2021 (6) TMI 354 - AT - Income Tax

TDS u/s 194H - payment made by the appellant to the prepaid distributors is in nature of commission - assessee in default - HELD THAT - Deduction of TDS on prepaid SIM cards and Recharge cards, different High Courts have taken contrary view by holding that while the service cannot be sold, right to service can always be sold. And Hon ble Karnataka High Court did not agree with the judgment of Hon ble Delhi High court wherein it is held that cellular companies are liable to deduct TDS on the commission paid to Franchise for selling of SIM cards and Recharge cards. The Hon ble Delhi High Court and the Rajasthan High Court have given contrary findings with regard to applicability of Section 194H in case of the appellant for the same transaction in the case of the appellant. On similar transactions of other telecom operators, the Calcutta and Kerala High Courts have upheld applicability of section 194H. The Hon ble Supreme Court in the case of Synco Industries Ltd. 2008 (3) TMI 13 - SUPREME COURT upheld the view taken by majority of the High Courts even though such view was against the assessee. As relying on M/S. VODAFONE WEST LTD., (FORMERLY KNOWN AS VODAFONE ESSAR GUJARAT LTD. 2018 (4) TMI 333 - ITAT AHMEDABAD is not liable to deduct tax u/s.194H and 194J. Therefore, assessee is not in default for such TDS. On the principle of consistency and respectfully following the order of co-ordinate bench and in our considered opinion ld. CIT(A) has passed a detailed and reasoned order. - Decided in favour of assessee.

Summary

Issues:
1. Order passed by CIT(A) being bad in law.
2. Treating the assessee as "assessee in default" u/s. 201(1).
3. Non-deduction of tax at source (TDS) u/s. 194H on discounts allowed to distributors.
4. Interest levied under section 201(1A) of the Act.

Analysis:

Issue 1:
The appellant challenged the order passed by the CIT(A) as being bad in law, contending that the TDS Officer did not follow the directions of the Tribunal. The appellant sought to quash the order passed by the TDS Officer u/s. 201(1)/201(1A) of the Act. The argument was based on the failure to ascertain whether the recipient had paid taxes on the income received from the appellant.

Issue 2:
The appellant disputed being treated as an "assessee in default" under section 201(1) without proper verification by the TDS Officer regarding tax payments by the recipient. The appellant argued that without such verification, they cannot be held as an "assessee-in-default" u/s. 201 r.w.s 194H.

Issue 3:
The dispute arose regarding the non-deduction of TDS u/s. 194H on discounts offered by the appellant to distributors. The CIT(A) confirmed the TDS Officer's order treating the discounts as commission, leading to the appellant being considered an "assessee in default" under section 201(1) r.w.s. 194H. The appellant contended that the relationship with distributors was on a principal-to-principal basis, exempting them from TDS deduction.

Issue 4:
Regarding the interest levied under section 201(1A) of the Act, the appellant argued against the CIT(A)'s confirmation of the TDS Officer's order. The appellant sought the deletion or reduction of the interest levied under section 201(1A) of the Act.

The Tribunal noted the conflicting views of different High Courts on the applicability of TDS on similar transactions involving telecom operators. The appellant relied on previous court decisions in their favor, emphasizing that the difference between face value and selling price of prepaid vouchers could not be considered as commission requiring TDS deduction under section 194H. The Tribunal, in line with previous decisions, allowed the appeal of the assessee based on the principle of parity with earlier orders granting relief to the appellant in similar circumstances.

In conclusion, the Tribunal allowed the appeals filed by the Assessee, overturning the CIT(A)'s decision and providing relief to the appellant based on previous favorable court decisions and the principle of parity.