2015 (6) TMI 521 - AT - Income Tax

Non deduction of TDS on commission payment u/s 194H - assessee sold SIM/recharge cards and top-up cards to the franchisees at a concessional price - CIT(A) concluded that the transaction between the parties is on principal to principal basis and therefore, the concession given to the franchisees cannot be treated as commission, but trade discount - Held that - As per third proviso to S.194H which is inserted by the Finance Act, 2007, no deduction need to be made on any commission or brokerage paid by BSNL to its Public Call Office franchisee, and this proviso was held to be clarificatory in nature in the case of CIT V/s. Bharat Sanchar Nigam Ltd. (2013 (3) TMI 199 - PUNJAB & HARYANA HIGH COURT). Having regard to the circumstances of the case, as noticed that the assessee being public sector undertaking stands on a different footing and the view taken in the case of Idea Cellular (2010 (2) TMI 24 - DELHI HIGH COURT) cannot be applied, since the relationship between the BSNL and the franchisee stands on a different footing and the same was recognised by the CBDT. In fact, the decision of Hon ble Delhi High Court and other High courts, on this point were considered by Hon ble Karnataka High Court in the case Bharti Airtel Ltd. V/s. Dy. CIT and others (2014 (12) TMI 642 - KARNATAKA HIGH COURT) while holding that Section 194H is not applicable . Since no jurisdictional High Court decision is available as on date, the latest decision of Karnataka High Court, which considered and distinguished earlier rulings of other High Courts, deserves to be followed. In fact, the first appellate authority has taken into consideration the circular issued by the corporate office of the BSNL dated 13.12.2007 and another circular dated 15.4.2008 while coming to the conclusion that the nature of the payment made by the assessee to its franchisee is trade discount only. Since the view taken by the learned CIT(A) is mainly based on the factual matrix of the case, the order passed by the learned CIT(A) does not call for any interference. - Decided against revenue.

Summary

Issues:
1. Interpretation of the nature of transactions with franchisees for sale of recharge/top up cards.
2. Determination of whether the discount provided to franchisees is trade discount or commission.
3. Applicability of TDS provisions under Section 194H on the discount provided.
4. Consideration of the circulars issued by the corporate office of BSNL in determining the nature of transactions.
5. Assessment of the relationship between BSNL and franchisees as principal to principal or principal to agent.
6. Evaluation of the method of accounting followed by the assessee in recognizing revenue from the sale of prepaid recharge coupons.

Analysis:
1. The appeal and cross-objection in the case revolved around the nature of transactions with franchisees for selling recharge/top up cards. The Revenue contended that the transactions were not sales of goods, while the assessee argued that the transactions were on a principal to principal basis, with the discount provided considered as trade discount.

2. The main issue was whether the discount given to franchisees should be treated as trade discount or commission. The Revenue argued that it should be considered as commission under Section 194H, while the assessee maintained that it was a trade discount. The CIT(A) concluded that the discount was a trade discount based on the method of accounting followed by the assessee.

3. The applicability of TDS provisions under Section 194H on the discount provided to franchisees was also discussed. The CIT(A) considered the circulars issued by the corporate office of BSNL and the method of accounting followed by the assessee to determine that the discount was indeed a trade discount.

4. The circulars issued by the corporate office of BSNL played a significant role in determining the nature of transactions. The CIT(A) relied on these circulars to support the conclusion that the discount provided to franchisees was a trade discount.

5. The assessment of the relationship between BSNL and franchisees as principal to principal or principal to agent was crucial in determining the nature of the transactions. The CIT(A) concluded that the transactions were on a principal to principal basis, with the discount considered as a trade discount.

6. Lastly, the method of accounting followed by the assessee in recognizing revenue from the sale of prepaid recharge coupons was examined. The CIT(A) found that the assessee had followed a systematic method of accounting as per AS-9, leading to the discount being treated as a trade discount. The appellate tribunal upheld the CIT(A)'s decision, dismissing the appeal filed by the Revenue and the cross-objection filed by the assessee.