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TMI Blog2015 (7) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence liable for deduction of tax at source under the provisions of Section 194H of the Act. 3. The assessee, engaged in the business of providing mobile telephone services, was subjected to a survey on its business premises on 26th August 2008. During the course of this survey, it was noted that the assessee sells "pre-paid vouchers, of various face value, to its distributors, at a rate lower than its face value". It was also noted that the "the difference (between the face value and the price at which is sold) is nothing but commission on which no tax has been deducted". It was also noted "the relationship between the .... (appellant) and the distributor was on principal and agent basis, and, therefore, any amount paid to the agent by way of the margin is commission". It was also noted that under section 194H, a person making payment for commission has the obligation to deduct tax at source, but the assessee has not complied with this statutory obligation. It was in this backdrop that the assessee was that the proceedings for treating the assessee as an assessee in default , in this respect, were initiated against the assessee. During the course of these proceedings, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly the same business. Therefore, it is not possible to hold that sim card and recharge coupon delivered by the company to distributors are goods because the relationship between the company and distributors is to provide service to customers through distributors. It is quite apparent that service can only be rendered and not sold. This is because the company has right to operate of cellular telephone service provided and ultimate service is provided by the company to every customers. The distributors are acting and link in the chain of providing Mobile service. Ultimate service are provided by company to the public at large. Therefore, essence of service rendered by the distributors are not sale of any product or goods. Since it is not possible for the company to provide all these services directly to the customers, the deductor has made out business solution to appoint distributors to take care of operational activity of the company to provide service and the distributor is important link in that chain of service. Moreover, the essence of prepaid card and postpaid card, sim card etc are same to provide service to customers and difference is of billing. In prepaid card amount are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 2.10 In my view, the case of the appellant is squarely covered by the judgment of the Kerala High Court in the case of Vodafone Essar Cellular Limited reported at 235 ITR 393. The Kerala High Court has, in paragraph 6, categorically held as under: ........because we have clearly found that the discount paid to the distributors is for service rendered by them and the same amounts to "commission" within the meaning of that term contained under Expln. (i) to s. 194H of the Act. The impugned orders issued under ss. 201(1) and 201(1A) of the Act are only consequential orders passed on account of default committed by the assessee under s. 194H and, therefore, those orders were rightly upheld by the Tribunal. We, therefore, dismiss all the appeals filed by the assessee. Thus, respectfully following the above judgment of Hon'ble Kerala High Court (in the case of the group company of the appellant), I am of the view that discount offered by the appellant to its prepaid distributors is in the nature of commission within meanings of Explanation (i) to Section 194 H of the Act. I, therefore, hold that the learned AO has rightly held that the appellant was required to deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, 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 prepaid 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 assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the net income which is chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of tax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid. 64. In the case of Vodafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs. 100/ - in their books of accounts and showing the discount of Rs. 20/ - to the dealer. Only if they are showing Rs. 80/ - as the sale price and not reflecting in their accounts a credit of Rs. 20/ - to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (supra) squarely apply to the assessee which is nothing but the successor company which has taken over the business of BPL Cellular Ltd. in Kerala. So much so, there is no sale of any goods involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee. The terms of distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification and documentation which responsibility is entrusted by the assessee on the distributors under the agreement. It is pertinent to note that besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. Even though the assessee has contended that the relationship between the assessee and the distributors is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for procuring and retaining customers and, therefore, the discount given is nothing but commission within the meaning of Explanation (i) on which tax is deductible under Section 194H of the Act. The contention of the assessee that discount is not paid by the assessee to the distributor but is reduced from the price and so much so, deduction under Section 194H is not possible also does not apply because it was the duty of the assessee to deduct tax at source at the time of passing on the discount benefit to the distributors and the assessee could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act.' 11. There is no, and there cannot be any, dispute about the fundamental legal position that in the hierarchical judicial system, that we have in our country, lower tiers of judicial hierarchy has to respectfully follow the views expressed by the higher tiers of judicial hierarchy. In the case of ACIT Vs Dunlop India Limited [(1985) 154 ITR 172 (SC)], Hon'ble Supreme Court has observed, quoting the House of Lords, as follows: We desire to add and as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion [(1994) 207 ITR 350 (Guj)], vide judgment dated 23rd June 1993, Their Lordships had an occasion to consider the aforesaid views. It was in this context that Their Lordships have observed as follows: 3. What is contended by the learned advocate for the Revenue is that the Tribunal decided the appeal on 26th Oct. , 1976. By that time, the Andhra Pradesh High Court had upheld the validity of s. 140A(3). He drew our attention to the judgment of the Andhra Pradesh High Court in Kashiram vs. ITO (1977) 107 ITR 825 (AP). From the report, it appears that the said judgment was delivered on 10th Dec., 1975. Therefore, the Tribunal was not right in proceeding on the basis that only the Madras High Court judgment was in the field and, therefore, it was open to it to proceed on the basis that s. 140A(3) was non-existent. He also submitted that for that reason, the Tribunal was not right in following the judgment of the Bombay High Court in Godavaridevi's case (supra). 4. In our opinion, the legal position is correctly stated by the Punjab & Haryana High Court in CIT vs. Ved Prakash (1989) 77 CTR (P&H) 116 : (1989) 178 ITR 332 (P&H) when it observed that "unless and until the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, the only course which the Tribunal could have followed was to direct the ITO to consider the partial partition on the merits and pass an order under s. 171 first and then under s. 143(3) of the Act 15. It is clear that, except on the issue of legality of the statutory provision itself, the decisions of even the non-jurisdictional High Courts are binding on the lower tiers of judicial hierarchy such as this Tribunal. As we hold so, we are alive to the school of thought that non jurisdictional High Courts are not binding on the subordinate courts and Tribunals, as articulated by Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ved Prakash [(1989) 178 ITR 332 (P&H)] but then that was a case in the context of validity of a statutory provision, i.e. 140A(3), covered by the rider to the general proposition. This exception does not come into play in the present case as we are not, and we cannot be, dealing with the constitutional validity of a provision. Clearly, therefore, the views expressed by Hon'ble non jurisdictional High Court, in the absence of a direct decision on that issue by the Hon'ble jurisdictional High Court, deserve utmost respect and deference. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..The above principle of law is well-established and there is no doubt about that......." 19. Having noted the legal position as above, it is appropriate, for the sake of completeness, to note the exception to this general rule as well. Hon'ble Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of tax-payer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman vs. Barron 1952(2) AIR 393 and followed by apex Court in Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Commr. of CT (1992) Suppl. (1) SCC 21 and Novopan India Ltd. vs. CCE & C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, "in case of ambiguity, a taxing statute should be construed in favour of a taxpayer does not apply to a provision giving tax-payer relief in certain cases from a section clearly imposing liability". This exception has been also reiterated by Hon'ble Supreme Court in the case of Oil & Natural Gas Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Karnataka High Court's judgment in the case of Bharti Airtel Limited (supra), was stated to be that "Since no jurisdictional High Court decision is available as on date, the latest decision of Karnataka High Court, which has considered and distinguished earlier rulings of other High Courts, deserves to be followed". Our conclusion is the same but our decision to follow Hon'ble Karnataka High Court's judgment is simply this judgment is to be preferred over, in the light of settled legal principles set out above, other Hon'ble High Court judgments, because it is favourable to the assessee. With utmost respect and reverence to all the Hon'ble Courts, it is not for us to choose which decision is to be followed because of its merits because of what it has discussed or because of how it has distinguished other Hon'ble High Courts or because of its timing i.e. of its being latest. Even when a nonjurisdictional High Court distinguishes all other decisions of Hon'ble High Courts but holds a view unfavourable to the assessee, that decision cannot normally be preferred over a decision from another Hon'ble non jurisdictional High Court decision, of equal stature, in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or undertake any obligation in respect of or on in the name of the assessee.' Page 70. Distributor does not have an authority to assume or create any obligations VWL's behalf or incur any liability on behalf of VWL or accept any contract binding upon VWL (clause 17.1 of the Agreement). 5 'Channel Partner be liable to pay all the taxes such as sales tax, service tax applicable and payable in respect of the subject matter of this agreement and statutory increase in respect thereof' - Page 72. The distributor shall pay all licenses, fee, taxes, duties, sales tax, service tax and any other charges, assessments penalties whether statutory or otherwise levied by any authority in connection with the operation of distributor's office (Clause III(b) of Annexure III to agreement). 6 'After sale of products distributor/channel partner cannot return goods to the assessee for whatever reason' - Page 74. The assessee shall not be responsible for any post delivery defect in the service tickets. No request of refund of any money shall be entertained by the assessee in any circumstances (Clause e-Annexure I). 7 'Distributors are even prevented from making any representation to the retailer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor . Accordingly, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. (e) In a situation in which the assessee has credited the sale proceeds at the transaction value (in contrast with the transaction being shown at face value and the difference between face value and the transaction value credited to the distributor), the tax deduction liability under section 194H does not arise. While learned counsel for the assessee has stated at the bar that the sale proceeds are credited at the transaction value, this aspect of the matter is to be verified by the Assessing Officer, and in case the sales is accounted for at the face value, to that extent, the tax withholding liability is to be sustained, 25. Ground no. 1 is thus allowed in the terms indicated above. 26. In ground no. 2, the assessee has raised the following grievance: Applicability of provisions of Section 194J of the Act on payments towards national roaming charges The CIT(A) has erred in not holding that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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