2019 (2) TMI 1966 - AT - Income Tax

TDS on discount/commission made u/s 194H - sale of SIM Cards - Demand u/s. 201(1) 201(1A) - Authorised Retailer deliver Prepaid SIM Cards / Scratch Vouchers / Recharge Vouchers / V-top up etc., to a prospective subscriber/customer only after collecting duly filled in Customer Application Form (CAF) along with copies of Proof of density (POI) and Proof of Address (POA) - case of the department is this that MRP (-) discounted price offered by the assessee to the distributor is payment of commission by the assessee to the distributor - whether once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of Principal and Principal and not of Principal and Agent ? - whether because of sub-clause (l) of Para 6.3 of the distributorship agreement, relationship between the assessee and the distributor can be termed as that of principal to agent? HELD THAT - When the distributor / retailer can sale at a price below MRP as per his choice and market conditions, it cannot be said that the difference between MRP and discounted prices being charged by the assessee to the distributor is a payment of commission by the assessee to the distributor. This also does not change the relationship of the assessee and its distributors from that of Principal to Principal to that of Principal and agent. In the facts of present case as discussed above, we are of the considered opinion that relationship between the assessee and the distributor is that of principal to principal and not principal to agent. DR of revenue could not point out any difference in facts in the present case and in the case which is decided by Hon ble Rajasthan High Cour 2018 (5) TMI 1394 - RAJASTHAN HIGH COURT t and by the Bangalore Tribunal in assessee s own case for earlier years 2015 (11) TMI 860 - ITAT BANGALORE and the judgement of Hon'ble Karnataka High Court rendered in the case of Bharti Airtel Ltd. Vs. DCIT 2014 (12) TMI 642 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order under sections 201(1) and 201(1A) of the IT Act.
2. Determination of the relationship between the assessee and the distributor: Principal to Principal vs. Principal to Agent.
3. Reliance on the decision of the Karnataka High Court in Bharti Airtel Ltd. vs. DCIT and its acceptance by the department.

Detailed Analysis:

1. Legality and Factual Correctness of the CIT(A)'s Order:
The revenue challenged the CIT(A)'s decision to cancel the orders under sections 201(1) and 201(1A) for the assessment years 2012-13 (Q3 & Q4) and 2013-14. The grounds raised by the revenue consistently argued that the CIT(A)'s order was opposed to law and facts. Specifically, the CIT(A) was criticized for concluding that the relationship between the assessee and the distributor was that of "Principal and Principal" rather than "Principal and Agent."

2. Relationship Between Assessee and Distributor:
The core issue was whether the relationship between the assessee and the distributor was that of Principal to Principal or Principal to Agent. The CIT(A) had concluded it was Principal to Principal, referencing the Karnataka High Court's decision in Bharti Airtel Ltd. vs. DCIT. The revenue contended against this, suggesting the relationship was Principal to Agent, citing the Calcutta High Court's judgment in Hutchison Telecom East Ltd. vs. CIT.

The tribunal examined the distributorship agreement, particularly clause 6.3(l), which detailed the distributor's obligations to collect and verify customer information as per government regulations. The tribunal concluded that these stipulations did not alter the nature of the relationship from Principal to Principal to Principal and Agent. The tribunal emphasized that the distributor's requirement to make advance payments and the freedom to sell at prices below MRP further supported the Principal to Principal relationship.

3. Reliance on Karnataka High Court's Decision:
The tribunal noted that the Karnataka High Court's decision in Bharti Airtel Ltd. vs. DCIT was binding and had been followed in the assessee's own case for previous years. The revenue's argument to independently decide the issue by relying on the Calcutta High Court's judgment in Hutchison Telecom East Ltd. was rejected, as no factual differences were pointed out between the present case and earlier cases decided in favor of the assessee.

The tribunal also considered the Rajasthan High Court's decision in the assessee's own case, which aligned with the Karnataka High Court's judgment, further reinforcing the Principal to Principal relationship.

Conclusion:
The tribunal dismissed all three appeals filed by the revenue, upholding the CIT(A)'s orders. The tribunal's decision was based on the consistent application of the Karnataka High Court's judgment in Bharti Airtel Ltd. vs. DCIT, the assessee's previous favorable tribunal orders, and the factual analysis of the distributorship agreement confirming the Principal to Principal relationship. The tribunal pronounced the order in the open court, affirming the CIT(A)'s cancellation of the orders under sections 201(1) and 201(1A).