DY COMMISSIONER OF INCOME TAX TDS vs. MS IDEA CELLULAR LTD

PDF · subscribers
ITA/92/2018HC RajasthanRJHC02045522201812 April 20186 pages
AI SummaryDismissed

What did the High Court hold?

The High Court, referring to its prior decision in D.B. Income Tax Appeal No. 96/2016, held that the relationship between the assessee (Idea Cellular Ltd.) and its distributors was on a principal-to-principal basis, not principal-to-agent. The Court found that Section 194H presupposes a payment made to a third party (distributor or agency), and if the distributor is not an agent, then Section 194H is wrongly invoked. The Court reasoned that the arrangement involved the transfer of property in goods to the distributor, and no commission was paid by the assessee. The distributor managed their own margins and expenses. The Court also noted that the Management Information System relied upon by the revenue was not part of the assessee's books and could not be relied upon. Consequently, the demand under Section 201(1) for non-deduction of TDS was also deemed misconceived. The Court concluded that no substantial question of law arose and dismissed the appeal.

What were the facts?

The Revenue (Commissioner of Income Tax (TDS), Jaipur) appealed against an order of the Income Tax Appellate Tribunal (ITAT) which had dismissed the Revenue's appeal and allowed the assessee's (M/s. Idea Cellular Ltd.) appeal. The core dispute revolved around the assessee's liability to deduct Tax Deducted at Source (TDS) under Section 194H of the Income Tax Act, 1961, on payments made to its distributors, and the subsequent deletion of demand under Section 201(1) for non-deduction. The High Court noted that the issue was covered by its previous decision in a similar case involving the same assessee.

What were the issues?

1. Whether, in the facts and circumstances, the Tribunal was justified in holding that the assessee was liable to deduct TDS under Section 194H of the IT Act, as the relationship between the assessee and its distributors was that of principal to agent. 2. Whether, in the facts and circumstances, the Tribunal erred in law in deleting the demand under Section 201(1) for non-deduction of TDS under Section 194H on commission payments to various distributors. Assessee's Contentions (as inferred from the High Court's discussion of the prior judgment): - The relationship between the assessee and its distributors was on a principal-to-principal basis, not principal-to-agent. - Property in goods was transferred to the distributor. - No commission was paid by the assessee to the distributor; rather, the arrangement involved a reduction in the amount to be received by the distributor. - The Management Information System relied upon by the revenue authorities was not part of the assessee's books of accounts and could not be relied upon. - The final tax was paid by the distributor, not the agent, and the revenue was not at a loss. - In cases of divergent judicial views, the view favorable to the assessee should be adopted. Revenue's Contentions (as inferred from the High Court's discussion of the prior judgment): - The assessee was liable to withhold tax at source under Section 194H in respect of sales to its distributors. - The relationship between the assessee and distributors was that of principal to agent. - The demand under Section 201(1) for non-deduction of TDS was justified.

Which sections of the Income-tax Act were involved?

Section 194H,Section 201(1),Section 201(1A),Section 271

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 92/2018 Commissioner Of Income Tax (Tds), Jaipur ----Appellant Versus M/s. Idea Cellular Ltd. (Formerly Known As Idea Telecommunication Ltd.), 1-2, Jai Jawan Colony, Tonk Road, Jaipur 302018 Pan Aaacb2100P ----Respondent For Appellant(s) : Mr. K. D. Mathur with Mr. Prateek Kedawat on behalf of Mr. R. B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Order 12/04/2018

1.

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of Revenue and allowed the appeal of assessee.

2.

Counsel for the appellant has framed the following questions of law:- “Whether

in the facts

and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s. 194H of the IT Act, as the relation between assessee and distributor is that of principal to agent. Whether

in the facts

and circumstances of the case, the Tribunal has erred in law in deleting the demand u/s. 201(1) for non deduction of TDS u/s 194 H on commission payment to various distributors.”

(2 of 6) [ITA-92/2018

3.

Now, the issue is covered by the decision of this Court in D.B. Income Tax Appeal No. 96/2016 in Commissioner of Income Tax (TDS), Jaipur Vs. M/s. Idea Cellular Ltd. (Formerly Known As Idea Telecommunication Ltd.), and other connected matters, decided on 11.07.2017, wherein it has been held as under:- “44. Now, the first question which has come up for our consideration is, ‘whether in the facts and circumstances of the case the learned Tribunal was right and justified in holding that assessee was liable to withhold tax at source under S. 194H of the Income Tax Act, 1961 amounting to Rs.19,74,842/- (including interest) in respect of sales to its distributors, which are on principal to principal basis and wherein property in the goods is transferred to the distributor’.

45.

Taking into account the provisions of Section 182 of the Contract Act and the arrangement which has been entered into between the company and the distributor and taking into account the provisions of Section 194H, the Tribunal while considering the evidence on record, in our considered opinion, has misdirected itself in considering the case from an angle other than the angle which was required to be considered by the Tribunal under the Income Tax Act. The Tribunal has travelled beyond the provisions of Section 194H where the condition precedent is that the payment is to be made by the assessee and thereafter he is to make payment. In spite of our specific query to the counsel for the department, it was not pointed out that any amount was paid by the assessee company. It was only the arrangement by which the amount which was to be received was reduced and no amount was paid as commission.

46.

In that view of the matter, if we look at the provisions of Section 194H and even if explanation is taken into consideration, there is no occasion of invoking provisions of Section 194H, since the amount is not paid by the assessee.

(3 of 6) [ITA-92/2018

47.

Taking into account the conclusion which has been arrived at by the Tribunal is misdirected in view of the arrangement which has been arrived at between the company and the Distributor. Assuming without admitting, if the contention which has been raised before the Tribunal is accepted, the same can be at the most expenses which are not allowable under the Income Tax Act, if at all claimed without proper basis but to conclude that they are covered under Section 194H and the income tax or the TDS is required to be deducted is not correct and accordingly disallowance on that basis is not correct. In our considered opinion, from which amount of tax is to be deducted is a doubtful proposition inasmuch as the Management Information System which has been sought to be relied upon for alleging that expenditure has been claimed could not have been relied upon by the Tribunal or the authorities under the Income Tax Act. (i) The findings which are given by the Tribunal regarding Distributor being Agent in view of the discussion made here-in-above, the arrangement which has been made between the Company and the Distributor is on Principal to Principal basis and the responsibility is on the basis of agreement entered into between the parties. (ii) Regarding MRP, the findings which are arrived at is a price which has been fixed by the assessee company and other expenses, namely; commission given to the retailer and everything is to be managed by the Distributor. In that view of the matter, the restrictions which are put forward will not decide the relation-ship of Principal and Agent. (iii) The Distributor has all rights to reduce his margin. He can increase the margin of retailer and will reduce the margin from 10% to anything between 1% to 10%. There is no restriction by the assessee to give commission amount to the retailer. (iv) Regarding area of operation, it is the business policy of the assessee to give Distributor-ship for a particular area. Only on that basis, it will be erroneous to held that it is on Principal to Principal basis. For deciding the relation-ship on Principal to Principal basis, the criteria will not be of area of operation but agreement entered into between the parties.

(4 of 6) [ITA-92/2018 (v) Regarding the change in price it is always between the assessee or the company and the Distributor to decide who will absorb the loss. In that view of the matter, the findings arrived at by the Tribunal is erroneous. (vi) Regarding the return of goods after expiry date, it is always the understanding between the manufacturer and company that the product is not for preparation or consumed before expiry date, the consumed items cannot be allowed otherwise manufacturer will invite criminal liability. To avoid any criminal liability or any criminal act is done for taking back the goods, will not deter the relation-ship of Principal to Principal basis. (vii) Regarding supervision, it is always for the manufacturer and the company to look into the matter that his Distributor or Sub-Distributor or Retailer will not induct in mal practice. (viii) Regarding goods sold to the Distributor, it is always a matter of contract how further goods will be distributed. Restriction on sub- Income Tax- (2007) 288 ITR 1 (SC). (x) Regarding providing a vehicle it was very clear that by providing vehicle and getting list of expenses will not decide the relation-ship of Principal and Agent.

48.

In our considered opinion, Section 194H pre-supposes the payment to be made to the third party namely, Distributor or the Agency and if on a close scrutiny of Section 182, Distributor is not an agent, therefore, in our considered opinion, the provisions of Section 194H have wrongly been invoked, and therefore, the first issue is answered in favour of assessee and against the Department.

49.

The second issue which has been raised

(5 of 6) [ITA-92/2018 for our

consideration,

as discussed hereinabove, the Management Information System was not a part of their books of accounts nor could have been relied upon by the Income Tax Authorities. The basis on which the proceedings were initiated, in our considered opinion, the Statutory Audit Report is final conclusion over the authorities under the Income Tax Act, therefore, the second issue is required to be answered in favour of the assessee.

50.

Regarding third issue whether 201A or 201(1A), in view of the decisions of different High Courts, the argument canvassed by counsel for the appellant pre-supposes deduction out of the payment. In our

conclusion in issue No.1, the amount was not required to be deducted since they have not made any payment. In that view of the matter any proceedings under Section 201 or 201(1A) are misconceived. In that view of the matter, this issue is also answered in favour of assessee.

51.

Contention regarding provisions of Section 271 of the Act,in view of our answer in favour of assessee, this issue is also required to be answered in favour of assessee. Even otherwise as rightly held by the Supreme Court in CIT Vs. Eli Lilly & Co. (India) P. Ltd.(supra), the penalty could not have been levied in all the appeals filed by assessee Coca Cola. M/s Bharti Hexacom Ltd.

52.

Regarding the other appeals of Cellular Companies the questions are required to be answered as discussed hereinabove. The relationship is not of agent. It is principal to principal basis. The payment is received by the company and the amount of commission is never paid to the agent or the Distributor. Therefore, no TDS is required to be deducted. We also accept the contention raised by Mr. Jhanwar that even otherwise in view of divergent judicial views, one in favour of the assessee is required to be adopted as per settled law. Taking into consideration the above conclusion, the first issue is required to be answered in favour of assessee.

53.

Regarding Section 194J of the Act, in view of the Kerala High Court decisions, the issue is answered in favour of assessee and third issue even as per the statutory definition, there is no service and Sections 201 and 194H

(6 of 6) [ITA-92/2018 would not apply in view of the agreement as referred hereinabove. Tata Teleservices

54.

In view of agreement the issue regarding 194H and 194J as held in other cases, both the issues are answered in favour of the assessee. Vodafone

55.

Issues regarding Sections 194H, 194J and 201 of the Act, they are answered in favour of assessee.

56.

Additional questions are framed in the case of Department. There are 5 issues in favour of assessee (issue Nos. 1 and 2 are wrongly framed by the Court). However, in view of our above discussion, they are required to be answered in favour of the assessee.

57.

In case of appeal preferred by the assessee, issue No.4 is required to be answered in favour of assessee that the CIT (A) has all jurisdiction to restore or set aside the judgment of AO since it is a statutory appeal, the appellate court has all powers to deal with the same. All other issues are answered in favour of the assessee. Idea Cellular

58.

As the agreement is produced, issues are answered in favour of assessee in the departmental appeals.

59.

Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form.”

4.

Hence no substantial question of law arises. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J B.M.G/Gourav/89

More judgments on Section 194H

All 1,314 judgments and leading authorities on Section 194H →

Recent GST High Court judgments

Search GST case law →