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TMI Blog2017 (1) TMI 1583X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 to 2010-11 confirming the levy of penalty u/s.271C of the I.T. Act. For the sake of convenience, all these appeals were heard together and are being disposed of by this common order. 2. First we take up ITA No.1041/PUN/2013 as the lead case. Facts of the case, in brief, are that the assessee is a company engaged in the business of providing Telecom Services all over India. However, in the present appeals, the issue is in relation to its operation in Maharashtra & Goa (except Mumbai). The assessee's Pune office was visited by TDS Officers u/s 133A of Income-tax Act on 23-04-2008 to verify compliance regarding various TDS provisions. During the course of survey, it was noticed that the assessee company was not deducting TDS u/s. 194H in respect of discount allowed to pre-paid Distributors. Accordingly, a show cause notice was issued to the assessee company on 21-12-2009, calling for details regarding trade discount passed on to prepaid distributors and the assessee was asked to explain its position. 3. The assessee submitted that it is a Cellular service provider and distributors were appointed who purchase the products in bulk and then sell the same to sub-dealers or retail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accept the contention of the assessee. Relying upon the decision of Hon'ble Delhi High Court in the case of idea Cellular, Limited dated 19-02-2010 and the decision of Hon'ble Kerala High Court in the case of BPL Mobile Cellular Ltd., the Assessing Officer came to the conclusion that supply and delivery of SIM cards did not constitute sale & purchase but provision of services. Accordingly, combined order for A.Y. 2007-08 & 2008-09 was passed raising the following demand. Total sales made of prepaid cards/recharge coupons (in Rs.) MRP of the products sold 4% commission /discount Amount of non deduction of tax u/s.194H Tax effect Int. u/s.201 (1A) Total 1214,11.52,291 223,03,66.969 8,92,14,678 8,92,14,678 50,49,551 30,29.731 80,79,282 186,79,78,009 194,47,68,75 9 7,77,90,750 7,77,90,750 80,78,569 38,77,713 1,19,56,282 TOTAL 1,31,28,120 69,07,444 2,00,35,564 6. Before CIT(A) the assessee challenged the action of the Assessing Officer in treating the discount offered by the assessee to their distributors as commission and accordingly treating the assessee as an assessee in default. It was argued that the relationship be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s absent in the present case as it is based upon principal to principal basis. It was accordingly submitted that the TDS officer was not justified in concluding that the assessee company was in default u/s.194H of the I.T. Act in respect of the discount allowed to distributors in respect of prepaid SIM cards and therefore raising demand u/s.201(1) and 201(1A) of the I.T. Act was not justified. 8. The assessee further submitted that in respect of taxes paid by the recipient demand u/s.201(1) of the I.T. Act cannot be raised. The assessee filed confirmations from certain distributors and requested for admission of additional evidence stating that the same could not be done at the time of passing the order u/s.201(1)/201(1A) of the I.T. Act. Relying on the decision of Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. Vs. DCIT reported in 345 ITR 288 it was argued that until and unless the department proves that the recipient had not paid taxes the assessee cannot be held to be an assessee in default. The assessee also challenged the levy of interest u/s.201(1A) on the ground that when the recipient has paid income tax on their income by way of advance tax and/or self ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the assessee he directed the Assessing Officer to modify the interest u/s.201(1A) from the date of payment of TDS by the assessee to the date of payment of tax by the respective recipients. 12. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "Ground No.I. 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the action of the Assessing Officer ('AO'') in treating the Appellant as 'assessee in default' ufs.201(1) r.w.s. 194H of the Act, without ascertaining and coming to the conclusion that the pre-paid distributor (the recipient) has not offered for tax the discount availed by them from the Appellant. 2. The Appellant prays that it be held that in the absence of the aforesaid conclusion, the Appellant cannot be treated as an assessee in default ufs.201(1) r.w.s. 194H of the Act. With Prejudice to Ground No.1 : Ground No.II. 1. On the facts and in circumstances of the case and in law, the Learned CIT(A) erred in upholding the action of the AO in treating discount offered by the Appellant to the Distributors in the nature of 'commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and has to be set aside. 14. So far as the merit of the case is concerned, the Ld. Counsel for the assessee referring to the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. Vs. DCIT reported in 372 ITR 33 submitted that the Hon'ble High Court in the said decision has held that sale of prepaid SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS u/s.194H. He submitted that the Hon'ble Karnataka High Court has passed the order after distinguishing all the 3 decisions relied on by the CIT(A) namely; the decision of Hon'ble Kerala High Court in the case of Vodafone Essar Cellular Ltd., decision of Hon'ble Delhi High Court in the case of Idea Cellular Ltd. and the decision of Hon'ble Kolkata High Court in the case of Bharti Cellular Ltd. 15. Referring to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Qatar Airways reported in 332 ITR 253 he submitted that the Hon'ble High Court in the said decision has held that where agents of an airline had been given discretion to sell tickets at any rate between fixed minimum commercial price and published price, amount which age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n default and accordingly raised demand u/s.201(1) and 201(1A). For the above proposition, the Assessing Officer relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Idea Cellular Ltd. (supra). We find in appeal the Ld.CIT(A) upheld the action of the Assessing Officer. 19. It is the submission of the Ld. Counsel for the assessee that in view of the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. (supra) where it has been held that sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS u/s.194H, the assessee cannot be held as an assessee in default. It is also his submission that the Hon'ble Karnataka High Court has considered all the 3 decisions which have been relied on by the Ld.CIT(A). 20. We find merit in the above submission of the Ld. Counsel for the assessee. We find the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. (supra) after considering the 3 decisions relied on by the Ld.CIT(A) has held that sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS u/s.194H. The relevant observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell into retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, who ever ultimately sells the said right to customers is not entitled to charge more than the MRP: The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive income. At 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 Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Essar Celluar Ltd., (supra) 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 Rs. 100/- in their books of accounts and showing the discount of Rs. 20/- to the dealer. Only if they are showing Rs. 80/- as the sale price and not reflecting in their accounts a credit of Rs. 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. " 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. Therefore, the substantial question of law is answered in favour of the" assessee and against the Revenue. Hence, we pass the following order: ORDER 1. Appeals are allowed. 2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We hold and direct accordingly. ITA Nos. 1867 to 1870/PUN/2014 (A.Yrs. 2007-08 to 2010-11) : 24. The assessee in all these appeals has challenged the order of the CIT(A) in confirming the levy of penalty u/s.271C of the I.T. Act as follows : A.Y.2007-08 50,49,551 A.Y. 2008-09 80,78,569 A.Y. 2009-10 6,35,25,863 A.Y. 2010-11 6,43,36,230 25. After hearing both the sides, we find since the assessee has not deducted TDS in respect of commission paid to prepaid subscribers the Assessing Officer treated the assessee as an assessee in default and levied tax u/s.201(1) and interest u/s.201(1A) of the I.T. Act. Thereafter, the TDS officer initiated penalty u/s.271C of the I.T. Act. Rejecting the various contentions of the assessee and holding that there was no reasonable cause for non-compliance of TDS provisions the Assessing Officer levied penalty u/s.271C of the I.T. Act, the details of which are already given above. While deciding the quantum appeal we have already held that discount offered by the assessee to the distributors is not in the nature of commission within the meaning of section 194H of the I.T. Act and accordingly the assessee is not an assessee in defa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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