2010 (3) TMI 764 - AT - Income Tax

TDS u/s 194H - Commission or brokerage on sale of SIM Cards - The Tribunal, after correctly determining the point in issue, i.e., whether the margin of the distributor is a commission or brokerage (vide para 29 of its Order), failed to address the same in deciding its appeals- The assessee s case for the post-paid category, wherein it concedes to it being a service, liable to TDS, thus stands brought, per their decisions, in parity with the pre-paid category, as is readily inferable from the Tribunal s Order assessee s objection raised per its ground 5, i.e., non-adjudication of its Ground III(2) by the Tribunal - Assessing Officer be directed to re-compute the demand after considering the taxes, if any, paid by the payees, and toward which reliance stood placed on the decision in the case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT (2007 -TMI - 1676 - SUPREME COURT OF INDIA) - In view of the foregoing, the assessee s ground Nos. 1 to 11, save ground 5, are dismissed, and ground 5 is allowed for statistical purposes

Issues Involved:

1. Incorrect understanding of facts.
2. Non-consideration of the decision in Gordon Woodroffe & Co.
3. Non-disclosure of the basis in distinguishing the decision in M.S. Hameed's case.
4. Non-adjudication of ground of appeal No. 111(2).
5. Reliance on an unreported decision of the Kerala High Court.

Issue-wise Detailed Analysis:

1. Incorrect Understanding of Facts:

The Tribunal considered the case of the assessee, a cellular mobile service provider, which argued that the prepaid segment operated differently from the post-paid segment. The assessee contended that distributors bought SIM cards and recharge coupons as 'Principals' and sold them at any rate not exceeding the MRP, thus earning a trade margin rather than a commission. The Tribunal, however, found that the distributors acted as agents for the service provider, and the entire transaction was a service rather than a sale of goods. This finding was based on the nature of the services provided and the regulatory environment governing the telecommunications industry. The Tribunal upheld the Revenue's view that the relationship between the service provider and the distributors was one of Principal and Agent, making the margin earned by distributors a commission subject to TDS under section 194H.

2. Non-consideration of the Decision in Gordon Woodroffe & Co.:

The assessee argued that the Tribunal failed to consider the decision in Gordon Woodroffe & Co., which was relevant to its case. However, the Tribunal found that the basic premise of its decision was supported by the jurisdictional High Court's ruling in a related case, which followed the Supreme Court's decision in BSNL v. Union of India. This decision held that the sale of SIM cards was incidental to the provision of telecommunication services, thus constituting a service rather than a sale of goods. The Tribunal concluded that the decision in Gordon Woodroffe & Co. was not directly applicable in light of the higher court rulings.

3. Non-disclosure of the Basis in Distinguishing the Decision in M.S. Hameed's Case:

The Tribunal addressed the decision in M.S. Hameed's case, distinguishing it based on the facts. In M.S. Hameed, the relationship between the final purchaser of lottery tickets and the State Government was different from the relationship between the service provider and the customer in the present case. The Tribunal found that in the current scenario, there was a direct and continuing relationship between the service provider and the customer, making the distributors' margin a commission. This distinction was based on the nature of the transactions and the regulatory framework governing the telecommunications industry.

4. Non-adjudication of Ground of Appeal No. 111(2):

The Tribunal acknowledged that it had not adjudicated ground III(2) of the assessee's appeal, which requested a re-computation of the demand after considering taxes paid by the payees. The Tribunal agreed that this ground had been raised but not addressed in its order. Consequently, the Tribunal directed that the assessee's appeals against orders under section 201 be heard on this specific ground, allowing this part of the assessee's application for statistical purposes.

5. Reliance on an Unreported Decision of the Kerala High Court:

The Tribunal relied on an unreported decision of the Kerala High Court in BPL Mobile Cellular Ltd. v. Union of India, which was relevant to the issue at hand. The assessee objected to this reliance, arguing that the decision was unreported at the time of hearing and not pressed by the Revenue. However, the Tribunal found that the decision was pertinent and supported by the Supreme Court's ruling in BSNL v. Union of India. The Tribunal emphasized that the decision addressed the same issue of whether the transaction involving SIM cards and recharge coupons constituted a service or a sale of goods, thus affirming the Revenue's position.

Conclusion:

The Tribunal dismissed the majority of the assessee's grounds, except for ground 5, which was allowed for statistical purposes. The Tribunal directed that the assessee's appeals against orders under section 201 be heard on the specific ground of re-computation of demand considering taxes paid by the payees. The Tribunal upheld the Revenue's view that the margin earned by distributors in the prepaid segment was a commission subject to TDS under section 194H, based on the nature of the transactions and the regulatory framework governing the telecommunications industry.

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