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TMI Blog2021 (1) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the decision of Delhi High Court in the case of Idea Cellular [ 2010 (2) TMI 24 - DELHI HIGH COURT] and Kolkata Tribunal in the case of Bharti Cellular Limited [ 2006 (4) TMI 50 - ITAT, KOLKATA] without appreciating that the facts in those cases were different from the facts of the Appellant s case. TDS demand raised under section 201(1) - HELD THAT:- The order of the learned TDS Officer, as upheld by learned CIT(A), is bad in law in so far as it seeks to recover tax demand under section 201 of the Act in contradiction to the settled principle that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. TDS u/s 194J - non-deduction of tax at source on domestic roaming charges paid to other telecom operators - HELD THAT:- CIT(A)/TDS Officer have erred in not appreciating the fact that roaming services are standard automated services requiring no human intervention which is sine qua non for a service to qualify as a technical service for the purposes of section 194J of the Act. CIT(A) have erred in not appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to deduct tax at source on discount extended to its pre-paid distributors on distribution of pre-paid services. 1.1 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the order of the learned TDS Officer in treating the Appellant as assessee in default for non-deduction of tax at source under section 194H of the Act on discount extended of INR 2,10,56,933 by the Appellant to the distributors of its pre-paid services. (for AY 2008-09 the amount is INR 17,18,06,175, for AY 2009-10 amount is INR 19,15,95,051, AY 2010-11 INR 30,37,20,165 and 2011-12 INR 29,33,40,558). 1.2 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the contention of the learned TDS Officer that the relationship between the Appellant and the pre-paid distributors is not that of Principal to Principal and the discount allowed to them is in nature of commission liable for tax deduction at source as envisaged under section 194H of the Act. 1.3 On the facts and circumstances of the case and in law, the learned CIT (A)/TDS Officer have erred in not appreciating the fact that there is no payment/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or non-deduction of tax at source under section 194H of the Act on discount extended of INR 30,37,20,165 by the Appellant to the distributors of its pre-paid services (for AY2011-12 INR 29,33,40,558). 1.2 On the facts and circumstances of the case and in law, the learned CIT(A)/TDS Officer has erred in upholding that the relationship between the Appellant and the pre-paid distributors is not that of Principal to Principal and the discount allowed to them is in nature of commission liable for tax deduction at source as envisaged under section 194H of the Act. 1.3 On the facts and circumstances of the case and in law, the learned CIT(A)/TDS Officer have erred in not appreciating the fact that there is no payment/credit to the account of distributors by the Appellant towards the discount extended to them and therefore, provisions of section 194H of the Act do not apply on such discount. 1.4 On the facts and circumstances of the case and in law, the learned CIT(A)/TDS Officer have erred in not appreciating that the discount allowed by the Appellant is not the income in the hands of its distributors and that income, if any, arises only when the pre-paid services are f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e having regard to the dominant purpose/intention of the payment. 2.6 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not following the principles laid down in judicial precedents cited by the Appellant and also ignoring the binding Apex Court judgment in the case of CIT vs. Delhi Transco Limited 68 taxmann.com 231 and CIT vs. Kotak Securities Limited 67 taxmann.com 356. Ground No.3 - No TDS demand can be raised under section 201(1) of the Act. 3.1 On the facts and circumstances of the case and in law, the order of the learned TDS Officer, as upheld by learned CIT(A), is bad in law in so far as it seeks to recover tax demand under section 201 of the Act in contradiction to the settled principle that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. Ground No.4 - No interest under section 201(1A) of the Act can be charged. 4.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the learned TDS Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Year Amount (INR) 01.01.2007 to 31.07.2007 2,10,56,933 2007-08 17,18,06,175 2008-09 19,15,95,051 2009-10 30,37,20,165 2010-11 29,33,40,558 5. For the assessment years 2010-11 and 2011-12, information was called for under Section 133(6) of the Act regarding tax deducted at source by the assessee. Apart from requiring the assessee to provide the details of discounts offered on prepaid SIM cards, recharge coupons etc., the Assessing Officer also required the assessee to give details of the roaming charges paid to other telecom operators and the TDS deducted thereon. 6. After rejecting the assessee s contention vide order dated 29.03.2011, the Income Tax Officer (TDS), Karnal treated the assessee-in-default under the provisions of Section 194H of the Act on the discount/commission allowed to the distributors for AYs 2007-08, 2008-09 and 2009-10. Similarly, by way of a common order dated 17.02.2012 the assessee was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to other telecom operators. Aggrieved, the assessee is in appeal before us. Contentions raised by the learned counsel for the assessee-Section 194H: 11. Before us the Ld. Counsel for the Assessee, Mr. Deepak Chopra, first of all took us through the Order of the AO dated 29.03.2011, passed under Section 201(1) of the Act by virtue of which the assessee was held to be an assessee in default in respect of discount/commission allowed to the distributors for the prepaid SIM cards, service tickets, refill slips etc. (pre-paid services). At the very outset, the learned counsel for the Assessee submitted that the impugned orders under Section 201 of the Act were passed by the TDS Officer in Karnal and as such the jurisdictional High Court was that of the High Court of Punjab Haryana, which had not rendered any decision in respect of the said issue of whether there arose any obligation on the Assessee to deduct tax under section 194H of the Income Tax Act, 1961 (Act) in respect of discounts granted by the Assessee to its distributors on pre-paid SIM cards etc. He submitted that this issue has come up before several High Courts and there was divergence of judicial opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee from Hutchison to Vodafone). He further submitted that in the Order u/s 201 itself, it had been pointed out before the AO that during the period April 2005 to December 2006, the distributors of prepaid starter packs and service tickets acted as agents of the Assessee in Haryana circle and were entitled to commission as per the terms of the agreement entered into with them. He further pointed out that from the Section 201 order itself it was evident that the assessee had submitted copies of agreements prior to January 2007 for the perusal of the AO. However, w.e.f. January 2007, the commercial arrangements between Vodafone Essar Digilink Limited, Haryana Circle and the distributors changed from principal to agent to that of principal to principal. Under the new arrangement, Vodafone Essar Digilink Limited, Haryana circle, transferred its prepaid talk time to the distributors at a discount and the distributors in turn distributed the same to the retailers, the retailers thereafter transfer the same to the ultimate subscribers. At each level of the distribution, the party distributing the prepaid talk time retains a margin for its risk and efforts, while Vodafone Essar Digilin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s principal-to-principal and there was no requirement to withhold tax under the provisions of section 194H of the Act on the discounts. He also pointed out that the commercial arrangements as noted by the Karnataka High Court are akin to the assessment years under consideration. 16. In order to appreciate the contentions in proper perspective we had directed the Assessee to furnish relevant agreements including the agreements relating to the period prior to January 2007 and after January 2007, which was complied with along with detailed written submissions bringing out the distinction between the two agreements as well as the distinction on facts between the judgment of the Hon ble Delhi High Court in the case of Idea Cellular Limited (supra) and the facts applicable for the relevant AYs. 17. Ld. Counsel submitted that the entire case of the revenue is that under the new agreement also the Appellant is imposing restrictions on the Distributor and the distributor is reporting to the Appellant and the Appellant is also evaluating the its performance. He submitted that the issue of imposition of conditions by a transferee on the transferor is no longer resintegra. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle is also applicable in the present case and supports the contention of the Assessee that the relationship between the Assessee and its pre-paid distributors is on principal to principal basis and not that of a principal-agency relationship. In the present case as well, fixation of MRP by the Appellant is not conclusive of the arrangement between the parties and does not result into creation of a principal agent relationship between the Appellant and the pre-paid distributors. It was further submitted that where the aforesaid condition is considered conclusive of the arrangement between the parties, all arrangements between the manufacturer and the distributors in the FMCG industry would become a principal agent relationship since in such cases, MRP is always determined by the manufacturers. 20. He further submitted that in the present case, since relationship between the Appellant and distributors of its pre-paid talk time is on a principal to principal basis, the margin earned by the distributors constitutes trade discount and not commission or brokerage to attract tax deduction at source under section 194H of the Act. The aforesaid contention is supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting on behalf of the principal. 21. In contrast, the responsibility/obligations of the Customer Management Unit [CMU] owner in the old Agreement dated 18.06.2004 between Aircel Digilink India Ltd. [ADIL] and Chokhani Distributors were as under Clause/ obligation/ responsibility Remark It shall be the prime responsibility of CMU Owner to get, check, verify the complete information of the subscribers/prospective and obtain all documents such as Customer Application Form. Customer Agreement Form, PAN No., Residential/Office proof. Photo Identity Cards etc or any other document/proof required by Aircel ADIL whether in its discretion or as per the requirement by the authorities. This obligation is as per the TRAI regulations and these conditions are amended every now and then. This an industry practice and all the distributors/ Agents operating across the country for all the telecom operators carry out this exercise. It may be noted that this exercise is only carried out while selling new SIM card and not while recharging the talk time. The recharge coupons are sold to customers who already have a SIM card and need an e-top up or recharge coupon. The CMU Owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition which is present in New Agreement as well. Provide reports on customers expenses, service, purchases, inventory, compliance, bill collection and any other relevant details in the format and as required by ADIL. No such clause is present in the New Agreement. This gives a flavour of agency relationship. Though under the New Agreement the Distributor is required to provide reports every quarterly but that is requires only for purpose of betterment of his business. Make payment to ADIL for any amount due under this Agreement by way of Account Payee Cheque or Banker s Draft or in such other manner as ADIL may agree. Basic condition Pay all license fees, taxes, duties, service tax and any other charges, assessments or penalties whether statutory or otherwise levied by any authority in connection with the operation of the CMU and providing the Services. Basic condition for the purpose of carrying out the business of the CMU. This condition is present in the New Agreement While this Agreement is in force not enter into agreement with any other party where such party could be considered to be a competitor to the Business. This condition is present in both the Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and furniture which may be provided by the Appellant would be as a promotional activity with customization of the Appellant s and as such would become useless for the distributor after the termination. 22. Apart from the above, there are certain obligations of the CMU owner in relation to the Subscribers as prescribed under the Agreement at page 112 of the Paper book Vol II. These conditions are not present in the New Agreement. The Distributor is not dealing with the subscribers directly, the retailers is selling the SIM card and recharge coupon etc. to the subscribers/customers. There are other Services also to be provided by the CMU owner under the Old Agreement as prescribed in Schedule 1 of the Agreement at page 117 of the Paper book Vol. II which were highlighted as under Provide assistance to customers on handset servicing and replacement of handsets under warranty. This condition is not present in the New Agreement and thus there is no such obligation on the distributor. Assist customers in insurance claim settlements. No such condition/obligation is present in the new agreement. Acceptance of customer s requests to provide itemized or duplicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee was a party. He further submitted that the ITAT Kolkata Bench in paras 9 and 10 of its Order noted the change of facts, decided the issue in favour of the assessee. 24. On the issue of payment of roaming charges, the Ld. Counsel for the assessee relied on the decision rendered by the Kolkata Tribunal in the case of Vodafone East Limited Vs. ACIT (2015) [(43 ITR (Trib) 0551 (Kolk)] which in the Assessee s own case itself had examined the applicability of Section 194J qua the payment of roaming charges to other telecom operators after taking into consideration the statements recorded as per the decision of the Hon ble Supreme Court in the case of Bharti [330 ITR 239 (SC)]. Having considered the decisions of Hon ble Delhi High Court in the case of CIT v/s Bharti Cellular Limited (390 ITR 139), the decision of the Hon ble Supreme Court in the case of CIT v/s Bharti Cellular Limited (330 ITR 239) and the statements of the expert witnesses recorded post the directions of the Hon ble Supreme Court, the Kolkatta Bench of the Tribunal has decided the issue in favour of the assessee and held that the payment of roaming charges did not attract deduction of tax under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there were several conditions imposed upon the distributors in terms of adhering to brand image guidelines, maintenance of records, reporting and evaluation of performance. The Ld. DR also submitted that the plea of the assessee on the change in the contractual arrangement was also considered by the Coordinate Bench of the Tribunal in the case of Tata Teleservices Limited v/s ITO (171 ITD 196) and referred to the copy of the decision filed in the paper book filed by the Revenue on 20.02.2019. She further pointed out that the Coordinate Bench in spite of change in contractual arrangements had followed the Hon ble Delhi High Court judgment, being the jurisdictional High Court and had not followed the Karnataka High Court judgment, which was in favour of the Assessee/s. 26. The Ld. DR also relied on the decision of the Hon ble Hyderabad Bench of the Tribunal in the case of Vodafone Mobile Services Limited v/s ACIT (168 ITD 219) where the ITAT had dismissed similar plea taken by the assessee. Copy of the decision of the Hyderabad Bench was also referred to being a part of the paper book filed by the Revenue. 27. On the second issue relating to the obligation of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ryana High Court in the case of CIT Vs. Motorola India Limited (326 ITR 156) where the Hon ble Punjab Haryana High Court had clearly held that the situs of the AO at the time when the assessment was framed would be the determinative factor for the High Court jurisdiction to entertain an appeal. He also relied on the decision of the Delhi High Court in the case of DDA Vs. ITO (230 ITR 9) [further confirmed by the Supreme Court in the case of ITO vs. DDA (252 ITR 772)] that 201 orders were akin to an assessment. Further, the Counsel for the assessee again invited our attention to the decision passed by the Co-ordinate Bench in the case of Idea Cellular Limited itself for AY 2010-11 and 2011-12 where the Section 201 proceedings were initiated by the Income Tax Officer (TDS), Rohtak. The Counsel for the assessee drew our attention to para 6 of the Order where the Coordinate Bench had recorded that the Section 201 Order was passed by the Income Tax Officer (TDS), Rohtak and hence there being no decision from the jurisdictional High Court i.e. Punjab Haryana High Court, the decision of the Income Tax Officer (TDS), Karnal which had decided the issue in favour of the assessee should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court. The learned counsel for the assessee again drew our attention to the Coordinate Bench of Kolkata Tribunal s decision in the case of Vodafone East Limited where in-spite of the jurisdictional High Court (Kolkata High Court) decision having been rendered in the case of Bharti Cellular Limited (354 ITR 507), the Co-ordinate Bench had taken a note of the change of facts in the assessment year before it where the commercial transactions had changed and hence distinguished the Hon ble Kolkata High Court s decision after elaborately referring to the various clauses of the contractual arrangements between the parties. Hence, he submitted that on this issue, it would be apt to follow the decision of Hon ble Karnataka High Court as well as the Rajasthan High Court which decided the issue in favour of the assessee. The counsel for the assessee also submitted that without prejudice, the Hon ble Delhi High Court itself had admitted the questions of law in the case of Tata Teleservices Limited by way of its Order dated 07.05.2018. He also submitted that as regards the Hon ble Hyderabad Bench decision referred to by the learned DR following the Hon ble Andhra Pradesh High Court j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re -1 (at page 13 referred to by the DR) specifically provides that the Assessee shall not be responsible for any postdelivery defect in services tickets. The clause also states that the Assessee may at its sole discretion and after making verifications as it may deem fit, replace any unused non-working refill slips. Hence, he submitted that unlike the facts of the Idea Cellular decision (of the Delhi high Court) under the existing commercial arrangements, there was no provision for return or refund in respect of the service tickets. Hence, he submitted that the averments made by the Ld. DR in her submissions of 16.7.2019 were factually incorrect and consequentially the endeavour of the DR to show similarity between the pre and post 2007 agreements was incorrect. 35. On the second issue, the Ld. Counsel for the assessee relied on the decision rendered by the Kolkata Tribunal in the case of Vodafone East Limited v/s ACIT (2015 43 ITR 2 (Trib.) 0551 (Kolk) which in the Assessee s case itself had examined the applicability of Section 194J qua the payment of roaming charges to other telecom operators. He submitted that the statements of the Technical experts had been duly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se circumstances the jurisdictional High Court will not be the Hon ble Delhi High Court. The Ld. AR relied upon the decision of the Hon ble Supreme Court in case of CIT vs. Vegetable Products Ltd. 88 ITR 192 wherein it is held that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. In absence of any decision of the Hon ble Punjab and Haryana High Court as well as the Hon ble Allahabad High Court on this issue and in view of conflicting decisions of other High Courts, following the ratio of the Hon ble Apex Court, the view favourable to assessee is upheld. Hence assessee cannot be deemed to be an assessee-in-default on discount/commission of sale of prepaid sim cards. Therefore, Ground No. 2 of the assessee s appeal is allowed. 38. While coming to the above conclusion Coordinate Bench has noted that the issue was decided in favour of the Assessee by Karnataka High Court and since the orders under Section 201 of the Income Tax Act were passed by the ITO TDS Rohtak the Hon ble Punjab Haryana High Court had the necessary jurisdiction. In paras 7 8 of their order the Coordinate Bench while relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s quite evident that the relationship is no longer agent - principal relationship. The comparison and the differences between earlier agreements have been highlighted above which clearly shows the changes and how it has transformed to principal to principal relationship. 40. We also find support from the decision of the Kolkata Bench of Tribunal in the Assessee s case where the Bench has taken into note that change of commercial arrangement and had decided issue in favour of the Assessee, while holding that the discount offered on some of the prepaid services did not partake the character of commission under Section 194H of the Act and hence there is no obligation to withhold tax on such discounts on prepaid services. The relevant para s read as follows: We have heard rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. From the foregoing discussion, we find that the AO has treated the discount given by the assessee to its distributors on the sale of recharge coupons/ starter pack as commission expenses. Therefore the AO was of the view that the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for proof of identity, delivery of SIM cards, collection of charges etc. Against these services the distributors are paid the amount of agreed commission by the assessee after deducting TDS u/s 194H of the Act. However, we find that in case of prepaid connection the recharge coupons are sold to the distributors on outright sale basis at a discounted price. The amount of discount is not recorded in the books of accounts. Therefore we hold the transaction between the assessee and prepaid distributor for recharge coupons is nature of sale purchase. Thus amount of discount cannot be equated with the commission as envisaged under section 194H of the Act. Similarly we find that the ownership of the recharge coupons gets transferred to the distributor on the sale of recharge coupons. In this connection, we also rely in the case of Bharti Airtel Limited Vs. CIT ANR. reported in 372 ITR 33 (Kar) (supra) where the Hon ble Karnataka High Court has decided the issue in favour of assessee. Similarly Hon ble Rajasthan High Court in the case of various parties where the assessee was also a party has decided the issue in favour of assessee on the identical facts circumstances in ITA No. 1/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ltd. (ITA 4677/Mum/2012 decision dated 23.3.2016). 42. Be that as it may, since the orders u/s 201 were passed by the ITO Karnal, it is clear that the Jurisdictional High Court being the Hon ble Punjab Haryana High Court would have the appellate jurisdiction over the matter. Thus, while respectfully following the decision of the Coordinate Bench in case of DCIT Vs. Idea Cellular Limited (decision dated 01/05/2018 in ITA No. 852/Delhi/2018) this issue is decided favour of the Assessee and grounds are accordingly allowed. 43. Accordingly, we hold that there was no requirement for the Assessee to withhold taxes on the amount of discounts offered by it on pre-paid services under section 194H of the IT Act and consequentially the Assessee could not be treated as an assesseein-default in terms of section 201 of the IT Act. 44. The other issue, which is relevant for the Assessment Order 2010-11 and 2011-12 is whether the Assessee was in default in respect of the roaming charges and consequentially whether the Assessee was required to withhold tax under Section 194J of the Act. We find that this issue has already decided in favour of the Assessee in the Assessee own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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