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2015 (7) TMI 175 - AT - Income TaxNon-deduction of tax u/s 194H - transaction of prepaid card sold to distributor and price at which the end customer buys alleging the difference to be payment of commission - Held that - Recently this Bench has decided similar issue in the case of Tata Tele Services, 2015 (3) TMI 1023 - ITAT JAIPUR which is identical to the assessee s case. The facts of the case has been demonstrated by the AR that the assessee was issuing bill on net amount on MRP has been fixed on prepaid card sold. The assessee has not transferred any income to the distributor but the distributor was allowed to avail the airtime to the extent of MRP price. In books of account, the assessee had credited these receipts on net basis. - Decided in favour of assessee. Addition U/s 194J - non deducting TDS on roaming charges paid by the assessee being a fee for technical services - Held that - For installation/setting up/repairing/servicing/maintenance capacity augmentation are require human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also signifies charges for connecting two entities. The Coordinate Bench also considered in i-GATE Computer System Ltd. 2015 (1) TMI 236 - ITAT PUNE the Hon ble Supreme Court decision in the case of Bharti Cellular Ltd. 2010 (8) TMI 332 - Supreme Court of India and held that Data Link transfer does not require any human intervention and charges received or paid on account of this is not fees for technical services as envisaged in Section 194J read with Section 9(1)(vii) read with Explanation-2 of the Act. In case before us, the assessee has paid roaming charges i.e. IUC charges to various operators at ₹ 10,18,92,350/-. Respectfully following above judicial precedents, we hold that these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee s appeal is allowed on this ground also.- Decided in favour of assessee.
Issues:
1. Applicability of Section 194H to the transaction of telephony conducted through prepaid vouchers. 2. Applicability of Section 194J to the transactions of roaming charges. 3. Charging of interest under Section 201(1A) of the Income Tax Act. Analysis: Issue 1: Applicability of Section 194H to Prepaid Vouchers The primary issue was whether the relationship between the appellant company and its distributors was that of principal to agent or principal to principal. The Assessing Officer (AO) determined that the appellant was liable to deduct tax at source under Section 194H on the difference between the price at which prepaid cards were sold to distributors and the price at which they were sold to end customers, treating this difference as commission. The AO noted that the appellant provided cellular mobile telephone services and marketed its products through distributors. Distributors purchased SIM cards and prepaid cards at a fixed rate below the market price and sold them to retailers, who then sold them to customers. The AO concluded that there was a principal-agent relationship between the appellant and its distributors, necessitating TDS on the commission paid to distributors. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, referencing decisions from the ITAT Cochin Bench and the Delhi High Court, which held that discounts offered to distributors were commissions subject to TDS under Section 194H. The appellant argued that the relationship was principal to principal, with prepaid products sold outright to distributors at a discounted price. The appellant cited various judicial precedents, including the Gujarat High Court's decision in the case of Ahmadabad Stamp Vendors and the Supreme Court's decision in B. Suresh, to support its position. The appellant also referenced the Karnataka High Court's decision in Bharti Airtel Limited, which favored the appellant's view. The ITAT, upon reviewing the arguments and precedents, followed its own decision in the case of Tata Tele Services, holding that the relationship between the appellant and its distributors was principal to principal. Consequently, the provisions of Section 194H did not apply, and the appeal was allowed on this ground. Issue 2: Applicability of Section 194J to Roaming Charges The second issue was whether roaming charges paid to other mobile operators constituted fees for technical services under Section 194J, requiring TDS deduction. The AO argued that roaming services involved technical services, as they required sophisticated equipment and skilled professionals to manage the network. The appellant contended that roaming services were automatic and did not involve human intervention. The appellant cited the Delhi High Court's decision in Bharti Cellular Ltd., which held that roaming services did not constitute technical services under Section 194J. The appellant also referenced the Madras High Court's decision in Skycell Communications Ltd., which held that providing cellular mobile telephone facilities did not amount to technical services. The ITAT considered the technical aspects of roaming services, including the automatic nature of the process and the lack of human intervention. The ITAT also reviewed the Supreme Court's remand in Bharti Cellular Ltd., which required technical examination to determine the nature of the services. Based on the technical expert's testimony and various judicial precedents, the ITAT concluded that roaming charges did not constitute fees for technical services under Section 194J. Therefore, the appeal was allowed on this ground. Issue 3: Charging of Interest under Section 201(1A) The AO had charged interest under Section 201(1A) for non-deduction of tax at source on both prepaid vouchers and roaming charges. Since the ITAT held that Sections 194H and 194J did not apply to these transactions, the interest charged under Section 201(1A) was also not applicable. Consequently, the appeal was allowed on this ground as well. Conclusion: The ITAT allowed the appeal on all grounds, holding that: 1. The relationship between the appellant and its distributors was principal to principal, and Section 194H did not apply. 2. Roaming charges did not constitute fees for technical services under Section 194J. 3. Interest under Section 201(1A) was not applicable due to the non-applicability of Sections 194H and 194J.
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