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TMI Blog2024 (3) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... mpletely distinct from the case of the Assessee in AY 2003-04 and 2004-05, conclusion of such decision cannot be applied in the present case, in isolation of the relevant facts? b) Whether on the facts and circumstances of the case, the Tribunal erred in law in holding the Assessee to be an Assessee-in-default for non-deduction of tax under Section 194H of Act. c) Whether on the facts and circumstances of the case, the Tribunal erred in law in holding that Section 194 H of the Act is applicable to the transaction between the Appellant and the distributors in respect of sale of the SIM Card/Recharge Voucher? d) Whether on the facts and circumstances of the case, the Tribunal erred in law in holding that the relationship between the Appellant and distributors is that of principal and agent, attracting the obligation of deduction of tax at source under section 194H of the Act? e) Whether on the facts and circumstances of the case, the Tribunal erred in law in holding that the discount allowed to distributors was in the nature of commission out of which tax was deductible under section 194H of the Act? f) Whether on the facts and circumstances of the case, the Tribunal erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statute itself, that is, on the date of actual payment by any mode, or at the time when income is credited to the account of the franchisee/distributor, whichever is earlier. In the context of the present case, the income of the franchisee/distributor, being the difference between the sale price received by the franchisee/distributor and the discounted price, is paid or credited to the account of the franchisee/distributor when he sells the prepaid product to the retailer/end-user/customer. The sale price and accordingly the income of the franchisee/distributor is determined by the franchisee/distributor and the third parties. Accordingly, the assessee does not, at any stage, either pay or credit the account of the franchisee/distributor with the income by way of commission or brokerage on which tax at source under Section 194-H of the Act is to be deducted. 34. Faced with the above situation, the Revenue has relied upon the use of the expression "payment received or receivable directly or indirectly by a person acting on behalf of the other person", that is, ‟the principal". It is argued that even if the franchisee/distributor receives payment in the form of income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onship between a principal and an agent, this Court found considerable merit in the argument of the Revenue that the airlines/air carriers utilised the BSP to discern the amount earned as additional/supplementary commission and accordingly arrive at the income earned by the agent to deduct tax at source, in accordance with the provisions of Section 194-H of the Act. If the aforesaid mechanism is understood, then it is not difficult to appreciate and understand the conclusion arrived at by this Court in the said case. 38. Thus, the question whether there was relationship of principal and agent was not in dispute, but nevertheless the assessees in the said case disputed liability to deduct tax at source on the additional/supplementary commission. However, the judgment does refer to the difference between the legal relationship of master and servant, principal and agent, and between principal and principal. In this context, reference is made to the statement of law in Halsbury's Law of England, which reads: "The difference between the relations of master and servant and of principal and agent may be said to be this : a principal has the right to direct what work the agent has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee can conduct business and enter into commercial relationships. Neither does the word "indirectly" create an obligation where the main provision does not apply. The tax legislation recognises diverse relationships and modes in which commerce and trade are conducted, albeit obligation to tax at source arises only if the conditions as mentioned in Section 194-H of the Act are met and not otherwise. This principle does not negate the compliance required by law. 40. Deduction of tax at source is a substantial source of the direct tax revenue. The ease of collection and recovery is obvious. Deduction and deposit of tax at source checks evasion and nonpayment of tax. It expands the tax base. However, the assessee as a deductor is not paying tax on his/her income, and collects and pays tax otherwise payable by the third party. Liability of the third party to pay tax when not deducted remains unaffected. Failure to deduct tax at source has serious and quasi-penal consequences for an assessee. The deduction of tax provisions should be programmatically and realistically construed, and not as enmeshes or by adopting catch-as-catch-can approach. In case of a legal or factual doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed by law, as these begin when the amount is credited in the account of the payee by the payer or when payment is received by the payee, whichever is earlier. The payee receives payment when the third party makes the payment. This payment is not the payment received or payable by the assessee as the principal. The distributor/franchisee is not the trustee who is to account for this payment to the assessee as the principal. The payment received is the gross income or profit earned by the distributor/franchisee. It is the income earned by distributor/franchisee as a result of its efforts and work, and not a remuneration paid by the assessee as a cellular mobile telephone service provider. 43. We must, therefore, reject the argument of the Revenue relying upon the decision of this Court in Singapore Airlines Limited (supra) that assessees would be liable to deduct tax at source even if the assessees are not making payment or crediting the income to the account of the franchisee/distributor. When the obligation, and the time and manner in which the tax is mandated by law to be deducted at source, is fixed by the statute, the same cannot be shifted/altered/modified or postponed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent agent depends upon the terms of the contract, sometimes an independent contractor looks like an agent from the point of view of the control exercisable over him, but on an overview of the entire relationship the tests specified in clauses (a) to (d) in paragraph 8 may not be satisfied. The distinction is that independent contractors work for themselves, even when they are employed for the purpose of creating contractual relations with the third persons. An independent contractor is not required to render accounts of the business, as it belongs to him and not his employer. 46. Thus, the term ‟agent" denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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