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TMI Blog2021 (9) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of starter kits and pre-paid SIMs to distributors on principal to principal basis. Under such circumstances and taking guidance from the judgment of the Hon ble Apex Court in the case of Vegetable Products [ 1973 (1) TMI 1 - SUPREME COURT] we hold that the view favouring the assessee needs to be taken. Thus we hold that the sale of recharge voucher coupons and starter kits and the discount offered to the distributors would not attract TDS provisions u/s 194H of the Act and as such no default u/s 201(1) of the Act can be attributed to the assessee. Accordingly, the order of the Ld. CIT(A), allowing relief to the assessee, is upheld and the grounds raised by the Department are dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... tity Module (SIM) cards for providing telecommunication connection. The sole basis of the AO to apply the provisions of section 194H to the appellant's case is he judgment of the ITAT, Cochin Bench in the case of M/s. Vodafone Essar Cellular Limited Vs. The ACIT(TDS), Kochi, ITA Nos. 106- 113/Coch/2009 dated 30.04.2009. In Bharat Sanchar Nigam Ltd. Vs. UOI (2006), 282 ITR 273 (SC), the Hon'ble Apex Court has held that the SIM cards are "goods, sale of which qualifies as sales within the meaning of the Sale of Goods Act, 1930 for the purpose of levy of Sales Tax. "Goods" may be tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility, (b) its capability of being bought and sold, and (c) its capability of being transmitted, transferred, delivered stored and possessed. This is the correct approach to the question as to what are "goods for the purpose of sale tax. If the SIM card is not sold to the subscribers but is merely part of the services rendered by the services provides, the SIM card cannot be charged separately to sales tax. If the parties intended that the SIM card would be a separate object of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the distributor and hence no sale take place. In mu opinion it is more a question of maintaining the privacy of the consumer than passing or not of the absolute property in the goods involved. If the above proposition was to be followed it would lead to an anomalous situation since most of the white goods are supplied the distributors by the manufactures in a sealed-pack condition and these are finally opened for used by the ultimate consumers normally and it is a well-known fact that the consumers desist from accepting any such items where the sealed packing is amiss. Thus, even this is not a true test of establishing whether SIM cards received by the distributors from the cellular telephone services providing companies is under contract of sale or a part of services. However, I fully agree with the finding of the ITAT in the above case that the nature and content of the services rendered under both the post-paid and prepaid methods is one and the same thing. Therefore, if the assessee was found to be considering the margin of distributor as commission and also subjecting the same to TDS u/s. 194H in the case of post-paid SIM cards, then the same treatment shall have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt/commission allowed on recharge coupons (prepaid) SIM cards to franchisees by the assessee, ignoring the fact of the case that the deductor company is liable to deduct the tax u/s 194H at the rate of 10% on the amount of discount/commission. 1.2 In directing so, CIT(A) has failed to appreciate the following (i) The Ld. CIT(A) has erred to admit the additional evidence produced by the assessee before him in contravention of Rule 46A(3) of the Income Tax Rules, 1962, in as much as no opportunity was given to the A.O to examine the correctness of the additional evidence produced by the assessee before the C.I.T(Appeals). (ii) The Ld.CIT(A) has erred in holding that the transactions between the assessee and the distributor ip respect of the SIM Cards is one of the sale of goods on principal to principal basis and there is no principal- agent relationship involved. The inference derived by the CIT(A) is no acceptable in view of the reasons as under:- a) The assessee company, being owner of SIM cards and recharge coupons, is operating under the right of the license agreement entered into with the government of India and therefore the right to operate as cellular service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax u/s 194H at the rate of 10% on the amount of discount/commission. 1.2 In directing so, CIT(A) has failed to appreciate the following (i) The Ld. CIT(A) has erred to admit the additional evidence produced by the assessee before him in contravention of Rule 46A(3) of the Income Tax Rules, 1962, in as much as no opportunity was given to the A.O to examine the correctness of the additional evidence produced by the assessee before the C.I.T(Appeals). (ii) The Ld.CIT(A) has erred in holding that the transactions between the assessee and the distributor in respect of the SIM Cards is one of the sale of goods on principal to principal basis and there is no principal- agent relationship involved. The inference derived by the CIT(A) is no acceptable in view of the reasons as under:- a) The assessee company, being owner of SIM cards and recharge coupons, is operating under the right of the license agreement entered into with the government of India and therefore the right to operate as cellular service provider cannot be transferred to any other person. Since SIM cards is only a device to have access to mobile phone network, there is no question of passing of any ownership or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper opportunity to the Assessing Officer to comment on the same and, thus, it was in clear violation of Rule 46A. 4.0 Per contra, the Ld. Authorized Representative (AR) referring to the Paper Book filed by the assessee submitted that this very issue has been decided by the Hon'ble High Courts and Coordinate Benches of the ITAT including the judgment of the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. vs. CIT & Anr. [2015] 372 ITR 33 (Karn). The Ld. Authorized Representative also referred to an order of Jaipur Bench of Tribunal in a related company of the assessee in the case of TTSL vs. ITO, Jaipur reported in [2016] 71 Taxman.com 285 (Jaipur). The Ld. AR further submitted that in the case of DCIT vs. Idea Cellular in ITA No.852/Del/2015, vide order dated 01.05.2018, the Co-ordinate Bench of ITAT Delhi had decided the issue of applicability of section 194H of the Act vis-à-vis discount on pre-paid cards in favour of the assessee despite the judgment of the Hon'ble Delhi High Court in the case of that very assessee. It was further argued by the Ld. AR that the adverse judgment of the Hon'ble Delhi High Court and the Hon'ble Kerala High Court were not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to distributors/channel partners on the sale of recharge coupon vouchers and the starter kits for telecommunication services. In this context, it is seen that the order U/s 201(1) of the Act has been passed by ITO (TDS), Meerut and, further the registered address of the assessee as appearing in the order U/s 201(1) of the Act, in the impugned order and in Form No.36 is that of Meerut. Therefore, we agree with the contention of the Ld. AR that the jurisdiction of the assessee falls under the jurisdiction of the Hon'ble Allahabad High Court. Therefore, we are respectfully of the considered opinion that the judgment of the Hon'ble Delhi High Court in the case of Idea Cellular (supra) and the Hon'ble Kerala High Court in the case of Vodafone Essar Cellular (supra) cannot be considered as binding for the assessee on the issue. We also note that the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. vs. CIT & Anr (supra) has decided the issue in favour of the assessee by holding that tax was not deductable on discount allowed to distributors. In this judgment, the Hon'ble Karnataka High Court in the cases of three assessees i.e., Bharti Airtel Ltd., Vodafone Essar Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The sale price is received minus discount, what is accounted for in its books is net sale price and not the commission. Assessee has demonstrated it from its pleading before lower authorities in this behalf and its written submissions filed before us. They are neither controverted by the authorities below nor by the Id. DR. Consequently the assessee s case falls in para 61 of the Honble Kamatak High Court judgment and not in para 60 as proposed by Id. DR. ii When assessee is not holding any income payable to distributors the question of deducting TDS u/s. 194H does not arise. Therefore the facts, circumstances, accounting treatment and nature of relationship between assessee and its distributors qua the impugned sales fall within the ambit and observations at para 61 of the order. In view of the foregoings we have no hesitation to hold that: iii What is sold by the assessee 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. iv. Distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no relationship of Principal and agent between assessee and distributors as held by authorities below there orders are reversed. c. Looking at the transaction being of Sale/lhirchase and relationship being of principal to principal the discount does not amount to commission in terms of sec. 194H, the same is not applicable to these transactions. Therefore, assessee's cannot be held in default; impugned demand raised applying sec. 194H is quashed. Assessee's grounds are allowed. 2.24 Apropos the revenue appeal since we have held that sec. 194H is not applicable, there remains no substance in revenue appeals. In any case there is no infirmity in the order of Ld. CIT(A) in admitting the additional evidence in the light of Hon'ble Supreme Court judgment in the case of Hindustan Coca- Cola Beverages (P.) Ltd.(supra) and following his past orders. Revenue grounds are dismissed." 5.3 Therefore, in light of the discussion in the above paras and respectfully following the judicial precedents referred to above, we hold that the sale of recharge voucher coupons and starter kits and the discount offered to the distributors would not attract TDS provisions u/s 194H of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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