I-T - Assessee cannot be treated to be 'in-default' for not deducting TDS even when, selling prepaid SIM cards, if it has neither paid any commission nor has accrued any income in hands of distributors: ITAT
By TIOL News Service
CHANDIGARH , JUNE 18, 2018: THE ISSUE IS - Whether the assessee can be treated to be 'in-default' for not deducting TDS even when, selling prepaid sim cards, if assessee has neither paid any commission nor has accrued any income in the hands of the distributors. AND THE ANSWER IS NO.
Facts of the case:
The assessee is a telecommunication service provider. A TDS survey u/s 133A was carried out at the assessee's business premises. During the survey proceeding, the AO found that the person responsible (PR) had not deducted TDS from the payment made towards both incentives on prepaid sim cards sold to distributors and on the roaming charges paid to other service providers. Accordingly, the AO held that the incentives paid to distributors was in the nature of commission and hence, the assessee was liable to deduct TDS on such payment u/s 194H. Again, the AO also stated that the roaming charges paid to other telecommunication providers was in the nature of service charges and thus, the assessee was liable to deduct TDS u/s 194C. Consequently, the assessee was held to be an assessee in default for not deducting TDS and therefore, demand was created under Ss 201(1) and 201(1A). On appeal before the CIT(A), the matter was restored back to the file of the AO for fresh adjudication.
Tribunal held that,
++ the Karnataka High Court in the case of the assessee itself, while dealing with an identical issue in appeal against the demand raised u/s 201(1) and 201(1A), decided the issue in favour of the assessee. The High Court held that there was no relationship of principal and agent between the assessee and its distributors and the transaction was that of sale of right to service on a principal to principal basis. The High Court held that when the assessee sold SIM card to distributors he was neither paying any commission by such sale, nor any income accrued in the hands of the distributors which condition was precedent for attracting Sec. 194H. The High Court, therefore, held that the assessee was not under any obligation to pay any tax as no income was generated in his hands and deduction of TDS being a vicarious responsibility there was no obligation to deduct TDS in the absence of a primary responsibility to pay tax;
++ even the Rajasthan High Court in the case of M/s Bharti Hexacom Limited, stated to be a subsidiary of the assessee, held that the discount paid to distributors was not in the nature of commission as envisaged u/s 194H and thus, there was no liability to deduct TDS on the same. The ITAT Jaipur Bench following the decision of the Rajasthan High Court in the case of M/s Bharti Hexacom Limited deleted the demand raised on identical issue in the case of M/s Bharti Hexacom Limited in a subsequent AY. Further we note that the ITAT Gauhati Bench has also affirmed the stated proposition of law in the matter of the assessee itself i.e. Bharti Airtel Limited relating to AYs 2006-07 to 2009-10. Therefore, we find that the issue has been decided in favour of the assessee by various High Courts and various Benches of the ITAT in the case of the assessee's group concerns only wherein the business model is more or less of identical nature. The said decisions are therefore applicable to the facts of the present case. Moreover, for deciding the issue before us, when no decision of the Jurisdictional High Court is available on the issue and where there are decisions of non Jurisdictional High Court expressing the contrary view, the settled legal principle is that the view favourable to the assessee has to be adopted, as held by the Supreme Court in the case of CIT Vs. Vegetable Products Ltd., and CIT Vs. Vatika Township Pvt. Ltd;
++ hence, the sale of prepaid sim cards by the assessee to the distributors are on principal to principal basis and hence out side the ambit of Sec. 194H. Therefore, the assessee was not required to deduct tax on the same and, therefore, could not be held to be an assessee in default for not deducting TDS. The demand raised on the assessee u/s 201(1) and 201(1A) is, therefore, directed to be deleted.
(See 2018-TIOL-874-ITAT-CHD)
