MANOJ KUMAR JAIN,JAIPUR vs. ITO, TONK

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 238/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Shri Manoj Kumar Jain The ITO, Vs. Prop. Mahaveer & Co. Ward, Nazar Bagh Road, Tonk Tonk. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AFEPJ 4688 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri P.P. Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 17/07/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 19/07/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 28.12.2015 of CIT (A), Jaipur for the assessment year 2011-12. The assessee has raised the following grounds:-

“1. On the facts and in the circumstances of the case Ld. CIT(A) has grossly erred in sustaining the disallowance of Rs. 28,22,036/- made by Ld. AO u/s 40(a)(ia) of the Income Tax Act,

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

1961 by alleging non-deduction of tax at source u/s 194H on the commission payment made by assessee as wholesaler of SIM cards / mobile phones etc to retailers / sub-dealers thereof without appreciating the nature of payment explained during the course of assessment proceedings. Thus, the addition of Rs. 28,22,036/- deserves to be deleted.

1.1 That, the Ld. AO has further erred in ignoring the fact that part of the commission payment received by the sub-dealers / retailers was made directly by the mobile companies to them through the assessee, and the companies issued debit/credit note to assessee in respect thereof and accordingly, the assessee passed entries in its books of account. Thus, there was no payment on part of assessee and provisions of section 194H are not applicable to mere entries of neutral effect recorded in the books of account, without there being any actual payment. Thus, the impugned addition deserves to be deleted.

1.2 That, the Ld. AO has further erred in ignoring the fact that any commission other than referred to in Ground of Appeal No. 1.1 above, was merely forwarded by assessee out of the commission received by him from the mobile companies on which TDS already stood made by the mobile companies and no further TDS could be made on the same amount. Thus, the impugned addition deserves to be deleted.

1.3 That, the Ld. CIT(A) as well as the Ld. AO has failed to consider the fact that the entire amount stood paid during the year itself and no amount remained payable as on the end of the year. Therefore, as per the settled law, provisions of section 40(a)(ia) do not apply to the present case. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs. 10,27,298/- made on the alleged ground of under reporting of

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

commission income by the said amount by completely ignoring the fact that the said amount included the amount directly paid by mobile companies to sub-dealers and was also inclusive of service tax refund and other amounts. Thus, the amounts not being the nature of commission could not be treated as income of assessee. Thus, the addition of Rs. 10,27,298/-deserves to be deleted.

Shyam Teleservices Pvt. Ltd. and Idea Cellular Ltd. The assessee is

engaged in purchase and sale of mobile & accessories, SIM Cards,

Recharge coupons etc. During the course of assessment proceeding the

AO noted that the assessee has not deducted tax at source on the

commission paid to the retailer/sub-dealer to the tune of Rs.

28,00,946/-. In response the assessee submitted that the mobile

service provider companies have already deducted TDS as per the

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

provisions of Section 194H on behalf of the assessee on commission

paid to the retailer. The assessee has explained before the AO that the

Commission was directly paid to the retailer/sub-dealer by the mobile

companies though for account purpose the assessee is showing the

payment of commission to the retailer/sub-dealer in his books of

account. The AO did not accept the contention of the assessee and

made disallowance U/s 40(a)(ia) for want of deduction of TDS by the

assessee. The assessee challenged the action of the AO before the ld.

CIT(A) but could not succeed.

top is "Telecom Company", which appoints dealers for various

regions, who are given targets for expansion of customer base

through sale of mobile connection through pre/post paid sim cards,

for which incentive/Commission is payable to them. Since, the nature

of industry is such that it is not possible for a wholesale dealer to

reach individual customers in entire region on one to one basis, they

are allowed to appoint retailers/sub distributors in their region and

payment to them is made on the basis of total number of SIM cards/

recharge coupons sold by them. It is pertinent to note here that

payment to be made to retailers/sub distributors is of the sole 4

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

discretion of Telecom company and wholesale dealers like appellant

are intermediaries and play no role except providing information

about the quantity sold through such sub-dealer. In fact, dealer sends

a list of all the retailers/sub distributors to telecom companies, who

makes payment to them directly. In other words, appointment of

retailers/sub distributors by dealers is merely for the sake of

convenience and completely upon the terms and conditions decided

by telecom companies as it is not possible for telecom companies to

appoint retailers/sub distributors in interior villages and semi urban

areas, on a large scale to cover and provide the telecom facility to the

people living there. Thus, for all the practical purposes, these sub-

dealers are agents of telecom companies and not the wholesale

dealers like assessee. The telecom companies assign targets for a

particular region to the wholesale dealer, and substantial part of such

targets are achieved/executed through sub dealers/distributors and

payments towards such services is directly made by telecom

companies to these retailers and net amount only is paid to

intermediate dealers like assessee. It is pertinent to note here that

payment to dealers is made by companies after deduction of tax at

source on the whole amount payable to it which is inclusive of

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

payment of retailers/sub-distributors of the region. He has relied

upon the decision of the Coordinate Bench of this Tribunal in case of

13.10.2017 in case of M/s Chocopack Enterprises vs. ITO in ITA

No. 821/JP/2016 as well as decision dated 24.05.2018 in case of Shri

Virendra Kumar Jain vs. ITO in ITA No. 970/JP/2017. Thus, the ld.

AR of the assessee has submitted that the issue is covered by the

decision of the Coordinate Bench of this Tribunal.

authorities below and submitted that when the assessee is showing

the entries of receipt and payment of the commission amount then it

is obligatory on the assessee to deduct TDS U/s 194H of the Act

failing which the provisions of Section 40(a)(ia) of the Act are

applicable.

material on record. At the outset we note that the Coordinate Bench

of this Tribunal in case of M/s Chocopack Enterprises vs. ITO (supra)

has dealt with this issue of disallowance U/s 40(a)(ia) for want of

deduction of TDS U/s 194H in respect of the commission paid to the

retailer/sub-dealer. The said decision was subsequently followed by

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

the Tribunal in case of Shri Virendra Kumar Jain vs. ITO (Supra) and

held in para 4 as under:-

“4. We have considered the rival submissions as well as the relevant material on record. The assessee has produced the confirmation from M/s. Vodafone Digilink Ltd. to show that the payment in question was directly paid by the said company to the retailers. The assessee has only carried out the necessary entries in his books of account for completion of record being the dealer and all the transactions are passing through the assessee. Once the payment in question was not made by the assessee and it was directly paid by the company and further the quantum and percentage of the said commission/discount was also in the full control of the company and not in the hands of the assessee, then merely because the assessee has passed the contra entry of the said amount would not bring the said transaction in the category of commission paid by the assessee so as to attract the provisions of section 194H. The Coordinate Bench of this Tribunal in the case of Chocopack Enterprises vs. ITO (supra) has considered an identical issue in para 9 as under :-

“9. I have considered the rival submissions as well as relevant material available on record. The assessee’s firm engaged in the business of distributorship of Idea recharge cards. The issue involved in case of theassessee is in respect of sale of recharge coupons and not the sale of sim cards. Therefore to the extent the issue of sale of sim cards by the service provider it is held by the Hon’ble Karnatka High Court in the case of Bharati Airtel Ltd. vs. CIT (supra) that the assessee is the service provider had no obligation to deduct TDS and accordingly when the service provider has is under no obligation to deduct tax, the distributor would also not under obligation to deduct TDS. However, the said decision is only on the issue of sale Sim cards and 7

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

therefore, will not applicable in the case of the assessee. The Hon’ble Supreme Court in case of Bharat Sanchar Nigam Ltd. vs. Union of India 282 ITR 273 as also observed in paras 85 and 86 which are reproduced as under:- “85. In that case Escotal was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central sales tax and sales tax under the Kerala General Sales Tax Act, 1963, as applicable. The question was one of the valuation of these goods. The State sales tax authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotal that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The court rejected this submission finding that the SIM card was “goods” within the definition of the word in the State sales tax act.

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

tax authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However, we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 3 SCC 634— “subjects which in one aspect and for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping ; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects”. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.”

Therefore, as the issue of sale of sim cards is concerned the Hon’ble Supreme Court has clearly held that the sale of sim cards merely incidental to the service being provided and only facilitates the identification of subscribers their credit and other details it would not be assessable to sale tax. As regards the sale of recharge coupons it is clearly a transaction of sale of goods as held by the Hon’ble Supreme Court that the telephone is nothing but a service. However, since the service is provided by the company which is the service provider and assessee is only a 9

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

distributor and intermediatetory, therefore, the tax liability for paying the commission, if any, is attracted u/s 194H only against the person responsible for paying the commission. In case in hand the assessee is not paying any commission to the retailers but this commission or so called discount is allowed and paid by the service provider. The assessee is an intermediatetory and only recording this transaction in the books of account for the purpose of completeness. Hence, when the assessee is neither competent nor responsible nor actually paying any commission to the retailer on sale of recharge coupons to the retailers then the obligation for deduct tax u/s 194 H is attracted only against the service provider and not against the assessee who is only a distributor and receiving its share of the commission/ margins provided by the service provider. The determination of sale price of recharge coupons is in the sole domain of the service provider and the assessee is no role in determining the retail price at which the retailer is selling the recharge coupons to the customer or end user of the service. Therefore, in the facts and circumstances of the case when the assessee’s role is only an intermediatetory and passing the services from one hand to the other hand then merely because the assessee is showing an amount of commission/discount in the books of account for completeness of accounts and transactions will not impute any liability of deducting tax at source. The decisions relied upon by the ld. DR are also on the point where the service provider is allowing or paying the commission to the distributors or retailers and sale of sim cards as well as recharge coupons, therefore, even for the sake of arguments if it is accepted that the benefit allowed by the service provider to the distributors and retailers is commission it is service provider who is responsible for paying the said commission and therefore, the provisions of section 194H are not attracted against the distributor. Accordingly, when the assessee is not directly and indirectly in deciding the quantum of alleged commission/discount as well as determining the retail price at which the recharge coupons is sold to the customer then 10

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

the provisions of section 194H cannot be applied on the assessee. Consequently disallowance made by the AO u/s 40 (a)(ia) is deleted.”

Thus the Coordinate Bench has followed the decision of Hon’ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. vs. Union of India, 282 ITR 273 (SC). It is pertinent to note that the issue in case of Bharat Sanchar Nigam Ltd. vs. UOI (supra) as well as in the cases which are relied upon by the ld. CIT (A) was regarding the nature of the payment made by the operating companies whether it was commission or discount allowed by the Cellular/Mobile operators. Therefore, even otherwise the decisions on those cases are not directly applicable in the case of the assessee where the assessee is a distributor and an inter- mediatory between the Cellular/Mobile operator and the retailers. Following the decision of the Coordinate Bench of this Tribunal, we set aside the orders of the authorities below qua this issue and delete the disallowance made by the AO under section 40(a)(ia).

Thus, it is clear that the Tribunal has been taking a consistent view

that when the assessee is only an intermediatory between the

cellular/mobile operator and retailer and the payment of commission

was directly made by the cellular/mobile operator companies to the

retailer/sub-dealer after deduction of TDS then, the assessee is not

required to deduct any TDS on the said amount directly paid by the

company and only the accounting entries were carried out by the

assessee. Therefore, following the decisions of the Coordinate Bench

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

of this Tribunal we delete the disallowance made by the AO u/s

40(a)(ia) of the Act.

under reporting of commission by the assessee. The assessee has

credited commission income of Rs. 45,46,072/-. The AO called the

information from the mobile operating companies and as per the

details provided by the companies the AO found the total commission

received by the assessee during the year was Rs. 55,73,310/-. The

AO accordingly asked the assessee to furnish the details of

commission and copies of TDS certificate. The assessee filed a

revised return showing the commission receipt at Rs. 52,25,514/-,

however, there was no consequential change in the total income

declared by the assessee as some of the entries were having neutral

effect. Thus the assessee explained before the AO that the assessee

has shown the net commission income without including the contra

entries of receipt and payment to the dealers/sub-retailer. The said

payment of commission was made by the companies directly to the

retailer/sub dealer however, the AO made an addition of the

differential amount of commission income reported by the assessee

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

as against the amount shown by the company. The ld. CIT(A) has

confirmed the addition made by the AO.

difference amount of commission credited in the profit and loss

account and the amount which is intimated by the company is due to

the service tax reimbursement of Rs. 3,73,953/- and direct payment

of commission by the company to the retailer of Rs. 6,60,876/-.

Therefore, if these two amounts are taken into consideration then the

difference is reconciled, rather the assessee has offered excess

commission of Rs. 7,531/-. The ld. AR has thus submitted these

details have not considered by the authorities below and therefore,

the same may be remitted to the record of the AO for verification of

the reconciliation of the differences.

authorities below and submitted that despite sufficient opportunities

given by the AO as well as ld. CIT(A) the assessee has not reconciled

and explained the difference of more than Rs. 10 lacs in the

commission credited in the profit and loss account and actual amount

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

received by the assessee as per the information received from the

mobile operating companies.

material on record. Though there is a difference of more than Rs. 10

lacs in the commission receipt credited in the profit and loss account

and commission payment shown by the mobile/cellular operating

companies. As pointed out by the AO the discrepancy in the amount

could not be reconciled properly by the assessee, therefore, the

addition was made by the AO. Now we find that the assessee has

explained the difference in the amount due to service tax

reimbursement and commission directly paid to the retailer by the

companies. The details of the reconciliation are as under:-

(1) Commission credited in profit & loss A/c Rs. 45,46,072/-

(2) Service Tax reimbursement Rs. 3,73,953/-

(3) Commission directly paid to retailers

By companies for which intimation

Received by us in June, 2011 Rs. 6,60,876/-

Total Rs. 55,80,901/-

The amount of commission as shown in show notice Rs. 55,73,370/-

Excess commission shown by us Rs. 7,531/- 14

ITA No. 238/JP/2016 Shri Manoj Kumar Jain vs. ITO

Since, these details and relevant recorded have not been examined

by the AO, therefore, we remit this issue to the record of the

Assessing officer for verification and considering the reconciliation

furnished by the assessee. The AO then decide the issue after giving

appropriate opportunity of hearing to the assessee.

received U/s 244A of the Act. At the time hearing, the learned counsel

for assessee stated at bar that the assessee does not press ground no.

3 and the same may be dismissed as not pressed. The ld. DR has raised

no objections if ground No. 3 of the assessee’s appeal is dismissed as

not pressed. Accordingly the ground No. 3 of the assessee’s appeal is

dismissed being not pressed.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 19/07/2018.

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सहायक पंजीकार@Aेेज. त्महपेजतंत