2021 (1) TMI 881 - AT - Income Tax

TDS u/s 194H - discount extended to its pre-paid distributors on distribution of pre-paid services - as per CIT- A relationship between the Appellant and the pre-paid distributors is not that of Principal to Principal and the discount allowed to them is in nature of commission liable for tax deduction at source as envisaged under section 194H - HELD THAT - CIT (A)/TDS Officer have erred in not appreciating that the discount allowed by the Appellant is not income in the hands of its distributors and that income, if any, arises only when the pre-paid services are further distributed by the distributors. On the facts and circumstances of the case and in law, the learned CIT (A)/TDS Officer have erred in not appreciating the fact that there is no flow of monies from the Appellant to the distributor of pre-paid services but rather from the distributor to the Appellant, and hence, the provisions of section 194H of the Act fail to apply. On the facts and circumstances of the case and in law, the learned CIT (A)/TDS Officer has erred in placing reliance on the decision of Delhi High Court in the case of Idea Cellular 2010 (2) TMI 24 - DELHI HIGH COURT and Kolkata Tribunal in the case of Bharti Cellular Limited 2006 (4) TMI 50 - ITAT, KOLKATA without appreciating that the facts in those cases were different from the facts of the Appellant s case. TDS demand raised under section 201(1) - HELD THAT - The order of the learned TDS Officer, as upheld by learned CIT(A), is bad in law in so far as it seeks to recover tax demand under section 201 of the Act in contradiction to the settled principle that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. TDS u/s 194J - non-deduction of tax at source on domestic roaming charges paid to other telecom operators - HELD THAT - CIT(A)/TDS Officer have erred in not appreciating the fact that roaming services are standard automated services requiring no human intervention which is sine qua non for a service to qualify as a technical service for the purposes of section 194J of the Act. CIT(A) have erred in not appreciating that even as per the statement of technical experts, the carriage of calls is an automatic activity and human intervention, if any, is required only at the stage of inter-connect set-up, capacity enhancement, monitoring, maintenance, fault identification, repair, etc. CIT(A) have erred in ignoring the statement of technical experts recorded by the income-tax authorities in case of Vodafone Cellular Limited (now merged with Appellant itself), in the context of roaming services, wherein it has been clearly observed that roaming services are automated services requiring no human intervention. CIT(A)/TDS Officer has erred in not holding that characterization of a payment must be done having regard to the dominant purpose/intention of the payment. CIT(A) has erred in not following the principles laid down in judicial precedents cited by the Appellant and also ignoring the binding Apex Court judgment in the case of CIT vs. Delhi Transco Limited 2016 (4) TMI 1005 - SC ORDER and CIT vs. Kotak Securities Limited 2016 (3) TMI 1026 - SUPREME COURT

Summary

Issues Involved:

1. Liability to deduct tax at source on discount extended to pre-paid distributors under Section 194H.
2. TDS demand under Section 201(1) of the Act.
3. Interest under Section 201(1A) of the Act.
4. Liability to deduct tax at source on domestic roaming charges under Section 194J.

Issue-wise Detailed Analysis:

1. Liability to Deduct Tax at Source on Discount Extended to Pre-paid Distributors:

The primary issue was whether the assessee, Vodafone Idea Limited, was liable to deduct tax at source under Section 194H on discounts extended to its pre-paid distributors. The assessee argued that the relationship between it and its distributors was on a 'principal to principal' basis, and hence, the discounts did not constitute commission liable for TDS. The Tribunal noted that the commercial arrangement between the assessee and the distributors had changed post-January 2007, transforming the relationship to 'principal to principal.' The Tribunal referenced the Karnataka and Rajasthan High Courts' decisions, which favored the assessee, and emphasized that in the absence of a jurisdictional High Court ruling, the view favorable to the assessee should be adopted. The Tribunal concluded that there was no obligation to withhold tax on the discounts under Section 194H.

2. TDS Demand Under Section 201(1) of the Act:

The Tribunal addressed whether the assessee could be treated as an 'assessee in default' under Section 201(1) for non-deduction of tax at source on discounts. Given the decision that there was no requirement to deduct tax under Section 194H, the Tribunal held that the assessee could not be treated as an 'assessee in default' under Section 201(1).

3. Interest Under Section 201(1A) of the Act:

The issue of interest under Section 201(1A) was rendered academic since the Tribunal had already concluded that the assessee was not liable to deduct tax at source under Sections 194H and 194J. Consequently, there was no basis for charging interest under Section 201(1A).

4. Liability to Deduct Tax at Source on Domestic Roaming Charges Under Section 194J:

The Tribunal examined whether the assessee was required to deduct tax at source on domestic roaming charges paid to other telecom operators under Section 194J. The Tribunal referenced its own previous decisions and those of other benches, which held that roaming charges did not constitute 'fees for technical services' requiring TDS under Section 194J. The Tribunal concluded that there was no obligation for the assessee to withhold tax on such payments.

Decision:

The Tribunal allowed the appeals of the assessee, holding that there was no requirement to withhold tax on discounts extended to pre-paid distributors under Section 194H or on domestic roaming charges under Section 194J. Consequently, the assessee could not be treated as an 'assessee in default,' and there was no basis for charging interest under Section 201(1A).