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2015 (11) TMI 531

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..... rties and it is not an outstanding entry in the books of account of the assessee, then the claim of the assessee cannot be disallowed on account of non-deduction of TDS. Accordingly, on merit, we remit this issue to the file of the AO for fresh consideration in the light of the above order of the Special Bench. - ITA No. 2944/Mds/2014 - - - Dated:- 30-9-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Appellant : Shri A.V.Sreekanth, JCIT For The Respondent : Shri N. Devanathan, Advocate ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER The appeal is filed by the Revenue and the cross objection is filed by the assessee. The appeal and the cross objection are directed against the order of the Commissioner of Income-tax(Appeals) dated 11.8.2014. 2. The first ground raised by the Revenue in its appeals is with regard to reopening of assessment. 3. The facts of the case are that the assesse was having a proprietary concern in the name of M/s. Travel Services which was engaged in the business of Air travel ticket booking and selling of Air Tickets of various airlines to customers. The assessee filed her return .....

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..... Against this, the assessee carried the matter before the CIT(Appeals). 4. On appeal, the CIT(Appeals) observed that the reopening of assessment is bad in law in view of the judgment of the Supreme Court in the case of CIT vs. Kelvinator of India Ltd.(320 ITR 561), as there is no tangible fresh material to reopen the assessment. Against this, the Revenue is in appeal before us. The cross objection filed by the assessee is in support of the order of the CIT(Appeals). 5. We have heard both the parties and perused the material on record. In the present case, the assessment year involved is 2007-08. The assessee filed her return of income on 31.10.2007. The return was processed u/s.143(1) of the Act on 22.2.2009. The assessment was reopened on the reason that the assessee has claimed discount of ₹ 52,03,410/-, though the assessee has received commission of ₹ 73,20,532/- only. Since the assessee has not deducted TDS on discount payments of ₹ 52,03,410/-, the assessment was reopened to consider the same by issuing a notice u/s.148 on 23.3.2012. The assessment was reopened within four years from the end of the relevant assessment year. The AO recorded the reason fo .....

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..... the details of discount allowed and made the addition for non-deduction of TDS. The Assessing Officer has also ignored the ratio down by the Supreme Court in the case of Ahmedabad Stamp Vendor Association dated 06.09.2012, wherein it was held that the Supreme Court, the discount allowed is not commission and hence, sec. 194H of the IT Act is not applicable. 6.1 Before the CIT(Appeals), the assessee has also relied on the order in the case of M/s Chetak Travels P Ltd., for the AY 2004-05 wherein the CIT (Appeals) XI, Chennai in ITA No.463/06-07 dated 28.02.2007 allowed in favour of the assessee on similar issue wherein the assessee an lATA approved agent sells tickets for Air Travel on behalf of several airlines. The lATA approvals of commission between 7% and 9% of the published fare. The published fare is the fare beyond which the ticket cannot be sold. The Air line fixes the minimum fare which is referred to as net fare which it gets from the travel agent in respect of the ticket. It is left to the travel agent to sell the ticket for any price, over and above the net fare stipulated by the Airline. The excess so received by the travel agent would be retained by him and not pas .....

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..... r the assessee, the same is in relation to different issue as nature of transaction is not the same as in the case of the assessee, whether, it is discount or commission, it has clearly been held to be liable to TDS by the Hon ble Kerala and Delhi High Courts and as per Kanel Oil Export Inds. Ltd. s case, in the Third Member s case, it has clearly been held that if two views are there, one of special or same bench and other of non jurisdictional High court, the High Court s decision to be followed and Hon ble Bombay High court has held that coordinate Bench later decision is to be followed and further reliance has been placed on 238 ITR 113 (Delhi), 113 ITR 598 (Bom) and 53 ITD 1 (Ahd). 8.1 So far as dismissal of the SLP is concerned, the ld. DR submitted that the Hon ble Supreme Court has held in the case of 231 ITR 50 and 222ITR523 (All) that such dismissal of SLP does not lay down law and so far as Daruvala Bros. (P) Ltd. s case is concerned, the same is in relation to the salary payment, which is one way payment and it is altogether in relation to a different issue. It was, thus pleaded for setting aside the order of the ld. CIT(A) and restoring that of the Assessing Of .....

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..... s of being non-jurisdictional High Court s are not applicable when other earlier decisions one of Hon ble Kerala High Court and other that of Bombay High Court favourable to the assessee are to be considered and applied in view of various precedents, therefore, the order of the ld. CIT(A) should be confirmed. 10.1 After considering the relevant material in the light of provisions of law and precedents, we find that the main question to be considered is whether Section 194H is applicable for the discount given by the assessee to the distributors in the course of selling Sim Cards and Recharge coupons under prepaid scheme against advance payment received from the distributors. We have to necessarily examine this contention with reference to the statutory provisions namely, Section 194H which is extracted hereunder for easy reference: S.194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or a .....

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..... 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 principal to principal basis, we are unable to accept this contention because the role of the distributors as explained above is that of a middleman between the service provider namely, the assessee, and the consumers. The essence of a contract of agency is the agent's authority to commit the principal. In this case the distributors actually canvass business for the assessee and only thr .....

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..... oes 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. This proposition is supported by the decision of the Supreme Court cited by Standing Counsel for the respondent in J.B.BODA AND CO. PVT. LTD. V. CENTRAL BOARD OF DIRECT TAXES reported in (1997) 223 ITR 271 wherein the Supreme Court has held as follows. A two-way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case. We, therefore, do not find any merit in the contention of the assessee that recovery of tax is not permissible at the time of giving discount on the delivery of products to the distributors. 10.2 So far as other case law with respect to deduction of tax at source on the amount of discount/commission is concerned, we find that the Hon ble Kerala High Court while dealing wi .....

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..... ion agreement which assessee has with the distributors. It is stated in the agreement that distributors are free to charge any amount from the subscribers or retailers below the MRP. In other words, distributors are not bound to sell the goods namely, Sim Cards or Recharge coupons at the MRP to treat the discount as charges or commission received or receivable by the distributors. Relying on this clause in the agreement, the contention of the Senior counsel is that even if tax is recovered at source on the discount amount, it may be on an amount that may not ultimately be realised by the distributor at the time of their sales to consumers or to retailers wherein they are free to pass on part of the discount received by them i.e. by selling the products at below the MRP. In this context Standing Counsel for the Department referred to Section 197 of the Act where under the payee is entitled to apply to the department for obtaining payment without deduction of tax or with deduction at rates lower than what is provided in the statute. We are in full agreement with this contention of the department because if it is commission on which TDS is payable under Section 194H, the distributors .....

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..... ich is in KERALA STAMP VENDORS ASSOCIATION case rendered by one of us (C.N.Ramachandran Nair, J.), relates to sale of stamp paper by the licensed vendors. Here again, this court by relying on decision of the Gujarat High Court in AHMEDABAD STAMP VENDORS case held that the transaction is a sale. On a reconsideration of this judgment, we feel this court's judgment may require reconsideration because consideration received by the stamp vendors for the stamp paper does not really represent it's value but is nothing but stamp duty. Value of each stamp paper may be fifty paise or even a rupee, whatever be it's quality, but what is collected depends on the amount stamped thereon which is nothing but stamp duty recovered by the State from the ultimate user in terms of the Stamp Act. Rightly or wrongly this court held that the transaction is sale because loss of stamp paper is to the account of the stamp vendors, if it is lost in their custody. The Government also treats the transaction as sale of goods and specific exemption is granted from payment of sales tax in terms of provisions of the Sales Tax Act. Therefore, the finding that Section 194H is not applicable is on the spec .....

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..... the view that the grievance if any against recovery of tax by the assessee is on the distributors, and they are already on the roles of the department because assessee is making deduction of tax at source for payment of commission made under the post paid scheme. As already pointed out, if distributors have any grievance against assessee recovering tax for the commission paid in the form of discount in respect of prepaid services, any such distributor is free to approach the department for getting his grievance redressed by filing an application under Section 197 of the Income Tax Act. However, we make it clear that this is not the ground on which we have held the assessee liable for recovery of tax at source under Section 194H which is only 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 Explanation (i) to Section 194H of the Act. The impugned orders issued under Section 201(1) and 201(1A) of the Act are only consequential orders passed on account of default committed by the assessee under Section 194H and, therefore, those orders were righ .....

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..... etween the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/defect in service. (c) entering into the ultimate agreement between the subscriber and the assessee. It is to be borne in mind that the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is prepaid or post-paid SIM card remains the same. In the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs. In the case of post-paid, SIM card transaction is entered into directly between the assessee and the subscriber and the subscriber is sent bill periodically depending upon the user of the SIM card for the period in question. In both, the cases, legal relationship is created between the subscriber and the assessee that too by entering into specific agreement between these two parties. In contrast, the legal position when the goods are sold by principal to its distributors creating principal and principal relationship would be entirely different. On the sale of goods, the ownership passes between the manufacturer and the distributors. It is the responsibility of t .....

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..... cards/recharge coupons are ultimately sold to the subscribers through the latter does not amount to sale of goods and, therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS under s. 194H. 11. So far as the plea of the ld. Counsel not to follow Kerala High Court s and Delhi High Court s decision in the case of the assessee and in the case of CIT v. Idea Cellular Ltd. respectively is concerned, we, after careful consideration of rival submissions and precedents, find that these two decisions are direct on the point relatable to interpretation of section 194H in relation to commission / discount allowed to the distributors on SIM cards and recharge coupons and no similar decision with regard to interpretation of same provision has been cited by the ld. Counsel for the assessee, therefore, considering these decisions and facts of the case, we hold that the plea of the assessee in this regard is not tenable and as such cannot be accepted. 12. Considering the entirety of facts, circumstances a .....

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