Income Tax Department vs. M/S Bharti Airtel Limited

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ITA/157/2023HC Madhya Pradesh19 March 2024Bench: HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI3 pages
For Petitioner: Veena Mandlik
AI SummaryRemanded

What did the High Court hold?

The Madhya Pradesh High Court at Indore disposed of the appeal filed by the Revenue in light of the Supreme Court's judgment dated 28/02/2024 in Civil Appeal No.7257/2011 (Bharti Cellular Ltd. Now Bharti Airtel Limited vs. Assistant Commissioner of Income Tax, Circuld 57, Kolkata and another). The Supreme Court had held that assessees are not under a legal obligation to deduct tax at source on the income/profit component in payments received by distributors/franchisees from third parties/customers, or while selling/transferring pre-paid coupons or starter-kits to distributors. The Apex Court concluded that Section 194-H of the Act is not applicable to the facts and circumstances of the case. Consequently, appeals filed by the assessee challenging Delhi and Calcutta High Court judgments were allowed, and appeals by the Revenue challenging Rajasthan, Karnataka, and Bombay High Court judgments were dismissed. As the Supreme Court had already decided the issue, nothing survived for adjudication in the present appeal before the High Court.

What were the facts?

The Income Tax Department (Appellant) filed an appeal before the Madhya Pradesh High Court at Indore against M/s Bharti Airtel Limited (Respondent). The appeal, filed under Section 260-A of the Income Tax Act, 1961, concerned the liability to deduct tax at source under Section 194-H of the Act. The dispute centered on whether commission paid by the assessee to its franchisees/distributors under franchise/distributorship agreements was subject to TDS. The Revenue contended that these payments constituted commission to agents, while the assessee argued they were not paying commission and the distributors were not their agents. The High Court noted conflicting decisions from various High Courts on this issue.

What were the issues?

1. Whether the assessee is liable to deduct tax at source under Section 194-H of the Income Tax Act, 1961, on amounts paid to franchisees/distributors, which the Revenue considers commission payable to agents? Assessee's contentions: The assessee argued that they were neither paying commission nor brokerage to the franchisees/distributors, and that the franchisees/distributors were not their agents. They relied on judgments from the High Courts of Rajasthan, Karnataka, and Bombay which held Section 194-H not applicable. Revenue's contentions: The Revenue contended that the payments made to franchisees/distributors were in the nature of commission payable to agents and therefore, TDS under Section 194-H was mandatory. They relied on judgments from the High Courts of Delhi and Calcutta which held Section 194-H applicable.

Which sections of the Income-tax Act were involved?

Section 194-H,Section 260-A

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF MADHYA PRADESH AT INDORE BEFORE HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI & HON'BLE SHRI JUSTICE HIRDESH INCOME TAX APPEAL No. 157 of 2023 BETWEEN:- INCOME TAX DEPARTMENT THE COMMISSIONER OF INCOME TAX (TDS) AAYKAR BHAWAN, HOSHANGABAD ROAD (MADHYA PRADESH) .....APPELLANT (MS. VEENA MANDLIK, ADVOCATE) AND M/S BHARTI AIRTEL LIMITED METRO TOWER 3RD AND 4TH FLOOR, SCHEME NO. 54, VIJAY NAGAR TAN BPLB01146F (MADHYA PRADESH) .....RESPONDENT (SHRI SUMIT NEEMA, SENIOR ADVOCATE WITH SHRI GAGAN TIWARI, ADVOCATE ON CAVEAT) Reserved on 26/02/2024 Passed on 19/03/2023 ____________________________________________________________________ This appeal is being heard and order has been passed on for 19/03/2024 this day and Justice Sushrut Arvind Dharmadhikari passed the following: Signed by: JAGADISHAN AIYER Signing time: 20-03-2024 09:59:13 Signature Not Verified 2 ORDER Heard on IA No.1338/2024, an application for condonation of delay of 5 days in filing this appeal under Section 5 of the Limitation Act. 2. For the reasons stated in the application, the same is hereby allowed and the delay stands condoned. 3. Also heard on the question of admission. 4. The issue raised in this appeal under Section 260-A of the Income Tax Act, 1961 (which shall be referred herein after as “Act, 1961”) relates to liability to deduct of the tax at source under Section 194-H of the Act, 1961 on the amount which, as per Revenue, Commission payable to an agent by the assessees under the franchise/distributorship agreement between the assessees and the franchinsees/distributors. As per the assessees, neither are they paying a commission or brokerage to the franchisees/distributors, nor are the franchisees/distributors their agents. The High Courts of Delhi and Calcutta have held that the assesses were liable to deduct tax at source under Section 194-H of the Act, whereas the High Courts of Rajasthan, Karnataka and Bombay have held that Section 194-H of the Act is not attracted to the circumstances under consideration. 5. Some of the assessees had approached the Apex Court in Civil Appeal No.7257/2011 (Bharti Cellular Ltd. Now Bharti Airtel Limited vs. Assistant Commissioner of Income Tax, Circuld 57, Kolkata and another). 6. The aforesaid issue has been answered by Apex Court vide its judgment dated 28/02/2024 in Civil Appeal No.7257/2011 and came to the conclusion as under :- Signed by: JAGADISHAN AIYER Signing time: 20-03-2024 09:59:13 Signature Not Verified 3 “42. In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the Civil Appeal No. 7257 of 2011 & Ors. Page 44 of 44 distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H 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 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.” 7. In view of the aforesaid, nothing survives for adjudication in this appeal filed by the Revenue. Accordingly, appeal is hereby disposed off. (S.A. Dharmadhikari) (Hirdesh) Judge Judge Aiyer* Signed by: JAGADISHAN AIYER Signing time: 20-03-2024 09:59:13 Signature Not Verified

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