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TMI Blog2015 (11) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that in case of pre-paid services, subscriber identity module (SIM) and recharge vouchers are sold through a network of distributors and agents who remit the sale proceeds back to the assessee after retaining discount portion of the amount. The AO was of the view that this discount represents income earned by the distributor and the nature of which in its very substance and effect is commission. The AO held that roaming costs paid to other telecom/mobile operators was fee for technical service within the meaning of sec.194J and that the assessee failed to deduct tax on such payments. Accordingly, AO treated the assessee as 'assessee in default' under the provisions of sec.194H and 194J thereby worked out the amounts of tax deductable on discount allowed to the distributors, retailers and the payment towards inter-operator roaming charges. Year-wise details of payments and the deductable amount of TDS has been computed by the AO and which has been reproduced by the CIT(A) in para.1.2 of the impugned order as under: AY Roaming charges S.194J Di scount allowed S.194H Amount payable u/s 201(1)/ 201(1A) on roaming charges Amount payable u/s 201(1)/ 201(1A) on discount Total T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OUND NO. II: ORDER BARRED BY LIMITATION: 1. On the facts and in circumstances of the case and in law, the Learned CIT(A) erred in confirming the order passed by the Assistant Commissioner of Income Tax (TDS), Circle 18(1), Bangalore ("the TDS Officer") u/s 201 after the expiry of two years from the end of the financial year in which e-TDS statement is filed. 2. The Appellant prays that the order u/s 201(l) for the discount allowed to Distributors and roaming charges paid to telecom operators during first three quarters of F.Y 2008-09. WITHOUT PREJUDICE TO GROUND NO. I AND II, GROUND NO. III: NON-DEDUCTION OF TAX AT SOURCE ("TDS") UNDER SECTION 194H OF THE ACT ON DISCOUNT ALLOWED TO THE PRE-PAID DISTIBUTORS ("the Distributors"): 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the order passed by the TDS Officer under section 201(1)/201(1A) of the Act by treating "discount" offered by the Appellant to the Distributors as "commission" and thereby treating the Appellant as an "assessee in default" under section 201(1) r. w. s. 194H of the Act. 2. The Appellant most humbly prays that the discount allowed to the Distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t craves leave to add to/alter and/or amend all or any of the foregoing grounds of appeal." 6. First we take up the grounds raised by the assessee. At the time of hearing, the learned AR of the assessee has stated that the assessee does not press ground No.I and the same may be dismissed as not pressed. The learned departmental representative has no objection if the ground No.I of the assessee is dismissed. Accordingly, ground No.I of the assessee's appeals is dismissed as not pressed. 7. Ground III and IV regarding treating the discount allowed to the distributors as commission and thereby holding the assessee as the assessee in default u/s 201 r.w.s. 194H. 8. We have heard the learned AR of the assessee as well as the learned departmental representative and considered the relevant material on record. The learned AR of the assessee has submitted that this issue is covered by the judgment of the Hon'ble jurisdictional High Court in the case of Bharti Airtel Ltd. Vodafone Essar South Ltd. & others vs. DCIT reported in 372 ITR 33. The learned AR of the assessee has pointed out that the Hon'ble jurisdictional High Court, after considering the decision of the Hon'ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Idea Cellular Ltd. vs. ITO, in ITA Nos.356 to 359/2012 and 326 to 329/JP/2012. He has further submitted that the Ahmedabad bench of the Tribunal in the case of Vodafone Essar Gujarat Ltd. vs. ACIT in ITA 389/Ahd/2011 vide its decision dated 7/7/2015 has also decided the issue in favour of the assessee by following the judgment of the Hon'ble jurisdictional High Court. 10. We have considered the rival submissions as well as the relevant material on record. There is no dispute that initially, the issue was decided against the assessee by the Hon'ble Delhi High Court in the decision reported in 325 ITR 148 by holding that service can be rendered and cannot be sold and therefore, the payment to distributors, who are acting as a link in the chain of service provider, cannot be a discount but the same is in the nature of commission. However, subsequently, the Hon'ble jurisdictional High Court in its decision reported in 372 ITR 33 (supra) has distinguished the finding of the Hon'ble Delhi High Court and held in paragraphs 56 to 65 as under: "56. In the Idea Cellular Limited's case, the Delhi High Court proceeded on the footing that the assessee is providing the mobile pho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, whoever ultimately sells the said right to customers is not entitled to charge more than the MRP. The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub-distributors/retailers. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs. 100/- in their books of accounts and showing the discount of Rs. 20/- to the dealer. Only if they are showing Rs. 80/- as the sale price and not reflecting in their accounts a credit of Rs. 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order: ORDER 1. Appeals are allowed. 2. The impugned orders passed by the authorities are hereby set aside. 3. The matter is remitted back to the assessing authority only to find out how the books are maintained and how the sale price and the sale discount is treated and whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aming charges paid by the operator to other operator is not in the nature of fee for technical services (FTS). The revenue carried the matter to the Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of CIT vs. Bharati Cellular Ltd.(193 Taxman 97) has observed that the issue can be decided after the expert's opinion on the point whether any human intervention is required for providing interconnected roaming services by other cellular operators. The relevant observations of the Hon'ble Supreme Court in para.7 to 10 are as under: "7. The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the interconnect agreement enables M/s Bharti Cellular Ltd. to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. Similarly, on what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt and to adduce any other evidence. Thus, the Hon'ble Supreme Court directed the AO in each of the cases to examine the technical expert from the side of the department and to decide the matter. Though the AO, while deciding the issue has considered the statement of the expert who was examined in the case of Bharti Cellular, however, we note that in the case of Bharti Hexacom Ltd. (supra), Jaipur Bench of this Tribunal has decided this issue by giving a finding that no intervention is required for providing the roaming facility to the other operators/subscribers. We further note that in the case of Idea Cellular Ltd. vs. ITO (supra) Jaipur bench of the Tribunal again considered an identical issue in paras.2 to 4 as under: "2. The ld. Counsel for the assessee at the outset contends that the issues in question is squarely covered by the Hon'ble ITAT, Jaipur Bench decision in the case of M/s Bharti Hexacom Limited Vs. ITO (TDS)-II, Jaipur in ITA No. 656/JP/2010 order dated 12/06/2015, which 3 ITA 94 to 96/JP/2013 & 917/JP/2012 - Idea Cellular Ltd. Vs. ITO(TDS) has considered the issue about the payment of roaming charges to telecom operators in great details and held that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng charges paid by the telecom operators to service providers and applicability of Section 194J has been considered in detail by this very Bench in the case of M/s Bharti Hexacom Limited (supra). After considering the issues in detail, it has been held that there is no human intervention involved in providing these services, therefore, roaming charges paid by the assessee do not amount to fee for technical services U/s 194J of the Act read with Section 91(vii). Following our own judgment, we are upholding the order of the ld CIT(A) holding that the assessee is not liable for TDS u/s 194J, interest thereon and consequently not being the assessee in default. The orders of ld. CIT(A) are uphold." Thus it is clear that the Jaipur bench has given a finding of fact that no intervention is required for providing roaming facility and consequently the roaming charges paid by the assessee to other service providers cannot be treated as fees for technical services. Accordingly, following the orders of the co-ordinate bench, we are of the view that the assessee cannot be held as the assessee in default for non deduction of tax at source on the roaming charges paid to other service provider. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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