2014 (6) TMI 362 - AT - Income Tax

Order passed u/s 201(1) or 201(1A) of the Act Bar of limitation - Held that - Following The ACIT Circle-15(2) (TDS) Hyderabad Versus M/s. Ushodaya Enterprises Ltd. 2014 (6) TMI 315 - ITAT HYDERABAD The order passed u/s 201(1) or 201(1A) cannot be held as barred by limitation if it is passed within 4 years from the end of the relevant AYs or 6 years as the case may be - the order passed u/s 201(1) and 201(1A) is not barred by limitation and the same is valid therefore to that extent the CIT(A) is not correct in annulling the order passed u/s 201(1) and 201(1A) of the Act - order u/s 201(1) is to be treated as an order of assessment as per section 2(8) assessment includes reassessment then it becomes manifest that the time-limit for initiating and completing the proceedings under section 201(1) has to be at par with the time-limit available for initiating and completing the reassessment more so when the scope of section 147 also ropes in the cases of assessment apart from reassessment - even though the orders are passed beyond four years from FY 2003-04 and 2004-05 but within six years from the relevant financial year Decided against Assessee. Treatment of discount offered to distributors as commission - TDS not deducted u/s 194H of the Act - Held that - Following Commissioner of Income Tax-XVII Versus Idea Cellular Ltd. 2010 (2) TMI 24 - DELHI HIGH COURT - the nature of service provided by the assessee to the ultimate consumers/subscribers whether it is prepaid or post-paid SIM card remains the same. In the instant case the SIM cards are prepaid which are sold by the assessee to the consumers through the medium of PMAs - even if advance payment is made by the PMA on receipt of the SIM cards qua those SIM cards it does not amount to sale of goods - The purpose is to ensure that the payment is received in respect of those SIM cards which are ultimately sold to the subscribers in as much as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them - This is an antithesis of sale - There cannot be any such obligation to receive back the unsold stocks - Decided against Assessee. Assessee in default u/s 201 of the Act No payment or credit of any sum to the distributors - Held that - Following Commissioner of Income Tax-XVII Versus Idea Cellular Ltd. 2010 (2) TMI 24 - DELHI HIGH COURT - the supplementary commission which is the amount retained by the travel agent is commission within the meaning of s. 194H r/w Expln. (i) to the section - The assessee airlines were thus obliged to deduct tax at source at the rate prescribed during the relevant period - The assessee airlines having not deducted the tax at source they are liable to be held within the terms of s. 201(1) as assessee(s) in default and also liable for payment of interest in terms of s. 201(1A) of the Act. The argument that assessee has not paid or credited the amount does not hold good as there is constructive payment in this regard in the books of accounts Relying upon Surjit Singh Versus Commissioner Of Income-Tax/Wealth-Tax And Another 1986 (3) TMI 48 - PUNJAB AND HARYANA High Court - entries in the books of accounts are not determinative factor and real nature of transaction has to be considered Decided against Assessee. Levy of interest u/s 201(1A) of the Act Held that - Assessee is liable to deduct TDS u/s 194H of the Act thus where the recipients of such income has paid taxes on their income then the interest should be calculated only from the date on which such tax was deductible to the date on which such tax is actually paid by the recipient as advance tax/self-assessment tax or up to filing of return of income thus the AO is directed to work out the interest on the amount which are determined after verification from the date of tax deductible to the date of payment by the recipient following This ground is consequential to the directions of the CIT(A) to examine the tax payments respectfully following the decision of M/s. Hindustan Coca Cola Beverage Pvt. Ltd Versus Commissioner of Income Tax 2007 (8) TMI 12 - SUPREME COURT OF INDIA Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Non-deduction of tax at source on commission payments to distributors.
2. Limitation on orders passed under section 201 after four years.
3. Classification of "discount" as "commission" under section 194H.
4. Mechanism to deduct tax and whether the appellant can be held as 'assessee in default'.
5. Levy of interest under section 201(1A).

Issue-wise Detailed Analysis:

1. Non-deduction of Tax at Source on Commission Payments to Distributors:
The assessee-company, engaged in providing cellular mobile telephone services, was found not deducting tax at source on commission payments made to distributors for prepaid connections. The assessee claimed that these payments were discounts, not commissions, and thus not subject to section 194H of the Income Tax Act, 1961. However, the A.O. determined that these were indeed commissions and raised demands under sections 201(1) and 201(1A).

2. Limitation on Orders Passed Under Section 201 After Four Years:
The assessee argued that orders for A.Ys 2004-05 and 2005-06, passed on 31.12.2009, were beyond the four-year limitation period and thus invalid. The Coordinate Bench, referencing the Mahindra & Mahindra case, ruled that the time limit for passing orders under sections 201(1) and 201(1A) is either four or six years from the end of the relevant A.Y., depending on the amount of income involved. Since the orders were within six years, they were deemed valid.

3. Classification of "Discount" as "Commission" Under Section 194H:
The primary issue was whether the "discount" offered to distributors was actually a "commission." The Delhi High Court in the assessee's own case held that section 194H applies, as the relationship between the assessee and the ultimate consumer creates a legal relationship akin to commission payments. This decision was upheld, confirming that the discount should be treated as commission, making the assessee liable for TDS under section 194H.

4. Mechanism to Deduct Tax and Whether the Appellant Can Be Held as 'Assessee in Default':
The assessee contended that since there was no payment or credit to the distributors, the mechanism to deduct tax fails, and thus, they cannot be held as 'assessee in default.' The argument was countered by the D.R., who explained that the entire transaction, including accounting entries, indicated constructive payment. The Tribunal agreed with the D.R., referencing the Delhi High Court's decision, which considered the entire transaction and accounting treatment, concluding that the assessee was indeed in default for non-deduction of tax.

5. Levy of Interest Under Section 201(1A):
The assessee argued that interest under section 201(1A) should only be calculated from the date the tax was deductible to the date it was paid by the recipient. The Tribunal directed the A.O. to re-calculate the interest based on the actual payment dates by the recipients, following the Supreme Court's decision in the Hindustan Coca-Cola case.

Conclusion:
The Tribunal upheld the A.O.'s findings on the classification of discounts as commissions and the applicability of section 194H, rejecting the assessee's arguments on the mechanism to deduct tax and limitation period. However, it allowed the assessee's request for re-calculating interest under section 201(1A) based on the actual tax payment dates by the recipients. The appeals were partly allowed for statistical purposes.