2018 (2) TMI 1513 - AT - Income Tax

Liability of deduction of tax at source U/s 194H - liability to pay tax as the assessee in default U/s 201(1) & 201(1A) in respect of discount extended to the distributors for pre-paid SIM cards and recharge coupons - Held that - This issue of liability of the assessee to deduct tax at source in respect of discount allowed to the distributors on pre paid SIM cards and recharge vouchers has been considered by the Hon ble Jurisdictional High Court in assessee s own case for the A.Y. 2007-08 to 2009-10 we decide this issue in favour of the assessee and consequently set aside the orders of the authorities below qua this issue. Liability of the assessee to deduct TDS U/s 194J in respect of the roaming charges paid by the assessee - Held that - Tribunal decided the issue in favour of the assessee by holding that the fee paid for roaming charges does not fall in the ambit of fee for technical services as no human intervention is required in providing the roaming services by the mobile service provider. The revenue challenged this order of the Tribunal before the Hon ble High Court and the Hon ble High Court vide decision 2017 (7) TMI 1076 - RAJASTHAN HIGH COURT by following the decision of the Hon ble Karnataka High Court in the case of CIT TDS, Bangalore Vs Vodafone South Ltd. (2016 (8) TMI 422 - KARNATAKA HIGH COURT) has decided this issue in favour of the assessee and against the revenue

Summary

Issues Involved:
1. Validity of the TDS officer's order.
2. Liability to deduct tax on discounts extended to pre-paid distributors under Section 194H.
3. Liability to deduct tax under Section 194J on roaming charges paid to other telecom operators.
4. Recovery of demand under Section 201(1) of the Act.
5. Charging of interest under Section 201(1A) of the Act.

Detailed Analysis:

Issue 1: Validity of the TDS Officer's Order
The assessee contended that the order passed by the TDS officer was bad in law. Specifically, the assessee argued that the CIT(A) erred in not holding that the order treating the assessee as an 'assessee in default' was invalid. The assessee cited the provisions of Section 201(1) read with Section 191 and the judgment of Jagran Prakashan Limited vs. DCIT(TDS), asserting that there was no finding by the TDS officer regarding the failure of deductees to pay taxes directly, which is a jurisdictional pre-requisite. This issue was deemed general in nature and dependent on the outcome of other grounds raised by the assessee.

Issue 2: Liability to Deduct Tax on Discounts Extended to Pre-paid Distributors under Section 194H
The primary contention was whether the discount extended to pre-paid distributors constituted a commission liable for tax deduction at source under Section 194H. The Tribunal noted that the Hon'ble Jurisdictional High Court had already decided this issue in the assessee's favor for the assessment years 2007-08 to 2009-10. The High Court held that the relationship between the assessee and the distributors was on a principal-to-principal basis, and therefore, Section 194H did not apply. The Tribunal followed this precedent and decided the issue in favor of the assessee, setting aside the orders of the authorities below.

Issue 3: Liability to Deduct Tax under Section 194J on Roaming Charges Paid to Other Telecom Operators
The assessee argued that roaming charges paid to other telecom operators did not constitute 'Fee for Technical Services' (FTS) under Section 194J, as there was no human intervention involved in providing the roaming services. The Tribunal referred to its earlier decision in the assessee's own case for the assessment years 2004-05 to 2010-11, where it was held that roaming services did not involve human intervention and thus did not fall under FTS. This decision was upheld by the Hon'ble Jurisdictional High Court, which followed the Karnataka High Court's ruling in CIT TDS, Bangalore vs. Vodafone South Ltd. Consequently, the Tribunal decided this issue in favor of the assessee and set aside the orders of the authorities below.

Issue 4: Recovery of Demand under Section 201(1) of the Act
The assessee contended that no demand could be raised under Section 201(1) since taxes would have been paid by the recipient parties, resulting in double recovery of taxes. The Tribunal noted that this issue was consequential to the findings on the liability to deduct tax under Sections 194H and 194J. Given that the Tribunal had decided these issues in favor of the assessee, the demand under Section 201(1) was also set aside.

Issue 5: Charging of Interest under Section 201(1A) of the Act
The assessee argued that interest under Section 201(1A) should not be charged or, if charged, should be computed from the due date of payment of withholding tax by the assessee to the date of payment of taxes by the payee. This issue was also deemed consequential to the findings on the liability to deduct tax under Sections 194H and 194J. Given that the Tribunal had decided these issues in favor of the assessee, the charging of interest under Section 201(1A) was also set aside.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2012-13 and 2013-14, and dismissed the appeal of the revenue for the assessment year 2014-15. The Tribunal's decisions were based on the precedent set by the Hon'ble Jurisdictional High Court and its own earlier rulings, which were favorable to the assessee. The orders of the authorities below were set aside accordingly.