2021 (9) TMI 1222 - AT - Income Tax

TDS u/s 194H - discount allowed to distributors/channel partners on the sale of recharge coupon vouchers and the starter kits for telecommunication services - Addition u/s 201(1) - whether the transaction of sale of recharge coupon vouchers and starter kits was done on principal to principal basis? - HELD THAT - As in the case of TTSL 2015 (3) TMI 1023 - ITAT JAIPUR followed the judgment of Bharti Airtel vs. DCIT 2014 (12) TMI 642 - KARNATAKA HIGH COURT and held that the discount on sale of recharge vouchers and SIM cards by telecommunication company to its distributors did not amount to commission in terms of section 194H of the Act. Also in the case of Tata Tele Services Ltd. 2015 (3) TMI 1023 - ITAT JAIPUR and Vodafone Cellular Ltd 2009 (4) TMI 209 - ITAT COCHIN have also decided the issue in favour of the assessee by holding that the provisions of section 194H were not applicable to the transaction of sale of starter kits and pre-paid SIMs to distributors on principal to principal basis. Under such circumstances and taking guidance from the judgment of the Hon ble Apex Court in the case of Vegetable Products 1973 (1) TMI 1 - SUPREME COURT we hold that the view favouring the assessee needs to be taken. Thus we hold that the sale of recharge voucher coupons and starter kits and the discount offered to the distributors would not attract TDS provisions u/s 194H of the Act and as such no default u/s 201(1) of the Act can be attributed to the assessee. Accordingly, the order of the Ld. CIT(A), allowing relief to the assessee, is upheld and the grounds raised by the Department are dismissed.

Summary

Issues Involved:
1. Applicability of Section 194H of the Income Tax Act on discounts offered to distributors/channel partners.
2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Applicability of Section 194H of the Income Tax Act on discounts offered to distributors/channel partners:

The core issue was whether the discounts offered by the assessee to its distributors/channel partners on the sale of Recharge Coupon Vouchers (RCVs) and starter kits were in the nature of commission, thereby attracting the provisions of Section 194H of the Income Tax Act, 1961, which mandates the deduction of tax at source.

The Assessing Officer (AO) had relied on the judgment in the case of M/s Vodafone Essar Cellular Ltd. vs. ACIT, asserting that the discount was a commission and thus liable for TDS under Section 194H. However, the CIT(A) set aside the AO's order, concluding that the transactions were on a principal-to-principal basis and not a principal-agent relationship, thus Section 194H was not applicable.

The Tribunal upheld the CIT(A)'s decision, emphasizing that:
- The transactions between the assessee and its distributors were indeed on a principal-to-principal basis.
- The distributors acquired ownership of the goods (SIM cards and RCVs) upon purchase, and the relationship was not that of principal and agent.
- The Tribunal referred to the Supreme Court's decision in Bharat Sanchar Nigam Ltd. Vs. UOI, which classified SIM cards as "goods" capable of being sold.
- The Tribunal also took guidance from the Karnataka High Court's judgment in Bharti Airtel Ltd. vs. CIT, which held that discounts on sales to distributors did not amount to commission under Section 194H.
- The Tribunal noted that there were divergent judgments from different High Courts but decided to follow the Karnataka High Court's decision, as there was no binding judgment from the jurisdictional High Court (Allahabad High Court).

2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules:

The Department contended that the CIT(A) admitted additional evidence in violation of Rule 46A, which mandates that the AO should be given an opportunity to examine any additional evidence produced by the assessee.

The Tribunal found that:
- The CIT(A) had acted within his powers under Section 250(4) of the Act, which allows the First Appellate Authority to call for any information necessary for adjudication.
- The Tribunal noted that the AO had not provided a proper opportunity to the assessee to present its case, justifying the CIT(A)'s decision to admit additional evidence.
- The Tribunal dismissed the Department's ground on this issue, affirming that there was no violation of Rule 46A.

Conclusion:

The Tribunal dismissed the Department's appeals for both assessment years, holding that:
- The discounts offered to distributors on the sale of RCVs and starter kits did not constitute commission under Section 194H.
- The CIT(A) was justified in admitting additional evidence, and there was no violation of Rule 46A.

Order Pronouncement:

The Tribunal pronounced the order on 27th September 2021, dismissing the Department's appeals and upholding the CIT(A)'s orders for both the assessment years in question.