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TMI Blog2020 (5) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... section 201(1)/201(1A) of the Act. Thus, the ground raised by the assessee stands dismissed for both the assessment years. TDS u/s 194H - Whether sale of recharge vouchers and prepaid vouchers and prepaid cards to the sole distributors does not establish Principal-Agent relationship liable to TDS under section 194H? - HELD THAT:- As relying on HINDUSTAN COCA COLA BEVERAGES PVT. LTD. [ 2017 (7) TMI 1076 - RAJASTHAN HIGH COURT] and BHARTI AIRTEL LTD. AND [ 2014 (12) TMI 642 - KARNATAKA HIGH COURT] Sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS under section 194H of the Act. However, we find that while deciding similar issue, the Hon ble Kerala High Court in VODAFONE ESSAR CELLULAR LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX (TDS) [ 2010 (8) TMI 691 - KERALA HIGH COURT] has taken a different view, as the relevant observations are reproduced hereinabove, and decided the issue against the assessee. In the absence of any jurisdictional High Court decision brought to the notice of the Bench, we are of the considered opinion that other High Court s decisions are binding on the Tribunal to take a decision, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the statement is filed in a case where the statement referred to in section 200 has been filed. Here, the assessee has not deducted TDS under section 194H of the Act and thus, the question of filing of quarterly statement as required under section 200 of the Act by the assessee do not arise and therefore, we held that the assessee is not covered by the provisions of section 201(3)(i) of the Act. Accordingly, the ld. CIT(A) has validly confirmed the order passed under section 201(1)/201(1A) of the Act. Thus, the ground raised by the assessee stands dismissed for both the assessment years. 3. The effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in holding that the sale of recharge vouchers and prepaid vouchers and prepaid cards to the sole distributors does not establish Principal-Agent relationship liable to TDS under section 194H of the Act and also held that no tax at source was deductible provided the assessee satisfied the conditions relating to treatment of discount in the books of accounts. 4. The assessee company is a mobile/cellular service provider. While completing the assessments for the assessment years 2008-09 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated demand under sections 201(1) and 201(1A) of the Act and the ld. CIT(A) was not justified at all to delete such demands. 3.7 Similarly, by referring to the decision of Hon ble Delhi High Court in the case of CIT Vs. Idea Cellular Ltd. in 325 ITR 148 as well as various other decisions, in the case of Vodafone Essar Cellular Ltd. v. ACIT in 332 ITR 255, in the case of Vodafone Essar Cellular Ltd. v. ACIT in 332 ITR 255, the Hon ble Kerala High Court has held that the distributors acted on behalf of the assessee for procuring and retaining customers and, therefore, the discount given was commission within the meaning of Explanation (1) on which tax was deductible under section 194H of the Act. 3.8 Further, on similar facts and circumstances, in the case of Bharti Cellular Ltd. Vs. ACIT in 354 ITR 507, the Hon ble Calcutta High Court has also decided the issue against the assessee by upholding the action of the Assessing Officer in treating the assessee to be an assessee in default. However, we find that the Hon ble Karnataka High Court in the case of Bharti Airtel Ltd. Vs. DCIT in 372 ITR 33 has held that sale of SIM cards/recharge coupons at discounted rate to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a simcard. When he pays for the sim-card, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be sold. What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, 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 into 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted. 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors: incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and remit the same to the Department. If the payee is not in possession of the net income which is chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of tax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid. 64. In the case of Vodafone Essar Celluar Ltd., (supra) it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at ₹ 100/- in their books of accounts and showing the discount of ₹ 20/- to the dealer. Only if they are showing ₹ 80/- as the sale price and not reflecting in their accounts a credit of ₹ 20/- to the distributor, then there is no liability to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the angle which was required to be considered by the Tribunal under the Income Tax Act. The Tribunal has travelled beyond the provisions of Section 194H where the condition precedent is that the payment is to be made by the assessee and thereafter he is to make payment. In spite of our specific query to the counsel for the department, it was not pointed out that any amount was paid by the assessee company. It was only the arrangement by which the amount which was to be received was reduced and no amount was paid as commission. 46. In that view of the matter, if we look at the provisions of Section 194H and even if explanation is taken into consideration, there is no occasion of invoking provisions of Section 194H, since the amount is not paid by the assessee. 47. Taking into account the conclusion which has been arrived at by the Tribunal is misdirected in view of the arrangement which has been arrived at between the company and the Distributor. Assuming without admitting, if the contention which has been raised before the Tribunal is accepted, the same can be at the most expenses which are not allowable under the Income Tax Act, if at all claimed without proper basis b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is done for taking back the goods, will not deter the relation-ship of Principal to Principal basis. (vii) Regarding supervision, it is always for the manufacturer and the company to look into the matter that his Distributor or Sub-Distributor or Retailer will not induct in mal practice. (viii) Regarding goods sold to the Distributor, it is always a matter of contract how further goods will be distributed. Restriction on subdistributor will not change the transaction from Principal to Principal. (ix) Regarding expenses which are described by the Tribunal and one of the reason is that it is always for the assessee to allow any special allowance or expenses to promote the sale. In a competitive world to promote the sale, if the Distributor is not given any encouragement, the business will not grow. In that view of the matter, in view of the observations of the Supreme Court, the Income Tax Officer cannot enter into the shoes of the assessee. (S.A. Builders Vs. Commissioner of Income Tax- (2007) 288 ITR 1 (SC). (x) Regarding providing a vehicle it was very clear that by providing vehicle and getting list of expenses will not decide the relation-ship of Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be answered in favour of assessee. 53. Regarding Section 194J of the Act, in view of the Kerala High Court decisions, the issue is answered in favour of assessee and third issue even as per the statutory definition, there is no service and Sections 201 and 194H would not apply in view of the agreement as referred hereinabove. Tata Teleservices 54. In view of agreement the issue regarding 194H and 194J as held in other cases, both the issues are answered in favour of the assessee. Vodafone 55. Issues regarding Sections 194H, 194J and 201 of the Act, they are answered in favour of assessee. 56. Additional questions are framed in the case of Department. There are 5 issues in favour of assessee (issue Nos. 1 and 2 are wrongly framed by the Court). However, in view of our above discussion, they are required to be answered in favour of the assessee. 57. In case of appeal preferred by the assessee, issue No.4 is required to be answered in favour of assessee that the CIT (A) has all jurisdiction to restore or set aside the judgment of AO since it is a statutory appeal, the appellate court has all powers to deal with the same. All other issues a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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