TMI Blog2019 (8) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... cleavage of opinions, the issue is well settled that in the absence of decision of the jurisdictional High Court, the binding precedent for the Tribunals and authorities would be the decisions in favour of the assessee not only on the principles of ambiguity but also on the principle that these decisions are latest in point of time. Accordingly, the legal issue on facts to be established stands concluded in favour of the assessee. Accordingly, the sale of prepaid sim cards by the assessee to the distributors are on principal to principal basis and hence out side the ambit of section 194H. Therefore, the assessee was not required to deduct tax on the same and, therefore, could not be held to be an assessee in default for not deducting tax at source. - decided in favour of the assessee TDS u/s 194J - default for non-deduction of tax at source on roaming charges paid by it to other service providers - HELD THAT:- We have heard the rival submissions and perused the material available on record. It is seen that the Co-ordinate Bench in THE DCIT (TDS) , VERSUS M/S IDEA CELLULAR LTD. [ 2018 (6) TMI 1646 - ITAT CHANDIGARH] considered an identical appeal of the Revenue and conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities right upto 2013-14 assessment year as per the present bunch of appeals and since this is the latest order in point of time on same set of facts, circumstances and position of law, thus keeping in mind the argument that the grounds raised in ITA 427/CHD/2019 are also identical, the parties were required to address their arguments addressing the facts in the said appeal on record unless there is an added reasoning in 2008-09 assessment year. Considering the record, the parties agreed that the facts as taken into consideration by the CIT(A) in his latest order pertaining to 2013-14 assessment year as the latest position available in law would be referred to as it would bring out the complete facts. In view thereof, the grounds raised in ITA 427/CHD/2019 are extracted hereunder : The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals), Chandigarh ['learned CIT(A)'] has erred in passing the order under section 250 of the Income Tax Act, 1961 ('Act'), confirming the contentions of the Assistant Commissioner of Income Tax Officer (TDS) - Chandigarh ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant is not income in the hands of its distributors and that income, if any, arises only when the pre-paid services are further distributed by the distributors. 2.5. On the facts and circumstances of the case and in law, the learned CIT(A)/TDS Officer have erred in not appreciating the fact that there is no flow of monies from the Appellant to the distributor of pre-paid services but rather from the distributor to the Appellant, and hence, the provisions of section 194H of the Act fail to apply. 2.6. On the facts and circumstances of the case and in law, the learned CIT(A)/TDS Officer have erred in not appreciating the difference in nature of distribution arrangement entered by the Appellant under prepaid model and post-paid model. 2.7. On the facts and circumstances of the case and in law, the learned CIT(A)/ TDS Officer has erred in totally ignoring that the arrangement with the post-paid distributors in on 'Principal to Agent' while under prepaid model it is on 'Principal to Principal' basis and hence, the conclusion of the learned TDS officer that both the arrangements are identical is grossly incorrect. 2.8. On the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Karnataka High Court in the case of of Bharti Airtel (2015) 372 ITR 33 (KHC) and order of the Bengalore Bench in the case of Vodafone South Ltd. Vs DCIT dated 31.07.2005 i.e. in the case of assessee itself. The Karnataka High Court, it was submitted in 72 taxmann 347 has affirmed the decision. Similar reasoning on facts it was submitted, is available in assessee's favour in the decision of the Rajasthan High Court in the case of Vodafone Digital Link Ltd. it was submitted, had also been relied upon. 5.2 It was submitted that without addressing the legal position, the CIT(A) following the past practice rejected the assessee's claim. As a result of these actions, the present appeals have been filed. 5.3 Relying upon the synopsis filed, it was his submission that the point at issue is fully covered in assessee's favour. Apart from the aforesaid decisions cited before the CIT(A), reliance was further placed upon the following orders of the ITAT : i) Vodafone Essar Gujarat Limited (now amalgamated with the Appellant) (in ITA No. 386/Ahd/l 1) (Ahmedabad bench of the Tribunal) ii) Vodafone East Limited (now amalgamated with the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had to be followed. For the said proposition, reliance was also placed upon the decision of the Special Bench rendered by five Members in the case of Narang Overseas P.ltd. reported in 111 ITD 1 (Mum) (SB). 5.5 Apart from the decisions cited, it was his submission that the assessee has filed a separate Paper Book of case laws addressing the issues which have came up for consideration u/s 194H on which the assessee is placing heavy reliance. Relevant decisions cited read as under : 1. Bharti Airtel lid. Vs. DC1T [2015 372 ITR 33| Karnataka High Court 2. Hindustan Cofca Cola Beverages (P.) (Ltd.) vs. CIT, Jaipur [2017 87 taxmann.com 295] Rajasthan High Court 3. Tata Teleservices (Maharashtra) Limited Vs ACIT, TDS-3(1) (ITA Nos. 2043 to 2045/Mum/2014) (Mumbai Tribunal) 4. Tata Sky Ltd. Vs. ACIT, Mumbai [68 ITR (T) 1621 5. Vodafone Spacetel Limited Vs ACIT, TDS (ITA Nos. 76-77/PAT/2012) (Patna Tribunal) 6. Vodafone Cellular Limited vs. DY CIT (TDS-1) (ITA Nos. 817,818 1577, 1578,1961 1962 /PUN/2013) (Pune Tribunal) 7. TATA Teleservices Limited Vs The ITO, TDS-1, Jaipur (ITA Nos. 309/JP/2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the pre-paid distributors and deducted tax at source thereon. However, with effect from January 2007 the arrangement between VSL-Punjab and the pre-paid distributors has changed to 'Principal to Principal'. Thus the question of treating VSL-Punjab as an 'assessee-in-default' for FY 20005-06 and for the period April 1, 2006 to December 31, 2006 does not arise as VSLPunjab had deducted taxes at source on the commission paid to the pre-paid distributors. We can provide the agreement copies if required by the department. It is clear that the decision to discontinue deduction of taxes was based on change in agreement from 'principal to agent' based to 'principal to principal' basis. Mere change in agreement doesn't alter the basic character of the relationship between the service provider and the distributor. This issue of the relationship being between 'principal 8s agent', has, even otherwise, been dealt with in the preceding paragraphs. 5.4.8 AO made the addition on the ground that, same channel of distributors selling the post-paid sim cards, also sell the prepaid and recharge vouchers and thus the services being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Karnataka High Court is on the same set of facts. Inviting attention to the Paper Book page 31 to 33, it was submitted that the assessee has made similar arguments before the CIT(A) as per the written submissions dated 04.10.2018 which is part of the detailed submissions indicated at Sr.No. 2 at pages 15-122. Reverting to pages 31-32 it was his submission that the assessee has specifically drawn attention to the specific clauses and the wordings in the Agreement as considered by the decisions considered by Hon'ble Karnataka High Court and available in the facts of the assessee's case. Accordingly, it was submitted that it cannot be said that the assessee did not draw attention of the CIT(A) to the facts that the terms and conditions of the contracts considered by the Hon'ble Court and in the case of the assessee were identical. Referring to the impugned order it was his submission that the First Appellate Authority infact has not given any negative finding and infact has not cared to directly address this issue and has skirted it. Accordingly, it was his prayer that in the absence of any direct finding against the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration variously and repeatedly by different High Courts. Reference may be made to the decision of the Apex Court in the case of CIT Vs Madho Prasad Jatia 105 ITR 179 (S.C) wherein the Court faced with divergent interpretations on the legal issue preferred to take the view in favour of the subject holding that though there is no equity in tax laws but if from amongst the two views available, the interpretation in favour of the subject is also in consonance with ordinary notions of equity and fairness, such a view would further fortify the Court in adopting such a course. Similarly in CIT Vs J.K. Hosiery Factory 159 ITR 85 (S.C) the Apex Court held that where two interpretations were possible, the Court could take the interpretation that is favourable to the assessee bearing in mind that a taxing statute is being construed. Thus, in case of cleavage of opinions, the issue is well settled that in the absence of decision of the jurisdictional High Court, the binding precedent for the Tribunals and authorities would be the decisions in favour of the assessee not only on the principles of ambiguity but also on the principle that these decisions are latest in point of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in the case of Bharti Airtel Ltd. Vs ITO as under : 13. We have heard the contentions of both the parties, perused the orders of the authorities below and have also gone through the decisions referred to before us. The issue for consideration before us is vis-a-vis the nature of transaction between the assessee telecommunication services provider and its distributors in so far as it relates to sale of prepaid SIM cards and whether the discount of price given to the distributors on such sale of prepaid SIM cards is in the nature of commission attracting the provisions of section 194H of the Act. As pointed out to us. the Hon'ble Karnataka High Court in the case of the assessee itself, while dealing with an identical issue in appeal against the demand raised u/s 201(1) and 201(1A) of the Act, decided the issue in favour of the assessee. The Hon'ble High Court held that there was no relationship of principal and agent between the assessee and its distributors and the transaction was that of sale of right to service on a principal to principal basis.; The Hon'ble High Court held that when the assessee sold SIM card to distributors he was neither paying any comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's case referred to supra, it was held that, the concessionaire purchases the milk from the dairy which raises a bill on the concessionaire and the amount he has paid for. The dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement the concessionaire cannot return the milk under any the account of the concessionaire and the dairy is not responsible for the same. The concessionaire becomes the owner of the milk and the products on taking delivery of the same from the Dairy. He thus purchased the milk and the products from the Dairy and sold them at the MRP. The difference between the MRP and the price which he pays to the Dairy is his income from business. It cannot be categorized as commission. The loss and gain is of the concessionaire. The Dairy may have fixed the MRP and the price at which they sell the products to the concessionaire but the products are sold and ownership vests and is transferred to the concessionaires. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. The supervision and control required in case of agency is missing. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a sim-card. When he pays for the simcard, he gets the mobile service activated. Service can only be rendered and cannot be sold. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 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 Act is not attracted. 62. In the appeals before us, the assessees sell prepaid cards/ vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid card ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 1 94H and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and jemit the same to the Department. If the payee is not in possession of the net income which is chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of tax 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, it is necessary to look into the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atika Township Pvt. Ltd., 367 ITR 466 (SC). 15. In view of the aforesaid, upon considering the totality of the facts and circumstances of the case and applying the principles laid down in the judicial precedent cited before us we hold that the sale of prepaid sim cards by the assessee to the distributors are on principal to principal basis and hence out side the ambit of section 194H of the Act. Therefore, the assessee was not required to deduct tax on the same and, therefore, could not be held to be an assessee in default for not deducting tax at source. The demand raised on the assessee u/s 201(1) and 201(1A) of the Act is, therefore, directed to be deleted. 13. Accordingly, ITA 427/CHD/2019 in terms of the pronouncement made in the Court at the time of hearing itself is decided in favour of the assessee and is allowed for statistical purposes. 14. Since in the remaining appeals of the assessee i.e. ITA 317 to 320/CHD/2019 and ITA 425 to 426/CHD/2019, no separate arguments on facts or law were made by the parties which position had been noted at the outset itself, accordingly, with similar directions on account of similar reasons in terms of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reply has been considered which is not acceptable in view of the following finding: The statements of Shri Tanay Krishna and Shri Ashok Mittal recorded oh 29.09.2010 and subsequent cross examination by 04.10.2010 has clearly established that human intervention is involved in the inter-connection of network and the provisions of Section 1 94J of the I.T. Act, 1961 are attracted on the payment of technical fee on account of interconnect charges/access/port charges. This fact has again been confirmed by the same Technical Experts S/Shri Tanay Krishna and Shri Ashok Mittal, as per their statements recorded again on 08.01.2014 and subsequent cross examination by the Authorised Representative of the company 30.01.2014 on maintenance etc to ensure fault fee It is clearly established that the process of national roaming for the purpose of carriage of calls involves many processes likes operations maintenance supervision and monitoring, fault detection and rectification, monitoring and ensuring quality of signals, provisions of additional capacity when the installed capacity gets exhausted, capacity augmentation etc. The entire process is depended upon the services of hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 21,39,850 31 663353 2803203 Oct., 1 1 1,95,73,066 19,57,306 Nil 19,57,306 30 587191 2544492 Nov., 11 2,30,83,690 23,08,369 Nil 23,08,369 29 669427 2977796 Dec. 1 1 2,44,98,364 24,49,836 Nil 24,49,836 28 685954 3135790 Jan' 12 2,65,33,029 26,53,3,02 Nil 26,53,3,02 27 716391 3369693 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,414,079 2,441,408 2,441,408 - 18 439,453 439,453 .luil-11 26,084,209 2,608,421 2,608,421 - 17 443,432 443,432 Aug-11 22,352,746 2,235,275 2,235,275 - 16 357,644 357,644 Sep-1 1 21,101,131 2,1 10,113 2,1 10,1 13 - 15 316,517 316,517 Oct-11 19,301,058 1,930,106 1,930,106 - 14 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 10,792 40,768 Jun-11 344,066 34,407 Nil 34,407 34 12,386 46,793 July,11 367,603 36,760 Nil 36,760 33 13,234 49,994 Aug-ll 315,016 31,502 Nil 31,502 32 11,341 42,842 Sep-11 297,377 29,738 Nil 29,738 31 10,706 40,443 Oct-11 272,008 27,201 Nil 27,201 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under challenge is the order of the CIT(A). Thus, the specific departmental grievance made out on facts and law in the order under challenge was required to be pointed out. The ld. CIT-DR submitted that he would confine his arguments to relying upon the order of Assessing Officer as no specific finding of the CIT(A) which is being assailed, can be pointed out by him. 17. The ld. AR on the other hand submitted that the issue is fully covered in favour of the assessee by consistent orders of the ITAT and the Courts. Inviting attention to the impugned order, it was submitted that the CIT(A) has allowed relief considering a plethora of decisions on the issue wherein the legal issue has been decided in favour of the assessee. Inviting attention to the finding of the CIT(A) at page 27-28, heavy reliance was placed upon the said conclusion. For ready reference, the finding under challenge on which heavy reliance is placed by the assessee is reproduced hereunder : Similar issue has been decided by the ld. CIT(A) Gurgaon dated 12.06.2017 in I.T.A. No. 149/GGN/10-11 for FY 1995 to 2002-03 the case of M/s Bharti Airtel Ltd. The Ld. CIT(A), relying upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) 2. CIT vs Kotak Securities Limited (383 ITR 1) (Supreme Court) 3. CIT(TDS) vs Vodafone South Limited (72 taxmann.com 347) (Karnataka High Court) 4. Vodafone Cellular Limited (ITA No. 2802 2803 /MDS/2014) (Chennai Tribunal) 5. Hindustan Coca Cola Beverages (P) Ltd vs CIT (87 taxmann.com 295) (Rajasthan High Court 6. Vodafone Digilink Limited v CIT(TDS) [2017] 87 taxmann.com 315 (Delhi Tribunal) 7. Vodafone Cellular Ltd. Vs, DCIT (ITA 1414 1415/Mds/2014) dated 21.09.2017 (Chennai Tribunal) 8. Dishnet Wireless Limited vs DCIT(TDS) (45 ITR(T) 430) (Chennai Tribunal) 9. Vodafone Digilink Limited vs ITO, TDS (2) (ITA No. 75 to 80/JP/2013) (Jaipur Tribunal) 10. Vodafone Cellular Limited (ITA No. 2802 2803 /MDS/2014) (Chennai Tribunal) 11. Vodafone West Limited (ITA No. 386/Ahd/2011) (Ahmedabad bench of the Tribunal) 12. Vodafone Spacetel Limited (ITA Nos. 76-77/PAT/2012) (Patna Tribunal) 13. Vodafone East Limited (43 ITR(T) 551) (Kolkata Tribunal) 14. DCIT vs. Vodafone Digilink Limited 64 ITR(T) 392 (Delhi Trib.) 15. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded the statements of the above technical experts on 08.01.2014 and copies of the statements so recorded were made available to the assessee. Subsequently, the assessee requested for a cross examination of the technical experts which was allowed on 31.01.2014. Copies of the cross examination statements were also made available to the assessee and the assessee filed its reply on 12.2.2014 and 17.2.2014. After considering the opinion of the technical experts as well as the explanation of the assessee, the TDS officer held that, the process of interconnection for the purpose of carriage of calls involves many processes like maintenance, supervision and monitoring, fault detection and rectification, monitoring and quality of signals, provisions of additional capacity when the installed capacity gets exhausted, capacity of medicine etc. The entire process is dependent upon the services of highly technical manpower and installations of network having various peripheral, hardware and software which are technical in nature. This hardware, software along with peripherals needs continuous monitoring, maintenance etc. to ensure fault free carriage of call for purpose of interconnect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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