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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 ..... 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. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [ 2020 (5) TMI 359 - ITAT MUMBAI ] - Shri Chandra Mohan Garg, Judicial Member And Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri Salil Kapoor, Ms Soumya Singh Nirod Patade For the Revenue : Shri M.K.Gautam, CIT DR ORDER PER L.P.SAHU, AM These are bunch of four appeals filed by the assessee against the separate orders of the CIT(A),1, Bhubaneswar, all dated 20.8.2019 for the assessment years 2009-10 to 2012-13, respectively. 2. In all these appeals, the assessee has raised various common grounds. Hence, we proceed to adjudicate the appeal in ITA No.306/CTK/2019 for A.Y. 2009-10 and the decision will apply mutatis-mutandis to other appeals. For the sake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to delete the impugned demand. Without Prejudice to Ground I, GROUND III: 1. On the facts and in the circumstances of the case and in law, the C1T(A) erred in upholding the order passed by the TDS officer of holding the Appellant as 'assessee-in-default' for non-deduction of tax at source u/s 194J of the Act on roaming charges paid to other telecom operators. 2. The C1T(A) further erred in not appreciating that the TDS officer has not taken cognizance of the submissions made by the Appellant on issues of' Human intervention' in the roaming process as directed by the Hon'ble Tribunal while remitting the matter back to his office. 3. The C1T(A) failed to appreciate that the roaming charges paid to various operators are standard automated services which do not require any human intervention which is an essential condition to qualify as a technical service and therefore, it cannot be construed as Fees for Technical Service ('FTS') for the purposes of applicability of section 194J of the Act. 4. The Appellant prays that it be held that the Appellant cannot be an 'assessee-in-default' u/s 201(1) of the Act and the impugned demand be deleted. Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-deducting TDS in respect of payments. The Assessing Officer issued show cause notice to the assessee requiring to explain as to why tax is not liable to be withheld under section 194J of the Act on roaming charges paid and under section 194H of the Act on discount extended to the pre-paid distributors by the assessee. The assessee filed its reply but did not find favour with the Assessing Officer. The AO observed that the assessee offers services to its subscribers in both post and prepaid categories and TDS has to be made on discount/commission paid u/s.194 of the Act, whereas in case of prepaid services, SIM cards or recharge vouchers are sold to the customers through network of distributors and agents who remit the sale proceeds back to the telecom companies after retaining a fixed amount which is commonly termed as discount. The AO was of the opinion that TDS has to be deducted in respect of prepaid SIM cards and commission is paid for services rendered by the network of distributors and the terminology of discount as claimed by the distributors is nothing but the commission payment services rendered by the distributors, therefore, provisions of section 194H are applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of commission, not being insurance commission. He submitted that in this case, the assessee is receiving the amount from the distributor below MRP amount of SIM cards and prepaid cards, so there is no payment of any amount to the distributor by the assessee as commission. 9. Ld A.R. relied on the following decisions to support its claim: i) Bharti Airtel ltd vs DCIT, 372 ITR 33 (Kar) ii) Tata Teleservices Ltd vs ITO 42 ITR (Trib) 121 iii) Hindustan Coca Cola Beverages Pvt ltd vs CIT, 402 ITR 5139(Raj) iv) Vodafone Cellular Limited vs DCIT, ITA No.817/Pun/2013 v) DCIT (TDS) vs Idea Cellular Ltd, ITA No.953/JP/2016 vi) CIT (TDS) VS Idea Cellular Ltd. ITA No.90/2018(Raj) vii) Vodafone Spacetel Ltd vs ACIT (TDS) ITA No.76-77/Pat/2012 viii) Fodafone East Ltd vs DCIT (tds) ITA No.1499-1502/Kol/2015 ix) DCIT (TDS) vs Vodafone West Ltd., ITA No.1317 1318/Ahd/2016 x) CIT vs Kotak Securities Ltd, 383 ITR 1 (SC) xi) CIT vs Delhi Transco Ltd., 69 taxmann.com 231(SC) xii) CIT vs Delhi Transco Ltd, 380 ITR 398(Del) He further submitted that TDS provisions are not applicable in cases where there is no payment made by the assessee and it is not relevant whether the assessee was engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a roaming call. Taxpayer's job is confined to collecting the roaming charges from the subscriber and transfer it to the other service provider. In such a case the tax payer does not use the equipment involved in providing the roaming facility. He, he pleaded that the assessee is not required to deduct TDS u/s.194J of the Act and, accordingly, is not in default under section 201(1) and under section 201(1A) of the Act. For this proposition, ld A.R. relied on various judicial pronouncements including the judgement of Hon ble Delhi High Court in the case of CIT vs. Bharti Cellular Ltd and others, 185 taxmann 583, which was pronounced in the context of interconnection charges paid by one telecom operator to another under the interconnect arrangement. 13. On the other hand, ld CIT DR supported the orders of lower authorities. Ld DR relied on the judgment of Hon ble Calcutta High Court in the case of Hutchison Telecom East Ltd vs CIT, (2015) 59 taxmann.com 176 (Cal). Ld D.R. also relied on the decision of ITAT Chennai Bench A in the case of ITO vs Vodafone Essar Cellular Ltd(2011) 12 taxmann.com 45 (Chennai), wherein, it was held that the discount given was nothing but commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest u/s. 201(1A) of the Act. 17. We may refer to paras 28 to 30 of the judgment of Hon ble Karnataka High Court in the case of Bharati Airtel Ltd (supra), wherein, it was held as under: 28. Reliance is placed on the judgment of the Delhi High Court in the case of Commissioner of Income Tax Vs. Idea Cellular Limited reported in (2010) 325 ITR 148, while dealing with the commission / brokerage to the distributor on the sim cards / recharge coupons under Section 194 H of the Act, it was held as under: 51. It is obvious that a service can only be rendered and cannot be sold. The owner of the SIM Cards and recharge coupons is the assessee-company, M/s. Vodafone Essar Cellular Ltd. This is because the assessee-company is operating under the right of a licence agreement entered into with the Government of India. Nobody else can be given the right to operate as Cellular telephone service providers. The ultimate service is provided by the assesseecompany to everyone and everywhere. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the discount given by the assessee to the distributors in the course of selling Sim Cards and Recharge coupons under prepaid scheme against advance payment received from the distributors. We have to necessarily examine this contention with reference to the statutory provisions namely, Section 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 hand set (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts the assessee to the subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. The terminology used by the assessee for the payment to the distributors, in our view, is immaterial and in substance the 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 194H of the Act. The test to be applied to find out whether Explanation (i) of Section 194H 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a sim-card. 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 it to 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 which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, who ever ultimately sells the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uchers 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 the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of ₹ 20/-, that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 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. 3) We may also refer to the decision of the Hon ble Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 riot 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 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 and paying into the department, ultimately if the dealer is not liable to tax it is always open to him to seek for refund of the tax and, therefore, it cannot be said that Section 194H is not attracted to the case on hand. As stated earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did not deduct tax, the assessee was held as the assessee in default under section 201(1) of the Act. We also note that against the decision of the Tribunal, the assessee had preferred appeal before the Hon ble Jurisdictional High Court and the Hon ble High Court in ITA No.009/2012 order dated 20.2.2019 has reversed the decision of the Tribunal following the decision of Hon ble Rajasthan High Court in the case of CIT (TDS) Jaipur vs M/s. Idea Cellular Ltd in ITA No.205 of 2005, wherein, it has been held that the assessee is not in default under section 201(1) of the Act for non-deduction of tax u/s.194H of the Act in respect of discount allowed on prepaid SIM cards, has answered in favour of the assessee. 22. In view of above, respectfully following the decision of Hon ble Karnataka High Court and Hon ble Jurisdictional High Court in the case of Bharati Airtel Ltd (supra), we hold that the assessee is not required to deduct tax under section 194H of the Act on the prepaid SIM Cards and hence, the assessee is not in default as per provisions of section 201(1) of the Act. 23. Similar, with regards to provisions of section 194J of the Act in respect of roaming charges, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment . In the ruled so framed, as a result of these directions, the expression ordinarily has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any extraordinary circumstances. 26. We find that the aforesaid issue after exhaustive deliberations had been anwered by a coordinate Bench of the Tribunal viz; ITAT, Mumbai F Bench in DCIT, Central Circle-3(2), Mumbai vs JSW Limited ors (ITA No.6264/Mum/18 dated 14.5.2020, wherein, it was observed as under: 9. Let us in this light revert to the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionary, as an event or effect that can be neither anticipated nor controlled When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an ordinary period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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