VODAFONE MOBILE SERVICES LTD.,NEW DELHI vs. ACIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 412/Del/2015 (Assessment Year: 2007-08) Vodafone Mobile Services Ltd, Vs. ACIT, (earlier known as Vodafone Circle-51(1), Essar Mobile Services Ltd), New Delhi Circle Office, C-48, Okhla Industrial Area, Phase-II, New Delhi PAN: AAACS4457Q (Appellant) (Respondent)

Assessee by : Shri Sparsh Bhargava, Adv Shri Yashwant Singh, Adv Revenue by: Shri Sanjeet Singh, CIT DR Date of Hearing 27/11/2018 Date of pronouncement 23/01/2019

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-IX, New Delhi dated 13.11.2014 for the Assessment Year 2007-08. 2. The assessee has raised the following grounds of appeal:- “1. Ground No. 1 - The order passed by the TDS officer is bad in law 1.1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in not holding that the order passed by the TDS officer is bad- in-law. 1.2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the Appellant as „assessee in default‟ in view of the provisions of section 201(1) read with section 191 of the Act and the judgement of Jagran Prakashan Limited Vs DCIT(TDS) (345 ITR 288) (All HC), as there is no finding by the TDS officer with respect to the failure of the pre-paid distributors and roaming partners to pay tax directly, which is a jurisdictional pre- requisite. 1.3. Without prejudice to Grounds l.land 1.2 above, on the facts and circumstances of the case and in law, the order of the learned TDS Officer is bad in law in so far it seeks to recover tax demand under section 201 of the Act in contradiction to the settled principle enunciated Page | 1

by Allahabad High Court in the case of Jagran Prakashan Limited (supra) that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. The grounds mentioned below are without prejudice to Ground No.l above. 2. Ground No. 2 - The proceedings under section 201(1)/(1A) of the Act initiated by the TDS officer are bad in law and void-ab-initio: 2.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not adjudicating that the TDS proceedings initiated by the TDS officer under section 201(1)/ 201(1A) of the Act for the subject year are bad in law and void-ab-initio. 2.2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that section 201(3) of the Act has been inserted by the Finance (No. 2) Act, 2009 with effect from April 1, 2010 and therefore could not be given implied retrospective operation so as to confer jurisdiction on the Revenue to initiate proceedings for the subject year. 2.3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not considering the directions issued by the Central Board of Direct Taxes („CBDT‟) vide Circular No. 5 of 2010 which clarifies that TDS proceedings for financial year beginning from April 1, 2007 and earlier years can be completed by March 31, 2011 only in those cases where TDS proceedings are pending before the tax authorities. Given that no proceedings were pending in the present case as on the date of issue of notice, the limitation having been expired, assumption of jurisdiction is bad in law. 2.4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that proceedings which are already barred by limitation cannot be revived by a subsequent enactment in law. 2.5. On the facts and circumstances of the case and in law, without prejudice to the above the learned CIT(A) has erred in not appreciating that sub-section 3 of section 201 was inserted by Finance (No. 2) Act 2009 w.e.f. April 1, 2010, and therefore any action prior to April 1, 2010 cannot be governed by the section but may be governed by the law enunciated by the Hon‟ble jurisdictional High Court in NHK Japan Broadcasting Corporation (305 ITR 137). 2.6. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that the TDS officer has incorrectly interpreted the cut off date as provided in proviso to section 201(3) of the Act as the cut off date for both initiation of proceedings and completion of such proceedings thereby implying that revenue has jurisdiction to re-assess an assessee even for a year as far back as 1961-62. 2.7. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that a proviso is added to an Page | 2

enactment to qualify or create an exception but it cannot be used to import into the enacting part something which is not there. The grounds mentioned below are without prejudice to Grounds Nos. 1 and 2 above. 3. Ground No. 3 - TDS on discount to prepaid distributors 3.1 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the decision of the learned TDS officer that the Appellant is to be treated as an „assessee in default‟ for non- deduction of tax at source under section 194H of the Act on discount extended to the distributors of its pre-paid SIM cards/ talktime during the subject financial year. 3.2 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in upholding the decision of the learned TDS officer that the relationship between the Appellant and the pre-paid distributors is not that of „Principal to Principal‟ and the discount allowed to them is in nature of commission liable for tax deduction at source, as envisaged under section 194H of the Act. 3.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the provisions of section 194H of the Act would be applicable to the Appellant‟s case without taking cognizance of the fact that the Appellant is not responsible to make any payment/ credit to the prepaid distributors towards the discount extended to them and responsibility/ obligation to make payment/ credit is a condition precedent for application of section 194H of the Act, which is absent in the present case. 3.4 On the facts and circumstances of the case and in law, the learned C1T(A) has erred in not appreciating that discount allowed by the Appellant is not income in the hands of its distributors and that income, if any, arises only when the pre-paid SIM cards/ talktime is further distributed by the distributors. 3.5 On the facts and circumstances of the case and in law, the learned CIT (A) has erred in not appreciating the fact that there is no flow of monies from the Appellant to the distributor of pre-paid SIM card/ talktime but rather from the distributor to the Appellant, and hence, the provisions of section 194H of the Act fail to apply. 4. Ground No. 4 - The Appellant is not liable to deduct tax under section 194J of the Act on the roaming charges 4.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the TDS officer that the Appellant was required to deduct tax under section 194J of the Act on the „roaming charges‟ paid/payable by the Appellant to other telecom operators, during the subject financial year. 4.2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that no human intervention, which is sine qua non for a service to qualify as technical service, is involved in provision roaming services and therefore, roaming

charges cannot be construed as Fee for Technical Services for the purposes of the Act. 4.3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that even as per the statement of technical experts recorded in the context of interconnect services in case of the Appellant itself for AY 2003-04, the carriage of calls is an automatic activity and human intervention, if any, is required only for inter-connect set-up, capacity enhancement, monitoring, maintenance, fault identification, repair, etc. 4.4. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not relying on the statement of technical expert recorded by the income-tax authorities in Coimbatore during proceedings conducted in the case of a group company of the Appellant - Vodafone Cellular Limited, wherein it has been clearly observed that roaming facility is an automatic facility and does not involve any human intervention. 4.5. On the facts and in the circumstances of the case and in law and without prejudice to grounds 4.1 to 4.4 the learned CIT(A) has erred in not holding that characterization of a payment must be done having regard to the dominant purpose/ intention of the payment. 5. Ground No. 5 - Appellant has discharged its onus by submitting sufficient information to enable the AO to verify whether the taxes have been paid by the payee on discount/ roaming charges 5.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that submitting PANs and addresses of the payees is not enough material to enable the TDS officer to verify whether taxes have been paid by the payees. 5.2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in ignoring the ruling of the Mumbai bench of ITAT in the case of Vodafone Essar Limited (1TA Nos. 6058, 6059, 6060/Mum/2009) (December 2010) (Mumbai Tribunal) wherein the ITAT directed the Assessing Officer to invoke his powers under the Act and verify payment of taxes by the payees from the respective Assessing Officers assessing the payees with the help of the Permanent Account Numbers of the payees furnished by the assessee. 6. Ground No. 6 - No interest under section 201(1A) of the Act can be charged when the tax due has already been paid by the payee 6.1. On the facts and in the circumstances of the case and in law, the learned TDS officer has erred in charging interest under section 201(1 A) of the Act.” 3. The brief facts of the case are that the LD AO asked details of cash discount paid as commission for the year and tax deducted at source thereon. The assessee submitted that the proceedings u/s 201 of the Act could not be made after expiry of two years from the end of the financial year in which prescribed statement is filed. The assessee further stated that commission Page | 4

on prepaid SIM cards and recharge coupons provided to the distributors, who acted as agents of the assessee were entitled to commission, on payment of such commission tax u/s 194H was deducted. It was further stated that for prepaid distributors the sale price was charged from “principal to agent” w.e.f. January 2007 and therefore, the question of TDS of such discount amounting to Rs. 128351086/- does not arise. 4. The ld AO rejected the contention of the assessee since the issue is covered by the decision of the Hon‟ble Jurisdictional High Court in the case of Idea Cellular 325 ITR 148. Therefore, the ld AO held that assessee is an „Assessee in default‟ and therefore, worked out TDS liability along with interest of Rs. 10810220/- with respect to commission paid to distributors. The ld AO further noted that relevant tax has already been paid by recipient as argued by the assessee, is also not applicable, as the assessee is to satisfy the AO by way of the certificate from the auditor. No such certificate was filed. Further, with respect to the roaming charges to other operators was also held as „fees for technical services‟ on which the assessee has not deducted tax at source and the liability of TDS and interest thereon was at Rs. 61695652/- was worked out. Consequently, the order u/s 201 read with section 201(1A) was passed on 28.03.2011 computing tax liability with the interest of Rs. 72505872/-. 5. The assessee challenged the same before the LD CIT (A) who passed the order partly allowing the appeal of the assessee. Therefore, now the assessee is in appeal before us. 6. The ld AR submitted that only ground number 2 is required to be decided 1st as it has challenged that the show cause notice issued by the learned assessing officer and the consequent order passed beyond the time limit prescribed u/s 201 (3) of the income tax act. He submitted that if that issue is decided first and if it is held in favour of the assessee that the order passed by the learned AO is time barred, and then all other issues become infractuous. 7. To The above proposition, the learned departmental representative did not raise any objection and he concurred that the ground of the limitation in the appeal of the assessee is decided first and only thereafter, the issues on the merits should be decided.