BHARTI CELLULAR LTD.NOW BHARTI AIRTEL LD vs. ASSISTANT C.I.T CIRCLE 57

C.A. No.-007257-007257 - 2011Supreme Court2024 INSC 14828 February 2024Bench: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE S.V.N. BHATTIAuthor: HON'BLE THE CHIEF JUSTICE44 pages
For Petitioner: PRAVEEN KUMARFor Respondent: RAJ BAHADUR YADAV
AI SummaryPartly Allowed

What were the facts?

The appeals before the Supreme Court involved cellular mobile telephone service providers (assessee) and the Income Tax Department (Revenue). The core dispute concerned the liability of the assessees to deduct tax at source under Section 194-H of the Income Tax Act, 1961. This liability was claimed by the Revenue on amounts the assessees allegedly paid as commission to their franchisees/distributors. The assessees contended that they were not paying commission or brokerage, nor were the franchisees/distributors acting as their agents. High Courts had taken divergent views: Delhi and Calcutta High Courts held the assessees liable, while Rajasthan, Karnataka, and Bombay High Courts held Section 194-H not applicable.

What did the Supreme Court hold?

The Supreme Court held that the assessees were not under a legal obligation to deduct tax at source under Section 194-H of the Income Tax Act, 1961. The Court reasoned that the term 'agent' in Explanation (i) to Section 194-H is used in a restricted sense, referring to one who has the power to affect the legal position of the principal by making contracts or disposing of property. Distributors and franchisees are generally regarded as independent contractors, buying goods on their own account and selling them, with their profit being the margin between purchase and sale price. Unlike agents, they do not act as intermediaries creating a relationship between the principal and a third party. The Court distinguished the relationship of a distributor/franchisee from that of an agent, emphasizing that independent contractors work for themselves and are not required to render accounts of the business. Therefore, Section 194-H was not applicable to the facts and circumstances of the case. The appeals by the assessee challenging the Calcutta High Court judgment were allowed, and appeals by the Revenue challenging the judgments of Rajasthan, Karnataka, and Bombay High Courts were dismissed.

What were the issues?

1. Whether the assessees, cellular mobile service providers, are liable to deduct tax at source under Section 194-H of the Income Tax Act, 1961, on amounts paid to their franchisees/distributors, treating such payments as commission or brokerage. Assessee's contentions: The assessees argued that they were not paying any commission or brokerage to the franchisees/distributors. They further contended that the franchisees/distributors were not acting as their agents. The relationship was that of an independent contractor or a principal-to-principal arrangement, not one covered by Section 194-H. Revenue's contentions: The Revenue contended that the payments made to franchisees/distributors constituted commission or brokerage as defined under Explanation (i) to Section 194-H. They relied on the principle that tax deduction obligations could arise even without a formal principal-agent relationship, citing the case of Singapore Airlines Limited (supra). The Revenue sought to extend the scope of Section 194-H to cover such transactions.

Which sections of the Income-tax Act were involved?

Section 194-H,Section 204,Section 119

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Civil Appeal No. 7257 of 2011 & Ors. Page 1 of 44 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7257 OF 2011 BHARTI CELLULAR LIMITED (NOW BHARTI AIRTEL LIMITED) ..... APPELLANT VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 57, KOLKATA AND ANOTHER ..... RESPONDENTS W I T H CIVIL APPEAL NOS. 2652-2653, 4949-4950 AND 4947-4948 OF 2015; 7455 OF 2018; 111 AND 2860 OF 2021; 8902 OF 2022; 7729, 7735, 7736, 7737, 7738, 7739, 7740, 7741, 7742, 7743, 7679, 7680, 7681, 7682, 7744, 7745, 7746, 7747, 7748, 7848, 7849, 7852, 7853, 7854, 7855, 7856, 7857 AND 7859 OF 2023; AND 3514, 3515, 3516 AND 3517 OF 2024

J U D G M E N T

SANJIV KHANNA, J.

This common judgment decides the aforestated appeals preferred by the Revenue and the assessees, who are cellular mobile telephone service providers. The issue relates to the liability to deduct tax at source under Section 194-H of the Income Tax Act, 19611 on the amount which, as per the Revenue, is a commission

1 “The Act”, for short. babita pandey Date: 2025.05.29 16:22:07 IST Reason: Signature Not

The order continues below.

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