By TIOL News Service

NEW DELHI, APRIL 28, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether bonus offered by cellular companies to their prepaid distributors for selling sim cards and recharge vouchers, is to be interpreted as commission, which is liable for withholding tax liability. YES IS THE ANSWER.

Facts of the case:

The Assessee is a cellular service provider having operations in Delhi NCR among other places. During the course of its assessment, the AO held that the transaction between ICL and its Prepaid Distributers was that of "Principal to Agent" at all times and such PMA was selling prepaid SIM card / recharge coupon on behalf of ICL. Therefore, discounts/bonus offered to the prepaid distributor would fit into definition of commission for the service rendered and tax was required to be deducted at source by ICL u/s 194H. As the assessee had not discharged its obligation u/s 194H, it was held liable to pay shortfall u/s 201(1) and resultant interest u/s 201(1A). On appeal, the CIT(A) confirmed the addition made by AO.

Tribunal held that,

++ the issue in the present case stands covered by the decision of Delhi High Court in assessee's own case in CIT vs Idea Cellular Ltd - 2010-TIOL-139-HC-DEL-IT wherein it was observing that: "....even if advance payment is made by the PMA on receipt of the SIM cards, qua those SIM cards, it does not amount to 'sale' of goods. The purpose is to ensure that the payment is received in respect of those SIM cards, which are ultimately sold to the subscriber inasmuch as unsold SIM cards are to be returned to the assessee and the assessee is required to make payment against them. This is an antithesis of 'sale'. There cannot be any such obligation to receive back the unsold stocks. Further, clause 25(f) lays down that on termination of agreement, PMA or its authorised retailer appointed by it, is not entitled to any compensation for cost or expenses incurred by it in either setting up or promotion of its business, etc. No such clause was required in cse of 'sale'...." Therefore, respectfully following the same, the payments made by assessee was in nature of commission on which TDS was liable to be deducted u/s 194.

(See 2018-TIOL-617-ITAT-DEL)