TMI Blog2015 (11) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the hands of the assessees - the assessee sells SIM cards to the distributor and allows a discount of ₹ 20/-, that ₹ 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer - The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share ₹ 20/- which is allowed as discount by the assessee to the distributor - There is no relationship between the assessee and the sub-distributor as well as the retailer. Thus, it is a sale of right to service - The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands - The deduction of income tax at source being a vicarious responsibility, when there is no primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards inter-operator roaming charges. Year-wise details of payments and the deductable amount of TDS has been computed by the AO and which has been reproduced by the CIT(A) in para.1.2 of the impugned order as under: AY Roaming charges S.194J Di scount allowed S.194H Amount payable u/s 201(1)/ 201(1A) on roaming charges Amount payable u/s 201(1)/ 201(1A) on discount Total TDS 2009-10 30122073 199169552 4878690 31917293 36795983 2010-11 133104942 196896554 1735139 25587837 27322976 2011-12 21686807 254018113 2538840 29740086 32278926 2012-13 12462617 151471425 1342861 16429447 17772308 3. Aggrieved by the action of the AO, assessee filed appeals before the CIT(A). Since common iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year in which e-TDS statement is filed. 2. The Appellant prays that the order u/s 201(l) for the discount allowed to Distributors and roaming charges paid to telecom operators during first three quarters of F.Y 2008-09. WITHOUT PREJUDICE TO GROUND NO. I AND II , GROUND NO. III: NON-DEDUCTION OF TAX AT SOURCE ( TDS ) UNDER SECTION 194H OF THE ACT ON DISCOUNT ALLOWED TO THE PRE-PAID DISTIBUTORS ( the Distributors ): 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the order passed by the TDS Officer under section 201(1)/201(1A) of the Act by treating discount offered by the Appellant to the Distributors as commission and thereby treating the Appellant as an assessee in default under section 201(1) r. w. s. 194H of the Act. 2. The Appellant most humbly prays that the discount allowed to the Distributors be held as not liable to TDS under section 194H of the Act as the relationship between the Appellant and its Distributors is on Principal-to- Principal basis and, thus, the demand raised in the impugned order in respect of the alleged failure to deduct tax under section 194H of the Act be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.I and the same may be dismissed as not pressed. The learned departmental representative has no objection if the ground No.I of the assessee is dismissed. Accordingly, ground No.I of the assessee s appeals is dismissed as not pressed. 7. Ground III and IV regarding treating the discount allowed to the distributors as commission and thereby holding the assessee as the assessee in default u/s 201 r.w.s. 194H. 8. We have heard the learned AR of the assessee as well as the learned departmental representative and considered the relevant material on record. The learned AR of the assessee has submitted that this issue is covered by the judgment of the Hon'ble jurisdictional High Court in the case of Bharti Airtel Ltd. Vodafone Essar South Ltd. others vs. DCIT reported in 372 ITR 33. The learned AR of the assessee has pointed out that the Hon'ble jurisdictional High Court, after considering the decision of the Hon ble Delhi High Court in the case of CIT vs. Idea Cellular Ltd .(assessee s own case) reported in 325 ITR 148 has held that though the service cannot be sold and be rendered only however, the right to service can be sold. Thus, Hon'ble jurisdictional Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision dated 7/7/2015 has also decided the issue in favour of the assessee by following the judgment of the Hon'ble jurisdictional High Court. 10. We have considered the rival submissions as well as the relevant material on record. There is no dispute that initially, the issue was decided against the assessee by the Hon ble Delhi High Court in the decision reported in 325 ITR 148 by holding that service can be rendered and cannot be sold and therefore, the payment to distributors, who are acting as a link in the chain of service provider, cannot be a discount but the same is in the nature of commission. However, subsequently, the Hon'ble jurisdictional High Court in its decision reported in 372 ITR 33 (supra) has distinguished the finding of the Hon ble Delhi High Court and held in paragraphs 56 to 65 as under: 56. In the Idea Cellular Limited s case, the Delhi High Court proceeded on the footing that the assessee is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. They had appointed distributors to make available the pre-paid products to the public and look after the documentation and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, whoever ultimately sells the said right to customers is not entitled to charge more than the MRP. The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub-distributors/retailers. As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no primary liability to tax on the Distributor. In the absence of primary liability on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 20/-, that ₹ 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share ₹ 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of accounts and showing the discount of ₹ 20/- to the dealer. Only if they are showing ₹ 80/- as the sale price and not reflecting in their accounts a credit of ₹ 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 unsustainable. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order: ORDER 1. Appeals are allowed. 2. The impugned orders passed by the authorities are hereby set aside. 3. The matter is remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books. If the accounts are not reflected as set out above, in para 60, Section 194H of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (FTS). The revenue carried the matter to the Hon ble Supreme Court. The Hon ble Supreme Court in the case of CIT vs. Bharati Cellular Ltd. (193 Taxman 97) has observed that the issue can be decided after the expert s opinion on the point whether any human intervention is required for providing interconnected roaming services by other cellular operators. The relevant observations of the Hon ble Supreme Court in para.7 to 10 are as under: 7. The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the interconnect agreement enables M/s Bharti Cellular Ltd. to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. Similarly, on what basis is the capacity of each service provider fixed when interconnect agreements are arrived a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O in each of the cases to examine the technical expert from the side of the department and to decide the matter. Though the AO, while deciding the issue has considered the statement of the expert who was examined in the case of Bharti Cellular , however, we note that in the case of Bharti Hexacom Ltd. (supra), Jaipur Bench of this Tribunal has decided this issue by giving a finding that no intervention is required for providing the roaming facility to the other operators/subscribers. We further note that in the case of Idea Cellular Ltd. vs. ITO (supra) Jaipur bench of the Tribunal again considered an identical issue in paras.2 to 4 as under: 2. The ld. Counsel for the assessee at the outset contends that the issues in question is squarely covered by the Hon'ble ITAT, Jaipur Bench decision in the case of M/s Bharti Hexacom Limited Vs. ITO (TDS)-II, Jaipur in ITA No. 656/JP/2010 order dated 12/06/2015, which 3 ITA 94 to 96/JP/2013 917/JP/2012 - Idea Cellular Ltd. Vs. ITO(TDS) has considered the issue about the payment of roaming charges to telecom operators in great details and held that such payment does not amount to fee for technical services and not liable for TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicability of Section 194J has been considered in detail by this very Bench in the case of M/s Bharti Hexacom Limited (supra). After considering the issues in detail, it has been held that there is no human intervention involved in providing these services, therefore, roaming charges paid by the assessee do not amount to fee for technical services U/s 194J of the Act read with Section 91(vii). Following our own judgment, we are upholding the order of the ld CIT(A) holding that the assessee is not liable for TDS u/s 194J, interest thereon and consequently not being the assessee in default. The orders of ld. CIT(A) are uphold. Thus it is clear that the Jaipur bench has given a finding of fact that no intervention is required for providing roaming facility and consequently the roaming charges paid by the assessee to other service providers cannot be treated as fees for technical services. Accordingly, following the orders of the co-ordinate bench, we are of the view that the assessee cannot be held as the assessee in default for non deduction of tax at source on the roaming charges paid to other service provider. This ground of the assessee is allowed. 14. Ground No.IV regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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