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TMI Blog2012 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... proper understanding of the technical details concerning the functioning of Home circle cellular operators and Outside circle operators. From the arguments of the Ld A.R, we understand that the case of the assessee is that the Home circle cellular operator does not actually provide airtime usage facility to the subscriber, once he moves out of the Home circle to an outside circle. The airtime usage in those Outside circles is actually provided by the operators of concerned outside circles. With regard to the billing, the understanding between the cellular operators is that the charges for the usage in Outside circles shall also be collected by the Home circle cellular operator, who in turn, shall pass it on to the concerned outside circle operator. - matter remanded for reconsideration. - ITA No.889 and 890/Ahd/2010, ITA No.1340/Ahd/2011 - - - Dated:- 25-1-2012 - G C Gupta, B R Baskaran, JJ. For Appellant: Shri Anil Bhalla For Respondent: Shri Kartar Singh, CIT-DR ORDER Per: B R Baskaran: The assessee, having been aggrieved by the orders passed by Ld CIT(A)-VI, Ahmedabad in confirming the demands raised u/s 201(1) and 201(1A) of the Act by the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The purchasers of the said cards can avail the airtime usage facility only to the extent of value embedded there in. For example, a prepaid card having a face value of Rs.100/-, may have the usage value of Rs.100/- or less/more than the said amount. The subscriber of the prepaid card can use it to the extent of usage value of Rs.100/- or less/more as embedded therein. The assessee has appointed distributors for marketing its products, i.e. both "Post paid connection" and "Prepaid Cards". In respect of Post paid connections, the assessee pays commission to its distributors, on which the tax is deducted at source u/s 194H of the Act. According to A.R, the "Prepaid cards" have definite face value and they are sold to the distributors at a price, which is lesser than the face value. The distributor shall, in turn, sell the said Prepaid cards with a margin, but in any case not more than the face value. For example, a prepaid card of Rs.100/- may be sold by the company to the distributor at Rs.97/- and the distributor may sell it at a price between Rs.97 to Rs.100/-. 4. Now the issue under consideration is whether the difference between the face value of prepaid card and the selling pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the expenses incurred towards issuing of "Free Prepaid cards" and cash incentives under A/C codes 4563001 and 4563002 related to "Sales incentives" and "Commission". 7. Before AO, the assessee relied upon the following case law to contend that the provisions of sec. 194H shall not apply to sale of "Prepaid cards". (a) Ahmedabad Stamp Vendors Association (257 ITR 202 (Guj.)) (b) M.S.Hammed (249 ITR 186 (Ker)) (c) Idea Cellular Ltd., Delhi Tribunal "A" Bench. The AO distinguished the decision of jurisdictional Gujarat High Court s decision in the case of Ahmedabad Stamp Vendors Association with the following observations:- " . In the case of Ahmedabad Stamp Vendors Association, 257 ITR 202 (Guj), it has been held that this is a sale of stamps by Govt. to stamp vendor and sec. 5 of Sch. 1 specifically exempt sale of stamp papers from levy of any tax including sales tax. It has been discussed by Hon ble Gujarat High Court that the doubt is cleared by reference to entry 84 in schedule 1 to the Gujarat Sales tax Act, 1969. If these licensed stamp vendors were agents of the State of Gujarat, no sales tax would have been leviable when the stamp vendors sell the stamp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bharti Cellular Ltd reported in 294 ITR (AT) 283 (Kol) . It was submitted that M/s Bharti Cellular Ltd, is a sister concern of the assessee herein. 8. The assessee carried the matters in appeals before Ld CIT(A) but could not succeed. Hence the assessee has preferred these appeals before us challenging the orders of Ld CIT(A). 9. Before us, the Ld A.R advanced detailed arguments on this issue and also filed written submissions. For the sake of convenience, we extract below the said written submissions filed by the Ld A.R. 2.1 The issue revolves around the question as to whether the assessee company is in a relationship of Principal to Principal with its Distributor of "prepaid products" sold to such Distributor. The provisions of Section 194H of the Act do not apply to situation. 2.2 Though this issue has been decided in favour of Revenue by different courts, even though some of the Tribunals have decided in favour of the assessee and there is no decision of the High Court in that matter, yet because of the decision of the jurisdictional High Court in the case of Ahmedabad Stamp Vendors Association vs. Union Bank of India (2002) 257 ITR 202 (Guj), (PB 129-140) , this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence between the two is getting blurred with globalization and cross-border transaction. Today with technological advancement one has to change our thinking regarding concepts like goods, merchandise and articles. In the case of B Suresh, the assessee had bought rights of various decoders and had recorded movies on beta-cam tapes which were transferred as telecasting rights to Star TV for five years (it has a limited life). Hence, such "rights " would certainly fall in the category of articles of trade and commerce, hence, merchandise." 3.2.7 It is therefore clear that the concept of goods has undergone a change and in this context the "Right to use Airtime" and the "promise to provide airtime" is a product capable of being transferred from service provider to the distributor from the distributor to the retailer and from the retailer to the customer. The Hon ble Supreme Court has held that "Right" would be classified as merchandise. 3.2.8 IT is of no consequence that the service to be provided which is captured in the start up pack is to be delivered at a later stage. Important fact situation to determine the relationship of Principal to Principal 3.2.9 The AO stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime" is not a product in the conventional sense, but it is a product or merchandise in view of the technological development. This trade transaction creates a relationship of "Principal to Principal". 5. Decision of CIT(A). CIT(A) on page 68 has given his findings: 1) Because the services are provided by the telecom service provider and can never be provided by the distributor, therefore property of appellant does not pass. 2) There will be no sale of property of appellant 3) 3) Access to network is always the property of the appellant. 4) 4) The condition imposed by the company regarding regulations, restrictions i.e. distributorship, geographical area operations etc., indicates that there is a relationship of principal to agent as the distributor cannot be independent Principal. 5) 5) The ownership of SIM card is always with the company 6) 6) Services cannot be sold but it can only be provided 5.1 Submissions in respect of CIT(A) s findings 1) As explained the product is a "promise to provide service" on the part of the service provider and captures therein "right to use airtime:" and this is merchandise arising out of advancement of technology, transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o principal between two independent business entities. 6.1.3 Technological advancement is resulting in complexities in the taxing regime, as to determine whether a transferred product in the form of a "Right" is exigible to indirect tax or not. This is always going to be a vexed issue. In fact taxability of commerce through I.T. is keeping the lights burning all over the world. 6.1.4 Ahmedabad High Court decision in 257 ITR 202 applies for the reasons explained. 6.1.5 Unlike the Delhi High Court 325 ITR 148 where it was noted at page 165 that stock was to be returned back on termination of arrangement, it is not so in the case of the appellant Agreement at PB page 39 (55) 6.2 Vodafone Essar Cellular Limited vs. Asstt. Commissioner of Income Tax 332 ITR 255 (Ker) 6.2.1 The prime reason in this judgment was the fact that the Keral High Court had in the case of BPL Mobile Cellular. Limited rendered a judgment in a sales tax case wherein it was held that there is no sales tax liability on sale of SIM cards and recharge coupons sold through the distributors and it does not involve sale of goods. In such case it has been held that there cannot be a principal to princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal. 6.3.4 The decision of the jurisdictional High Court in the case of Ahmedabad Stamp Vendors has been thrust aside without detailed discussions on the principles in the said judgment. 6.4 Proposition 12) Precedent High Court Tribunal not bound by decision of Courts other than jurisdictional High Court. Mahaindra and Mahaindra Ltd. (2009) 313 ITR (AT) 263 (Mum) (SB) At page 308 In such a situation to argue that a particular High Court judgment of the non-jurisdictional High Court is binding on the Tribunal is not acceptable. The hon ble Bombay High Court in Thana Electricity Supply Limited [1994] 206 ITR 727 has discussed the binding nature of the judicial precedents. The position has been summarized in paragraph 17 of the case by laying down that the law declared by the Supreme Court is binding on all the courts in that the law declared by the Sc is binding on all the courts in India. The decision of the High Court is binding on the subordinate courts and the authorities or the Tribunal s under its superintendence throughout the territories in relation to which it exercise its jurisdiction. It has further been held that the decision of the High Court does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the hon ble Supreme Court or the jurisdictional High Court are binding on the Tribunal. The judgments of the other hon ble High Courts though have persuasive value, but cannot have a binding force. 7. Double collection of tax (*This is alternative contention of the assessee, which the bench have dealt infra) 7.1 The assessee-company had raised a ground without prejudice that the tax considered to be in default has already been paid by the distributor and it cannot be collected again from the assessee company. 7.2 This proposition is based on the decision of the Ho ble Supreme Court in Hindustan Coco-cola Beverage Pvt. Ltd. 293 ITR 226 (PB page 268 to 270) wherein it was held that tax could not be recovered once again from the assessee once the tax has been paid by the deductee. The company had filed certification of 4 distributors (PB page 63 to 71) and Permanent Account Number of all the deductees (PB page 116 to 126) and copy of account of distributors (PB page 72 to 115) 7.3 The decision of the Mumbai Tribunal in the case of Vodafone Essar Limited 9 ITR (Trib) 182 at page 216 (PB page 324 dto 348 at page 348) is referred for the proposition that where the Perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h (313 ITR 149) , wherein the Hon ble Apex court held that the transferring of telecast right of films recorded on beta-cam tapes would fall in the category of articles of trade and commerce and hence a "merchandise" for the purpose of sec. 80HHC of the Act. The Ld A.R further submitted that the Hon ble Delhi High Court in the case of Idea Cellular Ltd (325 ITR 148) did not consider the decision of Hon ble Supreme Court rendered in the case of B. Suresh, supra. He further submitted that in the case of Idea Cellular Ltd, the prepaid card stock had to be returned back on termination of agreement, while it is not so in the assessee s case. 12. The Learned A.R drew our attention to the decision rendered by Hon'ble Supreme Court in the case of Tata Consultancy Services Vs. State of A.P. reported in (2004) (271 ITR 401) , in which it has been held that the definition of "Goods" given in a Sales tax Act can not be taken as the ultimate guide to decide whether a particular item falls under the category of "Goods" or not. It is pertinent to note that the said decision was rendered by Hon ble Apex Court under A.P. General Sales Tax Act. In that case, M/s. Tata Consultancy Services dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgement must be read as a whole and the observations from the judgement have to be considered in the light of the questions which were before this court. A decision of this court takes its colour form the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgement, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Schindia Bahadur Vs. Union of India (1971) 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC): "It is not proper to regard a word, a clause or a sentence occurring in a judgement of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgement." 14. The decision rendered by the Hon ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of Home circle pays to the cellular operator of the outside circle a charge called "Roaming charges". The said roaming charge is paid to the operator of an outside circle for providing services (air time services) to its subscribers. 17. Now the issue before us is whether payment of "Roaming charges" would fall in the category of "Technical services" within the ambit of sec. 194J of the Act. Both the tax authorities have held that the said payments fall in the category of technical services. 18. The Ld A.R submitted that the provisions of sec. 194J shall apply only if the technical services are provided with human intervention. He submitted that there is no human intervention in providing roaming services to the subscribers. He further submitted that the revenue has wrongly understood the modalities of providing roaming facilities to the subscribers. The revenue is under the impression that the cellular operators of outside circles are providing technical services to the assessee company. However, the fact is that the said cellular operators are providing services (air time usage) directly to the subscribers, which is in accordance with the agreement/arrangement entered bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the home network of Airtel subscriber in Ahmedabad. - Home network then forwards all incoming calls to the temporary phone number which terminated at the device of roaming subscriber (in Mumbai) who is now using the services of the visiting network (i.e. Vodafone): - The entire process above is automatic and does not involve any human intervention at any stage. Billing process - Usage of roaming subscriber in visited network is captured in a file called TAP, i.e. transferred account procedure for GSM/CIBER i.e. cellular inter-carrier billing exchange record for. - TAP file contains details of calls made by subscriber, viz., location, calling party, time of call and duration etc. - TAP/CIBER files are rated as per tariffs charged by visiting network operator. - Such TAP/QBER file is transferred to home network of subscriber (i.e. to Airtel). - Home network (i.e. Airtel) then bills these calls to the Airtel subscriber and pays roaming charges based on the TAP to the visited network operator (i.e. Vodafone). The roaming operator charges as per the roaming agreement with Airtel, whereas the subscriber is billed as per the tariff subscribed. - The entire process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries" Unquote 3.1 A perusal of the roaming transaction process would should that the entire roaming is automatic and there is no delivery of this service by any human. 3.2 A perusal of the provisions of section 194J read with explanation (2) to Section (1) (vii) brings out very clearly that for a service to be categorized as technical service there has to b involvement of human being or in other words there has to be human interface. 3.3 It has already been explained by the Revenue that the entire process is dependent upon a (IMSI) unique number of home subscriber. He automatically becomes a subscriber of the visiting network and thereafter makes a call which is recorded in the temporary register of the visiting network which record is sent automatically to the home network which recovers the charges from the roaming subscriber at a specified rate based upon the airtime used by the visiting subscriber. It is exactly similar to calls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation made by the Hon ble High Court. Technical Fees 3.8 The concept of technical fees as laid down u/s.194-J read with Section 9(1)(vii) has been analysed and the basic understanding is that there has to be a human interface at the time of delivery of service in view of the principles of "noscitur a socks" in view of the language used in Section 9(1)(vii) Explanation 2. This proposition is found favour with various Tribunals including Authorized Representative namely Millennium Technologies 117 ITD 114 (Del), HFCL Infotel Limited-99 TTJ (Chd.) 440 , Infosys 45 SOT 157 (Banglore) , Pacific Internet 318 ITR AT 179 (Mum) , Cable Wireless 315 ITR 72 AAR, Dell 218 CTR 209 AAR, various High Courts namely Bharti Cellular Limited PB 295- 302 and of course by Madras High Court in Skycel Communications Ltd- 251 ITR 53 . The reference to the Calcutta Tribunal decision in Hutchison is misplaced and not in consonance with the decision of the High Court. Just because a service is technology based, it does not convert such service into technical fees. There is a direct observation on this proposition by the Madras High Court and Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is in fact a payment on behalf of the subscriber of the appellant who had temporarily become a subscriber of another service provider. This matter is squarely covered by the decision of Skycell (supra). Without prejudice even if this is considered as payment by the company on its own right, the judgment in the case of Skycell (supra) will still apply. The regulations in the transaction and the substance of the transaction prove clearly that the said transaction is not liable to TDS u/s.194J of the Act. The action of the AO is uncalled for. The demand of Rs.1,01,25,095/- u/s. 201(1) and Rs.14,91,969/- u/s 201(1A) has to be canceled. 19. We have heard the rival contentions on this issue and carefully perused the record. In our view, this issue could be resolved if there is proper understanding of the technical details concerning the functioning of Home circle cellular operators and Outside circle operators. From the arguments of the Ld A.R, we understand that the case of the assessee is that the Home circle cellular operator does not actually provide airtime usage facility to the subscriber, once he moves out of the Home circle to an outside circle. The airtime usage in thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 293 ITR 226 . The arguments of the assessee on this alternate plea are available in para-7.2 and 7.3 of the written submissions relating to the applicability of Section 194H and also in para-4 of the written submissions relating to the applicability of section 194J. Both the written submissions have been extracted by us supra. In addition to the case law and arguments stated in the written submissions cited above, the learned AR also relied on the decision of the Hon ble Supreme Court in the case of CIT Vs. Eli Lilly Co. (India) P. Ltd., 312 ITR 225 (SC) in this regard. In our view, this issue needs reconsideration at the end of the AO since the claim of the assessee, that the deductees have already paid the tax due from them on the impugned income, needs to be verified. Though the Ld CIT(A) did not dispose of this alternative plea, we deem it fit to set aside this issue to the file of the AO. Accordingly, we set the same to his file with a direction to examine the claim of the assessee in the light of various case laws relied upon by him and take appropriate action in accordance with law. 24. Needless to mention that the assessee should be given proper opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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