TMI Blog2018 (5) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... xpertise are required so as to make the assessee liable under the provisions of Section 194J. Principal to principal relationship between assessee company - distributors and the discount given said to be ‘commission’ within the meaning of section 194H - Held that:- From terms and conditions of the agreement entered by the assessee which in parameteria with the terms and conditions having been discussed in case of Vodafone Essar Ltd [2010 (8) TMI 691 - KERALA HIGH COURT] no merit in the action of the lower authorities for treating the assessee in default in respect of non-deduction of tax at source on trade discount granted to principal distributor by holding the same as commission, hence liable for deduction of tax at source under the provisions of Section 194H of the IT Act. - ITA No.7047/Mum/2012 & 7048/Mum/2012 And ITA No.7200/Mum/2012 And 7201/Mum/2012 - - - Dated:- 20-3-2018 - SHRI R.C.SHARMA, AM AND SHRI RAM LAL NEGI, JM For The Revenue : Shri Santanu Kumar Saikia For The Assessee : Shri Shailesh S.Shah ORDER PER R.C.SHARMA (A.M): These are the cross appeals filed by Revenue and assessee against the order of CIT(A)-14, Mumbai dated 28/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that inadvertently the word '194J' has been mentioned in place of word '194H' in penultimate line of opening para in letter dated 15.02.2012. Thus in his opinion the discount for services provided by distributors/ dealers was liable to be subjected to TDS u/s 194H of the Act (and not u/s 194J of the Act). 6. The assessee furnished its reply vide letter dated 16.03.2012. The AO, after considering the reply of the assessee, passed order u/s. 201 (1)/ 201 (1A) of the Act holding that payment in the form of discounts given to the distributors/ dealers on sale of set-top boxes/ recharge coupons, etc. is 'brokerage or commission in nature and ought to be subjected to TDS u/s. 194H of the Act @ 10% and payments made to the Installation Service Providers are in the nature of 'fees for technical services' and hence the same ought to be subjected to TDS u/s 194J of the Act instead of 194C of the Act as done by the assessee. Accordingly, he computed total non-deduction and short deduction of tax u/s. 201(1) of the Act amounting to ₹ 18,70,79,597/- and levied interest u/s. 201(1A) of the Act amounting to ₹ 4,48,99,103/- and raised aggregate demand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand of tax of ₹ 98,00,000/- is hereby deleted. 7.12 This ground of appeal is allowed. 8. It was argued by learned DR that dish antenna amounts to technical services, therefore, AO was correct in holding that assessee was required to deduct tax u/s.194J of the IT Act. As per learned AR installation of DTH needs certain skill and technical expertise, therefore cannot be said to be works contract . 9. On the other hand, learned AR invited our attention to the various judicial pronouncements referred by CIT(A) in his order in support of the contention that work of installation involved carrying out work contract within the meaning of 194C of the Act. Accordingly, CIT(A) was correct in holding that assessee was required to deduct tax at source u/s.194C of the Act in place of 194J of the IT Act. 10. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that the assessee company is the service provider of Direct to Home [DTH] services in the name of Videocon d2h'. DTH service is a mode by which television signals are provided directly at the home of the subscribers, without passing through any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee liable under the provisions of Section 194J of the IT Act. 11. In the result appeal of the Revenue in both the years are dismissed . 12. Assessee has challenged the order of CIT(A) in both the years for holding that there exist principal to principal relationship between assessee company and the distributors and the discount given cannot be said to be commission within the meaning of section 194H of the Income Tax Act, 1961. 13. We have considered rival contentions and carefully gone through the orders of the authorities below. The assessee is the provider of Direct to Home [DTH] services in the name of Videocon d2h' for which the license is given by Ministry of Information Broadcasting, Government of India. DTH service is a mode by which television signals are provided directly at the home of the subscribers, without passing through any intermediary. The Set-Top Boxes at the premises of the subscribers receive such signals directly through the Dish Antenna and such signals are viewed on the television by the subscribers. The provision of DTH services to its customers requires installation of set-top boxes and dish antenna at the customer's premises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. During the course of this survey, it was noted that the assessee sells pre-paid vouchers, of various face value, to its distributors, at a rate lower than its face value . It was also noted that the the difference (between the face value and the price at which is sold) is nothing but commission on which no tax has been deducted . It was also noted the relationship between the .... (appellant) and the distributor was on principal and agent basis, and, therefore, any amount paid to the agent by way of the margin is commission . It was also noted that under section 194H, a person making payment for commission has the obligation to deduct tax at source, but the assessee has not complied with this statutory obligation. It was in this backdrop that the assessee was that the proceedings for treating the assessee as an assessee in default, in this respect, were initiated against the assessee. During the course of these proceedings, it was explained by the assessee that there is no principal agent relationship between the assessee and its distributors, and that the assessee sells the products, on the outright sale basis though at a discounted price, to its distributors who, in turn, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough distributors. It is quite apparent that service can only be rendered and not sold. This is because the company has right to operate of cellular telephone service provided and ultimate service is provided by the company to every customers. The distributors are acting and link in the chain of providing Mobile service. Ultimate service are provided by company to the public at large. Therefore, essence of service rendered by the distributors are not sale of any product or goods. Since it is not possible for the company to provide all these services directly to the customers, the deductor has made out business solution to appoint distributors to take care of operational activity of the company to provide service and the distributor is important link in that chain of service. Moreover, the essence of prepaid card and postpaid card, sim card etc are same to provide service to customers and difference is of billing. In prepaid card amount are received in advance whereas, in postpaid card bills are being raised after providing the service. Therefore, if postpaid card is subject to section 194H, it is quite unlikely that prepaid system would be outside the purview of section 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Expln. (i) to s. 194H of the Act. The impugned orders issued under ss. 201(1) and 201(1A) of the Act are only consequential orders passed on account of default committed by the assessee under s. 194H and, therefore, those orders were rightly upheld by the Tribunal. We, therefore, dismiss all the appeals filed by the assessee. Thus, respectfully following the above judgment of Hon'ble Kerala High Court (in the case of the group company of the appellant), I am of the view that discount offered by the appellant to its prepaid distributors is in the nature of commission within meanings of Explanation (i) to Section 194 H of the Act. I, therefore, hold that the learned AO has rightly held that the appellant was required to deduct tax at source under section 194 H of the Act on commission given by the assessee. 5. The assessee is not satisfied with the stand so taken by the learned CIT(A) as well, and is in further appeal before us. 6. We have heard the rival contentions, perused the material o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of the assessee selling these pre-paid 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 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 86 earned by the distributor, sub-distributor and the retailer would be dependent on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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. 10. As we take note of the views so expressed by Hon'ble Karnataka High Court, we may also note that this issue has been decided against the assessee by, amongst others, Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. Even though the assessee has contended that the relationship between the assessee and the distributors is principal to principal basis, we are unable to accept this contention because the role of the distributors as explained above is that of a middleman between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act.' 11. There is no, and there cannot be any, dispute about the fundamental legal position that in the hierarchical judicial system, that we have in our country, lower tiers of judicial hierarchy has to respectfully follow the views expressed by the higher tiers of judicial hierarchy. In the case of ACIT Vs Dunlop India Limited [(1985) 154 ITR 172 (SC)], Hon'ble Supreme Court has observed, quoting the House of Lords, as follows: We desire to add and as was said in Cassell Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that in the hierarch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid 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 vs. ITO (1977) 107 ITR 825 (AP). From the report, it appears that the said judgmen t was delivered on 10th Dec., 1975. Therefore, the Tribunal was not right in proceeding on the basis that only the Madras High Court judgment was in the field and, therefore, it was open to it to proceed on the basis that s. 140A(3) was non-existent. He also submitted that for that reason, the Tribunal was not right in following the judgment of the Bombay High Court in Godavaridevi's case (supra). 4. In our opinion, the legal position is correctly stated by the Punjab Haryana High Court in CIT vs. Ved Prakash (1989) 77 CTR (P H) 116 : (1989) 178 ITR 332 (P H) when it observed that unless and until the Supreme Court or the High Court of the State in question, under Art. 226 of the Constitution, declares a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 donot 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 High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the Hon'ble High Courts- something diametrically opposed to the very basic principles of hierarchical judicial system. Of course, when the matter travels to Hon'ble jurisdictional High Court, Their Lordships, being unfettered by the views of a non-jurisdictional High Court, can take such a call on merits. That exercise, as we understand, should not be carried out by us. 18. The choice of which of Hon'ble High Court to follow must, therefore, be made on some objective criterion. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain cases from a section clearly imposing liability . This exception has been also reiterated by Hon'ble Supreme Court in the case of Oil Natural Gas Commission Vs CIT (Civil Appeal no. 730 of 2007, judgment dated 1 st July 2015; reported in www.itatonline.org). 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. vs. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. That is what Hon'ble jurisdictional High Court has also held in the case of Shah Electrical Corporation (supra). None of these exceptions, however, admittedly apply to the situation that we are dealing with at present. 20. There can be no dispute on the proposition that irrespective of whether or not the judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at the minimum, these judgments are to be considered reasonable interpretations of the related legal and factual situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 altoget her different reasons. 23. We have also noted that material facts of the case and the terms of agreements with the distributors are the same as were before Hon'ble Karnataka High Court in the above case. A comparative chart of these clauses is as follows: Sl. Disclosure in the Agreement as Corresponding clause in the agreement of the assessee No. highlighted in the Hon'ble Karnataka with its pre-paid distributors High Court's judgment - relevant extracts 1 'The agreement stipulates that the Clause 17.2 specifically provides that the relationship created distributors have to represent to the by the agreement is that of a buyer and seller and that the customers that the distributor's agreement agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter sale of products distributor/channel The assessee shall not be responsible for any post delivery partner cannot return goods to the defect in the service tickets. No request of refund of any assessee for whatever reason' - Page 74. money shall be entertained by the assessee in any circumstances (Clause e-Annexure I). 7 'Distributors are even prevented from The distributor shall not make any promises or representations making any representation to the retailers or give any warranties or guarantees in respect of the products unless authorized by the assessee'. (i.e. SIM cars and pre-paid vouchers) (Clause 1e Annexure III). 24. In the light of the above discussions, and particularly as there is no dispute that the factual matrix of all the cases before the Hon'ble non jurisdictional High Courts were materially the same as in this case, in conformity with the esteemed views of Hon'ble Karnataka High Court in Bharti Airtlel's case (supra), and hold as follows: (a) On the facts of the case, and as is evident from a reading of the agreements before us, the assessee has sold, by way of prepaid vouchers, e-top ups and prepaid SIM cards, the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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, 25. Ground no. 1 is thus allowed in the terms indicated above. 14. Learned AR also placed on record comparative chart of terms / clause of agreement with the distributors vis- -vis clause considered by the Tribunal in its above order as well as by the Karnataka High Court in the case of Bharati Airtel Limited 372 ITR 33 which reads as under:- Sl. No. Terms of the Agreement with distributors highlighted in the Hon'ble Karnataka High Court's judgment in case of Bharati Airtel Limited v. DCIT (2014) 372 ITR 33 (Kar. HC) and extracted in the decision of ITAT Ahmedabad Terms of the Agreement with distributors highlighted in the Hon'ble ITAT Ahmedabad's Judgement in case of Vodafone Essar Gujarat Limited - I.T.A. No.: 386/Ahd/ll Corresponding clause in the agreement of the assessee with its distributors for distribution for pre- paid/recharge vouchers. 1. The ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om time to time, either generally or in any particular case, and shall not make representation or give any warranty in respect of the Products other than those contained in the Company's conditions of sale as prevalent and operating at the time of the offering for sale or the sale. The Distributor shall keep the Company indemnified against all losses, damages or claims that may arise out of any unauthorized representations made by the authorized dealer. (PB Page No. 59) 3. That the insurance liability for the entire stock in trade in the premises at the address under reference will be of the Distributor and the liability for any los or damage due to any fire, burglary, theft etc., will b of the Distributor.' As per clause (iv) of Annexure II to the agreement, the assessee i not liable for any loss, pilferage or damage to the recharge vouchers/service tickets post-delivery of the ame to the distributors The assessee does not compensate the distributors for any unsold stock. Clause 28 - The Distributor agrees and undertakes that it shall, during this agreement and at all time thereafter, keep the Company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof - Page 72. The distributor shall pay all licenses, fee, taxes, duties, sales lax, 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). - Page 17 Clause 21 - The prices of products shall be exclusive of all applicable including but not limited to VAT/sales tax or any other applicable local tax at applicable rates, for which the Distributor shall be additionally liable. The distributor shall make prompt payment of taxes and shall keep the company indemnified and harmless against any demands, notices in this regard. (PB Page No. 56) 6. After sale of products distributor/channel partner cannot return goods to the assessee for whatsoever reason' The assessee shall not be responsible for any post delivery defect in he service tickets. No request of refund of any money shall be entertained by the assessee in any circumstances (Clause e- Annexure I). Clause 38 - Within 45 da\s of termination of this Agreement. e Distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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