2020 (5) TMI 485 - AT - Income Tax

TDS u/s 194H - discounts allowed on prepaid services as distributor margin - validity of passed under section 201(1) /201(1A) as passed beyond the limitation period - HELD THAT - Clause (i) to section 201(3) of the Act specifies that no order shall be made under sub-section (1) of section 203 of the Act deeming a period to be an assessee in default for failure to deduct the whole or any part of the tax from a resident in India, at any time after the expiry of two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed. Here, the assessee has not deducted TDS under section 194H of the Act and thus, the question of filing of quarterly statement as required under section 200 of the Act by the assessee do not arise and therefore, we held that the assessee is not covered by the provisions of section 201(3)(i) of the Act. Accordingly, the ld. CIT(A) has validly confirmed the order passed under section 201(1)/201(1A) of the Act. Thus, the ground raised by the assessee stands dismissed for both the assessment years. TDS u/s 194H - Whether sale of recharge vouchers and prepaid vouchers and prepaid cards to the sole distributors does not establish Principal-Agent relationship liable to TDS under section 194H? - HELD THAT - As relying on HINDUSTAN COCA COLA BEVERAGES PVT. LTD. 2017 (7) TMI 1076 - RAJASTHAN HIGH COURT and BHARTI AIRTEL LTD. AND 2014 (12) TMI 642 - KARNATAKA HIGH COURT 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 in VODAFONE ESSAR CELLULAR LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX (TDS) 2010 (8) TMI 691 - 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

Summary

Issues Involved:
1. Limitation period for passing order under section 201(1)/201(1A) of the Income Tax Act, 1961.
2. Applicability of TDS under section 194H on discounts allowed on prepaid services as distributor margin.
3. Principal-Agent relationship in the context of sale of recharge vouchers and prepaid cards.

Detailed Analysis:

1. Limitation Period for Passing Order Under Section 201(1)/201(1A) of the Income Tax Act, 1961:
The assessee challenged the order of the CIT(A) confirming the Assessing Officer's decision under section 201(1)/201(1A) on the grounds that the order was passed beyond the limitation period specified under section 201(3) of the Act. The Tribunal held that since the assessee did not deduct TDS under section 194H, the requirement for filing quarterly statements under section 200 did not arise. Consequently, the assessee was not covered by the provisions of section 201(3)(i) of the Act, validating the CIT(A)'s confirmation of the order under section 201(1)/201(1A). Thus, the ground raised by the assessee was dismissed for both assessment years.

2. Applicability of TDS Under Section 194H on Discounts Allowed on Prepaid Services as Distributor Margin:
The Revenue appealed against the CIT(A)'s decision that the sale of recharge vouchers and prepaid cards to sole distributors did not establish a Principal-Agent relationship liable to TDS under section 194H. The Tribunal referenced its earlier decision in the assessee's own case for the assessment years 2011-12 and 2010-11, where it was held that the provisions of section 194H were not attracted if the conditions relating to the treatment of discount in the books of accounts were satisfied. The Tribunal further cited various High Court decisions, including the Hon'ble Karnataka High Court in Bharti Airtel Ltd. Vs. DCIT, which held that sale of SIM cards/recharge coupons at discounted rates to distributors is not commission and therefore not liable to TDS under section 194H. The Tribunal concluded that the relationship between the assessee and the distributor was that of principal to principal, not principal and agent, and thus, section 194H was not applicable. The matter was remitted back to the Assessing Officer to verify how the books were maintained and whether the sale discount was reflected in the books of accounts. The Tribunal dismissed the grounds raised by the Revenue.

3. Principal-Agent Relationship in the Context of Sale of Recharge Vouchers and Prepaid Cards:
The Tribunal examined whether the sale of recharge vouchers and prepaid cards established a Principal-Agent relationship. It referenced multiple High Court decisions, including the Hon'ble Rajasthan High Court and the Hon'ble Karnataka High Court, which supported the view that the relationship was of principal to principal. The Tribunal noted that the distributors acted independently and bore the risk and rewards of the sale, indicating a principal-to-principal relationship. The Tribunal emphasized that the right to service could be sold, and the sale of SIM cards/recharge coupons to distributors did not constitute a commission payment. The Tribunal followed the principle laid down by the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd., favoring the taxpayer when multiple interpretations of a statutory provision are possible. Consequently, the Tribunal restored the matter to the Assessing Officer for verification of the books of accounts.

Conclusion:
Both the appeals filed by the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decision, confirming that the provisions of section 194H were not applicable if the sale discount was appropriately reflected in the books of accounts, and the relationship between the assessee and the distributor was principal to principal. The matter was remitted back to the Assessing Officer for limited verification of the books of accounts.