Income Tax Department vs. Bharti Airtel Limited

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ITA/158/2023HC 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 High Court of Madhya Pradesh, while hearing the appeal filed by the Revenue, noted that the Apex Court had already adjudicated the issue in Civil Appeal No. 7257/2011 (Bharti Cellular Ltd. Now Bharti Airtel Limited vs. Assistant Commissioner of Income Tax, Circle 57, Kolkata and another) vide its judgment dated 28/02/2024. The Apex Court 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, the appeals filed by the assessee challenging the judgments of the Delhi and Calcutta High Courts were allowed, and those judgments were set aside. The appeals filed by the Revenue challenging the judgments of the Rajasthan, Karnataka, and Bombay High Courts were dismissed. In light of the Apex Court's decision, the High Court found that nothing survived for adjudication in the present appeal filed by the Revenue.

What were the facts?

The Income Tax Department (Revenue) filed an appeal before the High Court of Madhya Pradesh against M/s Bharti Airtel Limited (assessee) concerning the assessment year(s) not specified. The appeal challenges the liability to deduct tax at source under Section 194-H of the Income Tax Act, 1961, on amounts paid by the assessee to its franchisees/distributors, which the Revenue considered commission. The assessee contended that these payments were not commission or brokerage, and the recipients were not their agents. The High Courts of Delhi and Calcutta had previously ruled in favor of the Revenue, while Rajasthan, Karnataka, and Bombay High Courts had ruled in favor of the assessees. This specific appeal was filed after a delay of 4 days, which was condoned.

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 payments made to franchisees/distributors, which the Revenue considers commission. Assessee's Contentions: The assessee argued that they were not paying commission or brokerage to the franchisees/distributors, nor were the franchisees/distributors acting as their agents. The assessee relied on the judgments of the High Courts of Rajasthan, Karnataka, and Bombay. Revenue's Contentions: The Revenue contended that the payments made to franchisees/distributors constituted commission and therefore, tax was deductible at source under Section 194-H. The Revenue relied on the judgments of the High Courts of Delhi and Calcutta.

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. 158 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) 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 13:18:28 Signature Not Verified 2 ORDER Heard on IA No.1331/2024, an application for condonation of delay of 4 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, Circle 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 13:18:28 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 13:18:28 Signature Not Verified

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