2018 (6) TMI 158 - AT - Income Tax

TDS u/s 194H - Default u/s 201(1) - non deduction of TDS on discount coupons - whether there is commission element embedded or not in sale of prepaid SIM cards /prepaid vouchers/recharge coupons? - Held that - Following the judgement of High Court in BHARTI CELLULAR LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-57 KOLKATA 2011 (5) TMI 590 - CALCUTTA HIGH COURT all the relevant issues involved herein including that of principle to principle relationship stands adjudicated in hon ble jurisdictional high court against the assessee Whether the roaming charges liable for TDS deduction u/s. 194J being in the nature of royalty? - Held that - mere use of an equipment not in assessee; s control without any right vested in it for using standard services does not amount to royalty - the amendment u/s 9(1)(vi) cannot be held applicable retrospectively as per doctrine of impossible compliance. See Asia Satellite Telecommunications Co. Ltd vs. DIT 2011 (1) TMI 47 - DELHI HIGH COURT - - Decided against revenue

Summary

Issues Involved:
1. Default under Section 201(1) and 201(1A) of the Income Tax Act for non-deduction of TDS on discount coupons.
2. Applicability of TDS on roaming charges under Section 194J.
3. Short deduction of tax on payments for subscriber acquisition service charges.

Issue-wise Detailed Analysis:

1. Default under Section 201(1) and 201(1A) of the Income Tax Act for non-deduction of TDS on discount coupons:

The taxpayer, a cellular service provider, issued recharge vouchers to its distributors without deducting TDS. The Assessing Officer (AO) treated the taxpayer as an assessee in default under Sections 201(1) and 201(1A) for not deducting TDS on the discount sums. The taxpayer argued that the differential amount did not represent commission eligible for TDS deduction and that SIM cards had no intrinsic value. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, referencing High Court rulings in Vodafone Essar Cellular and Bharati Cellular Ltd., which defined the relationship between the taxpayer and distributors as principal-agent, making the discounts subject to TDS under Section 194H. The CIT(A) directed the AO to verify if the distributors paid taxes on the commissions and adjust the taxpayer's liability accordingly. The Tribunal found no merit in the taxpayer's arguments, citing the jurisdictional High Court's decision in Bharti Cellular Ltd. and upheld the demand under Sections 201(1) and 201(1A).

2. Applicability of TDS on roaming charges under Section 194J:

The AO treated the taxpayer as an assessee in default for not deducting TDS on roaming charges, considering them as royalty payments under Section 9(1)(vi) Explanation 6. The CIT(A) reversed this decision, stating that roaming charges were payments for standard facilities without human intervention, thus not constituting fees for technical services or royalty. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's judgment in Asia Satellite Telecommunications Co. Ltd. and the Bombay High Court's ruling in N.G.C. Network Pvt. Ltd., which held that the retrospective amendment to Section 9(1)(vi) could not be applied.

3. Short deduction of tax on payments for subscriber acquisition service charges:

The taxpayer challenged the AO's action of treating it as an assessee in default for short deduction of tax amounting to ?27,949 on payments for subscriber acquisition service charges. The taxpayer's representative clarified that the AO had issued a rectification order addressing this issue. Consequently, the Tribunal declined the taxpayer's ground on this matter.

Conclusion:

The Tribunal dismissed both the taxpayer's appeals and the Revenue's cross-appeals, upholding the CIT(A)'s decisions on the issues of TDS on discount coupons and roaming charges, while noting the rectification of short deduction of tax on subscriber acquisition service charges. The order was pronounced on 31/05/2018.