TMI Blog2017 (1) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee in view of the amendment made by the finance act 2012 by insertion of the 2nd proviso to the provisions of section 40 (a) (ia) of the act. The coordinate bench in the Shri Kumar Roy versus income tax officer in [2016 (3) TMI 588 - ITAT KOLKATA] has held that above proviso inserted by the finance act 2012 can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1-4-2005. No other contrary decision was pointed out by the learned departmental representative. In view of this we accept the argument of the assessee that the 2nd proviso inserted by the finance act 2012 should be given retrospective effect from 01/04/2005. Therefore this argument of the appellant is also set aside to the file of the ld. assessing officer with a direction to give the benefit of the above proviso to the appellant in case the 1st contention of bonafide belief of the assessee does not survive on any amount. Non-deduction of tax at source on discount on prepaid Sim cards - Held that:- When there is a bonafide belief about non-deduction of tax then if the payee has discharge its liability no disallowance is called for under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No. 5636/del/2011 for assessment year 2007 08 as under: 6.7 that the AO further failed to appreciate that the disallowance under section 40 (a) (ia) of the act was, in any case, not warranted, since no deduction of tax at source was on account of bonafides view taken by the appellant. 6.8 that the AO further failed to appreciate that the disallowance under section 40 (A) (i.a) of the act should have, if at all, been restricted to the amount remaining is payable is on the last day of the relevant previous year. 6.9 that in any case deduction in respect of the amount of discount on which tax was ultimately been paid by the payees/distributors, either in the year under consideration in the year of filing the return of income, or to have been allowed in view of amendment to section 40 (a) (ia) of the act. 3. Further, wide para No. 8 of the above order it has been held that though the additional ground of appeal was admitted by the coordinate bench while deciding the original appeal, however, the same was not adjudicated upon. The additional ground of appeal culled out from para No. 8 of the above order is as under: that in the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Ltd: 340 ITR 333. In the said case, the assessee company was engaged in the business of share broking, depositories, mobilisation of deposits and marketing of public issues. The assessee had paid to the BSE transaction charges. The question before the Court was whether the said payment of transaction charges constituted payment of fees for technical services' covered under section 194J of the Act so as to hold that the assessee was liable to deduct tax at source at the time of crediting the said transaction charges to the account of the stock exchange. Apart from the primary argument raised by the assessee on the issue of non-applicability of provisions of section 194J of the Act on the said transaction, the assessee also argued that though provisions of the said section was introduced with effect from 01.07.1995, the Revenue had never invoked the said section upto assessment year 2005-06 (i.e., the year under consideration) and thus the assessee harboured bonafide belief that the said transaction was not amenable to tax withholding. Accordingly, the assessee could not be penalized by disallowance of the payment under section 40(a)(ia) of the Act. iii. Considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of (he stock exchange. However, since both the Revenue and the assessee were under the bona fide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can he found with the assessee In not deducting the tax at source in the assessment Year in question and consequently disallowance made by the Assessing Officer tinder section 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained. We make it clear that we have arrived at the above conclusion in the peculiar facts of the present case, where both the Revenue and the assessee right from the insertion of section 194J in the year 1995 till 2005 proceeded on the footing that the assessee is not liable to deduct tax at source and in fact immediately after the assessment year in question, i.e., from the assessment year 2006-07 the assessee has been deducting tax at source while crediting the transaction charges to the account of the stock exchange, 33. The question raised in the appeal is answered accordingly and the appeal is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking of any business which is permissible for a banking company to undertake. Again there is substance in the alternative submission of the assessee which is supported by the above cited decisions in the case of Rajiv Kumar Aggarwal (supra), Dr. Jai Deep Kumar Sharma (supra) and Raja Chakravorty (supra) that the amendments made by the Finance Act, 2012 to section 201 and Section 40(a)(ia) of the Act sought to be applied to cases prior to 01,07.2012 since the amendments are procedural in nature and are intended to remove the hardship being faced by the assessee, the amendments are declaratory and curative in nature and shall have retrospective effect. We thus set aside the matter to the file of the Assessing Officer to examine the submission of the assessee that KMPL had duly furnished the return of income and had considered the interest income amounting to ₹ 5,75,706 received from the assessee while computing its total income for the year under consideration and further that the taxes had also been paid by KMPL on such interest income for the year under consideration and decide the issue afresh in view of above submissions and cited decisions by the Learned AR after affordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be deducted at source under section 194H of the Act was indeterminable and hence it was impossible for the appellant to withhold tax under section 194H of the Act; and (f) in the absence of any actual payment or credit of any amount in the books of the appellant (i.e. the payer), the machinery provisions contained in section 40(a)(ia) of the Act would fail and accordingly, the payer could not be required to deduct tax at source. ix. The principal issue whether tax is deductible at source on aforesaid transaction of sale of a product in the form of pre-paid sim-card is, it is further submitted, a highly disputed and vexed legal issue. x. In the following cases, the Courts and various benches of the Tribunal have held that tax is not deductible: i. Bharti Airtel Ltd. DCIT: 372 ITR 33 (Kar) ii. Vodafone Essar Gujarat Ltd. vs. ACIT: 60 taxmann.com 214 (Ahd.) iii. Bharti Hexacom Ltd vs. ITO: 42 ITR(T) 686 (Jaipur) xi. A contrary view has however, been taken by the Delhi High Court in the case of CIT vs. Idea Cellular Ltd.: 325 ITR 148. The matter is pending consideration before the Hon'ble Supreme Court. xii. The aforesaid cleavage of judicial opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted and paid as per Rule 30 of the Rules. d) Further, Rule 30, prior to its substitution by the Income-tax (Sixth Amendment) Rules, 2010 with retrospective effect from April 1, 2010 allowed 2 months for depositing TDS for amounts payable at the year-end as against one week from the end of the month in which TDS is deducted for amounts paid during the year. The words 'paid1 and 'payable1 have different connotations and, therefore, different time periods have been prescribed for depositing TDS. Since the language used in section 40(a)(ia) of the Act uses the word 'payable', it should only be restricted to amounts payable at the year end and should not cover amounts paid during the year. e) It is further respectfully submitted, that there is a marked difference between the language of the provision introduced at the enactment stage and the provision which was actually inserted in the statute. The difference was that at the enactment stage, the proposed section read as follows: ...fees for professional services or fees for technical services payable to a resident, or amount credited or paid to a contractor or sub-contractor, being resident, for...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions, we set aside the issue to the file of the AO for verification if the payments are made to the agents of foreign shipping agents then no disallowance is called for. Further, the disallowance is also required to be reduced to the extent of amount paid by the assessee in view of decision of the Hon'ble Allahabad High Court . 11. In the result ground, No. 3 of the appeal is allowed with above direction, (emphasis supplied) k) To the same effect is the decision of the Delhi Bench of the Tribunal in the case of Opitech Software (P) Ltd. v. ITO: 1584/Delhi/2013, wherein the Tribunal, following the decision of the Allahabad High Court in Vector Shipping (supra) deleted the disallowance made under section 40(a)(ia) of the Act on the ground that all payments on which disallowance was attracted, were made during the year itself with no amount outstanding as on the last day of the relevant previous year. Relevant findings of the Tribunal are reproduced hereunder: 3. As regards the 1st addition and disallowance u/s. 40(a)(ia), Ld. A.R. submitted that the amount was paid during the year itself and were not outstanding as payables and, therefore, in view of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore* applying the Hon'ble Allahabad High Court judgment, the 1st ground of appeal is decided in favour of assessee and is therefore, allowed, (emphasis supplied) l) To the same effect are the following decisions: - Matrix Infrastructure vs. ITO: 5428 and 5548/Del./2010(Del) - ITO vs. Vinod Datta 22 ITR (Trib.) 243 (Mum) - DCIT vs. Halani Shipping Pvt Ltd.: ITA No. 1919/Mum/2013 (Mum) - Arcadia Share Stock Brokers Pvt. Ltd. vs. DCIT: ITA No. 1871/Mum/2013 (Mum) - ITO vs. MGB Transport 23 ITR (Trib.) 391(Kol) - DCIT vs. Ananda Marakala: 150 ITD 323 (Bang) - DCIT vs. Udupi Ananda Marakala: ITA No.l584/Bang/2013 (Bang) - DCIT vs. MRF Limited: ITA. No, 1985/Mds/2011 (Chennai) - Devendra Exports (P.) Ltd. vs. ACIT: ITA No.849 850/Mds/2013 (Chen) - DCIT vs. Gupta Overseas: 153 ITD 357 (Agra)- Raja Mahendri Shipping Oil Field Services Ltd. v. ACIT: 51 SOT 242 (Vishk.) m) In view of the above and without prejudice to the contention on merits, it is respectfully submitted, that disallowance under section 40(a)(ia) of the Act should, if at all, be restricted to the amount remaining payable as on the last day of the relevant previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. (emphasis supplied) f) On perusal of the above, it may kindly be noted that the wordings 'In order to rationalise the provisions' indicates that the amendment was made with a view to remove unnecessary hardship caused to assesses by the earlier provision. The said amendment is thus remedial/ curative in nature and should accordingly be regarded as clarificatory and retrospective in nature, notwithstanding that the same has been made applicable from 1st April, 2013, i.e. from assessment year 2013-14 onwards. g) It is well settled law that when a provision is inserted as a remedy to make the provision workable, it is required to be considered to be applicable retrospectively. Kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing period of payment till due date of filing of return was retrospective in nature as the said amendment was procedural in nature, intended to ensure collection of TDS. The pertinent findings of the Court in this regard, are reproduced as under: 25. In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the Act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17-20 that the expression said due date used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance The intention behind Section 40(a)(ia) is to ensure that TDS is deducted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Tribunal, in the case of Allied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 1TR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs. n) The aforesaid position is also buttressed by the amendment made in section 201(1) of the Act vide the Finance Act, 2012 which provides that a person, including the principal officer of a company, who fails to deduct tax on the sum paid to a resident shall not be deemed to be assessee in default in respect of such tax if such resident i) has duly furnished his return of income; ii) has taken into account such sum for computing income in such return of income; and, iii) has paid the tax due on the income declared by him in such return of income. o) The aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso'. 11. The first proviso to section 201 (1) of the Act has been inserted to benefit the assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139. No doubt, there is a mandatory requirement under section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to section 201(1). The insertion of the second proviso to section 40(a)(ia)also requires to be viewed in the same manner. This again is a proviso intended to benefit the assessee. The effect of the legal fiction created thereby is to treat the assessee as a person not in default of deducting tax at source under certain conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 40(A) of the Act. Hence, view taken by the AO for making disallowance and basis on which the same was upheld by the Id. CITCA) is not sustainable in view of the dicta of Hon'ble Jurisdictional High Court. Thus, we are inclined to hold that the benefit of the proviso to section 40fa)(ia)of the Act is available for the assessee for A.Y 2009-10 as the AO could not controvert the fact supported by the certificate of the payee M/s Kotak Mahindra Pvt, Ltd stating that the payee has enclosed the said amount in its income in the return filed u/s 139 of the Act and has paid tax due on its income declared in the return. In tin s factual matrix the proviso to section 4Q(a)(ia) of the Act having retrospective effect from 1.4.2005 come into play to rescue the defaulter assessee and thus disallowance made by the AO and upheld by the id. CIT(A) is demolished. Accordingly, Ground No. 1 to 3 of the assessee are allowed (emphasis supplied) t) Similarly, the Delhi Bench of the Tribunal in the case of RAASFAA vs. ITO: ITA No. 3182 of 2013 has, following the aforesaid decision of the Jurisdictional High Court in the case of Ansal Land (supra), held that the second proviso to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal amount of taxes to that extent. x) In pursuance of the aforesaid directions, the assessing officer vide order dated 28.06.2013, deleted the principal amount of demand raised under section 201 in relation to non-deduction of tax at source under section 194H of the Act. y) Consistent with the aforesaid finding of the assessing officer in the order passed under section 201 dated 28.06.2013, the aforesaid amount included by the payees as part of taxable income should be directed to be excluded from consideration for the purpose of disallowance under section 40(a)(ia) of the Act. z) Further, in the assessment order passed under section 143(3) of the Act for the assessment year 2010-11, the assessing officer has suo-motu allowed deduction to the extent of amount of discount on which tax has ultimately been paid by the payees/ distributors (which was duly supported by distributor/chartered accountant's certificate), in the year of filing of return by the distributors/payees treating such amount as part of taxable income, in view of the amendment made to section 40(a)(ia) of the Act. aa) In view of the above it is respectfully submitted that the assessing officer may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, was not paid within the time specified under the said section. Chapter XVI1-B of the Act mandates deduction of tax from certain other payments such as salary, directors fee, which are currently not specified under section 40(a)(ia) of the Act. The payments on which tax is deductible under Chapter XVII-B but not specified under section 40(a)(ia) of the Act may also be claimed as expenditure for the purposes of computation of income under the head Profits and gains from business or profession ~ Clause 14 These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years, (emphasis supplied) dd) The aforesaid amendment, it may be noted, is curative in nature, being introduced to reduce the undue hardship caused to assessee on disallowance of entire amount of expenditure. Accordingly, the same would, in our respectful submission, have retrospective operation. ee) Your honour's kind attention, in this regard, is invited to the decision of the Larger Bench of the Supreme Court in the case of CIT vs. Gold Coin Health Food (P) Limited: 304 ITR 308, wherein Their Lordships, while analyzing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 407,85,01,823, there was, it is submitted, no warrant to invoke penal provisions of section 40(a)(ia) of the Act in respect of the said transactions, as elaborated hereunder: ii. Section 40(a)(ia) of the Act mandates that on account of failure to deduct tax at source, expenses (in respect of which tax was deductible at source at the time of credit/ payment) shall not be allowed as deduction while computing taxable income. The said section reads as under: 40. Notwithstanding anything to the contrary in sections 30 to 31, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession : (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax_is_deductible at source under Chapter XVH-Band such tax has not been deducted or, after deduction, has not been paid on or before the due date__specified _in sub-section (1) of section 139: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VII-B is, on the other hand, determined by way of an order passed under section 201 of the Act vii. As a necessary corollary, unless there is an order under section 201 holding the assessee to be in default under Chapter XVII-B, the provisions of section 40(a)(ia) of the Act cannot, it is submitted, be applied to make any disallowance under the latter section. This is for the simple reason that under the scheme of the Act, determination of default under Chapter XVII-B, which is sine qua non for application of section 40(a)(ia), is only possible by way of an order under section 201 of the Act. Consequently, unless there is an order under section 201 holding the assessee to be default under Chapter XVII-B, section 40(a)(ia) of the Act cannot, it is submitted, be applied. viii. As stated above, Chapter XVII-B of the Act provides a complete code in itself not only specifying the provisions relating to deduction and recovery of tax but also the consequential implications of default thereof. Being an integrated code, it is quite fundamental that default under Chapter XVII-B can only be determined by way of an order passed under the said Chapter itself, i.e., section 201 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfillment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction. ................,..... (emphasis supplied) xi. It will thus, kindly be appreciated that the jurisdictional Delhi High Court has clearly held, Section 40(a)(ia) is a deterrent and a penal provision . xii. It is trite law that penal consequences follow the charging/ substantive provisions. Therefore, the provisions of section 40(a)(ia), it is respectfully submitted, could only be invoked to make disallowance under that section subsequent to determination of default under the principal section, i.e. Chapter XVII-B of the Act, and not otherwise. xiii. It will kindly be appreciated that disallowance under section 40(a)(ia), in the absence of any default being determined under section 201, would result in doubtful penalization by way of disallowance of entire claim of expenditure incurred by the assessee, notwithstanding the fact that the assessee has not eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not been held to be in default under Chapter XVII-B, the necessary corollary would be that such payment cannot be subject matter of any disallowance under section 40(a)(ia) of the Act. a) where TDS return filed stands accepted and there is no specific order under section 201 of the Act; b) where TDS return filed is followed by an order under section 201, wherein there is no specific adverse finding of default in respect of the expenditure under consideration. xviii. It will kindly be appreciated that in case one were to hold that provisions of 40(a)(ia) could be invoked independent of any finding of default in proceedings under section 201 of the Act, the same would, in our respectful submission, lead to absurd results inasmuch the same would result in the assessee being saddled with penal consequences of disallowance of expenditure, without any finding of default under the primary/ principal provision. It is trite law that any interpretation which results in absurd/ unintended consequences should be avoided [refer CIT vs. J.H. Gotla: 156 ITR 323(SC)]. xix. In the present case, it is respectfully submitted that order under section 201 has been, as stated above, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy as against actual relationship of principal to principal, which does not fall within the purview of section 194H of the Act. 6.3 That the assessing officer erred on facts and in law in not appreciating that the appellant sold, on principal to principal basis, prepaid card/coupons, which comprised of the 'right to use airtime', a marketable product capable of being transferred, and consequently, the provisions of section 194H of the Act were not applicable Without Prejudice 6.4 That the assessing officer erred on facts and in law in not appreciating that no 'income' per se accrued in favour of the distributor, requiring deduction of tax at source under section 194H of the Act. 6.5 That the assessing officer failed to appreciate that no tax could have possibly been deducted at source by the appellant under section 194H of the Act, as income accruing in the hands of the distributors was indeterminable. 6.6 That the assessing officer failed to appreciate that in the absence of any actual payment or credit of any amount in the books of the appellant, the machinery provisions contained in section 40(a)(ia) of the Act failed and accordingly, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions and having perused the material on record, and having noted that the issue is covered against the assessee by Hon'ble High Court decisions in the case of Idea Cellular Ltd (supra) as in assessee's own case, we see no reasons to interfere in the matter. Learned counsel for the assessee has pointed out that there is no element of agency, that talk time is traded and distributed, that it's a principal to principal relationship that the assessee has with his distributors, that flow of payment is in the reverse direction which is contrary to the concept of commission payment and that the assessee had a bonafide belief that section 40(a)(ia) will not come into play as the distributors have honoured their tax liability. However, as the issue is covered against the assessee by direct decision of Hon'ble jurisdictional High Court, we are not inclined to deal with all these arguments. Respectfully following the esteemed views of Hon'ble jurisdictional High Court, We hold that the assessee was required to deduct tax at source from the commission so allowed by the assessee, and, accordingly, his failure to do so is to be visited with the consequence of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, by Hon'ble Karnataka High Court's common judgment in the cases of Bharti Airtel Limited, Tata Teleservices Limited and Voadfone South Limited, reported as Bharti Airtel Ltd. v. Dy.CIT [2015] 372 ITR 33/228 Taxman 219 (Mag)/[2014] 52 taxmann.com 31 (Kar) wherein their Lordships have, inter alia, observed as follows: 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these prepaid cards for a consideration to the distributor, 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 prepaid 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 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways open to him to seek for refund of the tax and, therefore, it cannot be said that Section 194H is not attracted to the case on hand. As stated earlier, on a proper construction of Section 194H and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and remit the same to the Department. If the payee is not in possession 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 ₹ 100/- in their books of account and showing the discount of ₹ 20/- to the dealer. Only if they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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-Top ups are concerned which are only air time charges collected from the subscribers in advance. We have to necessarily hold that our findings based on the observations of the Supreme Court in BSNL'scase (supra) in the context of sales tax in the case of BPL Cellular Ltd. (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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment made by the distributor. The distributor undoubtedly charges over and above what is paid to the assessee and the only limitation is that the distributor cannot charge anything more than the MRP shown in the product namely, Sim Card or Recharge coupon. Distributor directly or indirectly gets customers for the assessee and Sim Cards are only used for giving connection to the customers procured 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 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 coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that s. 140A(3) was non-existent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the Tribunal in the State of Bombay (as it then was), it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land . . . . . . an authority like Tribunal has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision on that issue by any other High Court . . . . . . 13. In the case of CIT v. Shah Electrical Corpn. [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 v.ITO (1977) 107 ITR 825 (AP). From the report, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 v. Ved Parkash [1989] 178 ITR 332/44 Taxman 365 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. 16. The difficulty, however, arises in the case in which Hon'ble non-jurisdictional High Courts have expressed conflicting views and the subordinate courts and Tribunals do not have the benefit of guidance from Hon'ble jurisdictional High Court. 17. In our humble understanding of the legal position and of the propriety, it will be wholly inappropriate for us to choose views of one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of taxpayer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorized. This exception, laid down in Littman v. Barron 1952(2) AIR 393 and followed by Apex Court in Mangalore Chemicals Fertilizers Ltd. v. Dy. Commissioner of Commercial Taxes [1992] Suppl. (1) SCC 21 and Novopan India Ltd. v. 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 taxpayer relief in certain cases from a section clearly imposing liability . This exception has been also reiterated by Supreme Court in the case of Oil Natural Gas Commission v. CIT [2015] 59 taxmann.com 5. However, in the present case, this exception has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. v. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 non-jurisdictional 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. That is, as we understand, correct approach to the matter and that is the reason why we come to the same conclusion as the SMC did but for altogether different reasons. Sl. No. Disclosure in the Agreement as highlighted in the Hon'ble Karnataka High Court's judgment - relevant extracts Corresponding clause in the agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax applicable and payable in respect of the subject-matter of this agreement and statutory increase in respect therof' - 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). '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). 'Distributors are even prevented from making any representation to the retailers unless authorized by the assessee'. The distributor shall not make any promises or representations or give any warranties or guarantees in respect of the products (i.e. SIM car and prepaid vouchers) (Clause 1.e. Annexure III). 23. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prepaid cards. Therefore, at the time of the assessee selling these prepaid 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. 13. Further on 7/12/2015 the coordinate bench further decided the issue that no tax is required to be deducted on such payments in Bharti Hexacom limited V ITO 42 ITR (T) 686 ( jaipur). 14. In view of this it can be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at source under section 194J of the Act and, therefore, the Assessing Officer was not justified in invoking section 40(a)(ia) of the Act and disallowing the business expenditure by way of transaction charges incurred by the assessee. 32. Accordingly, we hold that the transaction charges paid by the assessee to the stock exchange constitute fees for technical services covered under section 194J of the Act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of the stock exchange. However, since both the Revenue and the assessee were under the bona fide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can be found with the assessee in not deducting the tax at source in the assessment year in question and consequently disallowance made by the Assessing Officer under section 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained. We make it clear that we have arrived at the above conclusion in the peculiar facts of the present case, where both the Revenue and the assessee right from the insertion of section 194J in the year 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary decision was pointed out by the learned departmental representative. In view of this we accept the argument of the assessee that the 2nd proviso inserted by the finance act 2012 should be given retrospective effect from 01/04/2005. Therefore this argument of the appellant is also set aside to the file of the ld. assessing officer with a direction to give the benefit of the above proviso to the appellant in case the 1st contention of bonafide belief of the assessee does not survive on any amount. 16. The other arguments of the ld. AR were also on the similar line with respect to the above disallowance that deduction should be directed to be allowed to the appellant in the subsequent year in which the tax has been deposited by the payer. We also agree with the contention of the Ld. A R that if in the subsequent year the assessee has deposited tax on the above sum then the deduction of the above expenditure may be allowed to the assessee in subsequent year also if in this year the addition is sustained by the learned assessing officer. 17. In the result ground No. 6.7 to 6.9 of the appeal of the assessee are allowed with the above directions. 18. In view of the facts th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have further held that that the 2nd proviso inserted in the above section effect from finance act 2012 applies retrospectively and directed the learned assessing officer to grant benefit of the same. In view of this we also hold accordingly that there is a bonafide belief for non-deduction of tax at source on discount on prepaid Sim cards to the dealers and therefore no disallowance can be made in the hands of the assessee for non-deduction of tax at source, provided the assessee proves to the satisfaction of the Ld. assessing officer that recipient of that income has discharged their tax liability. Therefore we set aside this ground of appeal to the file of the assessing officer for the above verification. The Ld. assessing officer is further directed to grant benefit of 2nd proviso to the above section while calculating the disallowance. He is further directed that in case the deduction of tax has been made by the assessee in subsequent year then the claim of the assessee for deduction of those expenses is also allowable in subsequent year. 22. In the result appeal of the assessee with respect to ground No. 7.4 to 7.6 are allowed for statistical purposes with above direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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