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TMI Blog2015 (4) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... and exigible to tax deduction at source under section 194H of the Act. In the entirety of the facts and circumstances of the case, we find no merit in the plea of the assessee in this regard. Reliance placed by the learned authorised representative for the assessee on the relationship of principal to principal is misplaced in view of the ratio laid down on identical issue as in the present appeal by the hon'ble Delhi High Court in Idea Cellular Ltd. [[2010 (2) TMI 24 - DELHI HIGH COURT], the hon'ble Kerala High Court in Vodafone Essar Cellular Ltd. [2010 (8) TMI 691 - KERALA HIGH COURT] and the hon'ble Calcutta High Court in Bharti Cellular Ltd.[2011 (5) TMI 590 - CALCUTTA HIGH COURT]. In view thereof, we reverse the findings of the Commissioner of Income-tax (Appeals) and disallow the expenditure of ₹ 46,48,960 booked under the head "dealer's scheme and incentives" as not being an allowable expenditure for failure to deduct tax at source in view of the provisions of section 40(a)(ia) of the Act. - Decided against the assessee. - C.O.No.43/Chd/2009 Arising out of ITA No.652/Chd/2009 - - - Dated:- 22-5-2013 - SHRI T.R. SOOD AND MS. SUSHMA CHOWLA, JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee was to show cause to explain the nature of payments and also to justify as to why the tax was not deducted out of the said payments. The explanation of the assessee vide reply dated December 12, 2008 was that this amount is allowed to our dealers for providing them to enhance the sale of the products. Basically it is scheme/bonus to dealers for selling more Hutch connection. In turn they also pass part of scheme amount to the customers for the purpose of sales promotion of the products. Mainly it is provided on Hutch products. These are basically sales promotions expenses incurred by the assessee for which no TDS is required to be deducted as per the provisions of the Income-tax Act, 1961. The Assessing Officer was of the view that the so-called incentives paid under the dealer's scheme and incentives were in the nature of commission on which tax at source was deductible, which was not deducted and hence whether the same should be allowed as an expenditure. From the details furnished by the assessee, the Assessing Officer noted that there were 195 cases where the amount paid to each dealer exceeded ₹ 2,500 totalling ₹ 46.48 lakhs. The list of such de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a service aspect which is involved in the sale process. 7. The Assessing Officer was of the view that this payment for activation of SIMs is certainly a payment received by the dealer acting (like the act of documentation) on behalf of another person (the assessee in this case) for services rendered (services of documentation and retaining the documents or submitting them to the assessee) in the course of selling of goods (SIMs). All the elements of the inclusive definition of commission given in section 194H are fulfilled and on the basis of the above discussion, it is held that the payments of ₹ 47,68,743 given by the assessee to its dealers described by it as dealer's scheme and incentives are commissions within the meaning of section 194H of the Income-tax Act, 1961 on which no tax has been deducted by the assessee at source and so the payment of ₹ 46,48,960 (only in those cases out of a total of ₹ 47,68,743 where payment to each dealer exceed ₹ 2,500) claimed as expenditure by the assessee are disallowed under section 40(a)(ia) of the Income-tax Act, 1961. 8. Before the Commissioner of Income-tax (Appeals) the assessee furnished w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of number of activations. In my opinion, this is in the nature of further discount given to the dealers for getting the maximum number of activations. This is a strategy adopted by the assessee to enhance the sales as ulti mately the parent company, i.e., Hutch would be willing to get maxi mum number of activations to have a wider market share and presence, scheme and incentive are linked to enhancing of sales. The assessee being distributor is also interested in enhancing sales. The sales would definitely get enhanced if there are maximum number of connections which would in turn benefit the assessee-company as the company, i.e., Hutch would continue their distributorship. Any com pany would be interested in the maximum number of activations in this competitive world. For achieving this purpose, the company is making its presence through distributors, dealers, etc. 9. The Commissioner of Income-tax (Appeals) allowed the claim of the assessee holding that the payments were incentives given to the dealers to enhance the sales and were not subject to tax deduction at source. 10. The Revenue is in appeal against the order of the Commissioner of Income-tax (Appeals). The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding ₹ 2,500 was ₹ 46,48,960. There were total of 195 such cases and list of the said persons is enclosed as annexure-A of the assessment order. The assessee had entered into agreement with M/s. Hutchison Essar South Ltd. under which it was not clear as to why it receives commission/brokerage from M/s. Hutchison Essar South Ltd. Further the assessee had not been able to produce any evidence to explain the method by which it pays the amount to the dealer reflected under the head dealer's scheme and incentives . The Assessing Officer noted that there were two transactions. The first was in respect of the sale of SIM cards and second was in respect of activation of the SIM. The first transaction of sale was completed by giving delivery of the SIMs to the dealers, against which invoices were issued. However, where dealers activated the SIM there was service part attached to it in the shape of customers' documentation. The said payment by way of service to the customers was not target based or performance based. The expenditure booked under the dealer's scheme and incentives was based upon number of SIMs activated by the dealer in the given period. The issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal and principal' relationship would be entirely different. On the sale of goods, the ownership passes between the manufacturer and the distributors. It is the responsibility of the distributor thereafter to sell those goods further to the consumers-the ultimate users. The principal/manufacturer does not come in picture at all. Of course, he may be liable for some action by the consumer because of defective goods, etc., which is the result of other enactments conferring certain rights on the consumer or common law rights in his favour as against the manufacturer. We may also point out that in its classic judgment in the case of Bharat Sanchar Nigam Ltd. v. Union of India 145 STC 91 (SC), the Supreme Court held that electromagnetic waves or radio of frequencies are not goods and with the sale thereof Sales tax Act is not attracted, though the decision was rendered in the context of liability of sales tax. 30. No doubt, as per clause 6(a) of the agreement, PMA is supposed to make the payment in advance. That would not make any difference to the nature of transaction in view of clause 25(d) of the agreement, which stipulates as under : '25(d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question to be considered is whether section 194H is applicable for the 'discount' given by the assessee to the distributors in the course of selling SIM cards and recharge coupons under prepaid scheme against advance payment received from the distributors. We have to necessarily examine this contention with reference to the statutory provisions, namely, section 194H which is extracted here under for easy reference : 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct Income-tax thereon at the rate of ten per cent : Explanation.-For the purposes of this section,- (i) 'commission or brokerage' includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discount given at the time of supply of SIM cards and recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider, namely, the assessee. Even though the assessee has con tended that the relationship between the assessee and the distributors is principal to principal basis, we are unable to accept this contention because the role of the distributors as explained above is that of a middleman between the service provider, namely, the assessee, and the consumers. The essence of a contract of agency is the agent's authority to commit the principal. In this case the distributors actually canvass business for the assessee and only through distributors and retailers appointed by them the assessee gets subscribers for the mobile service. The assessee renders services to the subscribers based on contracts entered into between distributors and subscribers. We have already noticed that the distributor is only rendering services to the assessee and the distributor commits the assessee to the sub scribers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition is supported by the decision of the Supreme Court cited by standing counsel for the respondent in J. B. Boda and Co. P. Ltd. v. CBDT [1997] 223 ITR 271 (SC) wherein the Supreme Court has held as follows (page 281) : A two-way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case . The standing counsel for the Department referred to our decision in CIT v. Director, Prasar Bharti [2010] 325 ITR 205 (Ker) wherein this court held that Prasar bharti/Doordarshan Kendra was liable to deduct tax on the commission retained by advertising agencies, no matter, the commission was not paid by Doordarshan but was allowed to be retained by the advertising agencies who recovered total advertising cost and remit ted only net amount to the Prasarbharti. We, therefore, do not find any merit in the contention of the assessee that recovery of tax is not permissible at the time of giving discount on the delivery of products to the distributors. 16. We find that the assessee before us is a dealer of SIM cards of Hutchison which in turn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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