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TMI Blog2014 (6) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ontributes more than 95% of business and only dispute is with regard to Recharge of coupons and Top-ups. The BSNL does not recoup the loss to the assessee, which is clearly mentioned - The assessee has sold the Recharge coupons to the Sub-Distributors so that they also earn some margin of profit and such Recharge coupons once sold become the property of the said Sub- Distributor and such Sub-Distributor is free to sell the same at a price as he deems fit though the maximum price has been fixed by the BSNL with regard to the market condition - there shall not be any partnership, joint venture, employment or relationship of principal and agent between parties. The assessee is not a service provider, as he purchased recharge coupons from the service provider i.e. BSNL and not provides any service to the subscribers - The assessee simply sells recharges to the sub-distributors, which is on principal to principal basis and there is no relationship of principal and agent - there is no written agreement with the sub-distributors - The sale bills are issued to the sub-distributors and copies were produced - The books of account are audited and transactions has been shown as sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case the assessee was a trader and transactions were on principal to principal basis and no commission was paid and therefore provisions of TDS were not applicable. 3. That the Ld. CIT(A) has failed to appreciate that the computation made by the AO was not correct and revised computation by the assessee has not been considered by the ld. CIT(A). 4. That the Ld. CIT(A) has failed to appreciate where tax has been paid by the payee then there is no liability for the payer for the same. Benefit for amounts paid by the payee has not been allowed in all the cases. 5. Except for rejecting the explanation of the assessee, the orders are of non-speaking. It is, therefore, prayed that it be held that both the initiation of proceedings and the levy of tax and interest u/s 201(1) and 201(1A) of the Act, deserves to be vacated. 6. The assessee craves leave to add or amend the grounds of appeal. 2. In ITA No.609(Asr)/2013 for the A.Y. 2009-10, the assessee has raised following grounds of appeal: 1. That the Ld. CIT(A), Jammu has grossly erred both on fact and in law in confirming the orders of assessing officer in treating the assessee in default under section 201(1) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accounted for in a consolidated Trading, Profit Loss Account. In order to give clear picture of the Trading Account results on the basis of figures of Direct Income and Expenses a Trading account of the PR is prepared as under: Opening stock 2858460.00 Sales 505574301.21 Purchases 523561906.00 Closing stock 2186851.90 Gross Loss 18659214.11 526420366.00 526420366.00 The PR has credited commission received at Rs.28629350/- in the Profit Loss account. Thus, by reducing the above trading loss of Rs.18659214/-, net margin has been shows at Rs.9970137/-. In order to find out the reason for showing loss in trading, the PR vide order sheet entry dated 5.12.2011 was asked to file copies of purchase and sale bills for Rs.1.00 lakh and above. On going through the copies of bills furnished by the PR for amounts ranging from 1000 to 20000 it was observed that the PR has credited the sales net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant that the appellant is engaged in the business of sale and purchase of sim cards and top ups and accordingly, he is not liable to deduct TDS u/s 194H of the Act even the discounts shown by the appellant are in the nature of trade discounts and not commission. I have considered the submission of the asssee and assessment order. It is observed that the appellant is engaged a franshisee of M/s. Bharat Sanchar Nigam Limited and provides sim cards and to ups to sub franchisee. The issue under consideration is whether the distribution of sim cards, recharge coupons top ups etc. amounts to sale of goods or not. It is observed that what is delivered is the right to use the mobile phone for a particulars period of time or right to send and receive the electronic data for communication upto particular size of data. The recharge coupons, top up cards can not by itself be used for any purpose. It only contains an electronic code which when typed in the mobile phone will allow the subscriber to use the mobile service. Thus, what is delivered is not any goods for use but a symbolic key to use the services provided by the particular mobile company. It is also seen that even these symboli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted. The observation of the Hon ble Delhi High Court clearly establishes that the distribution of sim cards, recharge coupons and top ups does not amount to sales and the discounts offered to distributors are in the nature of commission. The appellant has argued that the agreement between the cellular company and franchisee is different from the agreement between the franchisee and sub franchisee. It is observed that the recharge coupons etc. are provided by the cellular company to the franchisee and further by franchisee to the sub franchisee. Therefore, once it is established that the provision of sim cards, recharge coupons etc. by the cellular company to the franchisee is not sale of goods, then further distributions of same Sim cards, recharge coupons etc to sub franchisee can not be regarded as sale of goods by any stretch of arguments. This plea of the assessee is vague and is not sustainable. Further, in a recently judgment by the Hon ble Calcutta High Court in the case of Bharti Cellular Ltd. vs. ACIT (2013) 354 ITR 507 (Cal.) the assessee was engaged in the business of providing cellular mobile telephone services through its franchisee by selling to them starter pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Issue of duplicate sim cards (In case of lost) . 2. Blocked or damaged SIM cards. 3. Excess billing. 4. Other value added services like GPRS etc are provided by service provider i.e. BSNL. 3. Our role is limited to booking of connection only. Commission after deducting TDS is given on new connections by BSNL. Similarly TDS is deducted and deposited on commission disbursed to Sub- Franchisee on account of new connections booked by them. 4. Recharge - Recharge is a sort of currency to enhance talk time. Sale of recharge contributes to more than ninety five percent of business. It is sold to distributors, retailers and shop keepers of any trades and from our counters also. At different rates depending upon market. Recharge are sold to us by BSNL against advance payment only. It becomes our property .All-risks are ours. They are not compensated /replaced in case of damaged, theft, lost or fire. It is relevant to point out that there is no dispute about the SIM Cards/Start-up Connections because I am getting the commission from Company and they deduct TDS thereon. Similarly, we deduct TDS on the payment made to Sub- Franchisee on account of commission on SIM Cards. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal and agent. 10. That there are no written agreements with the sub-distributors. 11. That sale bills are issued to the sub-distributors, sample copies whereof are enclosed. In these bills the appellant has given the units of items sold, their price and their total value. Neither any commission has been paid nor shown in the bill, only trade discount has been deducted. 12. That the relationship between the appellant and the subdistributors is on principal to principal basis and there is no relationship of principal and agent. 13. As per Indian Contract Act, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person from whom such act is done is called principal. 14. A person who acts on his own behalf cannot be termed as an agent. If the principal has no control over the person, he is not an agent. 15. The sub-distributors are independent of the appellant and the appellant has no control as regards selling practices or sale price of the product. In these circumstances, it cannot be said that the subdistributors are agents of the appellant. 16. The appellant in its books of accounts has shown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing accounts of various sub-franchisees were filed before the authorities below in order to prove that the recharge and TOP UPS have been shown as purchase sale. The authorities below did not appreciate that the Sub-Franchisees itself are showing the same as purchase sale and the department cannot treat the same in the hands of the appellant as different when the appellant has duly been showing the same as purchase sale and there is no question of deducting tax at source on these, whereas the assessee has paid the commission. The Assessee has duly deducted the tax at source. This view finds support from the decision of Supreme Court of India, in the case of CIT Vs. Ahmedabad Stamp Vendors Association. In this case the vendors were allowed 0.50% to 4% discount on purchase of stamps. Held by the Hon ble Supreme Court that provisions of section 194H are not applicable. (Refer Page No 113, 114 to 124 of the Paper Book) 21. That the appellant rely on the following judgments:- 1. CIT vs. Ahmedabad Stamp Vendors Association [Refer Page No.113, 114 to 123 of the paper-book, Relevant Page No.113,1171121 to 123] In this case, Stamp Vendors were allowed to 0.50% to 4% discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Even if there are conditions with regard to sales, storage or marketing does not make the margins to commission. 9. In CIT vs. Living Media India Ltd., the Hon ble Delhi High Court, the assessee was a publisher and selling space for advertising in various magazines directly and through advertising agencies. In case of advertisement through advertising agencies, the assessee was paying trade discount of 15%. The revenue held it to be commission and hence TDS deductible. It was held that the transaction was in between principal and provisions of section 194H not applicable. In this case SLP of the department stands dismissed. 10. In NMDC vs. ACIT, 133 TTJ 244, the assessee a government company supplied iron ore to another government company which was appointed as centralizing agency by the government, the later having exported the same ore in its capacity as principal, it cannot be said that the goods were exported by the other company on behalf of the assessee as agent and provisions of TDS not applicable. 11. Similar issue was considered by the Hon ble ITAT, Cuttack Bench in the case of Pareek Electricals 151 TTJ 226. In this case the assessee was a franchisee of BSNL a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal holding that no tax can be recovered from the assessee and it cannot be treated as assessee in default if it is found that the taxes have been fully paid by the payee, assessee having furnished the PAN S of 19 persons and confirmation of 8 parties to whom payments were made AO to verify payments of taxes with the help of PANs. 24. Before the authorities, the appellant has furnished copies of acknowledgements of 30 sub- dealers. Out of these the ld. AO accepted 23 and with regard to others he stated that these are not supported by statement of incomes hence cannot be considered. The appellant submits that the returns are filed paperless and therefore these were not supported by statements. The ld. AO did not issue any notice to these sub-dealers for confirming the receipt of amounts and paying tax thereon, as held by Hon ble Allahabad high court and Hon ble Mumbai bench of ITAT. The appellant has filed further 7 acknowledgements and pray that these be accepted as additional evidence and credit allowed. 25. The ld. AO has invoked the provisions of section 201 and 201(IA) of the act. Section 201(IA) states that in case of default in deduction then the person responsible sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided on sale of recharge to customer No, franchisee buys recharge from BSNL and further sells to customers/ subfranchisee/ retailer. Recharge in the chain of distribution is a cash value product and the service is provided only by the Service provider, i.e. by the BSNL No, Sub- Franchisee/retailer buys recharge from franchisee and further sells to customers. Recharge in the chain of distribution is a cash value product and the service is provided only by the service provider. 3 Whether stock once sold is property of Buyer. Yes, if stock is damaged/lost, the loss is borne by the buyer. Yes, if stock is damaged/lost the loss is borne by the buyer. 4 Whether Responsible to customer for default/deficiency in service. No, only BSNL is responsible to customer No. Only BSNL Service provider is responsible to customer. 5 Whether Requirement to have Staff Office as per BSNL design and Standards. Yes. No. 6 In case of CAF [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and this relationship will prove that the goods were sold to them by the assessee from principal to principal. The chart containing seven relevant clauses is given hereunder:- S.No Relevant Points Relevant Page No and Para No of agreement dated 22/12/2004 Relevant Page No and Para No of agreement dated 08/2008 1 Principal to principal Page No 68 clause 24.1 The franchisee, its employees, agents and representatives shall provide service as an independent entity on a exclusive basis and nothing contained herein shall be deemed to create any partnership, joint venture, employment or relationship of principal and agent between the parties hereto or between BSNL and the franchisee representatives and employed or to provide service with any right, power or authority or to provide the franchisee with any right, power or authority, whether express or implied to create any such duty or obligation. Page No 77 clause 1.8 In the interest of increasing the customer base, the franchisee can appoint sub franchisees, retailer solely for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard. 5 Insurance and all liabilities are that of Mr. Gurpreet Singh and not of BSNL Page No.68 Clause 22 The liability to insure the stocks in the outlet(s) and in the possession of the franchisee will be of the franchisee and the liability for any loss or damage due to any fire, burglary, theft etc will be that of the franchisee. Page No.89 Clause 22 The liability to insure the stocks in the outlet(s) and in the possession of the franchisee will be of the franchisee and the liability for any loss or damage due to any fire, burglary, theft etc will be that of the franchisee. 6 No role of BSNL between franchisee to franchisee, franchisee to sub-franchisee or to retailer Page No.64 Clause 13.3 BSNL will not be a party between Franchisee to Franchisee, Franchisee to Sub-Franchisees or to retailers or Franchisees dispute of any nature whatsoever it may be. Page No.84 Clause 13.3 BSNL will not be a party between Franchisee to Franchisee, Franchisee to Sub- Franchisees or to retailers or Franchisees dispute of any nature whatsoeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Calcutta in the case of Bharti Cellulor Ltd. vs. CIT Anr., reported in (2013) 354 ITR 507. A copy of the same is placed at Page No.270 to 279 of the paperbook. As a matter of fact, the judgments cited by the worthy CIT(A) are not at applicable to the present case for the simple reason that we are not service providers but a Traders and dealing as Principal to Principal. The CIT(A) further failed to appreciate that the Calcutta High Court has held and decided the case on the basis of Agreement whereas the terms and conditions of our agreement are quite different. Furthermore, the assessee has relied on certain Judgments which are clearly applicable on the facts and circumstances of the present case and are identical as the assessee was not liable to deduct tax at source and the provisions of section 201(1) and 201(1A) are not at all applicable in the present case. Furthermore, it is very a relevant and important fact that the assessee started this very business in connection with Assessment Year 2007-08 and a copy of the assessment order is enclosed herewith, copy of which is placed at Page No.319 to 323 of the paperbook. During this year, i.e. Assessment Year 2007-08, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, sale of Recharge contributes more than 95% of business and only dispute is with regard to Recharge of coupons and Top-ups. The Ld. counsel for the assessee invited our attention to page 68 89 of the agreement dated 22.12.2004 and August, 2009 in which the Recharge coupons purchased by the assessee becomes the property of the assessee and when the same are lost or destroyed or not sold the responsibility rests with the assessee. The BSNL does not recoup the loss to the assessee, which is clearly mentioned in clause 22 of the agreement dated 22.12.2004. The assessee has sold the Recharge coupons to the Sub-Distributors so that they also earn some margin of profit and such Recharge coupons once sold become the property of the said Sub- Distributor and such Sub-Distributor is free to sell the same at a price as he deems fit though the maximum price has been fixed by the BSNL with regard to the market condition. The Ld. counsel for the assessee also invited our attention at page 68 of the agreement dated 22.12.2004 and at page 89 of the agreement dated August, 2008 where in clause 24.1, it is clearly stated that there shall not be any partnership, joint venture, employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n placed by the ld. counsel for the assessee on the cases mentioned hereinabove. On perusal of the same and the submissions of the Ld. counsel of the assessee and also cases relied upon by the AO and the Ld. CIT(A), having been distinguished and the department having accepted purchase and sale during the preceding year 2007-08 and looking to the doctrine of consistency and in view of the judgment of the Hon ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT reported in 266 ITR 99, we find that the assessee is a Trader and relationship is that of the principal to principal and the authorities below are not justified to hold relationship of principal and that of an agent. Accordingly, the assessee is not liable for the provisions of Section 201(1) 201(1A) of the Act. Thus, the order of the Ld. CIT(A) and that of the A.O. is reversed and all the grounds of the assessee are allowed. 11. Now, we take up appeal of the assessee in ITA No. 609(Asr)/2013 for the assessment year 2009-10. The facts in the present case are identical to the facts in assessee s own case in ITA No.608(Asr)/2013 for the assessment year 2008-09 and accordingly as mentioned hereinabove, our ord ..... 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