DY CIT (TDS)2(3), MUMBAI vs. IDEA CELLULAR LTD. (NOW KNOWN AS VODAFONE IDEA LTD.), MUMBAI

Before, we proceed to decide the appeals, it is necessary to observe, registry has notified delay of 219 days in filing these appeals. However, it is the 2 Assessment Years: 2009-10 & 2010-11 stand of the revenue before us that due to prevailing pandemic condition the period of limitation for filing of appeals etc. have been extended by the Government. Accepting the submissions of learned Departmental Representative, we admit the appeals for adjudication on merits. The common dispute arising in all these appeals relates to deletion of demand raised under section 201(1) and 201(1A) of the Income Tax Act, 1961.

Briefly the facts, more or less common, in all appeals are that the assessee earlier known as Ideal Cellular Ltd. is engaged in the business of providing mobile telephone and other related services to customers. A survey was conducted in the premises of the assessee for verifying compliance with tax deduction at source (TDS) provisions. During the survey, it was found that though the assessee is paying commission to distributors/agents towards prepaid and post paid connections, starter packs etc. however, it had not deducted tax at source under section 194H of the Act. Based on the information obtained during the survey, the Assessing Officer (AO) initiated proceeding under section 201(1)/201(1A) of the Act. In course of proceeding, when the AO called upon the assessee to explain the reason for not deducting tax at source on the alleged commission paid to distributors/agents, the assessee submitted that the transaction between the assessee and the distributors are on principal-to-principal basis and is basically, transaction of sales. It was submitted, the discount given to the distributors on sale of SIM cards/starter packs cannot be considered to be in the nature of commission. The AO, however, was not convinced with the submissions of the assessee and 3 ITA Nos. 42-44/MUM/2021 Assessment Years: 2009-10 & 2010-11 proceeded to pass orders under section 201(1)/201(1A) of the Act raising demands as under:- Assessment Year: 2009-10 - Rs. 1,45,20,479/- Assessment Year: 2010-11- Rs. 1,72,52,108/- Assessment Year: 2010-11- Rs. 52,75,520/- 4. Against the orders passed under section 201(1)/201(1A) of the Act, assessee preferred appeals before learned Commissioner (Appeals). Considering the fact that in assessee’s own case in Assessment Year 2012-13, the Tribunal has decided the issue in favour of the assessee by holding that discount given to the distributors is not in the nature of commission, learned Commissioner (Appeals) deleted the demands raised by the AO. While doing so, he also relied upon the decision of the Hon’ble jurisdictional High Court in case of PCIT vs. M/s Reliance Infrastructure Ltd (ITA No. 7020 of 2017).

We have considered rival submissions and perused the materials on record. The short issue arising for consideration is, whether the discount given to the distributors on sale of SIM Card/starter pack is in the nature of commission to fall within the mischief of section 194H of the Act. Undisputedly, the Tribunal and Hon’ble jurisdictional High Court have decided identical dispute arising in assessee’s own case in different assessment years in its favor. In this context, we refer to the decision of the Tribunal in dated 13.11.2019 for Assessment Year 2012-13. In fact, while deciding identical issues in assesseee’s own case ITA No. 1129 of 2017 vide order dated 13.01.2020, the Hon’ble jurisdictional High Court has held as under: 2. The Appellant-Revenue challenges the order dated 4 January 2017 passed by the Income Tax Appellate Tribunal in Income Tax Appeal No. 1041, 1042 and 1953 to 1955/PUN/2013. 3. This Appeal pertains to the Assessment Year is 2010-11. 4. The Appellant-Revenue has raised the following questions as substantial questions of law:-

The Tribunal noted the observations of the Assessing Officer that the discount allowed to the distributors by the Respondent — assessee company is on account of principal to principal relationship and not that of principal to agent. The Tribunal followed the decision of the Karnataka High Court in the case of Bharati Airtel Ltd. vs. DCIT [372 ITR 33] and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors was not commission and therefore not liable to deduct the TDS under Section 194H. The Tribunal noted that there was no decision of this Court on this issue on that date.

Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the case of Pr. Commissioner of Income Tax-8 vs. Ms, Reliance Communications Infrastructure Ltd., where same issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant — Revenue observed thus : “3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner’s order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage.”