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TMI Blog2020 (1) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 194H of the Act is not attracted. - Decided in favour of assessee. - Shri Pawan Singh, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Appellant : Shri Ronak Doshi with Shri C.D. Joshi (AR) For the Respondent : Shri S. Padmaja CIT-DR with Shri V.K. Agarwal (Sr DR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. Commissioner of Income-Tax (Appeals)-59 [for short the ld. CIT(A)], Mumbai dated 22.03.2016 for Assessment Year 2012-13. The assessee has raised the following grounds of appeal: GROUND NO. I: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the TDS Officer of treating the Appellant as an assessee in default u/s.201 r. w.s 194H of the Act on the discount allowed by the Appellant to the Prepaid Distributors. 2. He failed to appreciate and ought to have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HE ACT. 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the order of the TDS Officer in holding the Appellant as assessee in default under section 201(1) of the Act and thereby levying the interest under section 201(1A) of the Act. 2. The Appellant prays that the interest levied under section 201(1A) of the Act be deleted or be appropriately reduced. 2. The facts of the case in brief are that assessee is a company engaged in providing Cellular telephone services for prepaid and post paid to its customers. A survey under section 133A of Income tax Act (Act) was conducted at the premises of the assessee on 09-09-2011 at Santaruz (E), Mumbai. During the course of survey, it was found that assessee; in the course of its business the assessee had appointed distributors for prepaid cellular connection and recharge coupon. The market price of said prepaid card of cellular connection and recharge facilities was provided by the assessee company as printed on such cards / coupons. But, at the time of selling its prepaid cellular connections and recharge coupons to the distributor in the form of discount / commission on the market price, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to the retailer and the retailer to the consumers accordingly just like discount given by manufacturer in the course of their business and ultimately the same cannot be considered as commission. Similarly in assessee s case, the discount given to distributor which is on the same footing cannot be considered as commission. The agreement entered into by assessee with distributor, does not make the distributor its employee, agent, associate of the assessee for any purpose. The Ld.AR of the assessee submits that on similar set of facts, various Tribunals and High Courts held that where assessee, in the business of providing mobile telephone services, sold prepaid vouchers to its distributors at the rate lower than the face value, the difference cannot be regarded as commission requiring deduction of tax at source u/s 194H. 5. The ld.AR for the assessee submits that Hon ble Karnataka High Court and Rajasthan High Court in Bharti Airtel vs DCIT 373 ITR 33 (Kar) and in assessee s own case by Rajasthan High Court reported at 402 ITR 539 (Raj) held that section 194H is not applicable on sale of prepaid SIM cards to distributors. The ld. AR further submits that Mumbai Tribunal also decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that since no decision of jurisdictional High Court is available on the issue so far, the decision favourable to assessee must be considered as per the decision of Hon ble Supreme Court in CIT vs Vegetable Products 88 ITR 192(SC). 10. On the other, the Ld. DR for the revenue supported the order of lower authorities. The Ld. DR further submits that the lower authorities were right in their respective field. The ld. DR further submits that various tribunals had not examined the terms and the conditions of the distributor agreement entered between the assessee and the distributors. A bare perusal of distributor s agreement made it clear that there is clear relationship of principal and agent. The assessee has not explained the activity of dale of SIM cards. The ld. DR for the revenue relied on the decision of Hyderabad Tribunal in Idea Cellular Vs ACIT (2014) 51taxmann.com 50 Hyd Trib). The Pune Tribunal has not examined the facts in Qatar Airways [332 ITR 253 (Bom.)]. The ld. DR prayed for confirming the order of the ld. CIT(A). 11. We have considered the rival submissions of the ld. representatives of the parties and perused the material placed before us. We have also delibe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H will come into play in respect of the difference between the price at which the air time is thus sold to the distributors and its recommended retail price to the end consumers. 8. This issue is no longer res integra. As the same business model, with no or peripheral variations, has been followed by almost all the operators in the mobile telecommunication industry, this issue has been subject-matter before various forums, and more importantly, before various Hon'ble High Courts. Learned Representatives fairly agree that the above issue in appeal is subject-matter of difference of opinion by various Hon'ble non-jurisdictional High Courts and that we do not have the benefit of guidance by Hon'ble jurisdictional High Court. 9. This issue is covered, in favour of the assessee, by Hon'ble Karnataka High Court's common judgment in the cases of Bharti Airtel Limited, Tata Teleservices Limited and Voadfone South Limited, reported as Bharti'AirtelLid. v. DCIT[2015] 372 1TR 33/228 Taxman 219 (Mag)/[2014J 52 laxmann.com 31 (Kar) wherein their Lordships have, inter alia, observed as follows: 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary' responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal. 63. It was contended by the revenue that, in the event of the assessee deducting the amount paying into the department, ultimately if the dealer is not liable to tax it is always open to him to for refund of the tax and, therefore, it cannot be said that Section I94H is not attracted to the case hand. As stated earlier, on a proper construction of Section I94H and keeping in mind the object wi which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to lax under the Act and which belongs to the payee. A statutory obligation is cast on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194H. . What is clear from Explanation (i) of the definition clause is that commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person for the services rendered. We have already taken note of our finding in BPL Cellular's case (supra) abovereferred that a customer can have access to mobile phone service only by inserting Sim Card in his handset (mobile phone) and on assessee activating it. Besides getting connection to the mobile network, the Sim Card has no value or use for the subscriber. In other words, Sim Card is what links the mobile subscriber to the assessee's network. Therefore, supply of Sim Card, whether it is treated as sale by the assessee or not. is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Besides the purpose of retaining a mobile phone connection with a service provider, the subscriber has no use or value for the Sim Card purchased by him from assessee's distributor. The position is same so far as Recharge coupons or e-Top ups are concerned which are only air time charges collected from the subscribers in advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment received or receivable by the distributor for the services to be rendered to the assessee and so much so, it falls within the definition of commission or brokerage under Explanation (i) of Section I94H of the Act. The test to be applied to find out whether Explanation (i) of Section I94H is applicable or not is to see whether assessee has made any payment and if so. whether it is for services rendered by the payee to the assessee. In this case there can be no dispute that discount is nothing but a margin given by the assessee to the distributor at the time of delivery of Sim Cards or Recharge coupons against advance payment made by the distributor. The distributor undoubtedly charges over and above what is paid to the assessee and the only limitation is that the distributor cannot charge anything more than the MRP shown in the product namely, Sim Card or Recharge coupon. Distributor directly or indirectly gets customers for the assessee and Sim Cards are only used for giving connection to the customers procured by the distributor for the assessee. The assessee is acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CJT\. Smt. Godwaridevi Saraf [ 1 978] 113 ITR 589. That was a case in which Their Lordships were in seisin of the question as to whether, on the facts and circumstances of the case, and in view of decision in the case of 'A.M. Sali Maricar v. ITO [ 1973] 90 ITR 116 ( Mad) the penalty imposed on the assessee under s. 140A(3) was legal? The specific question before Their Lordships thus was whether the Tribunal, while sitting in Bombay, was justified in following the Madras High Court decision. It was in this context that Hon'ble Bombay High concluded as follows: It should not be overlooked that IT Act is an all India statute, and if a Tribunal in Madras has proceed on the fooling that s. 140A(3) was nonexistent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the Tribunal in the State of Bombay (as it then was), it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land ...... an authority like Tribunal has to respect the iaw laid down by the High Court, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was bound to follow the said judgment of the Madras High Court. It, therefore, cannot be said that the Tribunal committed an error in following the said judgment of the Madras High Court. In view of the said decision of the Madras High Court, the only course which the Tribunal could have followed was to direct the ITO to consider the partial partition on the merits and pass an order under s. 171 first and then under s. 143(3) of the Act. 15. It is clear that, except on the issue of legality of the statutory provision itself, the decisions of even the non-jurisdictional High Courts are binding on the lower tiers of judicial hierarchy such as this Tribunal. As we hold so, we are alive to the school of thought that non-jurisdictional High Courts are not binding on the subordinate courts and Tribunals, as articulated by Hon'ble Punjab Haryana High Court in the case of CIT v. Ved Parkash [1989J 178 ITR 332 44 Taxman 365 but then that was a case in the context of validity of a statutory provision, i.e. I40A(3), covered by the rider to the general proposition. This exception does not come into play in the present case as we are not, and we cannot be, dealing with the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel has placed reliance upon a few decisions of this Court in CJTv. Madho PrasadJatia (1976) 105 ITR 1 79 (SC): C1T\. Vegetable Products Ltd. (1973) 88 ITR 192 (SO and C/T vs Kulu Valley Transport Co. P. Ltd (1970) 77 ITR 518 (SC) :........ The above principle of law is well-established and there is no doubt about that.,..... 19. Having noted the legal position as above, it is appropriate, for the sake of completeness, to note the exception to this general rule as well. Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of taxpayer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman v. Barron 1952(2) AIR 393 and followed by Apex Court in Mangalore Chemicals Fertilizers Ltd v. Dy. Commissioner of Commercial Taxes [1992] Suppl. (I) SCC 21 and Novopan India Lid. v. CCE C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, in case of ambiguity, a taxing statute should be construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Sanchar Nigam Ltd. (ITA No 170/Hyd/2010 and CO No10/Hyd/10; order, dated 5th June, 2015) has reached the same conclusion but the reasoning adopted, for following Hon'ble Karnataka High Court's judgment in the case of Bharti Airtel Ltd. (supra), was stated to be that Since no jurisdictional High Court decision is available as on date, the latest decision of Karnataka High Court, which has considered and distinguished earlier rulings of other High Courts, deserves to be followed . Our conclusion is the same but our decision to follow Hon'ble Karnataka High Court's judgment is simply this judgment is to be preferred over, in the light of settled legal principles set out above, other Hon'ble High Court judgments, because it is favourable to the assessee. With utmost respect and reverence to all the Hon'ble Courts, it is not for us to choose which decision is to be followed because of its merits because of what it has discussed or because of how it has distinguished other Hon'ble High Courts or because of its liming i.e. of its being latest. Even when a nonjurisdictional High Court distinguishes all other decisions of Hon'ble High Courts but holds a vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery of the same to the distributors. The assessee does not compensate the distributors for any unsold stock. 4. The Distributor has no express or implied right or authority to assume or undertake any obligation in respect of or on in the name of the assessee. Page 70. Distributor does not have an authority to assume or create any obligations VWL s behalf or incur any liability on behalf of VWL or accept any contract binding upon VWL (clause 17.1 of the Agreement). 5. hannel Partner be liable to pay all the taxes such as sales tax, serv ice tax applicable and payable in respect of the subject-matter of this agreement and statutory increase in respect thereof - Page 72. The distributor shall pay all licenses, fee, taxes, duties, sales-tax, service tax and any other charges, assessments penalties whether statutory or otherwise levied by any authority in connection with the operation of distributor s officer (Clause III(b) of Annexure III to agreement). 6. After sale of products distributor / channel partner cannot return goods to the assessee for whatever reason - Page 74. The assessee shall not be responsible for any post delivery defect in the service tickets. No request of refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when this right to service is sold at a profit by the distributor), rather than earning income, distributors incur expenditure for the purchase of prepaid cards. Therefore, at the time of the assessee selling these prepaid cards, he is not in possession of any income belonging to the distributor. Accordingly, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. (e) In a situation in which the assessee has credited the sale proceeds at the transaction value (in contrast with the transaction being shown at face value and the difference between face value and the transaction value credited to the distributor), the tax deduction liability under section I94H does not arise. While learned counsel for the assessee has stated at the bar that the sale proceeds are credited at the transaction value, this aspect of the matter is to be verified by the Assessing Officer, and in case the sales is accounted for at the face value, to that extent, the tax withholding liability is to be sustained, 25. Ground No. 1 is thus allowed in the terms indicated above. 13.In view of the aforesaid discu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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