2024 (5) TMI 1012 - AT - Income Tax

TDS u/s 194H and 194J - income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors - relationship between the appellant and its distributors - demand u/s 201(1)/201(1A) - HELD THAT - As per ratio of judgment in Bharti Cellular Ltd. 2024 (3) TMI 41 - SUPREME COURT it is well settled that assessee would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case. Thus in view of well settled principle of law impugned orders is unsustainable and liable to be set aside. Assessee appeal allowed.

Summary

Issues:
Appeal against order upholding tax liability under section 201(1)/201(1A) for FY 2012-13/2013-14.

Detailed Analysis:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) upholding the order of the Assessing Officer under section 201(1)/201(1A) of the Income Tax Act, 1961 for the financial year 2012-13/2013-14. The assessee, engaged in providing cellular mobile telephone services in Delhi, was subject to a survey under section 133A to verify TDS compliance regarding cash discounts, commission, and other payments. The TDS compliance verification under section 201(1)/201(1A) led to a notice being issued to the assessee company, and representatives of the assessee provided details in response to the notice.

The computation of the assessee's liability under TDS compliance u/s 201(1)/201(1A) revealed a significant amount due for failure to deduct tax u/s 194H of the Act, totaling 7,57,50,048. The appellant then appealed before the Learned Commissioner of Income Tax (Appeals), but the appeal was dismissed. The appellant contended that the TDS Officer erred in treating them as an assessee in default under section 201 r.w.s 194H of the Act without establishing that the recipient had not paid taxes. The appellant also argued against the levy of interest under section 201(1A) for not deducting tax under section 194H.

The judgment referenced the decision of the Hon'ble Supreme Court in the case of Bharti Cellular Limited vs ACIT, which clarified that the assessee would not be obligated to deduct tax at source on certain payments. Additionally, the Hon'ble High Court of Delhi in the case of Vodafone Idea Limited vs ACIT supported this interpretation. The Learned DR argued in favor of the legality of the Commissioner's order, but upon examination of the record and considering the legal principles established in the aforementioned judgments, it was concluded that the impugned orders were unsustainable.

The judgment ultimately allowed the appeal, setting aside both the orders dated 21.09.2020 and 31.03.2015. It was pronounced in the open court on 30th April 2024.