2015 (7) TMI 204 - AT - Income Tax

Penalty u/s.271C - non-deduction of tax at source from discount extended to its pre-paid distributors - assessee has moved the Stay Application for stay on realisation of the outstanding demand levied u/s.271C for the A.Yrs. 2007-08 to A.Y. 2012-13 being penalty for failure to deduct tax at source - Held that - It is an admitted fact that the quantum appeals levying interest u/s.201(1) and 201(1A) are pending for disposal before the Tribunal. The Tribunal in assessee s own case for A.Y. 2001-12 and 2012-13 in the quantum proceedings has already granted stay holding that assessee has made out a prima-facie case for grant of stay of outstanding demand. The Pune Bench of the Tribunal in the case of Idea Cellular Ltd. 2015 (7) TMI 191 - ITAT PUNE under identical facts and circumstances has granted stay on realisation of demand raised u/s.271C of the I.T. Act. It is also an admitted fact that different high courts have taken different views on the applicability of provisions of section 194H of the Act to the transactions in question. While Hon ble Karnataka High Court has decided the issue in favour of the assessee the Hon ble Delhi High Court and Hon ble Calcutta High Court have decided the issue against the assessee. The matter is now pending before the Hon ble Supreme Court for adjudication. However, it is also a fact that the Jaipur Bench of the Tribunal in a recent decision in the case of M/s.Bharti Hexacom Ltd. Vs. ITO, TDS-2, Jaipur 2015 (7) TMI 175 - ITAT JAIPUR has decided the issue in favour of the assessee holding that the sale of prepaid products from the company to the distributor is actually a sale of right to service and the provisions of section 194H of the Act do not apply. In the said decision the Tribunal has considered various decisions including the decisions of the Hon ble Kerala High Court, Hon ble Delhi High Court and Hon ble Calcutta High Court who have decided the issue against the assessee. Therefore, we are of the considered view that the Ld. Counsel for the assessee has made out a prima-facie case in its favour so far as the realisation of the outstanding demand is concerned that too in a penalty proceeding. The Hon ble Bombay High Court in the case of UTI Mutual Funds and UTI Trustees Company Pvt. Ltd. (2012 (3) TMI 333 - BOMBAY HIGH COURT ) has held that where a direct prima-facie case has been made out, calling upon the assessee to deposit would itself occasion undue hardship. We therefore allow the stay petitions filed by the assessee and grant stay on realisation of outstanding demand for the A.Yrs. 2007-08 till 2012-13 for a period of 180 days from today or the date of the order of the Tribunal in appeal, whichever is earlier. The request of the assessee for out of turn hearing of the appeals is also accepted and the appeals are fixed for hearing on 16-09-2015. Since the date of hearing is mentioned in this stay order, therefore, this itself will be construed as notice of hearing to both sides. - Decided in favour of assessee.

Summary

Issues Involved:
1. Stay on realization of outstanding demand levied under Section 271C of the Income Tax Act.
2. Applicability of TDS provisions under Section 194H to discounts extended to prepaid distributors.
3. Prima-facie case for stay of demand based on precedents and differing judicial views.

Issue-wise Detailed Analysis:

1. Stay on Realization of Outstanding Demand Levied under Section 271C:
The assessee requested the Tribunal to stay the realization of an outstanding demand of Rs. 27,93,47,377 levied under Section 271C for the financial years 2006-07 to 2011-12. The penalty was imposed due to the non-deduction of tax at source on discounts extended to prepaid distributors. The Tribunal noted that the quantum appeals levying interest under Sections 201(1) and 201(1A) were pending before it. The Tribunal had previously granted a stay in the assessee's own case for the financial years 2010-11 and 2011-12, holding that the assessee had made out a prima-facie case for the stay of the outstanding demand. Consequently, the Tribunal allowed the stay petitions filed by the assessee and granted a stay on the realization of the outstanding demand for a period of 180 days or until the Tribunal's order in the appeal, whichever was earlier.

2. Applicability of TDS Provisions under Section 194H to Discounts Extended to Prepaid Distributors:
The core issue was whether the discounts extended to prepaid distributors should be subject to TDS under Section 194H. The Tribunal observed that different High Courts had taken varying views on this matter. The Karnataka High Court had ruled in favor of the assessee, stating that Section 194H was not applicable to such discounts. In contrast, the Delhi and Calcutta High Courts had decided against the assessee. The Tribunal also considered a recent decision by the Jaipur Bench, which held that the sale of prepaid products was a sale of the right to service, and thus, Section 194H did not apply. Given these differing judicial opinions and the pending adjudication by the Supreme Court, the Tribunal found that the assessee had established a prima-facie case for the stay of the demand.

3. Prima-facie Case for Stay of Demand Based on Precedents and Differing Judicial Views:
The Tribunal referred to several precedents to determine whether a prima-facie case existed for granting a stay. It cited the Karnataka High Court's decision in Vodafone Essar South Ltd., which supported the assessee's position. The Tribunal also referenced the Jaipur Bench's decision in Tata Tele Services Ltd., which relied on the Karnataka High Court's ruling to conclude that there was no TDS liability on discounts extended to prepaid distributors. Additionally, the Tribunal considered the Bombay High Court's decision in UTI Mutual Fund, which emphasized that a strong prima-facie case could justify a stay to prevent undue hardship. Given these precedents and the conflicting judicial opinions, the Tribunal concluded that the assessee had made out a prima-facie case for the stay of the outstanding demand in the penalty proceedings.

Conclusion:
The Tribunal granted the stay on the realization of the outstanding demand of Rs. 27,93,47,377 for the financial years 2007-08 to 2011-12 for a period of 180 days or until the Tribunal's order in the appeal, whichever was earlier. The appeals were also scheduled for an out-of-turn hearing on 16-09-2015. The stay applications filed by the assessee were allowed, recognizing the prima-facie case and the potential undue hardship that could arise from the immediate realization of the demand.