TMI Blog2018 (2) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue challenged this order of the Tribunal before the Hon'ble High Court and the Hon'ble High Court vide decision [2017 (7) TMI 1076 - RAJASTHAN HIGH COURT] by following the decision of the Hon’ble Karnataka High Court in the case of CIT TDS, Bangalore Vs Vodafone South Ltd. (2016 (8) TMI 422 - KARNATAKA HIGH COURT) has decided this issue in favour of the assessee and against the revenue - ITA Nos. 68 & 69/JP/2015 And ITA No. 71/JP/2016 - - - Dated:- 19-1-2018 - SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM For The Assessee : Ms. Ishita Farsaiya (Adv) And Shri Tarun Gulati (Adv) For The Revenue : Shri Varinder Mehta (CIT) ORDER PER: BENCH ITA No. 68 69/JP/2015 filed by the assessee are directed against the composite order of ld. CIT(A)-III, Jaipur dated 25/11/2014 for the assessment years 2012-13 and 2013-14 respectively and the ITA No. 71/JP/2016 filed by the revenue is directed against the order of ld. CIT(A)-III, Jaipur dated 30/11/2015 pertaining to the A.Y. 2014-15. 2. All these appeals are being heard together and for the sake of convenience and brevity, a common order is being passed. 3. Before we proceed to adjudicate the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1 A) of the Act, if any, can be levied in such cases. 2. Ground No. 2 - The Appellant is not liable to deduct tax on discount extended to its pre-paid distributors on distribution of pre-paid SIM cards/ talktime 2.1 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the order of the learned TDS officer that the Appellant is to be treated as an assessee in default for non-deduction of tax at source under section 194H of the Act on discount extended to the distributors of its pre-paid SIM cards/ talktime during the subject financial year. 2.2 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the decision of the learned TDS officer that the relationship between the Appellant and the pre-paid distributors is not that of Principal to Principal and the discount allowed to them is in nature of commission liable for tax deduction at source, as envisaged under section 194H of the Act. 2.3 On the facts and circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194J of the Act is not applicable. 3.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that no human intervention, which is sine qua non for a service to qualify as technical service, is involved in provision of roaming services and therefore, roaming charges cannot be construed as FTS for the purposes of the Act. 3.4 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in misapplying the statement of technical expert recorded by the income-tax authorities in Coimbatore during proceedings conducted in the case of a group company of the Appellant - Vodafone Cellular Limited on the same issue, wherein it has been clearly observed that roaming facility is an automatic facility and does not involve any human intervention. 3.5 On the facts and in the circumstances of the case and in law and without prejudice to grounds 3.1 to 3.4, the learned CIT(A) has erred in not holding that characterization of a payment must be done having regard to the dominant purpose/intention of the payment. 3.6 On the facts and circumstances of the case, the learned CIT (A)/ TDS Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case. 5. Ground No. 1 of the appeal is general in nature and does not require any specific adjudication as it depends on the outcome of the other grounds raised by the assessee. 6. Ground No.2 of the appeal is regarding the liability of deduction of tax at source U/s 194H of the Income Tax Act, 1961 (in short the Act) and consequential liability to pay tax as the assessee in default U/s 201(1) 201(1A) of the Act in respect of discount extended to the distributors for pre-paid SIM cards and recharge coupons. 7. We have heard the ld AR as well as the ld CIT DR and considered the relevant material on record. At the outset, we note that this issue of liability of the assessee to deduct tax at source in respect of discount allowed to the distributors on pre paid SIM cards and recharge vouchers has been considered by the Hon ble Jurisdictional High Court in assessee s own case for the A.Y. 2007-08 to 2009-10 in D.B. Income Tax Appeal No. 99 to 105/2016 vide judgment dated 11/7/2017 wherein the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to make payment. In spite of our specific query to the counsel for the department, it was not pointed out that any amount was paid by the assessee company. It was only the arrangement by which the amount which was to be received was reduced and no amount was paid as commission. 46. In that view of the matter, if we look at the provisions of Section 194H and even if explanation is taken into consideration, there is no occasion of invoking provisions of Section 194H, since the amount is not paid by the assessee. 47. Taking into account the conclusion which has been arrived at by the Tribunal is misdirected in view of the (arrangement which has been arrived at between the company and the Distributor. Assuming without admitting, if the contention which has been raised before the Tribunal is accepted, the same can be at the most expenses which are not allowable under the Income Tax Act, if at all claimed without proper basis but to conclude that they are covered under Section 194H and the income tax or the TDS is required to be deducted is not correct and accordingly disallowance on that basis is not correct. In our considered opinion, from which amount of tax is to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utor or Sub- Distributor or Retailer wi l l not induct in mal practice. ( viii) Regarding goods sold to the Distributor, it is always a matter of contract how further goods will be distributed. Restriction on sub-distributor will not change the transaction from Principal to Principal. ( ix) Regarding expenses which are described by the Tribunal and one of the reason is that it is always for the assessee to allow any special allowance or expenses to promote the sale. In a competitive world to promote the sale, if the Distributor is not given any encouragement, the business will not grow. In that view of the matter, in view of the observations the Supreme Court, the Income Tax Officer cannot enter into the shoes of the assessee. (S.A. Builders Vs. Commissioner of Income Tax (2007) 288 ITR 1 (SC). ( x) Regarding providing a vehicle it was very clear that by providing vehicle and getting list of expenses will not decide the relationship of Principal and Agent. 48. In our considered opinion, Section 194H pre-supposes the payment to be made to the third party namely, Distributor or the Agency and if on a close scrutiny of Section 182, Distributor is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is required for providing roaming services. For example, there is requirement of technical and skilled employees for following procedures involved in providing roaming services :- 1. To maintain and operate customer care centre round the clock for the subscribers of assessee company. 2. To implement GSM services in accordance with the GSM specifications. 3. Settlement of Bills. 4. To monitor technical aspects concerning both the pre-commercial and commercial phases of GSM national roaming. 5. To implement fraud prevention procedures. All the above activities require constant human involvement for monitoring and for unhindered operations. Moreover, Service Tax Act has also recognized the roaming as service for the purpose of service tax vide the Finance Bill, 2007. Thus the reliance on the decision in the case of Bharti Cellular Limited placed by the assessee is misplaced. Here it is also pertinent that The definition of fees for technical services is very wide. It covers within its ambit any managerial, technical or consultancy services rendered by a person. The service of this nature involves human skill as well as computerized m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now using the services of the visiting network (i.e. Airtel): * The entire process above is automatic and does not involve any human intervention at any stage. Billing process * Usage of roaming subscriber in visited network is captured in a file called TP, i.e. transferred account procedure for GSM/CIBER, i.e., cellular inter-carrier billing exchange record for. * TAP file contains details of calls made by subscriber, viz., location, calling party, time of call and duration, etc. * TAP/CIBER files are rated as per tariffs charged by visiting network operator. * Such TAP/CIBER file is transferred to home network of subscriber (i.e. to Hexacom). * Home network (i.e. Hexacom) then bills these calls to the Hexacom s subscriber and pays roaming charges based on the TAP to the visited network operator (i.e. Airtel). The roaming operator charges as per the roaming agreement with Hexacom, whereas the subscriber is billed as per the tariff subscribed. * The entire process is automatic. It is concluded that the above transaction flow that the service of providing airtime by visiting telecom circle is directly to the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... network in robust condition. The technical support of the staff is required to maintain the equipment and gazettes but it is not a service for roaming facility provided to the subscriber. There is commercial arrangement to connect the technical networks basically to be able to do business. In fact DOT mandates that it should be so connected. There is no payment made for connecting the networks. Payments are made for calls which the roaming subscriber makes. If no calls are made no payment is made in spite of the fact that the networks are inter connected. He further relied on the decision in the case of CIT Vs. Bharti Cellular Ltd. 319 ITR 139 (Del) wherein it has been held by the Hon ble Delhi High Court that roaming services not involving human interference and is not technical services as contemplated under Explanation 2 to Section 9(1)(vii) of the Act and not liable for tax deduction at source U/s 194J of the Act. This view has been earlier held by the Hon ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT (2001) 251 ITR 53 (Mad) order dated 23/2/2001 wherein the Hon ble High Court has held that provisions of Cellular mobile telephone facility to subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 200, ITAT Kolkata Bench decision in the case of Right Florists Pvt. Limited ITA No. 1336/Kol/2011 and ITA Delhi bench decision in the case of Delhi Transco Ltd. (ITA No. 755(Del)/2011 A.Y. 2005-06. He also relied on the decision in the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248 (Delhi). The revenue filed appeal against the order of Hon ble Delhi High Court in the case of Bharti Cellular Ltd. before the Hon'ble Supreme Court. The Hon'ble Supreme Court has held as under:- In cases requiring examination by technical experts, the Department ought not to proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with technological advancement, the Department ought to examine technical experts so that the matters could be disposed of expeditiously. Further, this would enable the appellate forum, including the Supreme Court, to decide the legal issues based on the factual foundation. Held accordingly, remanding the matters for determination with technical assistance, that in these cases, in which a cellular provider under an agreement pays interconnect/access/port charges to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atters, a irresistible conclusion about the lis involved in both the appeals are the same. Accordingly, we have no hesitation to apply the reasoning given in ITA No. 656/JP/2010 to the present set of facts. For the sake of clarity, we are hereby reproducing para 6 of the said order as under :- 6. We have heard the rival contentions of both the parties and perused the material available on the record. Recently this Bench has decided similar issue in the case of Tata Tele Services, which is identical to the assessee s case. The facts of the case has been demonstrated by the AR that the assessee was issuing bill on net amount on MRP has been fixed on prepaid card sold. The assessee has not transferred any income to the distributor but the distributor was allowed to avail the airtime to the extent of MRP price. In books of account, the assessee had credited these receipts on net basis. The finding on the case of Tata Tele Services is reproduced as under: 2.23. We find merit in the contention of ld. Counsel that there is no jurisdictional high court judgment on this issue. Hon ble Karnataka High Court Judgment is elaborate, detailed, considers the previous Delhi and Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT TDS, Bangalore Vs Vodafone South Ltd. (2016) 241 Taxman 497 (Kar) has decided this issue in favour of the assessee and against the revenue in para 53 to 55 as under: 53. Regarding Section 194J of the Act, the in vew of the Kerela High Court decisions, the issue is answered in favour of the assessee and third issue even as per the statutory definition, there is no service and Sections 201 and 194H would not apply in view of the agreement as referred hereinabove. 54. In view of the agreement the issue regarding 194H and 194J as held in other cases, both the issues are answered in favour of the assessee. Vodafone 55. Issues regarding Sections 194H, 194J and 201 of the Act, they are answered in favour of assessee. Thus, in view of the orders of this Tribunal in assessee s own case as well as the judgment of the Hon ble Jurisdictional High Court, we decide this issue in favour of the assessee and against the revenue. The orders of the authorities below qua this issue are set aside. 10. Grounds No. 4 and 5 of the appeal are general in nature and consequential to the grounds No. 2 and 3 of the appeal, therefore, stands adjudicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he discount allowed to them is in nature of commission liable for tax deduction at source, as envisaged under section 194H of the Act. 2.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the provisions of section 194H of the Act would be applicable to the Appellant s case without taking cognizance of the fact that the Appellant is not responsible to make any payment/ credit to the prepaid distributors towards the discount extended to them and responsibility/ obligation to make payment/ credit is a condition precedent for application of section 194H of the Act, which is absent in the present case. 2.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that discount allowed by the Appellant is not income in the hands of its distributors and that income, if any, arises only when the pre-paid SIM cards/ talktime is further distributed by the distributors. 2.5 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in not appreciating the fact that there is no flow of monies from the Appellant to the distributor of prepaid SIM card/ talk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 201(1 A) of the Act should be computed from the due date of payment of withholding tax by the Appellant to the date of payment of taxes by the payee/recipient of such income. All the above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case. 12. Ground No. 1 of the appeal is general in nature and does not require any specific adjudication as it depends on the outcome of the other grounds raised by the assessee. 13. Ground No. 2 of the appeal is regarding the liability of the assessee to deduct tax at source U/s 194H of the Act on discount allowed to distributors in pre paid SIM cards and recharge vouchers. This ground is common to the ground No. 2 of the assessee s appeal for the A.Y. 2012-13. In view of our findings on this issue in the appeal of the assessee for the A.Y. 2012-13, this ground of appeal has been disposed off in favour of the assessee and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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