TMI Blog2018 (7) TMI 1612X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently liable to pay interest u/s 201(1A) is in accordance with law. See VODAFONE MOBILE SERVICES LIMITED (FORMERLY KNOWN AS VODAFONE SOUTH LIMITED) VERSUS DCIT- (TDS) , CIRCLE-15 (2) , ADDL. CIT (TDS) , RANGE-2, HYDERABAD [2017 (10) TMI 380 - ITAT HYDERABAD] - Decided against assessee - ITA Nos. 1445 And 1446/Hyd/2015 - - - Dated:- 20-7-2018 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri Ronak G. Doshi For The Revenue : Shri P. Chandrasekhar ORDER PER S. RIFAUR RAHMAN, A.M.: Both these appeals filed by the assessee are directed against the orders of the learned Commissioner of Income-tax(A) - 8, Hyderabad, both, dated 30/10/2015 for AY 2014-15 and 2015-16. As the issue is identical in both the appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. 2. Briefly the facts of the case, as taken from AY 2014-15 are that the assessee company is engaged in the business of providing cellular mobile telephone services to its customers in Andhra Pradesh Telengana through a network of distributors. In order to verify compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written submissions, which are as under: AS REGARDS GROUND NO. I: TREATING ASSESSEE AS 'ASSESSEE IN DEFAULT' FOR NON-DEDUCTION OF TAX DEDUCTED AT SOURCE (TDS) UNDER SECTION (U/S.) 201 READ WITH SECTION (R.W.S.) 194H OF THE ACT WITHOUT ASCERTAINING AND PROVING THE FACT AS TO WHETHER RECIPIENT OF INCOME HAS PAID TAXES ON ALLEGED INCOME RECEIVED/ RECEIVABLE FROM ASSESSEE AS REQUIRED U/S. 191 OF THE ACT: SUBMISSIONS: 1. The TDS Officer erred in treating the Assessee as an 'assessee-in-default' u/s. 201 r.w.s. 19H of the Act without ascertaining and proving that the recipient had not paid tax on the alleged income received/receivable from the Assessee as required u/s. 191 of the Act. 2. On the plain reading of section 201 rws 191 of the Act, unless and until the Income-tax Department has found that, the recipient of the income i.e., the pre-paid distributors ( the Distributors ) have not discharged the tax liability, the Assessee cannot be treated as an 'assessee-in-default' u/s. 201 rws 194H of the Act. In this regard, the Assessee would like to place reliance on: Jagran Prakashan Ltd. vs. DCIT (345 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of appeal by the Hon'ble Andhra Pradesh High Court, appeal status available from the website of the High Court is attached at Annexure-A. Assessee s submissions: At the outset, the Assessee most humbly admits that the issue has been decided against the Assessee by the Hon'ble Jurisdictional Andhra Pradesh High Court. Nevertheless, the Assessee most humbly submits that even after the 'against' decisions of Delhi, Kerala and Calcutta High Courts on the said issue, the Hon'ble Kamataka High Court, after dealing with all the aforesaid decisions, has decided the issue in favour of the bunch of assessees in telecom sector. Recently, even the Hon'ble Rajasthan High Court has also decided the issue in favour of the Assessee in respect of it's Rajasthan Circle. In view of the foregoing developments, the Assessee most humbly summarises it's contentions as under: The Assessee's contention that no tax is deductible under section 194H of the Act on discount allowed to pre-paid distributors is based on two separate and distinct propositions: I. The Assessee and the Distributors are acting on Principal to Principal ( P2P ) ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailers or end user. (Refer Clause 6(q) of the Agreement at page no. 13 of the FPB) ( iv)In a principal agency relationship, the principal is liable to compensate the agent for any loss or damage suffered in discharging his functions as an agent (See Section 222, 223, and 225 of the Indian Contract Act). However, in Assessee's case, if there is any loss due to theft, natural calamity, etc., per se Assessee is not liable to recoup the same. Only in some cases, on Prepaid Distributor making payment of processing fees, the Assessee may revalidate the products. (Refer Clause 6.2 of the Agreement at page no. 14 of the FPB) ( v) In a principal agency relationship, the Principal is liable to take back the stock of products not used or sold by expiry date. However, in the present case it is agreed that inactive SIM I RV beyond expiry shall not be returned to the Assessee but shall be treated as used by the distributors at the end of the expiry period unless the same is brought to the notice of the Assessee by the distributor within the expiry period. (Refer Clause 6.3.3 of the Agreement at page no. 15 of the FPB) ( vi)On termination under the Principal and Agency r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is responsible for making any payment to the Distributors, the Department has to show that the Distributors have received a payment by way of commission or brokerage (which would include any payment received or receivable by the Distributors) whilst acting on behalf of the Assessee. The liability of deducting tax at source u/s. 194H of the Act can be imposed only if the following conditions are cumulatively complied with: The payer should be a person responsible for paying such income to the payee; 'income should be in the nature of 'commission' or 'brokerage', and payment should be received by a person acting on behalf of other, in the course of rendering services to third parties; such income should be 'paid' or 'credited' by the payer in favour of the payee; the time of 'credit' or 'payment' should also be known, and the amount on which tax is deductible should be determinable. As stated above, the Hon'ble Karnataka High Court in the case of Bharti Airtel Limited vs. DCIT (2014) (372 ITR 33) (Refer page no. 39 to 60 of LPB) has given a finding that the discount allowed to prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss sale price. Hon'ble Delhi High Court decided against the assesse mainly on the basis that services cannot be bought and sold and hence any intermediary is always an agent and not a distributor. Hon'ble Kerela and Calcutta High Courts majorly follows Delhi High Court and indirectly Jurisdictional High Court also follows those 3 High Courts. Assessee submits that certain clauses in present agreement are different from Delhi Circle. Assessee submits that the Hon'ble Kamataka High Court which was rendered post above High Court decisions, specifically refers to Delhi, Kerela and Calcutta High Courts and states that 'services can be bought and sold'. Lastly, it also considers the accounting treatment at para 11 . Post Kamataka High Court decision, Hon'ble Rajasthan High Court takes a view in favour of Assessee. Thus, Assessee submits that right to services can be bought and sold and hence relationship can be ofP2P. Secondly, considering net accounting in captioned years as demonstrated by the Assessee at Page no 39 of Factual Paper Book, even as per Para 11 of order of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition, reliance is placed on following decisions: a. Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT (293 ITR 226)(SC); b. Bharti Cellular Limited vs. ACIT (200 Taxman 254) (Cal) c. Vodafone Essar Limited vs. Dy. CIT (45 SOT 82) (T Mum) 3. In this regards, the Assessee submits that where the basic information of taxes paid by the recipient is provided by the Assessee, then the onus, to examine the facts and confirm whether the tax has been paid by the recipients or not, falls on the ITO. In this regards, the Assessee has submitted the declarations received from the Distributors (i.e. recipient of the income) which contains that the amount received from the Assessee has been offered for tax in their Return of Income, details of the jurisdiction under which they are assessed, address for communication and their PAN. In view of the above, the Assessee request Your Honour to direct the Learned TDS Officer to consider the declarations submitted by the Assessee and recalculate the demand u/s. 201(1) of the Act and consequentially the interest u/s. 201(IA) of the Act. WITHOUT PREJUDICE TO ABOVE AS REGARDS GROUND V: LEVY OF INTEREST U/S. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are similar to the facts of the assessee s case and the findings of the coordinate bench are reproduced below: 84. We have carefully considered the rival submissions and perused record. It is not in dispute that Hon ble Andhra Pradesh High Court in the case of M/s. Vodafone Essar South Ltd (ITTA No.291 of 2013) followed decisions of Hon ble Delhi High Court (325 ITR 147), Hon ble Kerala High Court (332 ITR 255) and Hon ble Calcutta High Court (244 CTR 185) by observing that facts of the case in all those reported judgments are identical to the case of assessee and the assessee could not distinguish the above cases in so far as the similarity of the facts and method of accounting are concerned. In otherwords it can be considered as a decision rendered on merits. The issue as to whether payment to be made by the assessee is mandatory in order to invoke provisions of section 194H, or whether sale price at the end of distributor is ascertainable, was already taken into consideration in detailed judgments rendered by Hon ble Delhi High Court, Kerala High Court and Calcutta High Court. It cannot be said that the decision of Andhra Pradesh High Court is not on merits. When the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted without prior approval of assessee. In fact no sales tax was even paid on the ground that there is no transfer of property to the distributor. It was always treated as service, for acting as a live link between subscriber and assessee. Therefore, the relationship between assessee and distributor can only be considered as a relationship of principal to agent . The Court further observed that the pricing freedom permitting distributor to sell at any price - would not come in the way of determining the relationship between assessee and distributor so long as agent is obliged to render services for and on behalf of assessee on certain parameters and in this regard Hon ble Delhi High Court relied upon a decision of the Apex Court in the case of Bhopal Sugar Industries Ltd vs. STO (1977) [40 STC 42] (SC). The Court also took note of the fact that legal relationship is established between assessee and the ultimate consumer / subscriber since activation of SIM cards by assessee is in the name of subscriber / consumer and service is provided to the subscriber. Merely because advance payment is received from distributor, it does not amount to sale of goods since unsold SIM cards can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, it was concluded that the terminology used by assessee for payment by distributors is immaterial and in substance the discount given at the time of sale of SIM cards / recharge coupons is a payment received or receivable by distributors for the services to be rendered to assessee and it falls within the definition of commission u/s 194H of the Act. 89. The Court also mentioned about the scheme of deduction of tax at source and observed that the grievance, if any, against recovery of tax by assessee, should be on distributors and not on assessee / cellular operators. 90. On careful perusal of the aforecited two judgments, which in turn were followed by Hon ble jurisdictional High Court, indicate that the essence of contract was treated as a contract between principal and agent and distributor in his capacity as an agent may exercise his authority to commit the principal to render services to subscribers and this in itself cannot be termed as contract between principal to principal . In otherwords the issue is as to whether there was a sale of service or not was impliedly considered by Hon ble High Court of Kerala which in turn was followed by Hon ble Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete right and control over the matter of providing talk-time to ultimate subscribers; distributor can of course insist upon assessee while making a request to provide talk-time through e-module etc., but the final decision has to be taken by assessee, only upon verification of consumer details which in turn has to be provided by distributor. Assessee can terminate the contract at any time by giving thirty days time without assigning any reason and distributor has to return all equipment and furniture supplied by the VESL upon termination of such contract. Other conditions such as maintaining the confidentiality and limitation of assigning rights or obligations to third party by distributor would also indicate that distributor is merely acting as an agent i.e., as a connecting link between assessee and ultimate subscriber. 94. We therefore prefer to follow the decision of Hon ble jurisdictional High Court by holding that though distributor commits assessee to subscribers and exercise his authority to ensure arranging connection to subscriber, it will not alter the situation since the overall context in which such power is given to distributor has to be looked into in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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