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2019 (6) TMI 1477 - AT - Income TaxTDS u/s 194H - discount given at the time of sale of SIM cards or recharge coupons to the distributors - Whether a payment received or receivable by the distributor for the services to be rendered to the assessee and the same fell within the definition of commission or brokerage under explanation (i) to Sec. 194H? - contention of the assessee that the relationship between the assessee and the distributors was on principal to principal basis - HELD THAT - In identical issue was decided in favour of the assessee by ITAT Ahmedabad Bench in the case of Vodafone Essar Gujarat Ltd. vs. ACIT 2015 (7) TMI 474 - ITAT AHMEDABAD is correct wherein as held there is no relationship between the assessee and the sub-distributor as well as the retailer. Thus, it is a sale of right to service - The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands - The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS - Decided in favour of assessee.
Issues:
1. Whether the assessee is liable to deduct tax at source under Sec. 194H of the Income Tax Act for payments made to distributors? 2. Whether the order of the Ld. CIT (A) upholding the findings of the AO is correct? 3. Whether the demand raised by the DCIT (TDS) is justified? Issue 1: The case involved the question of whether the assessee, a telecom company, was liable to deduct tax at source under Sec. 194H of the Income Tax Act for payments made to distributors. The Assessing Officer (AO) concluded that the assessee had discontinued tax deduction on payments made to franchisees, treating the differential amount as discount. The AO held that a principal-agent relationship existed between the assessee and the distributors, making the payments subject to TDS under Sec. 194H. The AO computed the un-deducted tax and interest, resulting in a total demand. Issue 2: The Ld. CIT (A) upheld the AO's findings, stating that Sec. 194H was applicable to the assessee. The assessee then approached the ITAT challenging this decision. The ITAT considered the arguments presented by both parties. The assessee's Authorized Representative cited a previous ITAT order in a similar case where the issue was decided in favor of the assessee. The ITAT noted conflicting judgments from different High Courts but relied on the principle favoring the assessee when interpreting taxing provisions. Issue 3: The Senior Departmental Representative argued that despite the assessee terming the payments as discounts, they should be treated as commission under Sec. 194H. The Senior DR contended that the relationship between the assessee and distributors was not principal to principal but principal to agent. The ITAT reviewed the arguments and the relevant material, including previous judgments, and concluded in favor of the assessee. The ITAT relied on a previous order involving identical facts and held that the assessee was not liable to deduct tax at source under Sec. 194H. In conclusion, the ITAT allowed the assessee's appeal, ruling that the assessee was not obligated to deduct tax at source under Sec. 194H for payments made to distributors. The decision was based on the interpretation of the transactions and the absence of income payable to distributors at the time of sale. The ITAT emphasized the importance of favoring the assessee in cases of conflicting interpretations of taxing provisions.
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