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TMI Blog2021 (9) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... oupon Vouchers (RCV) and starter kits to its channel partners for onward sale to the retailer and, thereafter, to the final customers. The Assessing Officer (AO), while placing reliance on the order of the Co-ordinate Bench of this Tribunal in the case of M/s Vodafone Essar Cellular Ltd. vs. ACIT, in ITA Nos.106-113/Coch/2009 (Cochin Bench), held that the discount offered to the distributors/channel partners was in the nature of commission on which the assessee was liable to deduct tax at source U/s 194H of the Income Tax Act, 1961 (hereinafter called 'the Act'). Accordingly, the Assessing Officer proceeded to raise a demand on account of non deduction of tax at source and also levied consequential interest U/s 201(1A) of the Act. 2.1 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority, who set aside the order passed U/s 201(1) of the Act on the ground that the transaction of sale of recharge coupon vouchers and starter kits was done on principal to principal basis and, therefore, the provisions of section 194H were not applicable. 2.2 This issue is common in both the years in appeal before us. Identical orders were passed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above decision of the Ho'ble Supreme Court, I do not agree with the following findings in Vodafone Essar Cellular Ltd. Vs. ACIT (2010) 129 TTJ (Coch.) 222 relied upon by the AO: i. Where the distributors do not have any freedom of price due to pre-stated MRP on the products, it cannot be a sale transaction. In mu opinion since MRP is mandatorily required to be stated for all consumer goods which flow to the ultimate consumer through a chain of middlemen and if such a proposition as above was to be followed, then no sale of goods will ever take place. Therefore, this is not a true test for establishing whether the distribution engaged for SIM cards is rendering services on behalf of the cellular telephone service provider of sale of goods. ii) Since the SIM card is only a device to have access to the mobile phone network, there is no question of passing any ownership or title of the goods from the assessee company to the distributor or from the distributor to the ultimate consumer. In mu opinion the question of passing of ownership or title of goods needs to be established from the actual facts of a transaction and the conduct of the parties involved and merely becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finitely required to be deducted. Therefore, in my opinion, drawing support from the decision of the Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd. Vs.UOI (Supra), the said transaction between the appellant company and its distributors must be viewed from the actual conduct of the parties involved and not in a generic manner. In the instant case of the appellant, the appellant company has furnished enough documentary evidences to show that the transaction between it and the distributors in respect of the SIM cards is one of sale of goods on principal to principal basis and there is no principal-agent relationship involved which is a sine qua non for attracting the provisions of section 194H. the facts of the appellant are quite similar to the facts in the case of ACIT Vs. Idea Cellular Ltd. (2009) 125 TTJ (Hyd.) 663, where the assessee was not held as a defaulter u/s. 201(1) and 201(1 A) for not deducting TDS u/s. 194H on margin allowed to the distributors on bulk sales of prepaid cards/ recharge coupons. The AO's orders, therefore, cannot be upheld. The appeals are allow3ed. In respect of F.Y. 2009-10, a copy of the letter dated 09.11.2010 of the DCIT, Circle-59, Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven only to the consumer who activates the connection by using the secret number provided in the SIM Cards. Therefore, the SIM cards do not become the absolute property of the distributor. (c) The essence of service rendered by the franchisee to the prepaid and post-paid consumers are same and the difference exist only in the billing system. Therefore, the nature of transaction between the assessee company and the franchisee for sale of prepaid recharge coupon cannot be distinguished from the sale of post-paid recharge coupons. Therefore, if the assessee was found liable for deducting TDS u/s 194H on postpaid SIM cards, then the same treatment shall have to be given in case of prepaid SIM cards as well. d) The franchisees are providing essential services to the assessee company having a huge operational network and therefore the relation of assessee and distributor is not of principal to principal basis, but in fact, is principal to agent basis, irrespective of the terms of agreement between the assessee and the franchisees. e) The order of Ld. C.I.T((A) is in contravention of ratio of judgement given by Hon'ble High Courts in cases as under:- i) CIT Vs. Idea Cellular Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distributor. c) The essence of service rendered by the franchisee to the prepaid and post-paid consumers are sam< and the difference exist only in the billing system. Therefore, the nature of transaction between the assessee company and the franchisee for sale of prepaid recharge coupon connot be distinguished from the sale of post-paid recharge coupons. Therefore, if the assessee was found liable for deducting TDS u/s 194H on post-paid SIM cards, then the same treatment shall have to be given i case of prepaid SIM cards as well. d) The franchisees are providing essential services to the assessee company having a huge operational network and therefore the relation of assessee and distributor is not of principal to principal basis, but in fact, it is principal to agent basis, irrespective of the terms of agreement between the assessee and the franchisees. e) The order of Ld. C.I.T((A) is in contravention of ratio of judgement given by Hon'ble High Co in cases as under:- i) CIT Vs. Idea Cellular Ltd., Appeal No.ITA No. 146 of 2009 with ITA No.784 of 2009 decided 19.02.2010 by Hon'ble Delhi High Court. ii) Vodafone Essar Cellular Limited Vs. Assistant Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.0 We have heard the rival submissions and have also gone through the records. As far as the Department's ground regarding violation of Rule 46A of the Income Tax Rules is concerned, a perusal of the impugned order shows that the assessee had raised the ground of violation of principles of natural justice before the Ld. First Appellate Authority as is evident from page 10 of the impugned order read along with the two page order passed by the Assessing Officer. It is very much clear that no proper opportunity was given to the assessee to justify its case of non deduction of tax at source. Further, it is also seen that there is no reference to any application made by the assessee for admitting additional evidences before the Ld. CIT(A). Thus, the Ld. CIT(A) examined the various documents in exercise of his powers U/s 250(4) of the Act and under such circumstances, we are of the considered opinion that when the Assessing Officer had failed to provide proper opportunity to the assessee, the Ld. CIT(A) had acted well within his power to adjudicate the issues after calling for necessary information and details and it cannot be said that there was any violation of Rule 46A of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company to its distributors did not amount to commission in terms of section 194H of the Act. We also note that the Hon'ble Rajasthan High Court in the case of Tata Tele Services Ltd. reported in 402 ITR 439 (Rajsthan) and the Hon'ble Bombay High Court in the case of CIT vs. Vodafone Cellular Ltd in Income Tax Appeal No.1152 of 2017 vide order dated 27.01.2020 have also decided the issue in favour of the assessee by holding that the provisions of section 194H were not applicable to the transaction of sale of starter kits and pre-paid SIMs to distributors on principal to principal basis. Under such circumstances and taking guidance from the judgment of the Hon'ble Apex Court in the case of Vegetable Products (supra), we hold that the view favouring the assessee needs to be taken. 5.2 We also note that the Assessing Officer has relied upon the judgment of the Hon'ble Delhi High Court in the case of Idea Cellular (supra). However, it will be appropriate to refer to findings recorded by a Co-ordinate Bench of this Tribunal in subsequent order passed in the case of DCIT vs. Idea Cellular in ITA No.852/Del/2015 vide order dated 01.05.2018 wherein despite the adverse judgment of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. The assessee may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. The discounted income accrues to distributor only when they sell this right to service and not when they purchase this right to service from assessee. vi. 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. Merely because sale is subject to agreed conditions and stipulations cannot convert the relationship of principal to principal into that of principal and agent relationship. 2.23 We find merit in the contention of Id. Counsel that there is no jurisdictional High Court judgment on this issue. Hon'ble Karnataka High Court Judgment is elaborate, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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