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TMI Blog2024 (6) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1) r.w.s. sub-section (1A) of the Act was issued to examine whether the assessee had duly deducted TDS as required to be made on the element of discount/margins granted on account of sale of SIM cards/recharge vouchers/talk time. The AO was of the view that TDS should have been deducted u/s 194H of the Act. Secondly, the AO had show caused the assessee company as to why it should not be treated as an 'assessee in default' since no tax was deducted u/s 194J of the Act on the element of expenditure incurred under the head: 'IUC/roaming charges.' The assessee had made extensive submissions on the basis of facts and judicial pronouncements which did not satisfy the AO and additions on both the heads were made. 2.1 In appeal, the CIT (A) allowed the appeal partly by sustaining the addition made for failure to deduct tax u/s 194H of the Act while deleted the addition made for deducting the tax u/s 194J of the Act for which both the Revenue and the assessee are in appeal raising respective grounds of challenge to the order of the CIT (A) alleging the same to be erroneous. 3. On hearing both the sides, it comes up that ld. DR supporting the order of the AO contended that CIT (A) has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services all under the brand name of "MAGIC" to the potential subscribers, under the terms of this Agreement. The FRANCHISEE has also represented that they have infrastructure, manpower and experience in the above area and they possess the financial to perform the above functions and such other functions as may be assigned to them by BML from time to time. xx xx xx A. It is expressly understood that the Agreement does not confer any exclusive right to the FRANCHISEE to market the Services nor does the Agreement gives any territorial right to the FRANCHISEE. The BML expressly reserves its right to enter into similar arrangements with other party(ies) to market and promote the Services and to market the Services directly to the customers if considered appropriate in terms of business exigency and market requirements. xx xx xx 2.1 Subject to the terms and conditions of this Agreement, BML hereby appoints Central Supply Corporation, as its FRANCHISEE to promote and market the Pre Paid Services of BML and more particularly in terms of the policies of BML as shall be informed by BML from time to time and the FRANCHISEE hereby accepts the appointment as the FRANCHISEE of BML. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation of the FRANCHISEE under this Agreement. xx xx xx 4.4 The FRANCHISEE shall, in the conduct of its business and performing its obligations under this Agreement, conform and adhere to the policies of BML communicated to the FRANCHISEE from time to time. The FRANCHISEE shall not charge the customers of BML for the services anything more than the rates specified by the BML from time to time. 4.5 The FRANCHISEE shall employ adequate employees for performing its obligations under this Agreement and in the promoting and marketing of the Pre Paid Services. All contractual and statutory payments, including wages and salaries to the employees of the FRANCHISEE, shall be the sole liability and responsibility of the FRANCHISEE. 4.6 The FRANCHISEE in respect of its business establishment shall, if so desired by BML, in order to effectively project the Franchisee, make alterations, modifications in and install such furniture, fixture and air conditioning equipment, fax, computer, with internet connection as required necessary and mutually agreed upon and the cost of such alterations, renovation shall be borne exclusively by the FRANCHISEE. 4.7 The FRANCHISEE agrees and under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scription, targets for the Pre Paid Services, taking into account the market development and market potential and other relevant factors. The achievements of these prescribed targets by the FRANCHISEE is a material obligation of the FRANCHISEE under this Agreement. xx xx xx 6.2 The FRANCISEE shall employ a fully trained service staff whose training has been completed in accordance with the standards set out by BML. xx xx xx 8.1 The FRANCHISEE's price and payment for services will be specified by BML from time to time. The rates are subject to variation during the terms of this Agreement at the sole discretion of BML and shall be intimated to the Distributor from time to time. xx xx xx 8.3 All other tax liabilities arising in connection with or out of the agreement transactions pertaining to the FRANCHISEE shall be the responsibility of the FRANCHISEE. xx xx xx 10.1 The FRANCHISEE accepts for all purposes that all trademarks, logos, trade names or identifying marks and slogans used by BML in respect of the Service and the Pre Paid Services, whether registered or not, constitute the exclusive property of BML or their affiliated companies as the case may be, and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressly agreed that no compensation whatsoever shall be payable by BML to the FRANCHISEE upon the termination of this Agreement. 14.2 Upon receipt of any notice of termination of this Agreement the FRANCHISEE shall conduct all its operations until the effective date of termination mentioned in such notice in the manner which is consistent with the obligation of the FRANCHISEE hereunder and the FRANCHISEE shall not prejudice the reputation or goodwill of BML and the interests of the subscribers in any manner whatsoever. 14.3 Upon termination of this Agreement for any reason, the FRANCHISEE shall cease to represent himself as the authorised FRANCHISEE of BML and shall not act in a manner, which is likely to cause confusion or to deceive the public. The FRANCHISEE shall promptly remove all Trademarks, signs, words, trademarks (sic), logos and any other representations connected with BML. In the event the FRANCHISEE fails to comply with the above, BML shall have the right to enter upon the FRANCHISEE's premises and remove, without liability, all Trademarks, signs, logos, trademarks (sic), materials written documents and any other representations connected with BML and the FRANCHIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the franchisee/distributor is appointed for marketing of prepaid services and for appointing the retailer or outlets for sale promotion. It is pertinent to note that the retailers or outlets for sale promotion are appointed by the franchisee/ distributor and not the assessee. The franchisees/distributors have agreed not to undertake activities mentioned in the agreement for any other competitive cellular mobile telephone service provider in the business. The franchisees/distributors have to comply with statutory, regulatory and municipal permissions while conducting the business. The franchisees/distributors have agreed to indemnify and keep indemnified the assessee against any and all costs, expenses and charges imposed on the assessee because of any action by a statutory, regulatory or municipal authority due to non-compliance by the franchisee/distributor. The franchisee/ distributor has to maintain a suitable establishment for the conduct of business and performance of obligations. While doing so, the franchisee/distributor shall conform and adhere to the policies communicated to it from time to time by the assessee. The franchisee/distributor shall employ adequate employees f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement/contract forms and other related forms, after obtaining signatures of the customers on the said forms. These forms, duly completed in all respects and signed by the customers, will be forwarded to the assessee for its verification and record. 26. The franchisee's/distributor's price and payment for services will be specified by the assessee from time to time. The rates can be varied during the terms of the agreement at the discretion of the assessee and such variation is to be intimated to the franchisee/distributor. All tax liabilities in connection with, or arising out of, the transactions pertaining to the agreement shall be the responsibility of the franchisee/distributor. 27. The trademarks, logos, trade names or identifying marks and slogans used by the assessee, whether registered or not, are exclusive property of the assessee or the affiliated companies. The use of such marks, logos etc. will be in accordance with the guidelines issued by the assessee. As long as the agreement is in force, but not thereafter, the franchisee/distributor shall identify itself as an authorised franchisee, but shall not use trademarks, logos, tradenames, as part of its proprietors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the franchisee/distributor, the sale price received by the franchisee/ distributor is within the sole discretion of the franchisee/distributor. The assessee has no say in this matter. 31. It is not the case of the Revenue that the tax at source under Section 194-H of the Act is to be deducted on the difference between the printed price and the discounted price. This cannot be the case as the Revenue cannot insist that the franchisee/distributor must sell the products at the printed price and not at a figure or price below the printed price. The obligation to deduct tax at source is fixed by the statute itself, that is, on the date of actual payment by any mode, or at the time when income is credited to the account of the franchisee/distributor, whichever is earlier. In the context of the present case, the income of the franchisee/distributor, being the difference between the sale price received by the franchisee/distributor and the discounted price, is paid or credited to the account of the franchisee/distributor when he sells the prepaid product to the retailer/end- user/customer. The sale price and accordingly the income of the franchisee/distributor is determined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails pertaining to the sale of the flight tickets. 33.1 This Court examined the operation of the BSP where the financial data regarding sale of tickets was stored. The BSP agglomerated the data from multiple transactions. Thereupon, this data was transmitted either bimonthly or twice a month to the airlines. It is on the basis of this data that the airlines/air carriers were required to pay the additional commission to the travel agents. These are the striking distinguishing features in Singapore Airlines Limited (supra) case. 33.2 Having considered the aforesaid mechanism and the nature of relationship between a principal and an agent26, this Court found considerable merit in the argument of the Revenue that the airlines/ air carriers utilised the BSP to discern the amount earned as additional/supplementary commission and accordingly arrive at the income earned by the agent to deduct tax at source, in accordance with the provisions of Section 194-H of the Act. If the aforesaid mechanism is understood, then it is not difficult to appreciate and understand the conclusion arrived at by this Court in the said case. 33.3 Thus, the question whether there was relationship of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o apply to true/genuine business transactions, where the assessee is not the person responsible for paying or crediting income. In the present case, the assessees neither pay nor credit any income to the person with whom he has contracted. Explanation (i) to Section 194-H of the Act, by using the word "indirectly", does not regulate or curtail the manner in which the assessee can conduct business and enter into commercial relationships. Neither does the word "indirectly" create an obligation where the main provision does not apply. The tax legislation recognises diverse relationships and modes in which commerce and trade are conducted, albeit obligation to tax at source arises only if the conditions as mentioned in Section 194-H of the Act are met and not otherwise. This principle does not negate the compliance required by law. 35. Deduction of tax at source is a substantial source of the direct tax revenue. The ease of collection and recovery is obvious. Deduction and deposit of tax at source checks evasion and non-payment of tax. It expands the tax base. However, the assessee as a deductor is not paying tax on his/her income, and collects and pays tax otherwise payable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument of the Revenue that assessees should periodically ask for this information/data and thereupon deduct tax at source should be rejected as far-fetched, imposing unfair obligation and inconveniencing the assesses, beyond the statutory mandate. Further, it will be willy-nilly impossible to deduct, as well as make payment of the tax deducted, within the timelines prescribed by law, as these begin when the amount is credited in the account of the payee by the payer or when payment is received by the payee, whichever is earlier. The payee receives payment when the third party makes the payment. This payment is not the payment received or payable by the assessee as the principal. The distributor/franchisee is not the trustee who is to account for this payment to the assessee as the principal. The payment received is the gross income or profit earned by the distributor/franchisee. It is the income earned by distributor/ franchisee as a result of its efforts and work, and not a remuneration paid by the assessee as a cellular mobile telephone service provider. 38. We must, therefore, reject the argument of the Revenue relying upon the decision of this Court in Singapore Airlines Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'principal' to the franchisees matter and are determinative. 40. An independent contractor is free from control on the part of his employer, and is only subject to the terms of his contract. But an agent is not completely free from control, and the relationship to the extent of tasks entrusted by the principal to the agent are fiduciary. As contract with an independent agent depends upon the terms of the contract, sometimes an independent contractor looks like an agent from the point of view of the control exercisable over him, but on an overview of the entire relationship the tests specified in clauses (a) to (d) in paragraph 8 may not be satisfied. The distinction is that independent contractors work for themselves, even when they are employed for the purpose of creating contractual relations with the third persons. An independent contractor is not required to render accounts of the business, as it belongs to him and not his employer. 41. Thus, the term 'agent' denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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