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

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ITA/52/2024HC Madhya Pradesh01 July 2024Bench: HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI2 pages
For Petitioner: Veena Mandlik
AI SummaryRemanded

What did the High Court hold?

The High Court, in view 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), held 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 distributors/franchisees from third parties/customers, or while selling/transferring pre-paid coupons or starter-kits to the distributors. The Supreme Court concluded that Section 194H of the Act is not applicable to the facts and circumstances of such cases. Consequently, appeals filed by the assessee challenging High Court judgments that held them liable were allowed and set aside, while appeals by the Revenue challenging High Court judgments that held Section 194H not applicable were dismissed. The High Court noted that nothing survived for adjudication in the present appeal filed by the Revenue.

What were the facts?

The appeal was filed by the Commissioner of Income Tax (TDS) against M/s Idea Cellular Ltd. for an assessment year not specified in the judgment. The core issue concerned the liability of the assessee to deduct tax at source under Section 194H of the Income Tax Act, 1961, on amounts paid to franchisees/distributors under franchise/distributorship agreements. The Revenue contended these payments constituted commission, while the assessee argued they were not paying commission or brokerage, and the franchisees were not their agents. The judgment notes conflicting High Court decisions on this matter.

What were the issues?

1. Whether the assessee, M/s Idea Cellular Ltd., was under a legal obligation to deduct tax at source under Section 194H of the Income Tax Act, 1961, on payments made to its franchisees/distributors in relation to franchise/distributorship agreements. Assessee's Contention: The assessee argued that they were neither paying a commission or brokerage to the franchisees/distributors, nor were the franchisees/distributors considered their agents. Therefore, Section 194H was not attracted. Revenue's Contention: The Revenue contended that the payments made by the assessee to the franchisees/distributors under the franchise/distributorship agreements constituted commission, making the assessee liable for TDS under Section 194H.

Which sections of the Income-tax Act were involved?

Section 194H,Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF MADHYA PRADESH AT INDORE BEFORE HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI & HON'BLE SHRI JUSTICE GAJENDRA SINGH ON THE 1st OF JULY, 2024 INCOME TAX APPEAL No. 52 of 2024 (THE COMMISSIONER OF INCOME TAX (TDS) Vs M/S IDEA CELLULAR LTD.) Appearance: (MS. VEENA MANDLIK, COUNSEL FOR THE APPELLANT). (SHRI ARUN DWIVEDI, COUNSEL FOR THE RESPONDENT). ORDER Per: Sushrut Arvind Dharmadhikari, J. Heard on the question of admission. 2. The issue raised in this appeal under Section 260-A of the Income Tax Act, 1961 (hereafter referred to as 'Act, 1961') relates to liability to deduct the tax at source under Section 194H of the Act, 1961 on the amount which, as per Revenue, commission payable to an agent by the assessee under the franchise/distributorship agreement between the assessee and the franchisee/distributors. As per the assessee, 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 assessees were liable to deduct tax at source under Section 194H of the Act, whereas the High Courts of Rajasthan, Karnataka and Bombay have held that Section 194H of the Act is not attracted to the circumstances under consideration. 3. Some of the assessees had approached the Apex Court in Civil 1 ITA-52-2024 Signed by: SREEVIDYA Signing time: 01-07- 2024 17:41:02 Signature Not Verified (S. A. DHARMADHIKARI) JUDGE (GAJENDRA SINGH) JUDGE Appeal No. 7257/2011 (Bharti Cellular Ltd. Now Bharti Airtel Limited vs. Assistant Commissioner of Income Tax, Circle 57, Kolkata and another). 4. The aforesaid issue has been answered by the Apex Court vide its judgment dated 28.02.2024 in Civil Appeal No. 7257/2011 and came to the following conclusion : ''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 194H 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 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.'' 5. In view of the aforesaid, nothing survives for adjudication in this appeal filed by the Revenue. Accordingly, appeal is hereby disposed of. vidya 2 ITA-52-2024 Signed by: SREEVIDYA Signing time: 01-07- 2024 17:41:02 Signature Not Verified

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