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TMI Blog2020 (6) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... limit prescribed u/s 201(3) of the Act. 2. The CIT(A) failed to appreciate and ought to have held that any order passed beyond reasonable period is barred by limitation and thus void-ab-initio. 3. The Appellant prays that the TDS officer be directed to consider it invalid and same be quashed. Without Prejudice to Ground I, GROUND II: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the order passed by the TDS officer of holding the Appellant as 'assessee-in-default on non-deduction of tax at source on discount allowed to the prepaid distributors u/s 194H of the Act on distribution of 'right to prepaid service* and not appreciating the submissions made by the Appellant on net accounting in its books of accounts as directed by the Hon'ble Tribunal while remitting the matter back to his office. 2. He failed to appreciate and ought to have held that: * The relationship between the Appellant and the prepaid distributors is on 'Principal to Principal' basis and therefore no liability of deducting tax at source u/s 194H of the Act. * The prepaid distributors generates income on further sale of rights and not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and the telecom operators) by filing their return of income. 2. The CIT(A) further erred in not appreciating that the appellant has submitted all the relevant details/documents evidencing payment of taxes to the TDS Officer. 3. The appellant therefore prays that the impugned demand on the said transactions be deleted. GROUND No.V ""1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the order of the TDS Officer of treating appellant as an assessee-in-default u/s.201(1) of the Act and thereby levying interest u/s.201(1A) of the Act. 2. The CIT(A) erred in not appreciating that the interest u/s.201(1A) is only compensatory in nature and that it can be levied only when there is default in payment of the taxes. 3. The CIT(A) erred in not appreciating that where the appellant had no liability of deducting tax at source, the issue of deposit of taxes and consequential interest u/s.201(1A) of the Act does not arise. 4. Without prejudice to the above, the appellant prays that the interest levied u/s.201(1A) of the Act be deleted as the taxes payable on the discount and roaming charges would have been duly paid by the recipient par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er state of the country and, therefore, provisions of section 194J of the Act are applicable. As the assessee has not deducted TDS, therefore, the assessee is held as the assessee in default in respect of non-deduction of TDS u/s.194H and 194J of the Act on payment of commission and fees for professional or technical services and passed order u/s.201(1) & 201(1A) of the Act. 6. The above action of the AO was confirmed by the ld CIT(A). The matter was travelled upto the Tribunal and on considering the submissions of both the sides, the matter was remitted back to the file of the AO for verification of evidences filed by the assessee and passed a fresh order. 7. In pursuance to the direction of the Tribunal, the ACIT (TDS) proceeded to pass order on the basis of evidences furnished by the assessee. The Assessing Officer observed that the assessee having failed to deduct tax as required under section 194H is a defaulter within the meaning of section 201(1) of the Act and created a demand of 17,62,920/- and interest of Rs. 6,34,651/- u/s.201(1A) on discount on the prepaid SIM cards and under section 194J on roaming charges of Rs. 69,440/- under section 201(1) and interest u/s.201(1A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorised as commission for the purpose of section 194H of the Act or otherwise. That though Explanation (i) to section 194H of the Act inter alia states that "commission or brokerage" includes any payment received or receivable directly or indirectly the said section makes it clear that payment has to be of income by way of commission. That in the present case the assessee has not made any such payment. 11. Ld A.R. also relied on the recent judgment of Hon'ble Bombay High Court in the case of CIT(TDS) vs Vodafone Cellular Ltd in ITA No.1152 of 2017 and others order dated 27.1.2020, wherein, before the Hon'ble High Court, the issue for consideration was whether the ITAT was justified in holding that TDS provisions under section 194H of the Income tax Act, 1961, are not attracted on discounts given by the assessee to the distributors of prepaid SIM cards and the Hon'ble High Court has confirmed the decision of the Tribunal that the provisions of section 194H of the Act was not applicable on discounts given by the assessee to the distributors of prepaid SIM cards. Hence, it was his contention that facts being similar in the present case the decision of Hon'ble Bombay High Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 201(1) of the Act. 14. We have heard the rival submissions and perused the records of the case as well as plethora of judgments cited by ld counsel for the assessee. In the present case, the assessee is engaged in business of providing telecommunication services in various parts of India. The assessee, under prepaid arrangement, has extended discount to prepaid cards to distributors. The arrangement between the assessee and the prepaid distributors for distributor of right to prepaid service is on a 'principal to principal' basis. Under this arrangement, at each level of the distribution chain, the party distributing the right to prepaid service retains a margin for its efforts and risks assumed, while the telecom operator, being the service provider assumes the responsibility for provision of services to the subscriber. The distributors are free to distribute the right to prepaid service to the retailers/eligible subscribers once they have acquired the same from the assessee on payment of consideration. Hence, the discount extended to the prepaid distributors is in the nature of margin for such distribution of right to prepaid services and such discount does not qualify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate consumer. The distributors are acting only as a link in the chain of service providers. The assessee-company is providing the mobile phone service. It is the ultimate owner of the service system. The service is meant for public at large. In between providing of that service, it is necessary for the company to appoint distributors to make available the prepaid products to the public as well as to look after the documentation and other statutory matters regarding the mobile phone connection. So, what is the essence of service provided by the distributors? The essence of service rendered by the distributors is not the sale of any product or goods. The distributors are providing facilities and services to the general public for the availability of devices like SIM Cards to have access to the mobile phone network of the assessee-company. Therefore, it is beyond doubt that all the distributors are always acting for and on behalf of the assessee-company. Only for the reason that the distributors are making advance payment for the delivery of SIM Cards and other products and distributors are responsible for the stock and account of those cards, it is not possible to hold that the distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as Recharge coupons or E Topups are concerned which are only air time charges collected from the subscribers in advance. We have to necessarily hold that our findings based on the observations of the Supreme Court in BSNL's case (supra) in the context of sales tax in the case of BPL Cellular Ltd. (supra) squarely apply to the assessee which is nothing but the successor company which has taken over the business of BPL Cellular Ltd. in Kerala. So much so, there is no sale of any goods involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee. The terms of distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification and documentation which responsibility is entrusted by the assessee on the distributors under the agreement. It is pertinent to note that besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sim Cards are only used for giving connection to the customers procured by the distributor for the assessee. The assessee is accountable to the subscribers for failure to render prompt services pursuant to connections given by the distributor for the assessee. Therefore, the distributor acts on behalf of the assessee for procuring and retaining customers and, therefore, the discount given is nothing but commission within the meaning of Explanation (i) on which tax is deductible under Section 194H of the Act. The contention of the assessee that discount is not paid by the assessee to the distributor but is reduced from the price and so much so, deduction under Section 194H is not possible also does not apply because it was the duty of the assessee to deduct tax at source at the time of passing on the discount benefit to the distributors and the assessee could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act. 30. Following the said judgment, the Calcutta High Court in the case of Bharti Cellular Limited Vs. Assistant Commissioner of Income Tax and Another rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub-distributors/retailers. As at the time of sale of prepaid 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 categorized as commission. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship. 60. The following illustration makes the point clear: On delivery of the prepaid card, the assessee raises invoices and updates the accounts. In the first instance, sale is accounted for Rs. 100/-, which is the first account and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as 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 responsibility, when there is no primary responsibility, the assessee has no obligation to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 lime 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 m the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributer. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elongs 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 lax 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, 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 Rs. 100/- in their books of accounts and showing the discount of Rs. 20/- to the dealer. Only if they are showing Rs. 80/- as the sale price and not reflecting in their accounts a credit of Rs. 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t required to deduct tax u/s.194J of the Act and consequently, the assessee shall not be treated as an assessee in default u/s 201(1) of the Act. Once, the assessee is treated as assessee not in default u/s.201(1), the interest u/s.201(1A) is not required to be charged. We, accordingly, allow the grounds of appeal raised by the assessee. 25. Before parting, we may herein deal with a procedural issue that though the hearing of the captioned appeal was concluded on 7.2.2020, however, this order is being pronounced much after the expiry of 90 days from the date of conclusion of hearing. We find that Rule 34(5) of the Income tax Appellate Tribunal Rules, 1962, which envisages the procedure for pronouncement orders, provides as follows: (5) The pronouncement may be in any of the following manners: -(a) The Bench may pronounce the order immediately upon the conclusion of hearing (b) in case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date of pronouncement. In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed "while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". The extraordinary steps taken suo motu by Hon'ble jurisdictional High Court and Hon'ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words "ordinarily", in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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