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2020 (1) TMI 601 - AT - Income TaxTDS u/s 194H - discount allowed by the Appellant to the Prepaid Distributors - No deduction of tds - assessee in default u/s.201 - relationship between the Appellant and the Prepaid Distributor is of Principal to Principal ( P2P ) and not Principal to Agent ( P2A ) - HELD THAT - In the case of Vodafone Essar Gujarat Ltd vs ACIT, TDS Circle, Ahmedabad 2015 (7) TMI 474 - ITAT AHMEDABAD has considered an almost identical issue and decided the issue in favour of the assessee as held 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 - 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 principal and agent thus, the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. - The matter is remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the sale discount is reflected in their books - If the accounts are not reflected Section 194H of the Act is not attracted. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 194H on discounts allowed to prepaid distributors. 2. Determination of the relationship between the assessee and the prepaid distributors (Principal to Principal vs. Principal to Agent). 3. Treatment of the assessee as "assessee in default" under Section 201(1) and 201(1A) for non-deduction of tax at source. 4. Levy of interest under Section 201(1A). Issue-wise Detailed Analysis: 1. Applicability of Section 194H on Discounts Allowed to Prepaid Distributors: The primary issue was whether the discount allowed by the assessee to its prepaid distributors should be treated as commission under Section 194H, necessitating tax deduction at source. The assessee argued that the relationship with the distributors was on a Principal to Principal basis, not Principal to Agent, hence Section 194H was not applicable. The Tribunal examined similar cases and judgments from various High Courts, including the Karnataka High Court in Bharti Airtel vs. DCIT and Rajasthan High Court in the assessee's own case, which held that Section 194H was not applicable to such transactions. The Tribunal concluded that the discounts given to distributors were not commissions and thus Section 194H did not apply. 2. Determination of the Relationship Between the Assessee and the Prepaid Distributors: The assessee contended that the relationship with the distributors was on a Principal to Principal basis. The Tribunal reviewed the terms of the agreements, which indicated that the distributors were not agents of the assessee. They were free to sell the SIM cards and recharge vouchers at any price and were not under the control of the assessee. The Tribunal found that the relationship was indeed Principal to Principal, aligning with the findings of the Karnataka and Rajasthan High Courts. 3. Treatment of the Assessee as "Assessee in Default" Under Section 201(1) and 201(1A) for Non-Deduction of Tax at Source: The AO had treated the assessee as an "assessee in default" for not deducting tax at source on the discounts given to distributors, raising a demand under Section 201(1) and 201(1A). The Tribunal noted that various tribunals and High Courts had ruled in favor of the assessee in similar cases, stating that the discounts did not constitute commission. Therefore, the Tribunal held that the assessee should not be treated as an "assessee in default." 4. Levy of Interest Under Section 201(1A): The CIT(A) had upheld the AO's order, including the levy of interest under Section 201(1A). However, since the Tribunal concluded that the assessee was not liable to deduct tax at source under Section 194H, the basis for the levy of interest under Section 201(1A) was also invalidated. The Tribunal directed that the interest levied should be deleted or appropriately reduced. Conclusion: The Tribunal allowed the appeal of the assessee, holding that Section 194H was not applicable to the discounts given to prepaid distributors, as the relationship was Principal to Principal. Consequently, the assessee was not an "assessee in default" under Section 201(1) and 201(1A), and the levy of interest under Section 201(1A) was also not justified. The Tribunal followed the principle laid down by the Supreme Court in CIT vs. Vegetable Products, favoring the assessee in the case of conflicting views from non-jurisdictional High Courts.
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