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TMI Blog2025 (4) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the order of the Ld. Assessing Officer of treating the Appellant as assessee in default' in view of the provisions of section 201(1) read with Section 191 of the Act and the judgment of Jagran Prakashan Limited Vs DCIT (TDS) (21 Taxman.com 489) (All HC) as there is no finding by the learned Assessing Officer with respect to the failure of deductees to pay tax directly, which is a jurisdictional pre-requisite. Ground No. 2 That the Ld. CIT(A) grossly erred in confirming the order of the Ld. Assessing Officer ('AO') wherein the Appellant was held liable to deduct tax at source under Section 194H from the discounts allowed to its distributors on sale of starter kits and recharge vouchers (RCVs) under Section 194H of the Income-tax Act 1961('IT Act.) i. That the Ld. CIT (A) grossly erred in not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/credit to payee's account and that the discount allowed is not payment/credit made to the Channel partners account; ii. That the Ld. CIT (A) grossly erred in not appreciating that Section 194H would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case of the Appellant following an identical model, viii. It is stated that the Appellant had duly deducted tax under Section 194H with respect to payments made distributors of postpaid SIM cards for valid activation of postpaid connections. The CIT(A) appeal has failed to appreciate the distinction between prepaid distribution model where SIM cards are sold to be distributor and postpaid distribution model wherein the distributors model wherein the distributors assist in rendering of postpaid services. 3. Ground No.3 That the Ld. CIT(A) grossly erred in confirming that the Appellant is an 'assessee in default' for alleged non deduction of tax at source under the provisions of Section 194J of the Act on interconnect usage charges ('IUC') paid b the Appellant to other telecom operators: i. That the Ld. CIT(A) has erred in not appreciating that this Hon'ble Tribunal has decided the issue of deduction of tax at source on Inter-Connect Usage Charges ('IUC') which a telecom operator pays to another in the case of Bharti Airtel Vs. ITO (TDS) [2016] 60 Taxman.Com 223 (Delhi Trib.). Further, the decisions of the Bangalore and Jaipur Tribunal in favour of the assessee have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ii. Without prejudice to Ground No 6.1 above, on the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the action of the learned TDS Officer in raising demand under section 201(1) of the Act even though taxes would have been paid on income earned by the payees (being other telecom operators) on the IUC payments received by them from the Appellant. Such action of the learned TDS Officer has resulted in double recovery of taxes, which is against the rules of taxation principles. On the facts and circumstances of the case and in law, the learned CIT (A) has erred in ignoring the ruling of the Mumbai Bench of this Hon'ble Tribunal in the case of Vodafone Essar Limited (ITA Nos. 6058, 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal hearing. 3. The brief facts of the case are that the assessee is a limited company registered under the companies Act, 1996, engaged in the business of providing telecommunication services across the country, including Delhi in terms of the license granted by the Department of Telecommunication Government of India. To provide telecommunication services amongst others tata teleservices sells service products such as Recharge coupon Vouchers (RCVs) and starter kits. RCVs are the pre-paid vouchers used for selling talk time to the pre-paid subscribers. The starter kits are the new connections containing "Removable user Identity Module RUIM cards) or subscribers Identity Module (SIM Cards) for providing the telecommunication connection. For selling service products the company enters into a channel partner agreement with the distributors who are also known as channel partners. On the upfront sale of the services products discount is offered to the channel partners to the extent of the difference between the Maximum retail price and the distributor's sale price. On this discount no TDS provisions as per Act was made by the company. A notice was issued u/s 201(1) of the Act t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionship between assessee and its distributors was Whether, on facts, relationship between assessee and its distributors was that of principal and agent and, consequently, amount of discount offered by assessee to its distributors was in nature of commission liable to tax deduction at source under section 194H-Held, yes" 6.1 Following the above decision, the demand raised by the AO under section 194H is confirmed. 6.2 So far as invoking section 194) is concerned, on perusal of the facts, it is clear that the appellant had received technical services in lieu of getting roaming services from the net work of another operators through an automated process undertaken by a series of highly advanced telecom network equipment but the same requires constant human intervention to make the process of roaming services effectively operational, thereby, I am of the considered view that the services rendered by the other operators with regard to roaming facility was the technical services for which provision of section 1941 are applicable, therefore, the AO had rightly invoked section 194J of the IT Act in this regard. 6.3 Further, the appellant has not filed any details of the persons conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from the discounts allowed to its distributors on sale of starter kits and recharge vouchers? The Hon'ble Supreme Court in case of Bharti Cellular Ltd, vs ACIT Circle civil Appeal No 7257 of 2011 held as under :- 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 independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency. In other words, the term 'agent' should be restricted to one who has the power of affecting the legal position of his principal by the making of contracts, or the disposition of the principal's property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and examining the indicia menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a franchisee. Franchise agreements are normally considered as sui generis, though they have been in existence for some time. Franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacturer, i.e., a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franchisee's operations are closely regulated, and this possibly is a distinction between a franchise agreement and a distributorship agreement. Franchise agreements are extremely detailed and complex. They may relate to distribution franchises, service franchises and production franchises. Notwithstanding the strict restrictions placed on the franchisees--which may require the franchisee to sell only the franchised goods, operate in a specific location, maintain premises which are required to comply with certain requirements, and even sell according to specified prices--the relationship may in a given case be that of an independent contractor. The facts of each case and the authority given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the prepaid coupons or starter-kits to the distributors. Section 194H of the Act is not applicable to the facts and circumstances of this case. Accordingly, the appeals filed by the assessee - cellular mobile service providers, challenging the judgments of the High Courts of Delhi and Calcutta are allowed and these judgments are set aside. The appeals filed by the Revenue challenging the judgments of the High Courts of Rajasthan, Karnataka and Bombay are dismissed. There would be no orders as to cost. Pending applications, if any, shall stand disposed of." 4. In view of the aforesaid, we allow the instant appeals and set aside the orders of the Income Tax Appellate Tribunal ["ITAT"] dated 15 March 2018, insofar as the issue of Section 194H is concerned. 11. Respectfully following the ratio laid down by the Hon'ble Apex Court and Hon'ble High Court we hold that no TDS u/s 194H is deductible in case of discounts allowed to the distributors on sale of starter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious levels and, consequently, charges paid by assessee for such services constituted fees for technical services under section 194J as provision lucidly spells out that consideration can also be in one lump sum - Held, yes [Paras 18, 19 and 20] [In favour of revenue] 2. SUPREME COURT OF INDIA in the case of Commissioner of Income-tax, Delhi v. Bharti Cellular Ltd [2010] 193 Taxman 97 (SC) has observed as under :- Section 194J of the Income-tax Act, 1961- Deduction of tax at source - Fees for technical/professional services - Assessee was a cellular service provider - It had an interconnect agreement with BSNL/MTNL under which it paid interconnect/access/port charges to BSNL/MTNL Question that arose for consideration was whether TDS was deductible by assessee on interconnect/access/port charges paid to BSNL/MTNL - Whether in absence of any expert evidence from department to show how mutual intervention was involved in technical operations by which assessee was given facility by BSNL/MTNL for interconnection, matter could not be decided - Held, yes Whether, therefore, Assessing Officer was to be directed to decide matter after examining a technical expert from side of departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell, Delhi Respected Sir, Sub: Urgent Instructions required in the case of Commissioner of Income Tax (TDS-2) vs M/s Tata Teleservices Ltd. [ITA No. 1417/2018]- regarding. Kindly refer to your e-mail dated 11th April 2022 on the above- mentioned subject. In this regard, I am directed to convey that SLP in the case of CIT (TDS), Bangalore vs. Vodafone South Ltd. (2016) 72 Taxmann.com 347 (Kar) has not been approved by Board for the following reason: "As it has been repeatedly established in various cases, involving the issue of liability of deduction of TDS us 194J for payments to other telecom companies for interconnect charges/access/port charges for reaming and data link that no human intervention was involved in the interconnect whether it was for data link or roaming, the charges paid could not be held to be in the nature of fees for technical services for the purposes of section 9(1) and section 194J of the Act." In view of above, SLP in the case of CIT (TDS), Bangalore vs. Vodafone South Ltd. (2016) was not filed. This is for your kind information and the needful." 5. Learned counsel for the respondent emphasises that JDIT(OSD)(L&R) functions under the Directorate, L&R, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrectness in the case of other assessee without just cause. 9. Keeping in view the aforesaid mandate of law and the letter dated 21st April, 2022, this Court is of the view that the appellant-revenue has consciously elected not to challenge the aforesaid judgment of the Karnataka High Court, which hold that no TDS is required to be deducted by the assessee on payment of interconnect user charges as it cannot be categorized as fee for technical services. 10. Consequently, this Court is of the view that it is not open to the revenue to challenge the correctness of the finding rendered by the Karnataka High Court in Vodafone South Ltd. (supra) in the case of other assessees without just cause. Accordingly, no substantial question of law arises for consideration in the present appeal and the same is dismissed. 15. In the case of Commissioner of Income Tax TDS Bangalore vs Vodafone South Ltd [2016]72 TAXMANN.COM 347 Karnataka the Hon'ble High Court held as under :- "11. We have heard the rival contentions of both the parties and perused the material available on record. After going through the order of the Assessing Officer, Id CIT(A); submissions of the assessee as well as going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est u/s. 201(1A) of the Act in relation to discounts/ commission on prepaid sim cards and talk time is concerned, we have remitted the issue back to the file of the AO for consideration afresh in accordance with the judgment of Hon'ble Jurisdictional High Court in the case of Bharti Airtel Ltd. (supra). AO is directed to revise the levy of interest accordingly. Ground nO.4 of the assessee is partly allowed for statistical purpose. 7. The aforesaid shows that the Tribunal by relying upon the decision of the Delhi High Court found that the fact situation are also the same and the payment made for roaming connectivity cannot be termed as "technical services" and ultimately it was found that the assessee could not be said as in default for non deduction of TDS at source on the roaming charges paid by it to the other services provider and the appeal are allowed to that extent. Under the circumstances, the present appeals before this Court. 8. We have heard Mr. K.V. Aravind, the learned counsel appearing for the appellants- Revenue in all the appeals. The learned Counsel relied upon two decisions of the Apex Court for canvassing the contention that the roaming charges paid by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived, but is on non existent premise, because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Company to another mobile service provider Company. Hence, we do not find that the observations made are of any help to the Revenue. 12. As such, even if we consider the observations made by the Apex Court in the case of Bharti Cellular Ltd. supra, whether use of roaming service by one mobile service provider Company from another mobile service provider Company, can be termed as "technical services" or not, is essentially a question of fact. The Tribunal, after considering all the material produced before it, has found that roaming process between participating entities is fully automatic and does not require any human intervention. Coupled with the aspect that the Tribunal has relied upon the decision of the Delhi High Court for taking support of its view. 13. In our view, the Tribunal is ultimately fact finding authority and has held that the roaming process between participati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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