TMI Blog2006 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. 2 Brief facts are that the assessee is engaged in the business of providing cellular mobile telephone services in Kolkata under the brand name "AIRTEL". The assessee provides such premises through its distributors by selling to them starter packs and rechargeable coupons which is commonly known as "simcard" and pre-paid card (as there is no dispute regarding post-paid card mobile holders). These "simcards" and rechargeable coupons were purchased by the distributors/franchisees appointed by the assessee at a fixed rate below the market price on such simcard and the same was further sold to the retailers by whom it was ultimately sold to the customers. The Assessing Officer while perusing the TDS return filed by the assessee observed that the assessee had paid commission on starter packs and recharge coupons to 16 parties, herein called "franchisees" and though the assessee had deducted TDS on commission and deposited the same during the period from April, 2002, to July, 2002, such deduction of tax at source was discontinued by the assessee treating the payment to such franchisees not as commission but as discount which was outside the ambit of TDS under section 194H. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount allowed to licencing stamp vendors do not fall within the Explanation "commission" as defined under section 194H. 6 The learned Commissioner of Income-tax (Appeals) after considering the above submissions of the assessee has held that since these franchisees are making payments to the assessee-company after reducing discount by the assessee-company for the simcards and since both the assessee and the franchisees have independent business entity, it would be incorrect to hold that the discount allowed by the assessee to the franchisees on the sale made by it as a commission. The learned Commissioner of Income-tax (Appeals) on the basis of the above observation and also following the decision of the Gujarat High Court in the case of Ahmedabad Stamp Vendors Association [2002] 257 ITR 202 (Guj); [2002] 176 CTR 193 has vacated the order of the Assessing Officer and has held that the discount allowed to the franchisees are outside the purview of section 194H. 7 The Revenue is aggrieved with such order of the learned Commissioner of Income-tax (Appeals) and has now come in appeal by taking following grounds of appeal in both the years: "(i) That the learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal representative has submitted that since tax was being deducted for the earlier year and even for a part of the financial year 2002-03, and the assessee suddenly stopped deducting tax at source from payment of such commission paid to franchisees, claiming that such payment was discount in nature which does not come under the ambit of section 194H. The learned Departmental representative has pleaded that the case law relied by the learned Commissioner of Income-tax (Appeals) in the case of Ahmedabad Stamp Vendors Association [2002] 257 JTR 202 (Guj) and the decision of the Delhi Tribunal relied by the assessee in its paper book in the case of National Panasonic India P. Ltd. v. Deputy CIT [2005] 94 TFJ 899 is not identical to the facts of the present case. It has, therefore, been contended by the learned Departmental representative that since the assessee has itself considered such payment as commission in nature in earlier years and from the perusal of the agreement between the assessee and the franchisees/distributors, it is evident that such agreement was meant for of principal and agent relation, the action of the assessee, not deducting tax at source just on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the commission on new connections for which the assessee is liable to deduct tax at source under section 194H of the Act. The assessee, however, has claimed that since the franchisees were making payments after deducting the discount offered to them, the same will be discount in nature which is outside the purview of section 194H. The assessee has further contended that since the liability of the franchisees to pay the price to the assessee is not dependent upon or contingent to the sale of recharge coupons and both the assessee and the franchisees are having independent entities. There cannot be any relation of principal and agent between these two parties and therefore, no question arises of treating such payments as "commission" in nature. 11 We have also considered the fact that it is an undisputed fact that the assessee has itself deducted tax at source on such payments in earlier years and even for a part of the financial year 2002-03 which is before us and the assessee from August, 2002, onwards has treated such payment as discount in nature. Since the assessee has claimed that it was offering discount to its franchisee and the Assessing Officer is of the opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... targets for the pre-paid services, taking into account the market development and market potential and other relevant factors. The achievements of these prescribed targets by the FRANCHISEE is a material obligation of the FRANCHISEE under this agreement. 6.3 BML reserves the right to inspect and audit at any time the related quality standards observed by the FRANCHISEE and his employees and the FRANCHISEE will ensure that both he and his employees fully co-operate with such inspection and audit, BML will communicate the result of such inspection and audit to the FRANCHISEE, who shall take remedial measures if so advised by BML. 7. Operating procedures The FRANCHISEE in its business operations shall ensure implementation the operating procedures specified by BML from time to time and observe such other operating criteria as may be contained in any memorandum or directive issued by BML to the FRANCHISEE generally or specifically to the FRANCHISEE. Operating procedures for the purpose of this clause shall include the operating procedure to be implemented by the FRANCHISEE as specified by BML to the FRANCHISEE in the form of manuals, bulletins, circulars or letters issued, am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement along with other characteristic of the premises of the franchisee. 16 It is, therefore, evident that the assessee cannot do anything apart from the power and right delegated to it which follows the law of maxim that delegate potestas non potest delegari which means that an agent cannot delegate his power or duties to another without the expressed authority of the principal. In this case also the assessee can use only those powers which has been dele gated to it by the assessee, which is confined to promoting and marketing of pre-paid cards sold by the assessee through franchisee and though the franchisee is making payment on behalf of such pre-paid cards supplied by the assessee after deducting commission, at the same time all rights, title, ownership and property rights in such cards shall at all times vests in the assessee as mentioned in paragraph 4.8 of the agreement. 17 We have also considered the fact that the franchisee while selling such cards is bound to ensure implementation of the operating procedures specified by the assessee from time to time and has to observe such other operating criteria as may be contained in any memorandum or directive issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the franchisee. As from the perusal of different clauses of the agreement between the assessee and the franchisee which have been reproduced above elsewhere as in this order, it is evident that the franchisee in this case, are selling new connections and pre-paid cards on behalf of the assessee for which they are getting fixed commission as decided by the assessee and the entire ownership relating to such new simcards and pre-paid cards always vest in the assessee as evident from different clauses of such agreement which is also placed on record in the form of paper book. 21 The assessee in its written submission has also claimed that if such transactions are subject to commission then all the transactions of sale from manufacturer to a wholesaler and wholesaler to a retailer would be covered by section 194H. However, such contention of the assessee has to be adjudicated keeping in view the fact involved in this case and for drawing a conclusion that whether it is a sale on discount or sale with a component or commission involved, we have to see whether the assessee is having principal-to-principal relationship with its franchisee or relationship of principal and agent. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed two thousand five hundred rupees Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section. Explanation. For the purposes of this section, (i) 'commission or brokerage' includes any payment received or receivable, directly or indirectly, 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; - (ii) the expression 'professional services' means services rendered by a person in the course of carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stamp vendors are placed by the law of land and therefore are mandatory. Whereas in the present case restriction has been imposed by the assessee itself on the franchisees before being sold ultimately to the retailers/customers and therefore, the above case is no help to the assessee. 27 Coming to the decision of the hon'ble Supreme Court in the case of Bhopal Sugar Industries Ltd. [1977] 40 STC 42, we find that this case is also of no help to the assessee as in that case also the substantial ownership has passed on to the franchisee or purchaser whereas in the present case it is always lying with the assessee. 28 The decision of the Delhi Bench in the case of National Panasonic India P. Ltd. [2005] 94 TTJ 899 is also not identical to the present case as in that case also the dealer after purchasing goods become entitle to sell it at any price subject to maximum limit imposed by the manufacturer whereas in the present case the franchisee is not free to do so and the entire business operations in regard to sale of such new connections and pre-paid cards are being regulated/monitored by the assessee and therefore, this case also does not help the assessee. 29 W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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