2017 (9) TMI 1835 - AT - Income Tax

TDS u/s 194H - commission/discount allowed on the prepaid recharge coupons to the distributors - survey under section 133A of the Act was conducted in the business premise of the assessee i.e. erstwhile Vodafone Essar Cellular Limited - HELD THAT - In view of the above decisions of the Hon ble High of Judicature for Rajasthan Bench at Jaipur as well as Hon ble Karnataka High Court we are of the considered opinion that the sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS under section 194H of the Act. However we find that while deciding similar issue the Hon ble Kerala High Court has taken a different view as the relevant observations are reproduced hereinabove and decided the issue against the assessee. In the absence of any jurisdictional High Court decision brought to the notice of the Bench we are of the considered opinion that other High Court s decisions are binding on the Tribunal to take a decision but since there exist two contradictory decisions other High Courts we are of the opinion that the law laid down by the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT which says that if a statutory provision is capable of more than one view then the view which favours the tax payer should be preferred we decide the issue in favour of the assessee by following the decisions of the Hon ble High of Judicature for Rajasthan Bench at Jaipur as well as Hon ble Karnataka High Court. However in the orders of authorities below there was no elaborate discussion with regard to the sale discount offered by the assessee and maintained in the books of accounts of the assessee. Accordingly as has been held by the Hon ble Karnataka High Court we also remit the matter back to the file of the Assessing Officer only to find out as to how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in the books of the assessee or not. If the accounts are not reflected as set out in BHARTI AIRTEL LTD. AND OTHERS VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND COMMISSIONER OF INCOME TAX BANGALORE 2014 (12) TMI 642 - KARNATAKA HIGH COURT the provisions of section 194H of the Act is not attracted. - ground raised by the assessee is allowed for statistical purposes TDS u/s 194C or 194J - manpower charges - HELD THAT - As decided in own case 2015 (11) TMI 1451 - ITAT CHENNAI 2015 (11) TMI 1451 - ITAT CHENNAI held relying on CIT vs. Bharti Cellular Ltd 2008 (10) TMI 321 - DELHI HIGH COURT held that the rule of noscitur a sociis is clearly applicable and this would mean that the word technical would take colour from the words managerial and consultancy in between which it is sandwiched. Elaborating further the Delhi High Court observed that it is obvious that the expression manager and consequently managerial service has a definite human element attached to it and similarly the services consultancy also necessarily intends human intervention. It was held by the Delhi High Court that the expression technical services thus necessarily involves human element or what is now a days fashionably called human interface . In the case of Bharti Cellular Ltd (supra) before the Delhi High Court the facility provided by MTNL and other companies to the assessee for interconnection/port access was one which was provided technically by the machines and since it did not involve any human interface the Delhi High Court held that the same could not be regarded as technical services as contemplated under S.194J Liability of TDS u/s 194J on roaming charges paid to other telecom operators - HELD THAT - Respectfully following the decision of the Coordinate Benches of the Tribunal in assessee s own case for earlier assessment years 2015 (10) TMI 1461 - ITAT CHENNAI we set aside the order of the ld. CIT(A) on this issue and hold that he roaming charges paid by the assessee will not fall under the category of fees for technical services and therefore the provisions of section 194J of the Act would not be attracted in the case of the assessee. Since sections 201(1) and 201(1A) of the Act are consequential they will also not be applicable to the case of the assessee. Thus the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Validity of the order passed by the TDS Officer.
2. Liability to deduct TDS on commission/discount on prepaid recharge coupons under section 194H of the Income Tax Act.
3. TDS deduction on manpower charges under section 194J versus section 194C of the Income Tax Act.
4. TDS liability on roaming charges paid to other telecom operators under section 194J of the Income Tax Act.

Detailed Analysis:

1. Validity of the Order Passed by the TDS Officer:
The first common ground raised by the assessees was that the order passed by the learned TDS Officer is "bad in law and void-ab-initio." However, this ground was not pressed at the time of hearing, and accordingly, it was dismissed as not pressed.

2. TDS on Commission/Discount on Prepaid Recharge Coupons:
The primary issue was whether the assessees were liable to deduct TDS on the amount of commission/discount allowed on prepaid recharge coupons to distributors under section 194H of the Income Tax Act. A survey under section 133A revealed that the assessees had not deducted TDS on the sale of prepaid recharge coupons. The Assessing Officer treated the discount as commission, holding the assessees in default under section 201(1) r.w.s. 194H, and levied tax and interest accordingly.

The assessees contended that the relationship with distributors was on a principal-to-principal basis, akin to the sale and purchase of goods, and thus, the discount was a trade margin, not commission. They cited various Tribunal and High Court decisions supporting their stance, including Bharti Airtel Ltd. v. DCIT, which held that the sale of SIM cards/recharge coupons at a discounted rate to distributors is not commission and therefore not liable to TDS under section 194H.

The Tribunal noted the conflicting views of different High Courts on this issue. The Kerala High Court, in Vodafone Essar Cellular Ltd. v. ACIT, held that the discount given was commission, whereas the Karnataka High Court, in Bharti Airtel Ltd. v. DCIT, held the opposite. Following the principle that when a statutory provision is capable of more than one view, the view favoring the taxpayer should be preferred, the Tribunal decided in favor of the assessees. However, it remitted the matter back to the Assessing Officer to verify the treatment of the sale discount in the books of accounts.

3. TDS on Manpower Charges:
The next issue was whether manpower charges were subject to TDS under section 194J (technical services) or section 194C (contractual services) of the Income Tax Act. The Assessing Officer and CIT(A) held that the services provided by outsourced personnel, such as front office management and data entry, were technical in nature and thus subject to TDS under section 194J.

The Tribunal upheld this view, noting that the services rendered required technical expertise and managerial skills. It distinguished between technical services (subject to TDS under section 194J) and housekeeping services (subject to TDS under section 194C). The Tribunal confirmed that the payments for support and customer support services required technical expertise and thus fell under section 194J.

4. TDS on Roaming Charges:
The final issue was the liability of TDS on roaming charges paid to other telecom operators. The Assessing Officer and CIT(A) held that these charges were for technical services, requiring TDS under section 194J. However, the Tribunal, following its earlier decision in the assessees' own case and the decision in M/s. Dishnet Wireless Ltd., held that roaming charges did not involve human intervention and thus did not constitute technical services. Consequently, the provisions of section 194J were not applicable, and the assessees were not liable for TDS on roaming charges.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, remitting the matter of TDS on commission/discount to the Assessing Officer for verification and confirming the decisions on manpower charges and roaming charges. The order was pronounced on September 21, 2017, at Chennai.