TMI Blog2022 (12) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 933/Del/2017 - - - Dated:- 14-12-2022 - SH. C. M. GARG , JUDICIAL MEMBER AND SH. N. K. BILLAIYA , ACCOUNTANT MEMBER For the Appellant : Sh. Taranndeep Singh , Advocate For the Respondent : Sh. P. Praveen Sidharth , CIT DR ORDER PER N. K. BILLAIYA , AM : This appeal by the assessee is preferred against the order of the CIT(A)-35, New Delhi dated 08.11.2016 pertaining to A.Y.2007-08. 2. The assessee has raised three substantive issues. Firstly the assessee has challenged the validity of reopening of the assessment proceedings. 3. At the outset the Counsel fairly stated that he is not pressing this issue and, therefore, the same is dismissed as not pressed. 4. The second challenge in respect of the addition on account of discount extended to prepaid distributors. 5. The underlying facts in this issue can be understood from the following observations of the AO made in the assessment order :- 2. During the course of assessment proceedings for the AY 2011-12, it was observed that as per the Annual Report of the assessee, under Segment Reporting which is part of its Annual Report at point 16 on page 77, service revenue on prepaid products o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any success. 8. Before us the Counsel for the assessee drew our attention to the decision of this Tribunal in assessee s own case for A.Y.2009- 10 and pointed out that the impugned quarrel has been considered and decided by this Tribunal. 11. Per contra the DR vehemently stated that after the insertion of the proviso u/s. 294H of the Act the decision of the coordinate Bench for A.Y.2009-10 is not applicable as the case with the proviso, the facts become distinguishable. 12. We have given a thoughtful consideration to the orders of the authorities below. We find force in the contention of the Counsel. This Tribunal in A.Y.2009-10 in ITA No.9120/Del/2017 has considered a similar quarrel the relevant findings of the coordinate Bench read as under :- 7. Now coming to the merits of the case. In ground Nos.4 to 6 the appellant is aggrieved by the action of AO in making a disallowance u/s 40(a)(ia) of Rs.631,71,72,727/-. In this regard, it is noted by the Ld. AO that for the year under consideration in the profits and loss account appellant has shown income from prepaid services at a net figure after reducing a discount given by it to the distributors / franchisees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Karnataka High Court cited above has not been accepted by the Department and SIP has been filed. (iii) The above position is also vindicated by the decision of Hon ble ITAT Delhi Bench in the assessee's own case in BSNL vs. 1T0 (TDS Survey) in IT A No.258, 259 260/Del/2011. In that case, the AO (TDS) had raised demand u/s 201/201(1A) r.w.s. 194H of the LT. Act on the assessee. The ITAT referred to the following observation made by the Co-ordinate Bench in the case of ICICI Bank Limited vs. DCIT, 156 TTJ 569; ...The onus is on the revenue to. demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery ' liability can invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. The provisions regarding interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved, appellant preferred an appeal before the Id. CIT(A). The first appellate authority examined the nature of relationship between the appellant and its franchisees by scrutinizing the franchisees agreement between the appellant and M/s. Happy Ezone Ltd. Ld. CIT(A) thereafter concluded in the impugned order as under :- 4.4.22. The contention of the appellant that the Delhi High Court judgment in the case of Idea Cellular Ltd. 325 ITR 1.45 (Del) is not applicable to the present case, is also not acceptable as in view of analysis and discussions in the preceding paras by me. I hold that the facts of the present case are very much similar to that of the case of Idea Cellular. 4.4.23. After considering the arguments put forth by the appellant during appellate proceedings and after perusing the provision of the agreement, it leaves no doubt whatsoever that the relationship between BSNL and Franchisees is that of a principal and agent. I have also considered the judgment of Delhi, Kolkata Kerala High Court in the case of Idea Cellular Ltd. 325 ITR 148 (Del), Bharti Cellular Ltd. vs. ACIT 244 CTR 185 (Cal) and Vodafone Esaar Cellular Ltd. vs. ACIT (2009) 317 ITR (AT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee. It is created by: (a) Activation of the said SIM card by the assessee in the name of the consumer/subscriber. (b) Service provided by the assessee to the subscriber. Further, dealings between the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/defect in service. (c) Entering into the ultimate agreement between the subscriber and the assessee (Clause 15 of the Agreement). It is to be borne in mind that the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is prepaid or post-paid SIM card - remains the same, in the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs. In the case of post paid SIM card transaction is entered into directly between directly between the assessee and the subscriber and the subscriber is sent hill periodically depending upon the user of the SIM card for the period in question, in both the cases, legal relationship is created between the subscriber and the assessee that too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. In that context it was held that, discount is nothing but a margin given by the assessee 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, ft is supplied to the customers for providing mobile services to them. The SIM card is in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Apparently, therefore, legalistically both the Hon'ble High Courts have expressed a divergent opinion in the matter. Since the appellant before us is from Delhi, we are obligated to follow the decision of Hon'ble jurisdictional High Court. Parties before us have also elaborated upon the fact that there is a distinction in terms and conditions of distribution agreement in the instant case and the facts as existing before both the Hon ble High Courts above, however we find no reason to deliberate upon this aspect since on the legal aspect itself the decision of Hon'ble Delhi High Court which is the jurisdictional High Court is against the appellant. We are therefore compelled to hold that the discount on prepaid products offered by the appellant is in nature of commission which does attract rigors of section 194H. 12. The above findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DY. CIT [2015] 372 ITR 33/228 Taxman 219 (Mag.)/ [2014] 52 taxmann.com 31 while holding that Section 194H is not applicable. Since no jurisdictional High Court decision is available as on date, the latest decision of is available as on date, the latest decision of Karnatka High Court, which considered and distinguished earlier rulings of other High Courts, deserves to be followed. 10. In fact, the first appellate authority has taken into consideration the circular issued by the corporate office of the BSNL dated 13.12.2007 and another circular dated 15.4.2008 while coming to the conclusion that the nature of the payment made by the assessee to its franchisee is trade discount only. Since the view taken by the learned CIT(A) is mainly based on the factual matrix of the case, I am of the firm view chat the order passed by the learned CIT(A) does not call for any interference. (iii) Appellant also merits benefit of bonafide belief considering third proviso to section 194H which states as under: Commission or brokerage 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next issue relates to the addition on account of IUC charges paid to foreign/ non-resident telecom operators. 16. A similar issue was considered and decided by the coordinate Bench in A.Y. 2009-10 (supra). The relevant findings read as under :- 13. The next issue in dispute pertains to disallowance u/s 40(a)(i) of the Act of Rs.57,78,92,080/-. In this regard in the order of assessment it is observed by the AO that during the year under consideration appellant made payments for 1UC Charges as under: (i) Payment to foreign operators Rs.57,78,92,080/- (ii) Payment to domestic operators Rs.3459,22,63,093/- It is undisputed that qua payments made to domestic operators TDS has been deducted by the appellant. The dispute solely centers round the payments made to foreign operators. IUC charges are charges paid to other telecom service providers for providing connectivity to and fro from locations where BSNL has no reach. The AO notes a sample sequence of carriage of international call from India to a location outside India as under :- A mobile subscriber in Chennai makes a call to a person in US, The call originates' on the network of the local teleco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs (FTOs) - ILD Operators were in turn billed by FTOs in form of Interconnected Usage Charges(IUC). There was no manual or human intervention during process of transportation of calls between two networks - This was done automatically, with human intervention being required only for installation of network which could not be said to be for inter-connection of a call - Assessee merely delivered calls that originated on its network to inter connection locations of FTO and FTO carried and terminated calls on its network - Whether thus payment of IUC by assessee to FTO in connection with its ILD telecom service business was neither FTS under section 9(1) (vii), nor royalty/process royalty under section 9(l)(vi) Held, yes - Whether ever retrospective amendment in domestic legislation , does not affect royalty, definition under DTAA, hence retrospective insertion of Explanations 5 6 to section 9(1)(vi) also could not have altered this position - Held, yes [Paras 33, 44, 55, 56 72][In favour of assessee] Section 9 of the Income-tax Act, 1961, read with section 5 and article 7 of Model OECD Convention - Income - Deemed to accrue or arise in India (Business Profits) - Assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
