2016 (6) TMI 174 - AT - Income Tax

TDS u/s 194H - discount given to the distributors towards starter kits and recharge vouchers - Held that - As far as sale of starter kit / sim card is concerned, it is purely a purchase / sale transaction on principal to principal basis and there is no relationship of agency. That being the case, the provisions of section 194H are not applicable. Thus provisions of section 194H is not attracted on the discount given on sale of pre paid starter kit. Thus we set aside the impugned order of the learned Commissioner (Appeals) and quash the demand raised by the Assessing Officer under sections 201(1) and 201(1A). See Bharti Airtel Ltd. & Ors v/s DCIT 2014 (12) TMI 642 - KARNATAKA HIGH COURT - Decided in favour of assessee. TDS u/s 194J - payments made towards roaming service provided by other telecom service providers - Held that - In the present case, undisputedly, the Assessing Officer has not obtained any report from the technical expert to ascertain the fact whether there is any human intervention in providing cellular services. It is patent and obvious that the Assessing Officer has relied upon the technical report obtained in case of Vodafone Essar Mobile Services Ltd. Roaming / inter connectivity services are rendered automatically without any human intervention. It is evident from the order passed under sections 201(1) and 201(1A), that the Assessing Officer relying upon the technical report obtained in case of Vodafone Essar 2015 (9) TMI 1358 - ITAT KOLKATA . Thus we hold that the roaming / inter connectivity charges paid by the assessee to other telecom networks not being in the nature of fees for technical services will not attract the provisions of section 194J as there is no human intervention in providing the roaming services. That being the case, assessee was not required to deduct tax at source on payment of roaming charges in terms of section 194J. In view of the aforesaid, we quash the demand raised under sections 201(1) and 201(1A). - Decided in favour of assessee.

Issues Involved:
1. Demand raised under section 201(1) and 201(1A) of the Income Tax Act, 1961, for alleged failure to deduct tax at source under section 194H.
2. Demand raised under section 201(1) and 201(1A) for alleged failure to deduct tax at source under section 194J.

Issue-wise Detailed Analysis:

1. Demand Raised Under Section 201(1) and 201(1A) for Alleged Failure to Deduct Tax at Source Under Section 194H:

The common issue in all the appeals pertains to the demand raised against the assessee under section 201(1) and 201(1A) of the Income Tax Act, 1961, due to the alleged failure of the assessee to deduct tax at source under section 194H in respect of discount given to the distributors towards starter kits and recharge vouchers. The survey conducted under section 133A revealed that the assessee had not deducted tax at source on the discount allowed to distributors, which the Assessing Officer (AO) treated as commission liable for TDS under section 194H.

The AO observed that the assessee delivered products to distributors at a specified margin, treating the difference between the invoice price and the sale price as a discount in the books of account. The AO concluded that the discount allowed was essentially commission, thus attracting TDS provisions under section 194H. The assessee contended that the relationship with distributors was on a principal-to-principal basis, not an agency relationship, and hence, section 194H was not applicable. The Commissioner (Appeals) upheld the AO's order, relying on a similar decision by the Tribunal, Bangalore Bench.

However, the Tribunal noted that the Hon'ble Karnataka High Court had reversed the Tribunal's decision, holding that section 194H was not attracted to the discount allowed by the assessee to the distributors on MRP of pre-paid sim cards. The Tribunal found that the sale of starter kits and sim cards was a purchase/sale transaction on a principal-to-principal basis, with no agency relationship, and thus, section 194H was not applicable. Consequently, the Tribunal set aside the orders of the AO and the Commissioner (Appeals), quashing the demand raised under sections 201(1) and 201(1A).

2. Demand Raised Under Section 201(1) and 201(1A) for Alleged Failure to Deduct Tax at Source Under Section 194J:

In addition to the issue under section 194H, the appeals for assessment years 2010-11, 2011-12, and 2012-13 involved the issue of non-deduction of tax at source under section 194J on payments made towards roaming services provided by other telecom service providers. The AO found that the assessee paid roaming charges to other operators without deducting TDS, treating these charges as fees for technical services under section 194J.

The assessee argued that the roaming services were standard automated services without human intervention, and thus, section 194J was not applicable. The AO, relying on a technical report obtained in another case (Vodafone Essar Mobile Services Ltd.) and the Supreme Court's direction in Bharti Airtel Ltd., concluded that there was human intervention, attracting section 194J. The Commissioner (Appeals) upheld the AO's order.

The Tribunal observed that the AO had not obtained a technical report specific to the assessee's case and had not allowed the assessee to cross-examine the technical expert. The Tribunal referred to the ITAT, Kolkata Bench's decision in Vodafone East Ltd., which, after analyzing the technical report, held that roaming services did not involve human intervention and thus, were not fees for technical services under section 194J. Following this precedent, the Tribunal held that the roaming charges paid by the assessee did not attract section 194J, and quashed the demand raised under sections 201(1) and 201(1A).

Conclusion:

The Tribunal allowed all the appeals, setting aside the orders of the AO and the Commissioner (Appeals), and quashed the demands raised under sections 201(1) and 201(1A) for both issues, i.e., non-deduction of tax at source under sections 194H and 194J.

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