Airtel s subscriber makes calls in Mumbai and the minutes are registered in his identity for which he has to pay through Hexacom Jaipur. * Alternatively, a called from Jaipur makes a call to Hexacom s subscriber which is routed .....

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GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. * TAP file contains details of calls made by subscriber, viz., location, calling party, time of call and duration, etc. * TAP/CIBER files are rated as per tariffs charged by visiting network operator. * Such TAP/CIBER file is transferred to home network of subscriber (i.e. to Hexacom). * Home network (i.e. Hexacom) then bills these calls to the Hexacom s subscriber and pays roaming charges based on the TAP to the visited netwo .....

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the visiting circle sends the air minutes to be recovered from the roaming subscriber to the Home circle for recovery from the subscriber who had visited the visiting circle. Technical fees * It is an accepted fact that technical service can be said to have been rendered if there is an involvement of human element or there have been use of cerebral faculties in the provision of technical services by the recipient of fee. * This is so because the word technical comes in between the words manageri .....

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e. The ld CIT(A) partly accepted that roaming process is technical because it uses various instruments such as MSC (Mobile Switching Centre), VLR (Visitor Location Register), Radio network, towers, BTC etc. but the system is operated/managed by the Highly skilled professionals. The assessee s argument was that the roaming service is managed automatically by machines and payment for roaming charges are not fees for technical services. In case of fault in a breakdown of a system, the professional .....

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erference in it. The human interference is required to maintain the robust network only to ensure break down free service to the subscriber. The network owner has to maintain for itself, its network in robust condition. The technical support of the staff is required to maintain the equipment and gazettes but it is not a service for roaming facility provided to the subscriber. There is commercial arrangement to connect the technical networks basically to be able to do business. In fact DOT mandat .....

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plated under Explanation 2 to Section 9(1)(vii) of the Act and not liable for tax deduction at source U/s 194J of the Act. This view has been earlier held by the Hon ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT (2001) 251 ITR 53 (Mad) order dated 23/2/2001 wherein the Hon ble High Court has held that provisions of Cellular mobile telephone facility to subscribe is not a technical service. Deduction of tax at source need not to be made from subscriptions U/s 194J of t .....

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on 194J would come into effect only when by making payment of fee for technical services, assessee acquires certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by user of such equipment, the same does not result in the provision of technical service to the customer .....

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t payments made for utilizing such services was not in the nature of technical services governed by Section 194J of the Act. He further relied on the decision of ITAT Ahmadabad Bench in the case of Canara Bank Vs. ITO 305 ITR (AT) 189 wherein MICR charges paid to SBI held not to be covered U/s 194J read with Section 9(1)(vii) Explanation-2. He also relied on the decision of Hon ble Bangalore ITAT in the case of Bangalore Electricity Supply Co. Ltd. Vs. ITO(TDS) order dated 16/3/2012 2012(20) ITR .....

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6. He also relied on the decision in the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon'ble Supreme Court. The Hon'ble Supreme Court has held as under:- In cases requiring examination by technical experts, the Department ought not to proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC count .....

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on whether the cellular provider has rendered technical services and has to deduct tax at source, depended on whether the charges were for technical services, and this involved determination of whether any human intervention was involved, which could not be determined without technical assistance. Decision of the Delhi High Court in CIT v. BHARTI CELLULAR LTD. [2009] 319 ITR 139 set aside and matter remanded to the Assessing Officer with directions. After this decision, the ld Assessing Officer .....

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le interconnected uses process, no manual intervention is required. He further drawn our attention on page No. 651 to 652 for postpaid as well as prepaid roaming charges charged between the operators from Mr. Kapoor Singh Guliani. The appellant also taken opinion from Former Chief Justice of India Mr. Kapadia on IUC post technical examination, cross examined and reexamination. Who also opined that Hon'ble Supreme Court decision dated 12/08/2010 is an order not judgment as the principle of la .....

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vention. But the roaming process between participating entities is fully automatic and does not require any human intervention. Accordingly, the interconnected uses charge will not attract the provisions of Section 194J read with Section 9(1)(vii) read with Explanation-2 thereto. Therefore, he prayed to delete the addition. 10. At the outset, the ld Sr. DR vehemently supported the order of the ld CIT(A). 11. We have heard the rival contentions of both the parties and perused the material availab .....

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