TMI Blog2017 (9) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... st two contradictory decisions other High Courts, we are of the opinion that the law laid down by the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [ 1973 (1) TMI 1 - SUPREME COURT] which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred, we decide the issue in favour of the assessee by following the decisions of the Hon ble High of Judicature for Rajasthan Bench at Jaipur as well as Hon ble Karnataka High Court. However, in the orders of authorities below, there was no elaborate discussion with regard to the sale discount offered by the assessee and maintained in the books of accounts of the assessee. Accordingly, as has been held by the Hon ble Karnataka High Court, we also remit the matter back to the file of the Assessing Officer only to find out as to how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in the books of the assessee or not. If the accounts are not reflected as set out in BHARTI AIRTEL LTD. AND OTHERS VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND COMMISSIONER OF INCOME TAX, BANGALORE [ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -15 - - - Dated:- 21-9-2017 - Shri A. Mohan Alankamony, Accountant Member Shri Duvvuru RL Reddy, Judicial Member Appellant by: Shri Salil Kapoor, Advocate Respondent by: Mrs. T.H. Vijayalakshmi, CIT Ms. S. Vijayaprabha, JCIT ORDER Duvvuru RL Reddy, These eight appeals filed by three different assessees of same group are directed against order of the ld. Commissioner of Income Tax (Appeals) for various assessment years as stated above. Since different common issues are involved, all the appeals were heard together and being disposed of by this common order for the sake of brevity. 2. The first common ground raised in the appeals of all the assessees is that Ground No. 1 The order passed by the learned TDS Officer is bad in law and void-ab-initio has not been pressed at the time of hearing of the appeals. Accordingly, the ground raised in the grounds appeal is dismissed as not pressed. 3. The second common ground raised in the appeals of all the assessees is that the ld. CIT(A) has erred in holding that the assessee is liable to deduct TDS on the amount of commission/discount allowed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201(1) r.w.s. 194H of the Act, since the assessee has not deducted TDS as per the provisions of section 194H of the Act on the prepaid recharge coupons. Accordingly, the Assessing Officer levied tax under section 201(1) of the Act as well as interest thereon under section 201(1A) of the Act and brought the same to tax. 3.2 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee and by following the decision of the Tribunal in assessee s own case in I.T.A. No. 1415 1416/Mds/2009 dated 01.04.2011, the ld. CIT(A) dismissed the ground raised by the assessee. 3.3 On being aggrieved, the assessee is in appeal before the Tribunal. By reiterating the submissions as made before the lower authorities, the ld. Counsel for the assessee has submitted that the discount allowed to the distributors is on account of principal to principal basis and not that of principal to agent. It was also submitted that under this arrangement, the transaction in all substantial respects is akin to sale and purchase of goods as it happens in FMCG sector. The discount extended represents the difference between the MRP of the talk ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s appeal as well as Revenue s appeal and the same shall also be followed. 3.4 Per contra, The ld. DR relied on the decision in assessee s own case for the assessment years 2007-08 and 2008-09 in I.T.A. Nos. 1415 and 1416/Mds/2009 dated 01.04.2011, which was followed by the ld. CIT(A) while deciding the issue in appeals against the assessee. 3.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also carefully gone through the case filed by the assessee in the form of paper book and other judgements. The assessee, in the instant case, is engaged in the business of cellular mobile phone services and distribution of SIM cards including prepaid and postpaid services. The prepaid services are in the form of recharge coupons and SIM cards. Since the assessee has not deducted TDS from the discount offered by the assessee to their distributors, the Assessing Officer treated such discount offered by the assessee to their distributors as commission and treated the assessee as an assessee in default under section 201(1) r.w.s. 194H of the Act. While doing so, the Assessing Officer reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fone Essar Cellular Ltd. (supra), the decision of Hon ble Delhi High Court in the case of Idea Cellular Ltd.(supra) and the decision of Hon ble Kolkata High Court in the case of Bharti Cellular Ltd. (supra). The relevant observation of the Hon ble Karnataka High Court reads as under : 56. In the Idea Cellular Ltd. case (supra), the Delhi High Court proceeded on the footing that the assessee is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. They had appointed distributors to make available the prepaid products to the public and look after the documentation and other statutory requirements regarding the mobile phone connection and, therefore, the essence of service rendered by the distributor is not the sale of any product or goods and, therefore, it was held that all the distributors are always acting for and on behalf of the assessee company. 57. Similar is the view expressed by the Kerala High Court in the Vodafone Essar Cellular Ltd s case (Supra), where it was held that, the distributor is only rendering services to the assessee and the distributor commits the assessee to the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled 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 purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub- distributors/retailers. As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no. primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorized as commission. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. 60. The following illustration makes the point clear: On delivery of the prepaid card, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share ₹ 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 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. The impugned orders passed by the authorities are hereby set aside. 3. The matter is remitted 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, Section 194H of the Act is not attracted. Ordered accordingly. 3.9 Moreover, while considering similar question of law on identical facts and circumstances in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT in ITA No. 205 of 2005 and 44 others, which includes, Vodafone, Idea Cellular, Bharti Hexacom, Tata Teleservices, etc. dated 11.07.2017, the Hon ble High Court of Judicature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect and accordingly disallowance on that basis is not correct. In our considered opinion, from which amount of tax is to be deducted is a doubtful proposition inasmuch as the Management Information System which has been sought to be relied upon for alleging that expenditure has been claimed could not have been relied upon by the Tribunal or the authorities under the Income Tax Act. (i) The findings which are given by the Tribunal regarding Distributor being Agent in view of the discussion made hereinabove, the arrangement which has been made between the Company and the Distributor is on Principal to Principal basis and the responsibility is on the basis of agreement entered into between the parties. (ii) Regarding MRP, the findings which are arrived at is a price which has been fixed by the assessee company and other expenses, namely; commission given to the retailer and everything is to be managed by the Distributor. In that view of the matter, the restrictions which are put forward will not decide the relation-ship of Principal and Agent. (iii) The Distributor has all rights to reduce his margin. He can increase the margin of retailer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an agent, therefore, in our considered opinion, the provisions of Section 194H have wrongly been invoked, and therefore, the first issue is answered in favour of assessee and against the Department. 49. The second issue which has been raised for our consideration, as discussed hereinabove, the Management Information System was not a part of their books of accounts nor could have been relied upon by the Income Tax Authorities. The basis on which the proceedings were initiated, in our considered opinion, the Statutory Audit Report is final conclusion over the authorities under the Income Tax Act, therefore, the second issue is required to be answered in favour of the assessee. 50. Regarding third issue whether 201A or 201(1A), in view of the decisions of different High Courts, the argument canvassed by counsel for the appellant pre-supposes deduction out of the payment. In our conclusion in issue No.1, the amount was not required to be deducted since they have not made any pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers to deal with the same. All other issues are answered in favour of the assessee. Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. 60. .. 61. In view of the above discussion, all the appeals of assessees are allowed and those of Department are dismissed. 3.10 In view of the above decisions of the Hon ble High of Judicature for Rajasthan Bench at Jaipur as well as Hon ble Karnataka High Court, we are of the considered opinion that the sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS under section 194H of the Act. However, we find that while deciding similar issue, the Hon ble Kerala High Court has taken a different view, as the relevant observations are reproduced hereinabove, and decided the issue against the assessee. In the absence of any jurisdictional High Court decision brought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a entry was being manned by the outsourced personnel. The assessee was deducting tax at source at the rate of 2% under section 194C of the Act on the payments made. The assessee, during the course of hearings, was questioned on this nature of business model and was asked to provide the details of manpower availed for these services and also its objection, if any, to invoke section 194J of the Act. The assessee's submission was that wherever the services of technical personnel were utilized as in the case maintenance of mobile towers, tax @ 10% under section 194J of the Act was deducted and in other cases tax under section 194C of the Act @ 2% was deducted. The argument advanced was that these services were not technical in nature and don't require technical knowledge. The assessee also filed a written submission arguing that since section 194C of the Act speaks of supply of labour for carrying out any work pursuant to a contract, the applicable rate of payment would be only 2%. However, the Assessing Officer observed that work is different from services and sections 194C and 194J of the Act operate on different parameters. Definition of technical services in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously advanced any argument against the earlier order of the Tribunal. 4.5 We have heard rival contentions and perused the materials available on record. On similar facts and circumstances in an identical issue in assessee s own case for the assessment years 2013-14 and 2014-15 in I.T.A. Nos. 564 565/Mds/2015 dated 16.09.2015, after considering the issue in detail, the Coordinate Benches of the Tribunal has observed and held as under: 8. We have carefully gone through the above services to be rendered by the service provider. The above services to be rendered by the employees to the service provider who shall be sufficiently trained and shall have adequate knowledge of service to be provided to the highest standard. Further, the assessee shall provide the material to service provider to be used for delivering the services of the assessee. The service provider shall use such material solely for the purpose of rendering services hereunder in accordance with instructions of assessee and for no other purpose. Upon expiry or termination of this agreement, the service provider shall promptly return or deal with all such material in accordance with the instructions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,79,005 2,99,903 Support services such as field activations, vender, payments queries, entering receipts into SAP, field verification etc 2 Forte Private Solutions Ltd. 4,27,08,092 3,57,70,557 3 Sukhvasha Management services 5,88,39,000 2,50,66,617 4 Caliber Point Business solutions 7,06,96,268 2,15,58,974 Customer support services such as tele-calling for bill payments, tele-calling for new activation. 5 G4S facility services India P. Ltd 67,36,620 26,61,421 House keeping services. As can be seen, the payment can be made for three kinds of service. They are 1. Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verification etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression fee for technical services as appearing in S.194J. In this context, it was noted by the Delhi High Court that the said expression appearing in S.194J has the same meaning as given in Explanation (2) to S.9(1)(vii), which means any consideration for rendering of any managerial, technical or consultancy services . Taking note that the word technical is preceded by the word managerial and succeeded by the word consultancy, Delhi High Court held that the rule of noscitur a sociis is clearly applicable and this would mean that the word technical would take colour from the words managerial and consultancy in between which it is sandwiched. Elaborating further, the Delhi High Court observed that it is obvious that the expression manager and consequently managerial service has a definite human element attached to it and similarly, the services consultancy also necessarily intends human intervention. It was held by the Delhi High Court that the expression technical services thus necessarily involves human element or what is now a days fashionably called human interface . In the case of Bharti Cellular Ltd (supra) before the Delhi High Court, the facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to roaming means, an arrangement whereby a subscriber of a cellular phone uses cellular services outside the home network. Thus, the subscriber who is not roaming gets services from his home operator while the subscriber who is roaming will get services from both, the host of operator and the home operator. The host operator, of course, charges the home operator for providing telecom services to the subscriber of the later and vice versa. Based on the usage, the host operator would invoice the home operator, which the home operator would recover from his own subscriber. When the assessee was asked as to why TDS was not deducted on the expenditure incurred towards roam charges paid by the assessee as per the provisions of section 194J of the Act, it was the submission of the assessee that roaming charges are paid for automated services which require no human intervention or skill and hence provisions of 194J of the Act are not applicable as per the decision of the Hon ble Madras High Court in the case of Skycell Communications v. CIT 119 Taxman 496. After considering the submissions of the assessee and by making elaborate discussion with regard to the issue, since the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical service and accordingly the payment made by the assessee company to the service provider company would be exigible to the provisions of section 194J r.w.s 9(1)(viii) of the Act. The Ld. CIT (A) also upheld the view of the Ld. Assessing Officer. 4. At the outset, the Ld. A.R. submitted that this issue is covered by the recent decision of the Chennai Bench of the Tribunal in the case of M/s. Dishnet Wireless Ltd., in ITA Nos.320 to 329/Mds/14 vide order dated 20.07.2015 where it was held that the tax need not be deducted at source in respect of payment towards roaming charges to other service providers, since it would not amount to payment of fees for technical services as provides U/s.194J of the Act. Ld. D.R vehemently argued by referring to the order of the Ld. Assessing Officer from page No.10 to 14 wherein the statement of Smt. Vasanthi Ramamurthy Divisional Engineer, BSNL Coimbatore was extracted from which it could be inferred that continuous human interference is required for operating the facility provided by the service provider and hence the service rendered by the service provider would amount to technical service. Therefore, Ld. D.R stoutly contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no human intervention is required for connecting the roaming calls. The subscriber can make and receive calls, access and receive data and other service without any human intervention. Like any other machinery, whenever the system breakdown, to set right the same, human intervention is required. However, for connecting roaming call, no human intervention is required except initial configuration in system. This Tribunal is of the considered opinion that human intervention is necessary for routine maintenance of the system and machinery. However, no human intervention is required for connecting the roaming calls. Therefore, as held by the Apex Court in Bharti Cellular Limited (supra), the roaming connections are provided without any human intervention and therefore, no technical service is availed by the assessee. Therefore, TDS is not required to be made in respect of roaming charges paid to the other service providers. Therefore, following the above mentioned recent decision of the coordinate Chennai Bench of the Tribunal, we hereby hold that in case of the assessee the roaming charges paid by the assessee will not fall under the category of fees for technical service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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