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2016 (5) TMI 34 - AT - Income TaxTDS u/s 194H and 194J - non-deduction of TDS on commission expenses - free talk-time was being given as a discount or margin to the distributors on the retail price of prepaid products - Held that - The provisions contained in Chapter XVIIB have to be given effect to while quantifying the liability of an assessee. The computation of income cannot be effected without having recourse to section 40(a)(ia) and consequently to provisions of chapter XVII-B. Section 40(a)(ia) comes into play when any interest commissions or brokerage etc. payable to a resident on which tax was deductible at source under Chapter XVIIB and such tax has not been deducted or after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 then such payments will not be allowed as deduction. Admittedly as regards discount allowed to distributors in respect of prepaid cards the Gauhati Bench of the ITAT as well as Jaipur Bench of ITAT in assessee s own case for AY 2008-09 have clearly held that the said provisions of section 194H are not applicable Therefore it follows that there should be sum paid by assessee on which tax was deductible at source under Chapter XVIIB before 40(a)(ia) could come into play. Admittedly in the case of assessee it has been held that the provisions of section 194H as well as provisions of section 194J are not attracted and therefore there was no amount on which tax was deductible. Therefore section 40(a)(ia) cannot come into play. The machinery provisions cannot operate independently and before the computation provisions contained in section 40(a)(ia) can come into the play the effect of applicability of machinery provision has to be considered. Keeping in view the integrated scheme of the Act we are of the opinion that Non-deduction of tax under Chapter XVIIB leads to consequences contemplated u/s 201 and therefore Section 40(a)(ia) and provisions contained in chapter XVII-B constitute an integrated code and accordingly effect has to be given to the decisions of Tribunal s Guwhati and Jaipur Benches which will operate as res-judicata. In any view of the matter the view beneficial to the assessee is to be taken. - Decided in favour of assessee Addition on account of amortization of license fee and spectrum charges U/S 35ABB - Held that - As decided by Hon ble Delhi High Court in assessee s own case the expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable upto 31 5t July 1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 15t August 1999 should be treated as revenue expenditure. Capital expenditure will qualify for deduction as per Section 35ABB of the Act Addition on account of lease rent paid to IBM - revenue or capital in nature - whether merely because assessee in its books of a/c had given some treatment to the transaction has to be taken as sacrosanct or the substance of the transaction is to be considered - Held that - There cannot be any quarrel with the proposition that the substance of the transaction has to be taken into consideration and merely because in books of a/c the assessee had complied with the requirement of AS 19 and accordingly charged depreciation on the asset treating the whole transaction as capital in nature could not disentitle the assessee to claim the expenditure in computation of income on the basis of true nature of the transaction. It is well settled law that a particular mode of recording a transaction in books of a/c is of little consequence and the substance of the transaction has to be considered to arrive at proper conclusion. CIT(DR) has very rightly submitted that substance of the transaction has to be considered. His main plank of argument is that the assets are identified in terms of identity as well as sequence. Certain clause of the agreement also states that these assets could be handed over to the assessee upon exit of IBM. With reference to these two aspects ld. CIT(DR) submits that the assessee was the beneficial owner of these assets and the IBM was only titular owner. His contention is that these being movable properties such titular ownership does not entitle the owner to any benefit or right except principal security against finance lease charges. Had the ownership rights been effectively transferred to assessee it would have taken all necessary steps to protect the assets from all risks. However the agreement clearly lays liability on IBM on this count. Therefore the substance of the transaction clearly suggests that the beneficial ownership remained with IBM and not with assessee and therefore the assessee had rightly claimed the entire lease rent paid by it to IBM.
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194H on free airtime to distributors. 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194J on roaming charges. 3. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194J on charges paid to international telecom operators. 4. Levy of interest under Section 234B of the Act. 5. Amortization of license fee and spectrum charges under Section 35ABB. 6. Lease rental paid to IBM. Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194H on free airtime to distributors: The assessee provided free airtime to distributors, which the AO treated as commission expenses requiring TDS deduction under Section 194H. The AO relied on the Delhi High Court decision in CIT Vs. Idea Cellular Ltd., which held the relationship between telecom service providers and distributors as principal-agent, thus attracting TDS on commissions. The CIT(A) upheld this view. However, the ITAT Jaipur Bench in the assessee's own case for AY 2009-10 held that the relationship was principal-to-principal, and thus Section 194H was not applicable. The Tribunal followed its own precedent and existing ITAT decisions, ruling in favor of the assessee, thus allowing the appeal on this ground. 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194J on roaming charges: The AO disallowed roaming charges paid to other service providers, treating them as fees for technical services under Section 194J. The CIT(A) upheld the AO's view. However, the ITAT Jaipur Bench in the assessee's own case for AY 2008-09 held that roaming charges do not constitute fees for technical services under Section 194J. The Tribunal, following its own precedent and in the absence of any contrary High Court decision, ruled in favor of the assessee, allowing the appeal on this ground. 3. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194J on charges paid to international telecom operators: The AO treated payments to international telecom operators for call termination as fees for technical services under Section 194J, which the CIT(A) upheld. However, similar to roaming charges, the ITAT Jaipur Bench had ruled that such charges do not attract Section 194J. The Tribunal followed its precedent, ruling in favor of the assessee and allowing the appeal on this ground. 4. Levy of interest under Section 234B of the Act: The assessee contested the levy of interest under Section 234B, but specific details and the Tribunal's decision on this issue are not elaborated in the provided text. The outcome on this issue would follow the rulings on the primary grounds of appeal. 5. Amortization of license fee and spectrum charges under Section 35ABB: The AO disallowed the entire license fee and spectrum charges, treating them as capital expenditure to be amortized under Section 35ABB. The CIT(A) allowed the assessee's claim as revenue expenditure, following the ITAT's decision in the assessee's own case for earlier years. The Tribunal, referencing the Delhi High Court's decision, ruled that license fees paid after 1st August 1999 should be treated as revenue expenditure. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground. 6. Lease rental paid to IBM: The AO treated the lease rental paid to IBM as a financial lease, allowing only depreciation and professional charges while disallowing the lease rental. The CIT(A) deleted the disallowance, treating the entire amount as lease rent. The Tribunal examined the substance of the transaction, noting that IBM retained ownership rights and responsibilities such as maintenance and insurance of the assets, indicating that it was not a finance lease. The Tribunal ruled in favor of the assessee, dismissing the revenue's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeals on all grounds, ruling that the disallowances under Section 40(a)(ia) were not applicable due to the nature of the transactions and existing precedents. The Tribunal also upheld the CIT(A)'s decisions on the amortization of license fees and the lease rental paid to IBM, dismissing the revenue's appeal.
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