2012 (12) TMI 294 - AT - Income Tax

TDS u/s 194H - Commission or discount to distributors of SIM cards/recharge coupons - AO observed that upto financial year 2007-08, assessee has deducted TDS on amounts paid on sale of recharge coupons by treating the same as commission - held that - transaction between BSNL and purchase dealer was on principal to agent basis - Assessee, a cellular operator, provides prepaid connections to the subscribers through distributors called prepaid market associates (PMAs) appointed by it - It offers discount for prepaid calling services to its distributors - Legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee Fact that the PMA is supposed to make the payment in advance as per the agreement does not make any difference to the nature of the transaction in view of the other terms of the agreement - Even though advance payment is made by the PMA qua SIM cards, it does not amount to sale of goods in as much as unsold SIM cards are to be returned to the assessee and it is required to make payment against them - This is an antithesis of sale Therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS under s. 194H - Contention of the assessee that s. 194H is not applicable as there is no payment or credit by the assessee to the distributor cannot be accepted. - no infirmity in the order passed by the learned CIT(A). Therefore, this ground of appeal raised by the assessee for both the assessment years under consideration is dismissed. Decision in CIT v. Idea Cellular Ltd. 2010 (2) TMI 24 - DELHI HIGH COURT followed.

Summary

Issues Involved:
1. Applicability of TDS under Section 194H on commission payments for SIM cards and recharge coupons.
2. Nature of the relationship between the assessee and its distributors-whether principal-to-principal or principal-to-agent.
3. Classification of payments to distributors as "commission" or "discount."
4. Justification for the change in TDS deduction policy by the assessee from the financial year 2008-09 onwards.
5. Applicability of interest under Section 201(1A) for non-deduction of TDS.

Detailed Analysis:

1. Applicability of TDS under Section 194H on Commission Payments:
The primary issue was whether the payments made by the assessee to its distributors for the sale of SIM cards and recharge coupons should be treated as commission, thereby attracting TDS under Section 194H of the Income Tax Act, 1961. The assessee argued that the payments were discounts, not commissions, and thus not subject to TDS. However, the CIT(A) and the Tribunal upheld the Assessing Officer's view that the payments were commissions. The Tribunal referred to the decision of the Delhi High Court in CIT v. Idea Cellular Ltd. (325 ITR 148), which held that discounts offered to distributors on prepaid calling services are commissions subject to TDS under Section 194H.

2. Nature of the Relationship:
The assessee contended that the relationship with its distributors was principal-to-principal, not principal-to-agent, and thus Section 194H was not applicable. However, the CIT(A) and the Tribunal found that the relationship was indeed principal-to-agent. The Tribunal noted that the services provided by the assessee through its distributors were regulated by law, requiring statutory compliance such as verification of consumer identity. This indicated an agency relationship. The Tribunal also referred to the agreement between BSNL and its franchisees, which clearly established a principal-to-agent relationship.

3. Classification of Payments:
The assessee had been deducting TDS on payments for both SIM cards and recharge coupons up to the financial year 2007-08 but changed its policy from 2008-09, treating the payments for recharge coupons as discounts. The CIT(A) and the Tribunal rejected this classification, noting that there was no change in the law or facts to justify the change in policy. The Tribunal emphasized that the same payment could not be classified as commission in one year and discount in the next without any substantial reason.

4. Justification for Change in TDS Policy:
The assessee argued that the change in policy was due to a change in the nature of transactions, claiming that recharge coupons were not the property of the assessee. However, the CIT(A) and the Tribunal found this explanation unconvincing. The Tribunal pointed out that the assessee did not provide a satisfactory reason for the sudden change in policy and upheld the CIT(A)'s view that the payments should continue to be treated as commissions, subject to TDS.

5. Applicability of Interest under Section 201(1A):
The CIT(A) and the Tribunal confirmed the Assessing Officer's decision to levy interest under Section 201(1A) for the assessee's failure to deduct TDS. The Tribunal noted that the payment of tax by the payee is not relevant for charging interest under Section 201(1A), citing various judicial precedents. The Tribunal emphasized that interest under Section 201(1A) is mandatory, even if the payee admits the income in their return of income.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee, upholding the CIT(A)'s order that the payments made to the distributors for both SIM cards and recharge coupons were commissions subject to TDS under Section 194H. The Tribunal also confirmed the levy of interest under Section 201(1A) for non-deduction of TDS. The Tribunal's decision was based on a detailed analysis of the nature of the transactions, the relationship between the assessee and its distributors, and relevant judicial precedents.