The Commissioner Of Income Tax (Tds) vs. M/S Idea Cellular Ltd.

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ITA/167/2023HC 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, Indore Bench, 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, Circle 57, Kolkata and another). The Supreme 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. Consequently, Section 194-H of the Act was held to be not applicable to the facts and circumstances of the case. The Supreme Court allowed appeals filed by assessees challenging Delhi and Calcutta High Court judgments and dismissed appeals by the Revenue challenging Rajasthan, Karnataka, and Bombay High Court judgments. Therefore, nothing survived for adjudication in the present appeal.

What were the facts?

The appellant, the Income Tax Department, filed an appeal under Section 260-A of the Income Tax Act, 1961, against M/s Idea Cellular Ltd. The appeal concerns the liability to deduct tax at source under Section 194-H on amounts paid as commission to agents under franchise/distributorship agreements. The assessee contended that no commission or brokerage was paid, and the franchisees were not their agents. The revenue argued otherwise. The High Courts of Delhi and Calcutta had previously held the assessee liable, while Rajasthan, Karnataka, and Bombay High Courts had ruled Section 194-H inapplicable. The Supreme Court had also considered a similar issue in Bharti Cellular Ltd. vs. ACIT.

What were the issues?

1. Whether the assessee was liable to deduct tax at source under Section 194-H of the Income Tax Act, 1961, on amounts paid to franchisees/distributors, treating such payments as commission or brokerage, and the franchisees as agents of the assessee? (Question of law) 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. They 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 or brokerage, attracting the provisions of Section 194-H. They 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. 167 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 IDEA CELLULAR LTD LIMITED FIRM 139-140, ELECTRONICS COMPLEX, PARDESHIPURA TAN BPLI00953B (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 13:29:53 Signature Not Verified 2 ORDER Heard on IA No.1374/2024, an application for condonation of delay of 12 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 13:29:53 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 13:29:53 Signature Not Verified

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