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TMI Blog2015 (7) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharti Airtel Ltd (supra). Ordered accordingly. Ground 2 of the assessee for all the years are treated as allowed for statistical purposes. Non deducting tax at source u/s.194J - roaming charges paid to other telecom operators - whether roaming charges paid by assessee to other service providers for using their services by assessee s customers could be treated as technical services falling u/s.194J - HELD THAT:- Reading of the above order clearly show that fact-situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd [ 2015 (7) TMI 175 - ITAT JAIPUR] would squarely apply as held these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee s appeal is allowed on this ground also.Also see VODAFONE ESSAR GUJARAT LIMITED AHMEDABAD VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE, AHMEDABAD [ 2015 (7) TMI 474 - ITAT AHMEDABAD] - Decided in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,52,96,573 -do- 601/13 2009-10 3,78,97,612 99,42,782 4,78,40,394 CIT (A)-II, Bangalore, dt.26.02.2013 602/13 2010-11 4,02,57,300 61,23,340 4,63,80,640 -do- 956/14 2011-12 6,16,82,646 88,97,181 7,05,79,827 CIT(A), Mysore 957/14 2012013 1,61,82,748 11,34,929 1,73,17,677 -do- In all these appeals assessee has taken common grounds totalling to four each of which has different sub-numbered paras. Ld. Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oiced its customers on net amount. Copy of an invoice was placed on record. According to him, the invoice amount accounted was net of the discount and discounts were not shown separately in the books of accounts. Further as per the Ld. AR, ledger page of the corresponding distributors clearly showed that what were debited to their accounts were only the net invoice amounts. 05. We have perused the orders and heard the rival contentions. AO in his order has noted that assessee was providing services through its distributors by selling them e-topup packs and recharge coupons. Such cards and coupons were purchased by the distributors appointed by the assessee at a rate below the market price printed thereon. Distributors sold these to the retailers who were the final sellers to the customers. As per the AO, the distributors were commission agents acting on fixed margins and had fixed responsibilities as was clear from the contractual agreement entered by the assessee with the distributors. AO was of the opinion that the rights in prepaid cards vested with the assessee and the relationship between the assessee and the distributor was not that of principal to principal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the new connections containing removable user identity module for providing the telecommunication connection. The assessee has entered into agreement with its channel partners. The second respondent conducted a survey under section 133A of the Income-tax Act, 1961 (for short hereinafter referred to as the Act ), on February 29, 2008. After hearing the explanation of the assessee, the second respondent opined that the channel partners are the commission agents of the assessee acting on fixed margins and fixed responsibilities, the difference between MRP and the selling price constitutes commission payment. Therefore, the assessee failed to deduct tax at source under section 194H of the Act. Accordingly, an order came to be passed on November 24, 2008, under section 201(1) of the Act treating the assessee as assessee in default. Interest was also levied under section 201(1A) of the Act. 3. In I. T. A. Nos. 637-644 of 2013 the assessee is M/s. Bharti Airtel Ltd. The assessee is a public limited company engaged in the business of telecom operations. A survey was conducted by the respondent in the business premises of the assessee to verify the compliance of TDS p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the channel partner as purchase price of the sim cards is mentioned. On payment of such amount, the sim card is sold, sales tax is paid on that consideration. Therefore, in the case of pre-paid services it is a case of out and out sale. No relationship of principal and agent exists. The assessee has not paid any amount to the channel partner and, therefore, section 194H of the Act is not attracted. The reliance of the judgment of the Kerala High Court as well as the Delhi High Court has no application to the facts of this case. 8. Sri Chythanya, learned counsel appearing for Bharti Airtel Ltd., submitted that the terms of the agreement between the parties had not created any relationship of principal and agent. On the contrary, it makes it clear that there is a relationship between principal and principal. What is sold by the assessee to the distributor is the right to receive the services. In the invoice raised, the MRP and the amount of discount are mentioned. MRP minus the discount is the sale price. In the accounts, there is no reference to this discount portion at all. Under the terms of the agreement, there is no liability on the part of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court where the judgment of the Tribunal has been extracted, which shows that when the sim cards/prepaid/ e-coupon/ e-topups is given to the distributor, the assesseecompany was crediting the sales account with ₹ 100. The assessee was debiting the cash amount with ₹ 80 though by paying cash to the distributor. The assessee was paying a commission amount of ₹ 20. This is the commission enjoyed by the distributor. In the said case, it was held that there existed a relationship of principal and agent. That is ₹ 20 represented the commission. Therefore, he submitted that, in the instant case, the assessee being the same, the contention of the assessee that there is no relationship of principal and agent is factually incorrect and, therefore, he submits that the authorities were justified in passing the impugned order. Consequently, he contended that the terms and contents of the agreement between the parties clearly demonstrate that neither these channel partners nor the distributors had any freedom in the matter of selling the products, which is supplied to them by the assessees. There was a complete control, which will clearly establish that it is not in a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is earlier. 41. The word income has been defined under section 2(24) of the Act. Income includes profits and gains. A commission is defined in Explanation (i) to section 194H as any payment received or receivable, directly or indirectly by an agent for services rendered acting on behalf of the principal. The element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to section 194H. The mere fact that the word agent or agency is used or the words buyer and seller are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the concessionaire at the time of the delivery then he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting and distribution of cellular phone connections and other related products. The distributor has to provide services mentioned in the agreement at paragraphs 1, 2, 3 and 4. Further, the agreement stipulates that the distributors have to represent to the customers that the distributor's agreement with the customers/its dealers is on principal-to-principal basis and the assessee is in no way concerned or liable to the customer/dealers of the distributor. Further, it provides that the distributor shall not make any promise, representation or to give any warranty or guarantee with respect to services and products, who are not authorised by the assessee. 45. Clause 9 of the agreement makes it abundantly clear that the distributor shall purchase material from the assessee and sell the same to the customer. This will include handsets, sim cards/recharge cards and any other products. The sales tax liability on the products sold by the distributor from its premises shall solely vest with the distributor. That the insurance liability for the entire stock-in-trade in the premises at the address under reference will be of the distributor and the liability for any loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , its directors and officers against any claim, demand, loss or whatsoever in this connection. 49. Clause 8.5 of the agreement stipulates that the channel partner be liable to pay all the taxes such as sales tax, service tax applicable and payable in respect of the subject matter of this agreement and any statutory increase in respect thereof. Clause 8.9 provides that the channel partner shall procure the products from TTSL or such person/s authorised by TTSL. The channel partner shall ensure that there is no sale of spurious and unauthorised products from the channel partner outlet(s) and/or the retails outlets under the control of the channel partner. Clause 10.1 provides that in consideration of the channel partner duly performing the duties and obligations as contemplated in the agreement, the channel partner shall be entitled to the consideration as set forth in the schedule being attached to the agreement. Clause 10.4 provides that the channel partner shall be solely liable for any state and local taxes including sales tax, in relation to this agreement. TTSL shall have no liability or obligation for any state or local Income-tax liability of the channel par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of deducting any tax at source would not arise. 53. In the Ahmedabad Stamp Vendors' Association's case (supra) also, it was held that, when the licensed stamp vendors took delivery of stamp papers on payment of full price less discount and they sell such stamp papers to retail customers, neither of the two activities can be termed as the service in the course of buying or selling of goods. Discount given to the stamp vendors is for purchasing the stamps in bulk quantity and the said amount is in the nature of cash discount and, therefore, such a transaction is a sale. Therefore, the discount made available to the licensed stamp vendors does not fall within the expression commission or brokerage under section 194H of the Act. 54. In the Mother Dairy India Ltd.'s case (supra) referred to supra, it was held that the concessionaire purchases the milk from the Dairy which raises a bill on the concessionaire and the amount he has paid for. The dairy merely fixed the MRP at which the concessionaire can sell the milk. Under the agreement, the concessionaire cannot return the milk under any circumstance, which is another clear indicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leg of the transaction cannot be different from the first leg of the transaction. 56. In the Idea Cellular Ltd.'s case (supra), the Delhi High Court proceeded on the footing that the assessee is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. They had appointed distributors to make available the pre-paid products to the public and look after the documentation and other statutory requirements regarding the mobile phone connection and, therefore, the essence of service rendered by the distributor is not the sale of any product or goods and, therefore, it was held that all the distributors are always acting for and on behalf of the assessee-company. 57. Similar is the view expressed by the Kerala High Court in the Vodafone Essar Cellular Ltd.'s case (supra), where it was held that, the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom the assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. In that context, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pre-paid cards to the subdistributors/ retailers. As at the time of sale of pre-paid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no primary liability to tax on the distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorised as commission. The sale is subject to conditions and stipulations. This by itself does not show and establish the principal and agent relationship. 60. The following illustration makes the point clear : On delivery of the pre- paid card, the assessee raises invoices and updates the accounts. In the first instance, the sale is accounted for ₹ 100, which is the first account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IM 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 dependant on the agreement between them and all of them have to share ₹ 20 which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the subdistributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the sim cards to the distributor, he is not 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. The deduction of Income-tax at source being a vicarious responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : 07. Ultimate directions given by the Hon ble jurisdictional High Court read as under : 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 sale discount is reflected in their books. If the accounts are not reflected as set out above, in paragraph 60, section 194H of the Act is not attracted. 08. Nodoubt before us Ld. AR has stated that assessee was accounting in its books only the net amount of invoice after deducting the discount. Sample invoice produced by him in this regard, shows the following : When sale of an e-topup coupon is made by assessee to the distributor, it can be accounted in two different ways. Credit can be given to the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are treated as allowed for statistical purposes. 09. Vide its ground 3, grievance of the assessee is that it was treated as one in default for not deducting tax at source u/s.194J of the Act, on roaming charges paid to other telecom operators. 10. Ld. AR submitted that roaming charges were different from interconnect charges. As per the Ld. AR there was no human intervention required when a customer was in roaming and using another service provider for connectivity. As per the Ld. AR when assessee s customer was using another service provider while he was in a geographically region roaming, such service providers billed the assessee for the use of their services and assessee in turn billed its customers. As per the Ld. AR, it was a case of recovery from the assessee and what was paid by the assessee to other service provider had no element of technical service in it. Articulating further, Ld. AR submitted that Hon ble Apex Court in the case of CIT v. Bharti Cellular Ltd [(2013) 193 Taxmann 97], had with reference to interconnect charges remitted the issue back to the AO for deciding whether there was a human interface, after taking necessary expert e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us is whether roaming charges paid by assessee to other service providers for using their services by assessee s customers could be treated as technical services falling u/s.194J of the Act. We find that similar issue had come up before the Jaipur bench of the Tribunal in the case of Bharti Hexacom Ltd (supra). It was held as under at paras 7 to 12 of the order : 7. Ground No. 2 of the appeal is against confirming the addition U/s 194J of the Act on not deducting TDS on roaming charges paid by the assessee being a fee for technical services. The ld ITO(TDS) observed that the assessee had paid roaming charges to other mobile operators. The assessee is providing GSM mobile services to its subscribers. The mobile subscribers of the company have been given the facilities of getting connected/avail of telecommunication facility, when they are not in the area being covered by the assessee company, through other mobile operators. To avail such services, the assessee company makes payment to other mobile operators, which is called roaming charges. During the financial year 2008-09, the assessee company paid roaming charges at ₹ 92,16,60,531/-. As per ld ITO(TDS), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of roaming is thus highly technical and can be executed only if there is a contract between two service providers. The entire system is being operated/managed by highly skilled professionals. A small technical fault can disturb the entire system. Therefore, highly technical persons are constantly monitoring the system. The entire process depends on IMSI which is a unique number comprising of MCC (Mobile Country Code), MNC (Mobile Network Code) allotted by telecom ministry to service providers and MSIN which is SIM numbers. The entire system depends on IMSI which is based on the SIM card issued by the home service provider (Rajasthan Circle in above case) and MNC which is a unique code provided to home service provider by the ministry. Without this the roaming system cannot become operational. This makes it clear that roaming service is a technical service and the technical services are provided by one operator to another and not to the subscriber. Thus roaming service is a highly technical service and therefore while making payments the assessee was required to deduct TDS which it had not done. The ITO(TDS) gave reasonable opportunity of being heard to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no way liable for any thing with each other. ( 10) If the subscriber does use SIM of Home Service provider he cannot access telecom operator of other circle unless he purchases new SIM card. ( 11) It is clear from the bills raised by telecom operator of other circles that they have changed service tax to assessee and the assessee has paid the same. This simply means that services were provided by one operator to other and not to customers directly. The Service Tax Act has also recognized roaming services as taxable services the Finance Bill, 2007. ( 12) The entire system is to be monitored/managed by the highly skilled technical. A small technical problem can disturb the connectivity of entire region. To avoid such eventuality the entire process is being monitored by skilled persons. ( 13) This clearly shows that the service provider of another region to whom roaming charges are paid is not providing services directly to ultimate customer but it is providing services to another telecom operator to facilitate its customers. ( 14) The provision of section 194J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongwith technical equipments. In the present case, the assessee used highly sophisticated machine, which was managed by the highly qualified technical staff which involves application of human mind. In view of the above finding, he held that roaming charges paid to the other telecom operator is a fee for technical services and liable to be deducted TDS U/s 194J of the Act. The ITO(TDS) rejected the assessee s request to apply the Hon'ble Supreme Court decision in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT (supra) as payees has not filed its return of income. Therefore, the benefit of Hon'ble Supreme Court decision cannot be given. Accordingly, he created the demand U/s 201(1) on roaming charges of ₹ 10,18,92,350/- and interest thereon U/s 201(1A) of the Act at ₹ 68,75,375/-. 8. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the order of the ITO(TDS) by observing as under:- 3.3.1 I have carefully considered the facts of the case and contentions/arguments of both the sides and I find that the contention of Ld. A.R. regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Jaipur travels of Mumbai switches on his mobile device after reaching Mumbai. Where the subscriber travels by land he automatically receives a message transferring to the roaming network on visiting another telecom, circle. * Visiting network (e.g. Airtel in Mumbai) locates mobile device and identifies that it is not registered with its systems, i.e. VLR. * Visiting network automatically contacts home network of Hexacom subscriber, i.e. HLR and gets service information about roaming device using IMSI number-IMSI number is a unique subscriber identity number granted to the customer at the time of subscription. * Visiting network maintains temporary subscriber record for the said mobile device and provides an internal temporary phone number from backend system to the mobile device which is not visible to human. * Home network also updates its register to indicate that the mobile is on visitor network so that information sent to that device is correctly routed. * The Hexacom s subscriber in Mumbai, who is temporarily registered as Airtel s subscriber ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so because the word technical comes in between the words managerial and consultancy services . Based upon the principles of nositur a sociis there has to be an element of manual intervention at the time when the service is being rendered. * Technical services should have a fact situation of imparting technical knowledge involving or concerning applied and industrial science. The ld AR further argued that finding of the ld CIT(A) are based on contract between two operators but contract has no relevancy on the nature of the service whether technical or otherwise. The ld CIT(A) partly accepted that roaming process is technical because it uses various instruments such as MSC (Mobile Switching Centre), VLR (Visitor Location Register), Radio network, towers, BTC etc. but the system is operated/managed by the Highly skilled professionals. The assessee s argument was that the roaming service is managed automatically by machines and payment for roaming charges are not fees for technical services. In case of fault in a breakdown of a system, the professional people are required to monitor the telecom network to be in a robust condition in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of Section 194J would come into effect only when by making payment of fee for technical services, assessee acquires certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by user of such equipment, the same does not result in the provision of technical service to the customer for a fee. Therefore, he argued that in roaming charges paid by the assessee to the other operators are not fees for technical services. The ld AR further relied on the decision in the case of iGATE Computer Systems Ltd. Vs. DCIT in ITA No. 1301 to 1303 1616/PN/2013 for A.Y. 2007- 08 to 2010-11 wherein the Hon ble Pune Bench of ITAT had considered whether any human intervention is required for providing the data link services and are liable to be deducted TDS U/s 194J of the Act and held that payments made for utilizing such services was not in the nature of technical services governed by Section 194J of the Act. He further relied on the decision of ITAT Ahmadabad Bench in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpert of the C-DOT on 29/09/2010 in respect of IUC and which were cross examined on 04/10/2010 by M/s Bharti Cellular Limited, Delhi. The technical experts reexamined on 04/10/2010 on this issue and admitted that roaming services does not require any human intervention, it operates automatically. The ld AR also drawn our attention on independent opinion taken from Director CMAI, ExDirector (C M), BSNL, Ex-Member Telecom Commission on 24/12/2010 and admitted that whole interconnected uses process, no manual intervention is required. He further drawn our attention on page No. 651 to 652 for postpaid as well as prepaid roaming charges charged between the operators from Mr. Kapoor Singh Guliani. The appellant also taken opinion from Former Chief Justice of India Mr. Kapadia on IUC post technical examination, cross examined and reexamination. Who also opined that Hon'ble Supreme Court decision dated 12/08/2010 is an order not judgment as the principle of law was not res-integra. The word technical services have got to be read in narrow since as held by the various Hon ble High Courts and the Tribunal by applying principles of nositur a sociis particular because the word technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee s appeal is allowed on this ground also. 14. Reading of the above order clearly show that fact-situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd (supra) would squarely apply. We also find that the said decision has been followed by Ahmedabad bench in the case of Vodafone Essar Gujarat Ltd v. ACIT (TDS) [ITA No.386/Add/2011, dt.07.07.2015]. Following these, we are of the opinion that assessee could not have been deemed as one in default for non-deduction of tax at source on roaming charges paid by it to other service providers. Ground 3 is allowed. 15. In its ground no.4, assessee is aggrieved on the levy of interest u/s.201(1A) of the Act. This is a consequential ground. We have already held that assessee is not at default for deduction of tax on roaming charges and interest levied on the assessee on such amount u/s.201(1A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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