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TMI Blog2017 (10) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... giving thirty days time without assigning any reason and distributor has to return all equipment and furniture supplied by the VESL upon termination of such contract. Other conditions such as maintaining the confidentiality and limitation of assigning rights or obligations to third party by distributor would also indicate that distributor is merely acting as an agent i.e., as a connecting link between assessee and ultimate subscriber. We therefore held that though distributor commits assessee to subscribers and exercise his authority to ensure arranging connection to subscriber, it will not alter the situation since the overall context in which such power is given to distributor has to be looked into in the circumstances of the case and the role of distributor can only be said to be a middleman between service provider on one hand (assessee herein) and ultimate consumer on the other hand. In other words the distributor can only be termed as an agent of assessee in which event providing service to ultimate consumer through the medium of distributor cannot be said to be a sale of service by assessee to the distributor. Distributor is merely a link between assessee and ultimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lter and charging interest thereon. Other set of 5 appeals pertain to penalty levied u/s 271C of the Income Tax Act, 1961. 1.1 Since factual matrix of the case are identical in all these appeals, we proceed to dispose of these appeals by a combined order, for the sake of convenience. We shall first briefly narrate the facts pertaining to initiation of the proceedings u/s 201(1) as well as levy of interest u/s 201(1A) of the Act. 2. Assessee is engaged in the business of providing cellular mobile telephone services to its customers in Andhra Pradesh through a network of distributors which was run in the same and style of M/s. Vodafone Essar South Limited, now known as Vodafone Mobile Services Limited. Assessee was offering two types of services to the public i.e., post-paid and pre-paid mobile services. 2.1 In so far as the post-paid mobile services are concerned, the customers make payment on monthly basis against the bills issued by assessee-company. In other words, assessee has to provide services to its customers and thereafter issues bills and realises the proceeds. For carrying out its post-paid mobile services effectively, assessee-company appointed number of distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istributors at ₹ 96/-, and dealers in turn may sell the product at any price not above the MRP printed thereon i.e., if MRP is assumed as ₹ 100/-, distributors/retailers can at best sell the product at ₹ 100/- and not more. Distributors do not have discretion to refund the products, which were already supplied by assessee-company, and distributors may make use of the vouchers, starter kits etc., either for it s own consumption or it can sell to the ultimate consumers which can at best be considered as a cash discount in the assessee s books of account. Based on the reasoning the assessee has not deducted tax at source on these payments. 2.5 A.O. extracted some of the clauses in the distribution agreement which are specifically connected to pre-paid services. Distributor is responsible for sale of service tickets exclusively for and on behalf of the Vodafone. The obligation on the part of the agent is to strictly adhere and comply with brand image guidelines set out in the Annexures. Assessee is under an obligation to provide the distributor with such marketing and technical assistance which may be considered necessary to assist distributors for the promotion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to principal relationship . In his opinion, the cash discount allowed to the distributor has to be treated as commission paid/allowed by the assessee-deductor to the distributors on which assessee is responsible for deduction of tax at source, u/s 194H of the Act. 7. When the same was put to assessee, in the proceedings u/s 201(1)/201(1A) of the Act, the Assistant Manager, Finance of assessee-company appeared from time to time and contended that the relationship between the assessee and distributors is on a principal to principal basis and it is not in the nature of commission so as to attract provisions of section 194H of the Act. It was also contended (without prejudice to the above contention) that no demand u/s 201(1) of the Act can be raised on the assessee if the excess dues have been paid by the payer/recipient and consequential interest, if any, u/s 201(1A) of the Act should be computed from the date of withholding of taxes by VESL-AP to the date of payment of taxes by the payee/recipient. 8. Assessing Officer referred to the gist of the assessee s letter dated 21.1.2011, wherein it was stated that mobile telephone services offered by VESL-AP are either post-paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of State Lotteries and others (249 ITR 186) wherein it was observed that deduction is to be at the time of credit of such income to the account of the payee or at the time of payment of such income by cash whereas in the instant case there is neither payment of cash or by cheque and on the contrary it only receives the sale consideration from distributors. Therefore, provisions of section 194H do not come into play. In fact, the distributor cannot be said to be acting as an agent of VESL-AP. It was also submitted that the ownership in the talk time passes to the distributors the moment they take delivery of the recharge coupons or the e-top-up is credited to their account; having taken delivery, the distributors are free to use the same for their own consumption and it is not necessary to trade in the same by providing it at a margin to retailers/subscribers. In a pre-paid business module, the significant risks and rewards are transferred to the pre-paid distributors on transfer of pre-paid talk time and thus the arrangement between assessee and pre- paid distributors is on principal to principal basis. 11. The talk time is transferred to the distributors on payment of upfr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 249 ITR 189) (Ker.) observed that lottery ticket distributor cannot be considered to have earned income for the purpose of deduction of tax at source. 14. Reliance was also placed on the decisions of the Hon ble Karnataka High Court in the case of Hyderabad Industries Limited (188 ITR 749) Hon ble High Court in CIT v. Qutar Airways (332 ITR 253) (Bom); The assessee also relied upon several decisions in support of the stand that tax cannot be demanded from the payer when taxes have also been paid by the payee. 15. The Assessing Officer summarized the issue in dispute by stating that the main issue is as to whether transactions between assessee and it s distributors are to be treated as a contract of sale as claimed by the assessee; if it is to be treated as contract of sale, as a necessary corollary it cannot be assumed that the relationship between the assessee and the distributor is on principal to agent basis. It has to be assumed that there is principal to principal relationship. At any rate whether the applicability of provisions of section 194H is debatable. 16. It is not in dispute that the assessee equated the pre-paid services with that of sale of products or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Based on the said premise, the A.O. concluded that a service can only be rendered and it cannot be sold and the defacto owner of the starter kits, recharge coupons etc., is the assessee-company since they are in the nature of a key to the consumer to have the talk time facility but it has to be activated by the assessee- company. Under these circumstances, it cannot be said that the assessee-company passed on any ownership or title of the goods to the distributors or to the retailers since those persons are only acting as a link in the chain of providing services by the assessee-company. 18. A.O. exhaustively dealt with the agreement between the assessee and the distributor as well as the case law relied upon by the assessee and sought to distinguish the case law on the ground that the facts in the above referred cases are not applicable to the peculiar set of facts and circumstances involved herein. Emphasis was made on the fact that the liability of the distributor to pay the price of starter kits, recharge vouchers etc., is fully dependent and contingent on the sale of such cards to the retailers. The distributors are also governed by a complex set of guidelines, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere existence of price flexibility given to the distributor alone is not a determinative factor to decide as to whether the assessee- company and its distributors have a principal-to-principal relationship. 21. The clauses in the agreement predominantly prove a principal-to-agency relationship since the distributors are merely conduits who facilitate the connection of the services of the assessee-company to the end user. It was re-emphasised that in a case of principal to principal sale transaction, distributors become owner of goods and exert full control over the operations whereas, in the instant case, various restrictions and conditions were imposed on the distributors which shows that the distributors are mere agents and not independent principals; Though the nomenclature used by the assessee is discount , in sum and substance it is only commission in nature. 22. The claim of the assessee is that only upon payment by the assessee-company to its distributors there would be a need to deduct tax u/s 194H. In other words, assessee-company is not making any payment and hence the provisions of section 194H do not come into play. This argument was countered by the A.O. by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. BPL Mobile Cellular Ltd is not liable for KVAT/Sales Tax as the transaction between the service provider and distributor is only that of service and not sale and purchase of any goods or merchandise. Under Income Tax Act also the Hon ble Kerala High Court in the case of M/s. Vodafone Essar Cellular Ltd v. ACIT [2010] 7 taxmann.com 43 (Ker.) decided against the assessee company on the premise that there is no sale or purchase of goods and the recharge coupons etc., delivered by the assessee to its distributors/retailers/ultimate consumers served the purpose of enabling the ultimate retailer to obtain proper service in the form of talk time etc., from the assessee-company. 25. In essence, service can only be rendered and cannot be sold through the medium of supply of starter kits to the distributors. In fact, carrying on the business of providing services is subject to so many statutory compliances and upon supplying the starter kits etc., to the consumer the assessee company is under an obligation to prepaid consumers to provide hassle-free services, even though the direct deal is between the distributor and the consumer, in view of the fact that the distributor does not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged corresponding interest u/s 201(1A) of the Act. 30. Facts were culled out from the assessment order for the assessment year 2010- 2011. In respect of the subsequent assessment years also issue is identical, and A.O. had the benefit of the view taken by Hon ble Andhra Pradesh High Court in the case of f M/s. Vodafone Essar South Limited, which was also followed by the ITAT, Hyderabad Bench in the assessee s own case for the subsequent years i.e., A.Y. 2007- 08 to 2009-2010. 31. Consequent to the order passed u/s 201(1) and 201(1A) of the Act, A.O. initiated penalty proceedings u/s 271C of the Act. In response thereof, vide letter dated 11.12.2014 the assessee merely requested the Assessing Officer to keep the penalty proceedings in abeyance till disposal of the appeal before the ITAT. The Assessing Officer observed that in the assessee s own case, in SLP (Civil) No.35062 and 35063 of 2013, the Apex Court made it clear that the Department is entitled to proceed with regard to levy of penalty and if it is leviable it can quantify the same. Therefore, the request of the assessee to keep the matter in abeyance was rejected. 32. We are concerned with A.Y. 2010-11 and onw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the assessee has not made out any case as to how the issue is debatable and, in fact, it has not relied upon any judgment to prove that the issue is debatable, particularly in the wake of the fact that the ITAT, Hyderabad Bench, in the case of Idea Cellular Ltd (supra), held that provisions of section 194H are applicable on the discount offered to distributors on pre-paid cards etc. 37. The assessee has also raised an alternative contention that no penalty should be levied when taxes were paid by the payee. However, the assessee himself was not sure as to whether the distributors have paid taxes; therefore, the claim was not accepted by the A.O. At any rate, the ITAT Delhi Bench, in the case of Kanha Vanaspati (17 SOT 160) considered an identical issue wherein it was observed that payment of taxes by the payees will not absolve the assessee from the responsibility of deducting tax at source as otherwise the provisions relating to collection of taxes by way of TDS would become redundant. He also relied upon the Circular issued by the CBDT dated 29.01.1997 wherein the CBDT clarified that merely because the taxes have been paid by the deductee-assessee, it will not alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor on account of use of SIM cards/talk time or non-payment by the retailers/subscribers is not made good by the assessee and thus, the relationship is significantly different from a typical principal to agent relationship wherein the agent is not the owner of the goods and he is indemnified if he incurs any loss while acting on behalf of the principal. It was also contended that in order to invoke the provisions of section 194H of the Act it has been shown that there is a relationship of agency between the parties whereas in this case it is on principal to principal basis. The discount extended to the distributor constitutes trade margin and not commission or brokerage . Margin is earned by the distributors in their independent capacity and not for acting for and on behalf of the assessee. It was also contended that the TDS Officer has wrongly applied the decision of the Hon ble Kerala High Court (in the case of Vodafone), Hon ble Delhi High Court (in the case Idea Cellular Limited) and the decision of the ITAT, Kolkata Bench in the case of Bharati Cellular Limited by assuming that an appellant who is engaged in providing services cannot sell its services on principal to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice it was contended that as per the settled principle enunciated by the Hon ble Allahabad High Court (supra) a payer cannot be held liable for payment of tax in cases involving non-deduction of tax at source and only interest u/s 201(1A), if any, can be levied in such cases. In addition to the grounds urged in the appeal for the A.Y. 2010- 2011, the assessee contended that the TDS Officer erred in placing reliance on the decision of the Hon ble Andhra Pradesh High Court in the assessee s own case for the earlier assessment years as well as the decisions of the Hon ble Kerala High Court, Hon ble Delhi High Court and Hon ble Kolkata High Court. It was also contended that the computation of interest u/s 201(1A) was wrong inasmuch as the correct rate of interest should have been 1% per month. 45. The Ld. CIT(A) passed separate orders for the assessment years under consideration. In the assessment year 2010-2011, the Ld. CIT(A) observed that identical issue having been decided by the ITAT in the assessee s own case for the assessment years 2007-2008 to 2009-10 vide order dated 31.9.2013, assessee is liable to TDS u/s 194H of the Act. Regarding the claim that payees have m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable cause for non-deduction of tax u/s 194H of the Act and thereby it is not a fit case for levy of penalty u/s 271C of the Act. In the opinion of assessee-company, whether tax is deductible at source or not is a debatable issue and hence levy of penalty is not warranted. 48. Ld. CIT(A) rejected the contention of the assessee and confirmed the action of the TDS Officer. Further aggrieved, assessee preferred appeals before us. 49. As already indicated herein above, group of six appeals are relatable to failure to deduct tax at source u/s 194H of the Act and consequent invocation of the provisions of section 201(1) and 201(1A) of the Act. Ld Counsel for the assessee, at the outset, admitted that the decisions of the Hon ble Jurisdictional High Court, Hon ble Delhi High Court, Hon ble Kerala High Court and Hon ble Kolkata High Court are against the assessee; however, his contention is based on the limited issue that important facet of the argument was overlooked by all these High Courts which was recognised by the Hon ble Andhra Pradesh High Court in a later decision, while considering the matter of collection of outstanding demand. He relied upon the decision of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of paper book - 5 to submit that in the case of Idea Cellular Limited (317 ITR (A.T.) 176), the ITAT, Hyderabad Bench had an occasion to consider an identical issue concerning the applicability of provisions of section 194H of the Act wherein the Bench observed in para 13 as under:- 13 .The term commission or brokerage has been defined in Explanation (1) and includes any payment received or receivable directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or a thing not being securities. The definition of expression commission or brokerage as contained in clause (i) of the Explanation to section 194H, is not so wide that it would include any payment receivable, directly or indirectly for services in the course of buying or selling of goods. To fall within the said Explanation, the payment received or receivable, directly or indirectly, by a person acting on behalf of another person (i) for services rendered (not being professional), or (ii) for any services in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Bench of the ITAT Hyderabad (in the case of Vodafone Essar South Limited, 31.1.2013) wherein the Bench observed that the AR did not bring any arguments to distinguish the decisions of the Hon ble Delhi High Court, Hon ble Kerala High Court and Hon ble Kolkata High Court in the cases of Idea Cellular Limited, Vodafone Essar South Limited and Bharati Cellular Limited respectively. Since similarity of facts and method of accounting being same, in the aforecited cases, the Tribunal was of the opinion that the view taken by the Hon ble High Courts deserve to be accepted. It was also stated that the said decisions cited by the AR were not exactly on this issue. In other words, independent decision was not rendered in the aforecited order except following the decisions of various High Courts and this decision was rendered without following the rule of consistency i.e., a decision of the ITAT Hyderabad Bench in the case of Idea Cellular Limited was not followed and the Bench did not chose to refer the matter to Special Bench but merely overlooked the aforecited judgment on the premise that the decisions of other High Courts are on the same set of facts. If the same logic has to be appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as commission. Ld. Counsel for the assessee adverted our attention to the decision of the Hon ble Karnataka High Court in the case of Vodafone Essar South Ltd and others (372 ITR 33) to submit that under identical circumstances, Hon ble Karnataka High Court held that upon handing over SIM cards etc., to the distributor it can be said that there is a transfer of service by the assessee to the distributor and such transaction has to be treated as on principal to principal basis. In the aforecited decision, it was the plea of the assessees that an invoice is raised which contains the unit price, discount and net value of the unit after such discount and the Sales Tax is paid on that net value though the distributor could sell the said units at any price which cannot exceed MRP. The distributors pay to the assessee the net value of the unit. 57. Hon ble Karnataka High Court considered the decisions of various High Courts/Supreme Court, under identical circumstances - both in favour and against the assessees - and observed that the mere word agent or agency used in the agreement is not sufficient to lead to irresistible inference that the parties did, in fact, intend that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... telephone service is nothing but service and SIM card on its own, without service, would hardly have any intrinsic value. According to Judges a right to service can be sold. The distributor acquires a right to demand service from the assessee at the time when assessee sells these pre-paid cards for consideration to the distributor. The distributor does not earn any income; in fact, rather than earning income, distributors incur expenditure for the purchase of pre-paid cards. It is only upon sale of those pre- paid cards, distributors derive income. At the time of sale of these pre-paid cards by the assessee, he is not in a position to earn any income belonging to the distributor and therefore, the question of any income accruing/arising to a distributor, does not arise. In short, section 194H gets attracted in a case where there is income payable by the assessee to a distributor. The profit earned by distributor, sub-distributor and a retailer would be determined on the agreement between them and all of them would have to share the different amounts between the price for which it was sold to the distributor and the ultimate price fixed by the middleman, which can only be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage intelligence and ordinary prudence. It means an honest belief founded upon reasonable grounds. Ld Counsel for the assessee thus strongly submitted that the assessee was under bona fide belief that there is no need to deduct tax at source since the transaction is on principal to principal basis as the service was sold to the distributor; In fact this aspect was not considered by any of the earlier or later judgments and thus opinion formed by assessee constitutes a reasonable cause. Ld Counsel for the assessee also placed reliance upon decision of the Hon ble Delhi High Court in the case of CIT v. Pradeep Agencies Joint Venture 349 ITR 477 to submit that even in a case where a later judgment is in favour of the assessee which matches the line of thinking of the assessee it can be considered as a reasonable cause . The Hon ble High Court, in this regard, observed as under:- 9. Having considered the arguments advanced by the Counsel for the parties, we are of the view that the submissions made by the learned counsel for the assessee cannot be brushed aside that there were two views possible inasmuch as the Tribunal itself was in doubt as to which of the two views were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Durga Prasad More [1971] (82 ITR 540) (SC) wherein the court observed that though the principle of res judicata/rule of estopple is not applicable to Income Tax proceedings but the rule of consistency has to be applied. In that case the court observed that the assessee included the income of the premises in his return for several years and, in the absence of any satisfactory explanation, the fact that the assessee had included the income for the earlier years can be taken as a circumstance for completing the assessment. In this background Ld CIT-DR referred to pages 23-24 of paper book-5 to highlight that the facts in the year under consideration are akin to the facts considered by the ITAT Hyderabad B Bench in the assessee s own case for the AYs 2007-08 to 2009-2010 i.e., regarding the liability of the assessee to deduct tax at source in respect of amounts passed on to the distributors as cash discounts in respect of SIM cards and other services rendered. It was also highlighted that with respect to post-paid connection, assessee agreed that it is only a service rendered by the distributors for and on behalf of the assessee-company and accordingly chose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the TDS Officer/Ld CIT (A), as well as before the Tribunal in the form of Grounds of Appeal, were already considered by the Tribunal as well as by the Hon ble Andhra Pradesh High Court in the assessee s own case in the earlier years and therefore, the rule of consistency comes into play because the nature of service is same in all the years. In the case of pre-paid customers, the payment is made by the distributor before services were rendered whereas in the post-paid connections, assessee receives payment after rendering of services. He also submitted that except the decision of the Hon ble Karnataka High Court in the case of Vodafone Essar South Ltd and others (372 ITR 33) all the other decisions of various High Courts, including jurisdictional High Court, are in favour of the Revenue holding that the transaction is not on principal to principal basis and consequently the assessee is liable to deduct tax at source u/s 194H of the Act. In particular, he has referred to the latest decision of the Calcutta High Court in the case of Hutchison Telecom East Ltd v. CIT [2015] (375 ITR 566) wherein the Court referred to the decision of the Hon ble Karnataka High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence in the facts. Page 1 of the order passed u/s 201(1) of the Act refers to the fact that the assessee-company has been paying commission to the distributors for the service rendered by the distributors in connection with post-paid service and it had deducted tax at source as per the provisions of section 194H of the Act. The nature of activity broadly remains the same even in the pre-paid service mode. Starter kits etc., are provided by the assessee to distributors who in turn supply to retailers/ultimate consumers but the service of activation etc., is being done by the assessee; The only difference is that in post-paid connections payment is received after the service is rendered by assessee whereas in pre-paid mode money is collected in advance by assessee from distributors and by distributors from retailers and so on. 68. The TDS Officer referred to distributorship agreement which speaks of appointing distributors for the limited purpose of distributing the Starter Kits etc., in a defined geographical area and adhere to certain guidelines fixed by the assessee such as information with regard to stock movement, permitting the authorized agents of the assessee to inspect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee - starter kits, SIM Cards, recharge coupons etc., and maintenance of records. In a principal to principal sale transaction the distributors become owners of goods and exerts control over the operations thereon whereas in the instant case various restrictions and conditions are imposed on the distribution which makes them mere agents and not independent principals. The starter kits, recharge coupons etc., stocked by the distributors can still be considered as the property of the service provider since the distributor has a right to use the starter kits, recharge coupons only upon assessee giving access through network to the ultimate consumer and thus there is no case of any purchase and sale of prepaid starter kits, recharge coupons etc. 71. The Ld CIT-DR referred to the other findings of the TDS Officer to buttress his argument that the distribution agreement as well as other facts of the case were already taken into consideration by the TDS Officer; He applied the ratio laid down in various case law while coming to the conclusion that the transaction is on principal to agent basis and hence the provisions of section 194H are attracted on such transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier decision of the Hon ble High Court is doubted or not followed, they could have granted absolute stay which was not done and this implies that there is no ratio laid down in the aforecited decision which can be binding on the Tribunal in which event the earlier decision of the Hon ble Andhra Pradesh High Court has to be preferred/followed. 74. Ld. CIT-DR strongly relied upon the decision of the Hon ble Bombay High Court in the case of Thane Electricity Supply Limited (206 ITR 727) which refers to the binding nature of precedents wherein the court observed that a decision of the Hon ble Supreme Court is binding on all courts under Article 141 of the Constitution of India and though there is no such provision specifically with regard to the decisions of High Courts, the well accepted legal position is that a decision of the High Court is not only binding on Coordinate Bench of the same Court but also on the other forums functioning within the jurisdiction of the High Court. In this regard the court referred to the decision of the Apex Court in the case of East India Commercial Company Ltd AIR 1962 SC 1893 wherein it was observed that the law declared by the highest court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly when the Hon ble High Court categorically stated that the applicability of provisions of section 194H is considered based on the facts. He also relied upon the decision of Hon ble Calcutta High Court in the case of CIT vs. Oberoi Hotels (P.) Ltd (2011) [334 ITR 293] (Calcutta) on the issue of precedence value. He also referred to the decision of the Hon ble Andhra Pradesh High Court - passed while disposing the Writ Petition - and highlighted that the decision is not rendered on merits and in fact High Court has no jurisdiction to overlook the earlier decision of the same High Court and at best it could have referred the matter to Full Bench. In fact there was no such decision on merits and hence certain observations made therein cannot be taken as binding precedent overlooking the earlier judgment of the Hon ble Andhra Pradesh High Court. It was also submitted despite decision of the Hon ble Karnataka High Court, the same issue was taken up for consideration by the Hon ble Kolkata High Court in the case of Hutchison Telecom East Ltd vs CIT [2015] (375 ITR 566) wherein the Hon ble High Court observed that in essence/substance it cannot be said that dealings and transactions b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... errors whereas, in the case on hand, the assessee was fully aware of the stand taken by the Assessing Officer from 2009 and thus the assessee cannot take a stand that it was of a bonafide opinion that no tax need be deducted at source. In the case of Alkali India Limited as well as L F John Degree Ltd. (supra) a confusion arose in the mind of the assessees on account of the fact that the issue is at nascent stage and a person of ordinary prudence could have a reasonable belief and thus the aforecited decisions are distinguishable on facts. Similarly, he has referred to other judgments relied upon by the assessee to submit that penalty was not levied in those cases because there was a reasonable cause whereas, in the instant case, the assessee has merely taken a stubborn view and did not deduct tax at source which cannot be said to be a reasonable cause. In fact for the assessment years 2008-2009 and 2009-2010, Hon ble Supreme Court directed the AO to consider levy of penalty and for the assessment years 2007-2008 to 2009-2010 the main issue was decided on merits having regard to Hon ble Delhi High Court and Hon ble Kolkata High Court judgments. It was also contended that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the cinema owner and the distributor even though what is being transacted is a service (of watching a movie) through distribution of the movie tickets. Alternatively, the cinema owner may appoint the distributor as an agent for distribution of movie tickets on its behalf for a commission. Therefore, the nature of arrangement between the parties shall be governed by the terms of the contractual arrangement between them and not by the fact whether a physical commodity or a service is being provided. In the instant case, as submitted and discussed above, the principal to principal relation between the appellant and the distributors is the main character of the agreements, and its terms and conditions inter-alia provide that (1) the SIM card/recharge vouchers once obtained by the distributor from the appellant cannot be returned to the appellant, (2) the distributors have complete liberty to further distribute SIM card/recharge vouchers at any price that they may choose but not exceeding the MRP, (3) the distributor is entirely responsible for all its losses or costs whether the same are associated with paying the price to the company or in distributing to retailers and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a decision of higher forum is an authority for what is decided and not what can be logically deduced therefrom. If additional facts lead to a different conclusion or if there is a little difference in facts the same can always be considered afresh despite a decision of a superior forum. Reliance was also placed on another decision of Hon ble Supreme Court in the case of Collector of Central Excise, Calcutta v. Alnoori Tobaco Products and Another [2004] [6 SCC 186] wherein the Court held that observations in judgments should be read in the context in which stated and they should not be construed as statutes. In other words each case depends on its own facts and additional or different fact may make a difference between the conclusions in two cases. It was thus submitted that the earlier decision of Jurisdictional High Court should not be treated as a binding precedent. Reliance was also placed on the decision of Hon ble Supreme Court in the case of Bharat Sanchar Nigam Ltd and Another v. Union of India [2006] [3 SCC 1] (page 18 para 11) wherein the Court observed that in tax proceedings earlier decision of a High Court may not operate as res judicata against assessee for a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry liability to tax the distributor and consequently there is no liability to deduct tax at source. The discount given by assessee to the distributors cannot be categorised as commission . Though the sale is subject to conditions and stipulations it does not establish principal agent relationship. Hon ble Karnataka High Court thus concluded that (a) It is a sale of right to service; (b) Relationship between assessee and the distributor is principal to principal when the assessee sells SIM cards to the distributor he is not in fact paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands; (c) Deduction of tax at source being a vicarious liability, when there is no primary responsibility, the assessee has no obligation to deduct TDS. With these observations the matter was remitted back to the file of the A.O with certain directions. 81. Ld Counsel for the assessee submitted that Hon ble Karnataka High Court gave a categorical finding with regard to sale of service and this was the subject matter of consideration by Hon ble High Court of Andhra Pradesh, while gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to the case of assessee and the assessee could not distinguish the above cases in so far as the similarity of the facts and method of accounting are concerned. In other words it can be considered as a decision rendered on merits. The issue as to whether payment to be made by the assessee is mandatory in order to invoke provisions of section 194H, or whether sale price at the end of distributor is ascertainable, was already taken into consideration in detailed judgments rendered by Hon ble Delhi High Court, Kerala High Court and Calcutta High Court. It cannot be said that the decision of Andhra Pradesh High Court is not on merits. When the facts are identical there is no need for another High Court to pass a detailed order. In fact Hon ble High Court of Andhra Pradesh categorically observed that there is no illegality or infirmity in the order passed by ITAT, Hyderabad Bench, which in turn is based upon the decisions referred to above. 85. As against this, Hon ble Karnataka High Court had taken a diametrically opposite view with regard to need for payment to be made by assessee to distributor and the fact that computation is not possible since distributor can sell at any price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as agent is obliged to render services for and on behalf of assessee on certain parameters and in this regard Hon ble Delhi High Court relied upon a decision of the Apex Court in the case of Bhopal Sugar Industries Ltd v. STO [1977] [40 STC 42] (SC). The Court also took note of the fact that legal relationship is established between assessee and the ultimate consumer/subscriber since activation of SIM cards by assessee is in the name of subscriber/consumer and service is provided to the subscriber. Merely because advance payment is received from distributor, it does not amount to sale of goods since unsold SIM cards can be taken back by assessee under certain circumstances. The Court further observed that this is antithesis of sale . The Court also observed that a service can only be rendered and it cannot be sold particularly when assessee-company is operating under the right of licence agreement entered into with the Government of India; nobody else can be given the right to operate as cellular service provider. It was thus concluded that the ultimate service is provided by assessee-company and not by distributor. SIM card/other module is only in the nature of a key to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. 90. On careful perusal of the aforecited two judgments, which in turn were followed by Hon ble jurisdictional High Court, indicate that the essence of contract was treated as a contract between principal and agent and distributor in his capacity as an agent may exercise his authority to commit the principal to render services to subscribers and this in itself cannot be termed as contract between principal to principal . In other words the issue is as to whether there was a sale of service or not was impliedly considered by Hon ble High Court of Kerala which in turn was followed by Hon ble Andhra Pradesh High Court. Thus it may be difficult for us to take a different view, merely because Hon ble Karnataka High Court had taken a different stand under identical circumstances. 91. At this juncture, we may state that in the case of CIT v. Thana Electricity Supply Ltd (supra) Hon ble Bombay High Court observed that the expression two views should be understood in the sense that the Court, which is called upon to consider the issue, should be of the opinion that the other view is reasonable. With due respect we are of the view that the only reasonable interpretation is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the confidentiality and limitation of assigning rights or obligations to third party by distributor would also indicate that distributor is merely acting as an agent i.e., as a connecting link between assessee and ultimate subscriber. 94. We therefore prefer to follow the decision of Hon ble jurisdictional High Court by holding that though distributor commits assessee to subscribers and exercise his authority to ensure arranging connection to subscriber, it will not alter the situation since the overall context in which such power is given to distributor has to be looked into in the circumstances of the case and the role of distributor can only be said to be a middleman between service provider on one hand (assessee herein) and ultimate consumer on the other hand. In otherwords the distributor can only be termed as an agent of assessee in which event providing service to ultimate consumer through the medium of distributor cannot be said to be a sale of service by assessee to the distributor. 95. Now we shall refer to the observations of jurisdictional High Court (order dated 25.08.2015) in W.P. Nos. 2456 and batch of 2015. In the aforementioned case, the Court was conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 26.02.2009 had taken a view that the relationship between a cellular operator and distributor is on principal to principal basis and discount given by the assessee cannot be considered as brokerage or commission . It had also taken support of an earlier decision of the ITAT Delhi Bench passed on 28.03.2008 [313 ITR (A.T.) 55] whereby it was concluded that the provisions of section 201(1) and 201(1A) are not applicable, under identical circumstances. In such an event of matter - since the decision of ITAT Delhi Bench was already available before the commencement of Previous Year relevant to Assessment Year 2010-2011 - the assessee s stand that it need not deduct tax at source can be taken as a reasonable cause . Hon ble Supreme Court, in the case of in the case of CIT v. Eli Lilly (312 ITR 225), observed that if non-deduction of tax at source took place on account of controversial addition and if the tax deductor was under genuine and bonafide belief that it was not under any obligation to deduct tax it amounts to reasonable cause and penalty u/s 271C is not leviable. Hon ble Delhi High Court in the case of Woodward Governors India Private Limited (supra) observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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