TMI Blog2017 (1) TMI 1583X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of assessee for statistical purposes. 2 - ITA Nos.1041, 1042 & ITA Nos.1953 to 1955/PUN 2013, ITA Nos.1867 to 1870/PUN/2014 - - - Dated:- 4-1-2017 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM Appellant by : Shri Madhur Agarwal, Shri Ronak Doshi Respondent by : Shri D.S. Benupani ORDER PER R.K.PANDA, AM : ITA Nos. 1041 1042/PUN/2013 filed by the assessee are directed against the common order dated 28-02-2013 of the CIT(A)-V, Pune relating to Assessment Years 2007-08 and 2008-09. ITA Nos. 1953 to 1955/PUN/2013 filed by the assessee are directed against the common order dated 21-08- 2013 of the CIT(A)-V, Pune relating to Assessment Years 2009-10 to 2011- 12. In these appeals, the assessee has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in treating the assessee as an assessee in default u/s.201(1) of the I.T. Act read with section 194H of the Act. ITA Nos. 1867 to 1970/PUN/2014 filed by the assessee are directed against the common order dated 22-08-2014 of the CIT(A)-V, Pune relating to Assessment Years 2007-08 to 2010-11 confirming the levy of penalty u/s.271C of the I.T. Act. For the sake of convenience, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid before hand by the distributors. Secondly, it was stressed that no risks are borne by the company which is entirely borne by the Distributors, unlike in the case of Principal to Agent relationship, as it was purely a purchase and sale transaction and the distributors do not render any service to the company. Relying on various decisions, the assessee tried to explain it s position from the definition of term Agent , Commission and Discount provided in Indian Contract Act 1872. 4. Alternatively it was submitted that the assessee receives the purchase order from distributors who are required to pay the assessee at discounted price. Thus, there was no case of the assessee either paying or crediting the account of distributors. Further, it was not possible to quantify the exact amount of income in the hands of distributors. Relying on the decision of Hon ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd., 293 ITR 226 it was argued that no tax u/s. 201(1) can be charged, when the tax has been paid by the distributors. 5. However, the DCIT(TDS)-l, Pune did not accept the contention of the assessee. Relying upon the decision of Hon ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held responsible for failure to deduct TDS. It was argued that in order to attract provisions of section 194H of the I.T. Act to the discount allowed to its prepaid distributors the following pre-conditions need to be satisfied : i. The assessee should be responsible for paying an income to the distributor by way of commission. ii. There should be a payment or credit of such income to the distributor. iii. Tax is to be deducted at the time of payment or credit thereof. 7.1 It was accordingly submitted that since none of the conditions mentioned above are satisfied in this case, provisions of section 194H are not applicable. The decision of Hon ble Kerala High Court in the case of M.S. Hameed and others Vs. Director of State Lotteries reported in 249 ITR 186 was cited for the proposition that responsibility for deduction of TDS arises at the time of credit or payment of such income. It was further argued that the distributors did not act as agent of the assessee. Referring to the provisions of section 194H it was argued that the term commission or brokerage is defined to include payment to a person acting on behalf of another (a) For Services rendered, (b) For the Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Bharti Cellular Ltd. Vs. CIT reported in 354 ITR 507 he held that the discount allowed by the assessee to the distributors for selling prepaid SIM cards constituted commission and the assessee was liable to deduct tax at source on such payments u/s.194H of the I.T. Act. 10. So far as the argument of the assessee that until and unless the department proves that the recipient had not paid taxes, the assessee cannot be held to an assessee in default is concerned, the Ld.CIT(A) distinguished the decisions cited before him in the case of Jagran Prakashan Ltd. (supra) on the ground that the said order of the Hon ble Allahabad High Court has been passed in the context of writ petition and in a Writ matter the ratio of the decision is limited to the specific case as no law can be said to be laid down by the Hon ble Court. He, however, observed that the assessee is entitled to get relief where it is proved that the recipients have paid the taxes in the light of the decision of Hon ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. reported in 293 ITR 226. He accordingly directed the Assessing Officer to examine the declarations and modify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A) erred in upholding the action of the AO without appreciating the fact that where mechanism to deduct tax fails , the Appellant cannot be held to be assessee in default u/s. 201 of the Act. 2. He failed to appreciate and ought to have held that: Admittedly, there was no payment no credit of any sum to the distributors; Appellant was not responsible for paying any income by way commission to the Distributors. 3. The Appellant thus prays that it cannot be regarded as 'assessee in default' for alleged non deduction of tax u/s. 194H of the Act. Ground No.4 : The Appellant craves leave to add, to alter and j or amend, withdraw all or any of the foregoing grounds of appeal. Identical grounds have been raised for A.Yrs. 2008-09 to 2010-11. 13. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). He submitted that when the assessee is not paying anything to the distributors the provisions of section 194H cannot be applied to the assessee treating the assessee as an assessee in default. Referring to the decision of Hon ble Allahabad High Court in the case of Jagran Prakashan Ltd. (supra) he submitted that the Hon ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Karnataka High Court after considering various decisions relied on by the CIT(A) has taken the view in favour of the assessee. Therefore, the view which is in favour of the assessee has to be adopted. For the above proposition he relied on the decision of Hon ble Supreme Court in the case of CIT Vs. M/s. Vegetable Products Ltd. reported in 88 ITR 192. 17. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 18. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is engaged in the business of providing postpaid as well as prepaid services. In respect of postpaid services the company was treating the distributors as agents and was deducting TDS on commission paid to them u/s.194H of the I.T. Act. However, in respect of the prepaid services the assessee has not deducted TDS on the payments made to the distributors. We find the Assessing Officer rejecting the claim of the assessee that the discount allowed to the distributors by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that, the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. In that context it was held that, discount is nothing but a margin given by the assessee to the distributor at the time of delivery of SIM Cards or Recharge Coupons against advance payment made by the distributor. 58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold. 59. The telephone service is nothing but service SIM cards, have no intrinsic sale value: It is supplied to the customers. for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assesseecompany to. the distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60. The following illustration makes the point clear: On delivery of the prepaid card, the assessee raises invoices and updates the accounts. In the first instance, sale is accounted for ₹ 100/-, which is the first account and ₹ 80/- is the second account and the third account is ₹ 20/-. It shows that the sales is for ₹ 100/-, commission is given at ₹ 20/- to the distributors and net value is ₹ 80/-. The assessee's sale is accounted at the gross value of ₹ 100/- and thereafter, the commission paid at ₹ 20/- is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted. 61. However, in the first instance, if the assessee accounted for only ₹ 80/- and on payment of ₹ 80/-, he hands over the prepaid card prescribing the MRP as ₹ 100/-, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of ₹ 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal. 63. It was contended by the revenue that; in the event of the assessee deducting the amount and paying into the department, ultimately if the dealer is not liable to tax it is always 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscounted rate to distributors is not commission and therefore not liable to TDS u/s.194H of the I.T. Act. However, the Hon ble High Court while holding so has remitted the matter back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books. If the accounts are not reflected as set out above in para 60 of the order, section 194H is not attracted. Therefore, in line of the above observation of the Hon ble High Court we restore the matter to the file of the Assessing Officer for necessary verification. The grounds raised by the assessee are accordingly allowed for statistical purposes. 22. Identical grounds have been raised by the assessee for the remaining years wherein it has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in treating the assessee as an assessee in default for non deduction of tax at source on discount extended by the assessee to the distributors and its prepaid SIM cards/talktime and therefore liable to pay tax u/s.201(1) and interest u/s.201(1A) of the I.T. Act. 23. In view of our discussion i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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