TMI Blog2018 (5) TMI 1912X X X X Extracts X X X X X X X X Extracts X X X X ..... estic roaming charges had been examined by the Hon'ble Supreme Court in the case of CIT vs M/s Bharati Cellular [ 2010 (8) TMI 332 - SUPREME COURT] opining that it was necessary to find out if any human intervention was involved at any stage so as to determine whether the services rendered were in the nature of technical services warranting tax deduction at source u/s 194J of the Act. no grievance against the aforesaid directions of the Ld.CIT(Appeals) since the Ld.CIT(Appeals) had only restored the issue to the Assessing Officer for considering the same afresh in the light of the directions of the Hon'ble Apex Court in the case of M/s Bharati Cellular [ 2010 (8) TMI 332 - SUPREME COURT] on the issue of TDS on roaming charges and also on the alternate contention raised by the assessee of no tax to be deducted at source where payees have paid taxes on the same, for verification of facts relating to the same - ITA No.340/Chd/2013, 216/Chd/2013, 217/Chd/2013 (Assessment Year : 2007-08, 09-10, 10-11) - - - Dated:- 30-5-2018 - Shri Sanjay Garg, Judicial Member And Ms.Annapurna Gupta, Accountant Member Appellant by: Shri Anil Bhalla Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 50888461/- ₹ 5569629/- ₹ 56458090/- 5. The matter was carried in appeal before the Ld.CIT(A) who held that the assessee was liable to deduct tax on the incentives paid to distributors on sale of prepaid SIM cards, but at the same time accepted the assessees contention that in case taxes were paid by the payee distributors on the said incentives, the assessee could not be treated to be in default for not deducting tax at source. Accordingly he directed the AO to verify this fact and grant relief to the assessee to the extent it is able to demonstrate the same. Vis-a-vis TDS on roaming charges, the Ld.CIT(A) restored the issue to the AO to adjudicate the same in the light of the direction given by the apex court in the case of Bharti Cellular Ltd. 193 Taxman 97 to determine whether the said payment qualified as fees for technical services as per section 194J of the Act. Ld.CIT(A) also reiterated his decision on the issue of TDS on incentives given to distributors, that the assessee could not be treated to be in default for not deducting tax at source if the payees had paid taxes on the same and gave ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as an assessee in default for not deducting tax at source. The Ld. counsel for assessee conceded that the Ld.CIT(Appeals) had restored the issue to the Assessing Officer to only verify the fact of payment of taxes by the payees on the said income. The Ld. counsel for assessee, therefore, stated that not being aggrieved by the said action of the CIT(Appeals) it was not pressing the ground No.1.3 raised before us. Accordingly, ground No.1.3 is treated as dismissed. 9. Thereafter, Ld.Counsel for the assesee pointed out that both the AO and the CIT(A) had rested their case holding the assessee liable to deduct tax on incentives paid to distributors on sale of cards, relying upon the decision of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs M/s Idea Cellular Ltd.(2010) 325 ITR 148(Del) and the decision of the Hon'ble Kerala High Court in the case of M/s Vodafone Essar Cellular Ltd. Vs Assistant Commissioner Of Income Tax,(2010) 235 ITR 393 (Ker), wherein it was held that the discount given by the assessee to the distributors on prepaid cards was commission within the meaning of Explanation-1 to section 194H of the Act. 10. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of construction of law demanded that the decision favouring the assessee/beneficial to the assessee should be followed. The Ld. counsel for assessee stated that the I.T.A.T. Ahmedabad Bench in the case of Vodafone Essar Gujarat Limited (supra) and I.T.A.T. Gauhati Bench in the case of M/s Bharti Hexacom Limited (supra) had decided the issue on this principle only. The Ld. counsel for assessee also drew our attention to the decision of the Hon'ble Apex Court in this regard in the case of CIT vs Vegetable Products Limited, 88 ITR 192 (SC) and CIT,(Central)-I vs Vatika Township Pvt. Ltd., 367 ITR 466. The Ld. counsel for assessee, therefore, stated that the order of the Ld.CIT(Appeals) treating the assessee as an assessee in default for non-deduction of tax at source on the incentives paid to distributors on sale of prepaid cards u/s 194H therefore needed to be set aside. 12. The Ld. DR, on the other hand though conceded that there were divergent views on the issue, relied upon the order of the Ld.CIT(Appeals). 13. We have heard the contentions of both the parties, perused the orders of the authorities below and have also gone through the decisions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that, when the airlines sell the air tickets it would have no information about the exact rate at which the tickets would ultimately be sold by their agents since the agents had been given discretion to sell the tickets at any rate between the fixed minimum commercial price and the published price. The question of deducting any tax at source would not arise. 53. In the Ahmedabad Stamp Vendors Association case also, it was held that, when the licensed stamp vendors took delivery of stamp papers on payment of full price less discount and they sell such stamp papers to retail customers, neither of the two activities can be termed as the service in the course of buying or selling of goods. Discount given to the Stamp Vendors is for purchasing the stamps in bulk quantity and the said amount is in the nature of cash discount and, therefore, such a transaction is a sale. Therefore, the discount made available to the licensed stamp vendors does not fall within the expression commission or brokerage under Section 194H of the Act. 54. In the Mother Dairy s case referred to supra, it was held that, the concessionaire purchases the milk from the dairy which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction is a singular transaction which is executed between the travel agent while acting on behalf of the principal airline in selling the traffic documents/air tickets to a third party who is a passenger and, therefore, the second leg of the transaction cannot be different from the first leg of the transaction. 56. In the Idea Cellular Limited s case, 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 pre-paid 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 Limited s case, where it was held that, the distributor is only rendering services to the assessee and the distributor commits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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 delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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 subdistributor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. 14. Further we find that even the Hon'ble Rajasthan High Court in the case of M/s Bharti Hexacom Limited (supra), stated to be a subsidiary of the assessee, held that the discount paid to distributors was not in the nature of commission as envisaged u/s 194H of the Act and thus there was no liability to deduct tax at source on the same. The I.T.A.T. Jaipur Bench following the decision of the Hon'ble Rajasthan High Court in the case of M/s Bharti Hexacom Limited (supra) deleted the demand raised on identical issue in the case of M/s Bharti Hexacom Limited (supra) in a subsequent assessment year. Further we note that the I.T.A.T. Gauhati Bench has also affirmed the aforesaid proposition of law in the matter of the assessee itself i.e. Bharti Airtel Limited in its order dated 22.2.2018 in ITA Nos.59 to 62/Guahati/2012 relating to assessment years 2006-07 to 2009-10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the Income Tax department u/s 195(2) of the Income Tax Act in respect of the charges paid to international telecom companies on account of the charges incurred by the subscriber of the assessee company while roaming in international territory, accepting that such payments were not subject to withholding tax u/s 195. The learned Commissioner of Income Tax (Appeals) has further erred in restoring the matter back to the file of AO. 18. During the course of hearing before us Ld.Counsel for the assessee pointed out that the AO had held the assessee liable to TDS on roaming charges paid to other telecommunication subscribers, which was paid on account of the subscribers of the assessee company using service of other telecommunication subscribers to make calls, following the decision of the Hon'ble Supreme Court in the case of M/s Bharat Sanchar Nigam Ltd. Another Vs. Union of India Others, 282 ITR 273, wherein the providing of mobile connection was held to be in the nature of service contract. Ld.Counsel for the assesee thereafter pointed out that the Ld.CIT(A), while adjudicating the issue, noted that the issue of tax deduction at source on the domestic roamin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal Nos.2 to 2.1 are treated as dismissed. 20. In effect the appeal of the assessee is partly allowed. ITA No.216/Chd/2013: 21. The assessee has raised the following grounds: 1) The learned ACIT (IDS), Chandigarh [AO] has erred both on facts and in law; in applying the provisions of Section 194] of the Income Tax Act, 1961 to the transaction of national roaming charges paid to other telecom operators on account of roaming charges incurred by the appellant's subscriber on their network. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in ignoring the factual evidence placed before him to show that there is no technical services rendered within the meaning of Section 194] of the Act as evident from the examination of the technical expert, and further erred in not adjudicating on the issue but restoring it back to the file of the Assessing Officer. 2. The AO has erred both on facts and in law in demanding the tax amounting to ₹ 12,54,601/-, in spite of the fact that the amount has been subject to tax in the hands of other telecom operators. The learned Commissioner of Income Tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual relationship of principal to principal. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 1.2) The learned AO has erred both on facts and in law in passing an order u/s 201(1) and holding the assessee company to be in default in respect of non-deduction of tax amounting to ₹ 38,034,952/- u/s 194H on the difference between the distributor's price and sale price of the prepaid card alleging the difference to be in the nature of commission. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned AO. 1.3) The learned AO has erred both on facts and in law demanding the tax amounting to ₹ 38,034,952/-, in spite of the fact that the amount has been subject to tax in the hands of distributors. The learned Commissioner of Income Tax (Appeals) has further erred in not considering the information filed by the company to substantiate that the distributor has already paid tax on the disputed amount. 2) The learned AO has erred both on facts and in law in charging interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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