2015 (11) TMI 1521 - AT - Income Tax

TDS u/s 194H - discount given to distributors on sale of pre-paid products, being, right to use Airtime for a specified value - non-deduction of tax - Held that - The relationship between assessee and its distributors qua the sale of impugned products is on principal to principal basis; the consideration received by assessee is sale price simpliciter.There is no relationship of Principal and agent between assessee and distributors as held by authorities below their orders are reversed. Looking at the transaction being of Sale/Purchase and relationship being of principal to principal the discount does not amount to commission in terms of sec. 194H, the same is not applicable to these transactions. Therefore, assessee cannot be held in default; impugned demand raised applying sec. 194H is quashed. - Decided in favour of assessee Demanding the tax which is already subjected to tax in the hands of the distributor - Held that - We have already held while deciding Ground that the margin paid to the distributor is not a commission which is liable for deduction of tax at source u/s 194H. When there is no commission, the liability for deduction of tax at source does not arise at first place. In any case, the ld. CIT(A) has given a specific direction the alternative plea of the appellant was allowed in view of the decision of M/s. Hindustan Coca Cola Beverages (P) Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA ). AO is directed to allow the benefit of taxes paid by the deductees after due verification . However, the ld. AR has not pointed out as to how the said direction causes prejudice to the assessee. Hence, we find no reason to interfere with the findings of the ld. CIT(A) on this issue.

Issues Involved:
1. Applicability of Section 194H of the Income Tax Act, 1961 to discounts given to distributors.
2. Relationship between the company and the distributor (principal to principal vs. principal to agent).
3. Non-deduction of tax under Section 194H on the difference between the distributor's price and the sale price of prepaid cards.
4. Tax demand on amounts already subjected to tax in the hands of the distributor.
5. Applicability of Section 194J of the Income Tax Act, 1961 to roaming charges.
6. Charging of interest under Section 201(1A) of the Income Tax Act, 1961.
7. Limitation period for passing orders under Sections 201(1) and 201(1A) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 194H to Discounts Given to Distributors:
The assessee contended that the provisions of Section 194H of the Income Tax Act, 1961 were incorrectly applied to the discounts given to distributors on the sale of prepaid products. The Tribunal referred to its earlier decision in the assessee's own case (ITA No. 656/JP/2010 for the assessment year 2009-10), where it was held that the relationship between the assessee and its distributors was on a principal-to-principal basis. Consequently, the discount did not amount to commission, and Section 194H was not applicable. The Tribunal reversed the order of the CIT(A) and allowed the appeal on this ground.

2. Relationship Between the Company and the Distributor:
The Tribunal reiterated that the relationship between the assessee and its distributors was that of principal to principal, not principal to agent. This finding was based on the earlier decision in the assessee's case and the case of Tata Tele Services. The Tribunal held that the authorities below had erred in treating the relationship as principal to agent and reversed their orders.

3. Non-Deduction of Tax Under Section 194H:
The Tribunal found that since the discount given to distributors was not in the nature of commission, the assessee was not liable to deduct tax under Section 194H. Consequently, the assessee could not be held in default for non-deduction of tax, and the demand raised under Section 194H was quashed.

4. Tax Demand on Amounts Already Subjected to Tax:
The Tribunal noted that the CIT(A) had directed the AO to allow the benefit of taxes paid by the distributors after due verification. Since the margin paid to the distributor was not commission, the liability for tax deduction did not arise. The Tribunal found no reason to interfere with the CIT(A)'s findings on this issue.

5. Applicability of Section 194J to Roaming Charges:
The assessee argued that the provisions of Section 194J were incorrectly applied to roaming charges paid to other telecom operators. The Tribunal referred to its earlier decision (ITA No. 656/JP/2010 for the assessment year 2009-10), where it was held that roaming charges did not constitute fees for technical services and did not require human intervention. Therefore, Section 194J was not applicable. The Tribunal reversed the order of the CIT(A) and allowed the appeal on this ground.

6. Charging of Interest Under Section 201(1A):
Since the Tribunal held that the assessee was not liable to deduct tax at source under Sections 194H and 194J, there was no liability for interest under Section 201(1A). The appeal on this ground was allowed.

7. Limitation Period for Passing Orders Under Sections 201(1) and 201(1A):
The assessee contended that the orders passed by the AO were barred by limitation. The CIT(A) held that the time limit for passing orders was extended to 31-03-2011 by the Finance Act, 2009. The Tribunal agreed with the CIT(A) that the proceedings were initiated before the amendment and completed within the extended time limit. The Tribunal found that the orders were valid and within the limitation period. The appeal on this ground was dismissed.

Conclusion:
The appeals filed by the assessee were partly allowed. The Tribunal reversed the orders of the CIT(A) on the issues of applicability of Sections 194H and 194J and charging of interest under Section 201(1A). However, the Tribunal upheld the validity of the orders passed by the AO within the extended limitation period.

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