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2015 (11) TMI 531 - ITAT CHENNAI

2015 (11) TMI 531 - ITAT CHENNAI - TMI - Reopening of assessment - non deducted TDS on discount payments u/s 194H - Held that:- The formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. Further, the intimation sent by the Department u/s.143(1) of the Act, cannot be treated to be an assessment order and he is within power conferred u/s.147 to issue notice u/s.148 of the Act. Further, failure to take steps u/s.143(3) will not render the AO powerless t .....

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pping & Transport vs. Addl. CIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM), if the discount is already offered to the parties 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, AC .....

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sessment. 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 of income for the AY 2007-08 on 31.10.2007 admitting a total taxable income of ₹ 5,38,190/-.The Assessing Officer processed the return under section 143(1) of the Income Tax Act on 20.02.2009 and completed the asses .....

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7-08 by issuing notice u/s 148 of the IT Act. The assesseee vide her letter submitted on 13.09.2012 through ASK No.001130912105493 has submitted the objection for the issue of notice u/s 148 of the IT Act. The Assessing Officer in his letter dated 28.09.2012 has asked for details of the parties/customers to whom discount was given with ledger copy, details of commission received along with ledger copy and details of bank account for the period from 01.04.2006 to 31.03.2007. Instead of furnishing .....

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essee's objections on reasons for reopening the assessment and to take appropriate action as per law. As per the directions from the JCIT, the Assessing Officer has given the reply to the assesse on 04.3.2013 regarding her objections on reason for reopening the assessment and also to co-operate in further scrutiny proceedings. The objections raised by the assessee for reopening the assessment u/s.147 was not accepted by the AO and completed the assessment u/s.143(3) rws 147 of the IT Act and .....

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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 ₹ 52,03,4 .....

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rm 3CD at Column 27 as not applicable . As there is no detail of discount recipients in the file, which correspond to the income under the head commission , the TDS applicability needs to be examined. Being so, there is a reason to believe that income had escaped assessment and it is not necessary to establish the fact of escapement of income. At the stage of issue of notice u/s.148, the only question is whether there was relevant material on which a reasonable person could have formed the opini .....

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t render the AO powerless to initiate reassessment proceedings u/s.147 r.w.sec.148 of the Act, though the intimation was sent u/s.143(1) of the Act. In our opinion, the AO is justified in reopening the assessment in this case. This issue is also squarely covered by the decision of the Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker Pvt. Ltd. (291 ITR 500). Accordingly, the ground relating to reopening of assessment is decided in favour of the Revenue and against the assessee. 6. .....

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expenditure falls within the provisions of Section 28 of the Act as well as the discount allowed to customers is not in the form of commission, it is a rebate in the invoice raised to the customer. According to the assessee, the Assessing Officer has ignored 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 he .....

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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 passed to the Air line. This amount is account .....

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s discount on the principal to principal basis. This was done without any contract of an agency. The discount cannot be included within the term 'Commission' or 'Brokerage' and hence provisions of sec. 194H were not applicable. Keeping in view of the reliance placed on the case laws mentioned supra, the provision of section 40(a)(ia) as well as sec.194H are not applicable to the discount allowed by the assessee to the customers. Therefore, the CIT(Appeals) directed the AO to dele .....

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ment having been made to the distributors and only discounts having been allowed, which is payment and reliance was placed on 240 ITR 740 (Mad), Hon ble Supreme Court s decision in the case of 223 ITR 271 (SC) and 189 TAXMAN 315. It was also submitted that the Hon ble Delhi High Court despite having referred to M.S. Hameed s case and the Cochin Bench of the Tribunal s decision in the case of the assessee, has taken an independent view by considering the entire transaction. Further reliance was p .....

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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 .....

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f the ld. CIT(A) and restoring that of the Assessing Officer. 9. The ld. Counsel for the assessee tried to distinguish all the decisions cited by the ld. DR and has also argued and pleaded for confirmation of the impugned order. 10. We have heard both the sides, considered the material on record, relevant provisions of law as well as precedents relied upon by rival sides and find that the assessee has provided Sim cards and Pre-paid cards to various distributors below the MRP prescribed for such .....

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ate authority, against which the Department has come up in appeal before us and it is the main argument of the ld. DR that since amount has been allowed as discount/ commission to the distributors as the assessee has charged the amount less than the MRP, therefore, it amounts to commission/brokerage and tax is liable to be deducted at source in terms of section 194H, which was not deducted, so the demand created by A O is proper and justified. Whereas, the ld. AR has mainly contended that the as .....

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t since the Hon ble Kerala High Court s decision in assessee s own case, main plea about not considering the fact that there is no payment or credit of the amount by the assessee, therefore, it cannot be held to be precedent to decide the issue against the assessee and the Hon ble Delhi High Court has also not considered this vital aspect, while referring to ITAT Cochin Bench s decision in the case of the assessee. Therefore, both these decisions of being non-jurisdictional High Court s are not .....

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istributors 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 .....

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by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; ........" What appears from Explanation (i) of the definition clause above is that commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person f .....

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ed as sale by the assessee or not, is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Besides the purpose of retaining a mobile phone connection with a service provider, the subscriber has no use or value for the Sim Card purchased by him from assessee's distributor. The position is same so far as Recharge coupons or E Topups are concerned which are only air time charges collected from the subscribers in advance. We have to necessar .....

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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 .....

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he 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 through distributors and retailers appointed by them assessee gets subscribers for the mobile service. Assessee renders services to the subscribers based on contracts entered into between distributors and subscribers. We have already noticed that the distributor is o .....

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by the distributor for the services to be rendered to the assessee and so much so, it falls within the definition of commission or brokerage under Explanation (i) of Section 194H of the Act. The test to be applied to find out whether Explanation (i) of Section 194H is applicable or not is to see whether assessee has made any payment and if so, whether it is for services rendered by the payee to the assessee. In this case there can be no dispute that discount is nothing but a margin given by the .....

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ured by the distributor for the assessee. The assessee is accountable to the subscribers for failure to render prompt services pursuant to connections given by the distributor for the assessee. Therefore, the distributor acts on behalf of the 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 p .....

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upported 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 mer .....

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ies in para 3 and reproducing section 194H in first part of para 4 has concluded to decide the issue in favour of the Revenue and relevant portion of para 3, and para 6 of the judgment are given as under: 3. …………….. "The assessee company is crediting the sales account by the gross amount and not by net proceeds. For example, the MRP of a pre-paid card is ₹ 100/-; margin availed by the distributor is Rs..20/-. The net proceeds available to the assesse .....

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ry of a pre-paid card of Rs..100/-, assessee is adjusting the payment of commission through accounts and invoice. In the first instance sale is accounted for Rs.. 100/-; the second cash is accounted for Rs..80/-; and the third commission is accounted for Rs..20/-. It shows that as far as the sale is concerned, it is Rs..100/- and the assessee has given a commission of Rs..20/- to the distributor and the net cash proceeds is Rs..80/-. Instead of treating the sale at the net value of Rs..80/-, the .....

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he assessee company and the margin enjoyed by the distributors are the commission/brokerage allowed by the assessee company. Counsel for the assessee sought to substantiate the position contrary to the above finding of the Tribunal by reference to the distribution 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 g .....

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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 can approach the department and get cer .....

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r Section 194H of the Act. Further, it is common knowledge that recovery of tax at source is not the actual tax payable by the recipient who is free to claim refund of TDS amount with interest, if excess tax is recovered under TDS Scheme . 6. Senior counsel appearing for the assessee has relied on several judgments, particularly two decisions of this court in M.S.HAMEED V. DIRECTOR OF STATE LOTTERIES reported in (2001) 114 TAXMAN 394 (KER.) and KERALA STATE STAMP VENDORS ASSOCIATION V. OFFICE OF .....

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tickets is not a commission on which tax is deductible under Section 194G of the Act. The second decision of this court pertains to sale of stamp paper by the licensed stamp vendors wherein also the finding of this court following the decision of the Gujarat High Court in AHMEDABAD STAMP VENDORS' case is that the transaction is sale of goods and so much so, no deduction of tax is called for under Section 194G of the Act. So far as the lottery ticket is concerned, the transaction is differen .....

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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 c .....

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ing that Section 194H is not applicable is on the specific finding in that case that the transaction is sale of goods, whereas in this case following the Division Bench judgment of this court we have found that the distributor is paid commission in the form of discount for services rendered to the assessee. Therefore, none of these decisions relied on by the assessee applies to the facts of this case which is payment of commission by way of discount for services rendered by the distributor. Seni .....

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TAX V. B.C.SRINIVASA SETTY (1981) 128 ITR 294, TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. COMMISSIONER OF INCOME TAX (1997) 227 ITR 172 and decisions of House of Lords in INLAND REVNUE COMMISSIONERS V. WESLEYAN GENERAL ASSURANCE SOCIETY reported in (1948) 16 ITR 101 and another decision in REVENUE COMMISSIONERS V. DUKE OF WESTMINSTER reported in (1936) A.C. 1.However, on going through these judgments we do not find any of the judgment has any direct application to the facts of this ca .....

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is various services are brought under the TDS scheme so that tax evasion is avoided. We have already taken note of the provision under Section 197 of the Act which mitigates against hardship if any in recovery of tax in as much as a payee is entitled to approach the department and apply for certificate to receive any amount which would be otherwise subject to deduction of tax at source without recovery of any tax or on recovery at lesser rates. We are of the view that the grievance if any agains .....

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pplication 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( .....

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of the said judgment is reproduced as under: TDS - Under s. 194H-Commission or discount to distributors of SIM cards/recharge coupons-Assessee, a cellular operator, provides prepaid connections to the subscribers through distributors called prepaid market associates (PMAs) appointed by it-It offers discount for prepaid calling services to its distributors-Legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further ap .....

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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-Contention of the assessee that 5. 194H is not applicable as there is no payment or credit by the assessee to the distributor cannot be accepted. Held The argument of the counsel that s. 194H is not applicable, as there is no payment or credit by the assessee to .....

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he subscriber. Further, dealings between 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 .....

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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 the distributor thereafter to sell those goods further to the consumers-the ultimate users. The principal/manufacturer does not come in picture at all. Of course, he may be liable for some action by the consumer because of defective goods, etc., which is the result of .....

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eceived in respect of those SIM cards, which are ultimately sold to the subscribers in as much as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them. This is an antithesis of sale . There cannot be any such obligation to receive back the unsold stocks. Further, cl. 25(f) lays down that on termination of agreement, PMA or its authorized retailer appointed by it, is not entitled to any compensation for cost or expenses incurred by it in ei .....

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. Asstt. CIT (2010) 35 DTR (Coch)(Trib) 393 and Asstt. CIT vs. Bharti Cellular Ltd. (2007) 108 TT] (Kol) 38 approved; Vijay Traders vs. Bajaj Auto Ltd. (1995) 6 SCC 566, Ahmedabad Stamp Vendors Association vs. Union of India (2002) 176 CTR (Guj) 193 : (2002) 257 ITR 202 (Guj) and Bhopal Sugar Industries Ltd. vs. STO 1977 CTR (SC) 284 : (1977) 40 STC 42 distinguished; Idea Cellular Ltd. vs. Dy. CIT (2009) 18 DTR (Del)(Trib) 475 : (2009) 121 TI] (Del) 352 set aside. (Paras 22 to 26) Conclusion Tra .....

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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 rega .....

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