2015 (7) TMI 1321 - AT - Income Tax

TDS u/s 194H - Non-deduction of tax on discounts extended to distributors of prepaid simcard / talktime - HELD THAT - In TATA TELESERVICES LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX (TDS). CIRCLE 18(1). BANGALORE 2013 (1) TMI 480 - ITAT BANGALORE held that Section 194H of the Act is not applicable in similar type of transactions and deleted the action of the AO treating the assessee as one in default. However this Tribunal being a sub-ordinate body to the Hon ble jurisdictional High Court in the State of Karnataka, is bound by the judgment of Hon ble jurisdictional Hgih Court and cannot give any directions beyond what has been given by the Hon ble jurisdictional High Court in the case of Bharti Airtel Ltd 2014 (12) TMI 642 - KARNATAKA HIGH COURT . Accordingly we are of the opinion that the matter requires a fresh look by the AO. We set aside the orders of the authorities below and remit the issue back to the file of AO for consideration afresh in accordance with the directions of the Hon ble jurisdictional High Court in the case of Bharti Airtel Ltd (supra). Ordered accordingly. Ground 2 of the assessee for all the years are treated as allowed for statistical purposes. Non deducting tax at source u/s.194J - roaming charges paid to other telecom operators - whether roaming charges paid by assessee to other service providers for using their services by assessee s customers could be treated as technical services falling u/s.194J - HELD THAT - Reading of the above order clearly show that fact-situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd 2015 (7) TMI 175 - ITAT JAIPUR would squarely apply as held these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee s appeal is allowed on this ground also.Also see VODAFONE ESSAR GUJARAT LIMITED AHMEDABAD VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE, AHMEDABAD 2015 (7) TMI 474 - ITAT AHMEDABAD - Decided in favour of assessee. Levy of interest u/s.201(1A) - HELD THAT - As lready held that assessee is not at default for deduction of tax on roaming charges and interest levied on the assessee on such amount u/s.201(1A) of the Act, stands deleted. However, in so far as interest u/s.201(1A) of the Act in relation to discounts / commission on prepaid sim cards and talk time is concerned, we have remitted the issue back to the file of the AO for consideration afresh

Summary

Issues Involved:
1. Non-deduction of tax on discounts extended to distributors of prepaid sim cards/talk time.
2. Non-deduction of tax at source on roaming charges paid to other telecom operators.
3. Levy of interest under Section 201(1A) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Non-deduction of tax on discounts extended to distributors of prepaid sim cards/talk time:
The assessee challenged the order of the AO, confirmed by the CIT(A), treating it as an assessee in default under Section 201(1) of the Income-tax Act, 1961, for non-deduction of tax on discounts extended to distributors of prepaid sim cards/talk time. The AO considered these discounts as commission, invoking Section 194H of the Act. The assessee argued that the relationship between it and its distributors was on a principal-to-principal basis, not principal-to-agent, and thus, Section 194H was not applicable. The assessee cited the jurisdictional High Court's decision in Bharti Airtel Ltd v. DCIT, which held that the sale of sim cards and recharge coupons by telecom operators to distributors did not result in the payment of any commission or brokerage, thereby negating the application of Section 194H. The Tribunal, after examining the facts and the High Court's judgment, remitted the issue back to the AO to verify the accounting treatment of discounts in the books of accounts, as per the directions of the High Court in Bharti Airtel Ltd's case.

2. Non-deduction of tax at source on roaming charges paid to other telecom operators:
The assessee contested the AO's decision, confirmed by the CIT(A), treating it as an assessee in default for not deducting tax at source under Section 194J on roaming charges paid to other telecom operators. The assessee argued that roaming charges did not involve human intervention and thus did not qualify as technical services. The Tribunal referred to the Jaipur bench's decision in Bharti Hexacom Ltd v. ITO (TDS), which held that roaming charges were not fees for technical services as envisaged under Section 194J, since the process was automatic and did not require human intervention. Following this precedent, the Tribunal held that the assessee could not be deemed in default for non-deduction of tax at source on roaming charges paid to other service providers.

3. Levy of interest under Section 201(1A) of the Income-tax Act, 1961:
The assessee challenged the levy of interest under Section 201(1A) on the amounts related to discounts and roaming charges. The Tribunal held that since the assessee was not in default for non-deduction of tax on roaming charges, the interest levied under Section 201(1A) on this amount was deleted. However, regarding the discounts/commission on prepaid sim cards and talk time, the Tribunal remitted the issue back to the AO for fresh consideration as per the High Court's directions in Bharti Airtel Ltd's case. The AO was directed to revise the levy of interest accordingly.

Conclusion:
The Tribunal set aside the orders of the lower authorities on the issues of non-deduction of tax on discounts and roaming charges and remitted the matter back to the AO for reconsideration in accordance with the jurisdictional High Court's judgment. The appeal was allowed for statistical purposes.