TATA SKY LTD.,MUMBAI vs. A.C.I.T.(TDS) RG.3(1), MUMBAI

per the provisions of section 201(1) for non-deduction of tax at source in respect of the

payments made to the distributors as discount/commission for sale of set top boxes,

recharge coupons.

of the assessee. He observed that the assessee company is engaged in business of

providing Direct to Home (DTH) services in the brand name of Tata Sky' for which

license is given by Ministry of Information & Broadcasting, Government of India. Thus,

the assessee is a Service Provider. The provision of this service requires installation of set

top box and dish antenna at the customer's premises, That the assessee has entered into

agreement with distributors for sale/ distribution of set-top boxes. Further, the provision

of DTH services is mainly by way of sale of prepaid vouchers, recharge vouchers etc. for

6 Tata Sky Limited

which also, the assessee has entered into agreements with 'distributors at various

locations. That as per the agreements, STBs and RCVs are sold to distributors at a

discounted price as agreed between the parties i.e. the authorized price/ invoice price.

That the distributors/ dealers sell these items to customers/ subscribers of the assessee

company at a price not exceeding the MRP mentioned for the product, there are various

decisions on this issue of applicability of Section 194H to the discount allowed to

distributors or dealers or franchisees.

and the assessee. The ld. CIT(A) was of the opinion that to ascertain the applicability or

otherwise section 194H in this regard, it was necessary to find out whether the payments

are in the nature of commission or brokerage as envisaged in the said section. He referred

to the relevant part of section 194H. He was of the opinion that the transactions under

consideration would fall within the provision of section 194H only if :

(i) A principal agent relationship between the appellant and its distributors/dealers; (ii) The payments made by the appellant to its distributors/dealers are in the nature of income by way of commission; (iii) The income by way of commission should be paid by the appellant for services Rendered by the distributors/dealers or for any services in the course of buying or selling of goods; (jv) The income by way of commission may be received or be receivable by the distributors/dealers from the appellant either directly or indirectly; and (v) The point of time at which, the obligation to deduct tax at source on the part of the appellant will arise is that when credit of such income by way of commission is made to, the account of the distributors/dealers or when payment of income by way of commission is made by way of cash, cheque or draft or by any other mode, whichever is earlier.

7 Tata Sky Limited

agent relationship between the assessee and its distributors/dealers. He referred to the

provision of section 182 of the Contract Act for the definition ‘Agent’. He stated that the

basic and essential requisites of an agency ordinarily would be that:

(i) The agent makes the principal answerable to third persons where-by the principal can sue third parties directly and renders himself, i.e. the principal liable to be sued directly by third parties. (ii) The person who purports to enter into a transaction on behalf of the principal would have the power to create, modify or terminate contractual relationship between the principal, i.e. between the person whom he represents and the third parties. (iii) An agent, though bound by the instructions given to him by the principal, does not work under the direct control and supervision of the principal. The agent thus uses his own discretion to act on behalf of the principal subject to the limits to his authority prescribed by the principal. (iv) There is no necessity of a formal contract of agency; it can be implied which could arise from the act of the parties or situations in which parties are put.

under consideration. He observed that it is evident that when a distributor/dealer provides

the DTH connection to a customer, he does so, on behalf of the assessee. This connection

involves installation of set top box and dish antenna at the customer's premises.

Thereafter, the Set-Top Box (STB) at the premises of the customer receives television

signals directly through the dish antenna and such signals are viewed on the television by

the customer. That it is obvious that the concerned distributor/dealer, by providing the

DTH connection to the customer, creates a legal relationship between the assessee and

the customer (i.e. the third-party). That similarly, when a recharge voucher (RCV) is sold

by the distributor/dealer the customer to the customer becomes entitled to receive

8 Tata Sky Limited

services from the assessee to the extent of the value of the recharge voucher and again the

third-party contractual relationship is created by this act of the distributor/dealer between

the assessee and third-party i.e. the customer of the assessee. That at all times, whether it

is the sale of STB or that of RCV by the distributor, the customer is always the customer

of the assessee and not that of the distributor which would not be the case, had it been a

transaction of sale of goods. That also, any further modification in the package or even

the termination of the connection (by the assessee) is carried out through the concerned

distributor/dealer. That such modification or termination cannot be carried out by the

distributor/dealer on his own, without the approval/involvement of the assessee.

discussed above, it is evident that the sole business of the assessee is providing DTH

services to its subscribers, no matter what business model is followed by the assessee in

this regard. That in the assessment years under consideration, although a cost has been

assigned to the STB, so far as the initial subscription amount charged from the

subscribers is concerned, in reality what is charged by the assessee in terms of the

subscription charges, is only the consideration for the DTH services. That in the

subsequent year i.e. FY 2011-12, the business model has been changed, and as expected,

in the subscription amount (which would either remain the same or be marginally

changed), no cost has been assigned to the STB. In FY 2011-12, the STBs are being

given free of cost to the subscribers on entrustment basis and the initial subscription

amount is only for the value of DTH services. In the relevant years under consideration,

9 Tata Sky Limited

although a cost has been assigned to STBs out of the initial subscription amount, it can be

understood from the above facts that the real business of the assessee is that of providing

DTH services to its customers and not that of 'sale of "goods'.

the services of the assessee and by virtue of that the distributors are acting on behalf of

the assessee by selling the assessee's services. Obviously, when the distributors create a

third-party relationship of the subscribers with the assessee, the risks and rewards are that

of the assessee only. That as already clarified, the stipulation in the agreement regarding

principal to principal relationship is of no consequence because, it is the act and the

situations in which the parties are put in the conduct of the business, that will decide the

said relationship.

from the Act of the parties or the situation in which the parties are put and that the

stipulations in the contract/agreement and any other documentation between the parties

in this regard, would be of no consequence. He observed that the Assessee states that

"RCVs are a medium to collect subscription charges from subscribers. However, RCV

itself is not a 'means' to provide the DTH service by the Assessee to subscribers. Rather

the DTH services are provided through electronic mode". That this statement of the

assessee is not wholly correct so far as the financial transactions are concerned. That a

financial transaction cannot be linked to the technical mode and procedure through which

the DTH service is provided. That so far as the ''business of the assessee and the financial

10 Tata Sky Limited

transactions are concerned, there is no other mode and medium than sale of STBs and

RCVs, through which the revenue is collected by the assessee. And in return, the assessee

provides its services to the subscribers.

assessee and the distributors/dealers contains some such clauses/stipulations which also

indicate that the distributors/dealers, while granting DTH connections to the assessee's

customers, are acting on behalf of the assessee only and therefore they are acting in the

capacity of the agents of the assessee.

distributors and dealers. He proceeded to hold that most of the other stipulations in the

agreement would also indicate that the distributor/dealers are not doing business of their

own, rather it is the assessee’s business, i.e., being carried out at all times. Hence, he held

that it was evident that the first condition for application of section 194H is satisfied. He

further observed that the other conditions (as outlined above in Para 5.27) in regard to

provisions of Section 194H, are that a) The payments made by the assessee to its

distributors/dealers should be in the nature of income by way of commission; b) The

income by way of commission should be ' paid by the assessee for services

rendered by the distributors/dealers or for any services in the course of buying or

selling of goods; c) The income by way of commission may be received or be receivable

by the distributors/dealers from the assessee either directly or indirectly. Hence, the

CIT(A) opined that there is no doubt that all these three conditions are satisfied so far as

11 Tata Sky Limited

the relationship between the assessee and its distributors/dealers as well as the facts and

circumstances of the case are concerned. Hence it is evident that the assessee was

required to deduct tax at source in respect of the commission retained by the

distributors/dealers, because the payment made by the assessee to the distributors/dealers

is in the nature of 'commission or brokerage' and the same is income in the hands of

distributors/dealers for services rendered to the assessee.

the CBDT for the proposition that in cases of retention by the consignee/agent of the

commission or brokerage from out of the sale price, the same amounts to constructive

payment by him by the consignor/principal. Hence, deduction of tax at source is required

to be made from the amount of commission. Thereafter, the ld. CIT(A) referred to and

held that in his view the three decisions i.e. i) CIT vs. Idea Cellular Ltd, ii) Bharti

Cellular Ltd. v. ACIT and iii) Vodafone Essar Cellular Ltd. v. ACIT (all supra) cited by

the AO are squarely applicable to the facts and circumstances of the present case.

He elaborately referred to the decision of the Hon'ble Delhi High Court decision

in the case of Idea Cellular Ltd. Thereafter, the ld. CIT(A) proceeded to hold that the

decision referred by the assessee are not applicable in the facts of the present case.

Qatar Airways relied upon by the ld. Counsel of the assessee, the ld. CIT(A) proceeded to

distinguish the same by referring to several case laws and held that “the decision of the

Hon'ble Bombay High Court in the case of Qatar Airways (supra) becomes ‘per-

12 Tata Sky Limited

incuriam’ as it is delivered in ignorance of the decision of other High Courts”. He further

held that it may also be noted that the judgment of Hon'ble Bombay High Court in the

case of CIT vs. Qatar Airways (supra) is brief and such aspects which were required to be

considered in respect of the disputed issue have not been considered. Thereafter, the ld.

CIT(A) referred to certain extracts from the judgment of Hon'ble Delhi High Court

decision in the case of CIT vs. Singapore Airlines Ltd. He further observed that the

assessee also argues that 'the STBs are hardware and nowhere similar to SIM card and

recharge coupons and hence the Delhi High Court decision in the case of CIT Vs. Idea

Cellular Ltd. (supra), cannot be applied to the transactions in respect there-of. Ld. CIT(A)

held that in this regard, it may be noted that the discount provided by the assessee to its

distributors in respect of STBs is not for sale of the physical goods or tangible assets in

terms of STBs but for procuring the customers for the services being offered by the

assessee. He held that as already stated above, the assessee is not engaged in the business

of sale of goods; rather the assessee is in the business of providing DTH services to its

customers. He concluded as under:

5.55 In the case of the appellant, the income in the form of commission earned by the distributors/dealers is inextricably linked to the sale of the set-top boxes and recharge vouchers by them which are the appellant's mediums for providing services to its ultimate customers. The distributors are the appellant's link with its customers. The distributors neither have any license in respect of the DTH services, nor do they have any ownership of such services. The STBs and RCVs are only the tools utilised by the appellant for delivering its services to the doorstep of its customers. Hence It is evident that the distributors/dealers act as agents of the appellant and the income which they receive from the appellant is in the nature of 'commission1 on which the tax is liable to be deducted by the appellant under the provisions of section 194H of the Act. The important facts which establish that the distributors/dealers of the appellant are in reality the agents of the appellant are as under:

13 Tata Sky Limited

a) The agreement between the appellant and its distributor/dealer provides that the distributor/dealer is authorised to sell the appellant's STBs and RCVs. This also means that at the time of providing DTH connection to the third party (i.e. the customer), the distributor/dealer creates a legal relationship between the appellant and the third party (i.e. the customer). The documentation work carried out by the distributor, either on his own behalf or on behalf of the appellant in this regard, is not so material to the issue at hand. b) The nature of the transactions between the appellant and its distributors/dealers can be understood if it is understood that the appellant is a service provider and not a 'seller of goods' as the term is understood in common parlance. Therefore, the appellant sells only its services through electronic medium. Hence the appellant's distributors/ dealers also cannot, but only sell these services on behalf of the appellant. The price charged for the DTH connection is therefore not really the price charged for the set-top box and reality it is the price charged for the DTH connection. The .discount provided by the ippellant to its distributors in respect of STBs is not for sale of the physical goods or tangible assets in terms of STBs but for procuring the customers for the services being offered by the appellant. c) The relationship between the appellant and its distributors/dealers creates the third-party contractual relationship between the appellant and its ultimate customers, the moment a subscriber subscribes to the services of the appellant or thereafter purchases the recharge vouchers for further/extended services of the appellant. It is the distributor/ dealer who is responsible for selling the DTH services of the appellant to the customers of the appellant and in reality therefore it is the distributor who creates the contractual relationship between the appellant and the customer. d) The essence of service rendered by the distributors/dealers is not the sale of any product or goods. They are providing facilities and services to the general public for the availability of devices like STBs .and RCVs to have access to the DTH service of the appellant company. Therefore, it is beyond doubt that all the distributors/dealers are always acting for and on behalf of the appellant. e) There are a number of limiting parameters for distributors/ dealers, which deny the existence of principal to principal relationship between them and the appellant. The distributor/dealer shall not make any representations or give any warranties in respect .of the Products other than those contained in the appellant's conditions of sale as prevalent and operating at the time of the offering of the sale, or the sale. This limits the parameters of the functioning of the distributor/dealers although within these parameters, he is free and independent to organise his business. f) The distributors/dealer is also not authorised to vary or modify the terms of the package deal offered by the appellant at the time of providing connection to the consumer through installation of STBs and dish antenna or thereafter. Similarly, the distributor/dealer is not authorised to vary or iru^g'jfythe terms of

14 Tata Sky Limited

the package deal 'ered by the appellant at the time of recharge through RCVs. Any such modification is only at the instance of the appellant. g) The distributor/dealer is not authorised to sell any of the products of the appellant. through any unauthorized party as well i.e. through a sales agent or otherwise, without the express written permission of the appellant. : h) The distributor/dealer is required to provide the appellant on a monthly basis, with a report of sales of the appellant's products, in such form and containing such other information as the appellant requires. i) The above conditions also limit the authority of the distributor/dealer to act as per his own discretion within the parameters of above terms,.although he does not work under 'the direct control and supervision of the appellant. . . j) For implementation of the provisions of section 194H, the appellant can collect the net sale proceeds along with TDS element from the distributors/dealers while collecting payments in respect of its products distributed to them [refer circular No. 619 dated 04.12.1991 (supra)]. The distributors/dealers can claim credit of such TDS on the basis of TDS certificates issued by the appellant to them when they file their returns before the concerned authorities. There is no procedural constraint in this regard. 5.56 Therefore, in view of the above discussion as well as the judgments of Delhi. Calcutta and Kerala High Courts in the cases of CIT vs. Idea Cellular Ltd. Bharti Cellular Ltd, v. ACIT and Vodafone Essar Cellular Ltd, v. ACIT (ail supra), which have been cited by the AO. I hold that the discount allowed and incentive given by the appellant to its distributors/ dealers on sale of STBs and RCVs is in the nature of Commission and the same attracts the provisions of Section 194H of Act. The above grounds of appeal are therefore liable to be rejected.

ld. Counsel for the assessee submitted that section 194H of the Act is not applicable as

neither the assessee is responsible for paying any income nor has it made any payment of

income by way of commission. He submitted that infact it is the other way round that is

the distributor makes payment to assessee and the money received from the distributor is

booked as income in the books of the assessee towards sale of its products. In this regard

the ld. Counsel placed reliance on the decision of Hon'ble Jurisdictional High Court in the

15 Tata Sky Limited

case of CIT vs. Piramal Healthcare Ltd. (230 Taxman 505 (Bom.) and the decision of

Hon'ble Bombay High Court in the case of CIT vs. Qatar Airways (332 ITR 253 (Bom.).

Referring to the ratios from these decisions the ld. Counsel submitted that ratio of the

above decision is directly applicable to its case since it has not made any payment to the

distributor and that the assessee only received sale price on sale of products to the

distributors. He further submitted that TDS provisions are not applicable in cases where

there is no payment made by the assessee and it is not relevant whether the assessee was

engaged in the business selling of goods or rendering services. Ld. CIT(A) further relied

on the decision of Hon'ble Rajasthan High Court in the case of Hindustan Coca Cola

Beverages (P.) Ltd. vs. CIT (402 ITR 539).

retailer and the discounted price which the distributor pays to assessee cannot be

categorised as commission for the purpose of section 194H of the Act or otherwise. That

though Explanation (i) to section 194H of the Act inter alia states that “commission or

brokerage” includes any payment received or receivable directly or indirectly the said

section makes it clear that payment has to be of income by way of commission. That in

the present case the assessee has not made any such payment. He contended that the ratio

of Hon'ble Jurisdictional High Court in the case of CIT vs. Qatar Airways (332 ITR 253

(Bom.) is relevant here.

not applicable since no income accrues to the distributor when he purchases products

16 Tata Sky Limited

from the assessee. That when distributor makes payment to the assessee it cannot be held

that there is retention on the part of the distributor which has not even accrued to him.

The ld. Counsel for the assessee submitted that constructive payment principle can apply

if there is retention of payment in hands of distributor. This is not applicable in case of

the assessee since the assessee received upfront payment from them/distributor for the

products purchased by them. He also submitted that the AO has relied on the decision of

ITAT in Hindustan Coca Cola Beverages (P.) Ltd. vs. ITO (97 ITD 105). The ld. counsel

submitted that the above decision of Jaipur Tribunal has been reversed by the Hon'ble

Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. vs. CIT

(402 ITR 539). Without prejudice the ld. Counsel for the assessee submitted that with

respect to non-applicability of deeming fiction of constructive payment as well as the

CBDT Circular No.619 relating thereto he submitted that CBDT Circulars are binding on

authorities under the Act and not on the assessee and Hon'ble High Courts.

distributor is on principal to principal basis and discount given by the assessee to the

distributor is not in the nature of commission. In this regard he referred to the decision of

Hon’ble Gujarat High Court in the case of Ahmadabad Stamp Vendors Association (257

ITR 202) . This decision was upheld by the Hon'ble Supreme Court in Ahmadabad Stamp

Vendors Association (348 ITR 378). Thereafter, the ld. Counsel for the assessee referred

to several case laws. Without prejudice the ld. Counsel for the assessee submitted that if

two views are possible on the issue under consideration the view favourable to the

17 Tata Sky Limited

assessee should be followed. Hence, he submitted that the decision of Hon'ble Rajasthan

High Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. vs. CIT (402 ITR

539) being favourable to the assessee should be followed and not the case of Hon'ble

Delhi High Court in the case of CIT vs. Idea Cellular Ltd.(325 ITR148). Thereafter the

ld. Authorized Representative of the assessee placed reliance on several decisions of

ITAT Mumbai including that of M/s. Bharat Business Channels Limited (ITA No.7047 &

7048/Mum/2012). He also referred to entries passed by the assessee and submitted that

entries passed by the assessee regarding discount cannot be considered in the nature of

commission liable u/s. 194H. In this regard he referred to scheme of entries.

DCIT (372 ITR 33). He referred to the decision of Hon'ble High Court and submitted that

the matter may be remitted back to the assessing authority only to find out how the books

are maintained and how the sale price and the sale discount is treated and whether the

sale discount is reflected in their books. If accounts are not reflected as set out above

section 194 is not attracted. He submitted that book entries passed by the assessee are in

line with Bharti Airtel Ltd.

discount given to the distributors, the distributors are also given occasional (secondary)

discounts like festival discount, quantity discount etc. to encourage them to sell higher

quantities of products. The occasional discounts are provided to the distributors as per the

trade schemes announced by the assessee from time to time. These discounts are given to

18 Tata Sky Limited

the distributors by way of credit notes to be redeemed against subsequent sale of

products. Thus there is no payment made by the assessee to the distributors even in case

where discount is given by way of credit notes. Therefore ld. Counsel referred to scheme

of book entries with respect to the discount

distributor's account. However, the discount is finally netted off from the Sales /Revenue

at the year end and it does not appear in the financial statement.

note on significant accounting policies applied by the Assessee which forms part of Notes

to the financial Statement. -: page No.46 & 47 of the Paper book containing the said note

wherein the revenue recognition policy of the assessee is laid down, it is clearly stated

that the Subscription Revenue, Activation Revenue, Revenue on account of sale of

accessories, Installation Revenue as well as Service Revenue are recognised net of

discount. The aforesaid note forms part of the Financial Statements audited by the

Statutory Auditors.

(2015) 372 ITR 33 (Kar) is not applicable to discount given to the distributors by way of

credit notes as the Court in the said decision was only seized with the question as to

whether the assessee was liable to deduct TDS on the discount amount shown in the

invoice.

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Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. Without prejudice the ld.

Counsel further submitted the demand arising from tax liability of the deductee cannot be

recovered from the deductor. In this regard he placed reliance on the decision of

Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT (345 ITR 288). Ld.

Counsel alternatively without prejudice also prayed that if the assessee is an assessee in

default and appeal may be set aside to the file of Assessing Officer to find facts relating

to non-payment of any amount by the assessee to the distributor, the terms of distribution

agreement, entries passed in light of various decisions referred by him.

order of the AO and the ld. CIT(A) relied on the case law referred by them.

section 194H of the Act as under:

Commission or brokerage. 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section

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44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.—For the purposes of this section,— (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) the expression "professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ; (iv) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

SECTION 194H OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE-COMMISSION OR BROKERAGE ETC - INSTRUCTIONS FOR DEDUCTION OF TAX AT SOURCE FROM COMMISSION, BROKERAGE, ETC. CIRCULAR NO.619, DATED 4-12-1991 1. The Finance (No. 2) Act, 1991 has introduced a new section 194H, into the Income-tax Act, 1961, which provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

21 Tata Sky Limited

22 Tata Sky Limited

Government, within the prescribed time, as explained in the succeeding paragraphs. 7. The responsibilities, obligations, etc., under the Income-tax Act of a person deducting income-tax at source are as follows : (a) According to the provisions of section 200, any person deducting tax at source under section 194H shall pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962), the tax so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, payment is normally to be made within one week from the last day of month in which the deduction is made. However, with the permission of the Assessing Officer, tax deducted at source can also be paid to the credit of the Central Government on quarterly basis. If a person fails to deduct tax at source, or, after deducting, fails to pay tax to the credit of the Central Government, he shall be liable to action under the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which the tax was deductible to the date on which it is actually paid. Further, section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay by way of penalty a sum equal to the amount of tax which he failed to deduct at source. In this regard, attention is also invited to the provisions of section 276B which lays down that if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine. (b) According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, the amount deducted and certain other particulars. This certificate has to be furnished in Form No. 16A (copy enclosed) within the prescribed period of one month and fourteen days to the person to whose account credit is given or to whom payment is made or cheque is issued. The certificate can be issued on the tax deductor's own stationery. If a person fails to furnish this certificate, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for each day during which the failure continues. (c) According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account Number (TAN) in the various challans, TDS certificates, returns, etc. Detailed instructions in this regard are available

23 Tata Sky Limited

in this Department's Circular No. 497, dated 9-10-1987 for reference and guidance. If a person fails to comply with the provisions of section 203A, he shall be liable to pay by way of penalty under section 272BB, a sum up to Rs. 5,000. These instructions are not exhaustive and are issued with a view to helping the persons responsible for making deduction of tax at source under section 194H. Where there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961 and the Finance (No. 2) Act, 1991. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached.

business of providing direct to home (DTH) services. The assessee enters into agreement

with the distributor for sale of Set Top Box (STB) and recharge coupon vouchers. As per

agreement products are sold to distributor at discounted price, as agreed. The

distributor/dealer sells these items to customers/subscribers at a price not exceeding MRP

on the product. As per the agreement payment of each order for the above items is to be

made by distributor either at the time of placing the order or at the time of delivery. Apart

from the above assessee also provides festival/seasonal discounts to the distributors. For

these discounts assessee does not make any payment rather it issues credit notes and same

is subsequently adjusted from the payment due from the distributor. The expenditure of

discount is recognized in books of account. But the same is netted from sale, so in the

financial statements the discount amount is not reflected.

as per section 201(1) of the Act for non deduction of tax at source u/s.194H in respect of

the discount offered to distributor and consequently making the assessee liable for

interest u/s. 201(1A) of the Act. In the above factual background the issue has been dealt

24 Tata Sky Limited

with by the Assessing Officer and CIT(A).They have found the assessee to be liable for

deduction of tax at source on a variety of planks as mentioned hereinabove in detailed the

order of CIT(A) referred by us.

ld. ld. Counsel of the assessee. We have carefully considered the same. Some of them can

be gainfully referred hereunder:

1) in the case of CIT vs. Piramal Healthcare Ltd. [2015] 55 taxmann.com 534 (Bom) has referred to the decision of the Hon'ble Bombay High Court itself in the case of CIT vs. Qutar Airways [2011] 332 ITR 253 (Bom) and has held as under:

2) in the case of Qutar Airways (supra), the Hon’ble High Court was considered the question of TDS on commission on brokerage u/s. 194H and the Hon’ble Apex Court has held as under:

25 Tata Sky Limited

1 The question of law as raised in this appeal is as under:

"Whether on the facts and in the circumstances of the case and in law, the difference in amount between commercial price and published price is special commission in the nature of commission or brokerage within the meaning of Explanation (i) to section 194H of the Income-tax Act 1961 ?”

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price, according to us can neither amount to commission nor brokerage at the hands of the agent. We hasten to add any amount which the agent may earn over and above the fixed minimum commercial price would naturally be income in the hands of the agent and will be taxable as such in his hands. In this view of the matter, according to us. there is no error in the impugned order and the question of law as framed does not arise. The appeal is therefore, dismissed in limini.

3) We may also refer to the decision of the Hon’ble Karnataka High Court in the case of M/s. Bharti Airtel Limited vs. DIT (in ITA Nos. 637-644 of 2013 vide order dated 14.08.2014, where similar issue was considered by the Hon’ble High Court as under:

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sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is riot under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal. 63. It was contended by the revenue that, in the event of the assessee deducting the amount and paying into the department, ultimately if the dealer is not liable to tax it is always open to him to seek for refund of the tax and, therefore, it cannot be said that Section 194H is not attracted to the case on hand. As stated earlier, on a proper construction of Section 194H and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and remit the same to the Department. If the payee is not in possession of the net income which i.s chargeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited's case, if a person is not liable for payment of lax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid. 64. In the case of Vodafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs.100/- in their books of accounts and showing the discount of Rs.20/- to the dealer. Only if they are showing Rs.80/- as the sale price and not reflecting in their accounts a credit of Rs.20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue.

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taxmann.com 216 (Mum-Trib), the ITAT, Mumbai on similar issue following the

decision of the Hon’ble Karnataka High Court in the case of Bharti Airtel Ltd. (supra)

had decided the same issue in favour of the assessee.

In a similar issue, this Tribunal in the case of CIT vs. M/s. Tata Tele Services

(Mah) Ltd. (in ITA No. 3857/Mum/2016 vide order dated 08.06.2018) has held as under:

the Hon'ble Bombay High Court has held as under:

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The relationship between the assessee and the distributors/stockists was that of principal to principal and in fact the distributors customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributors/stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee's product. The distributors/stockists were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting of sales target, and hence, it could not be said to be commission payment within the meaning of Expln. (i) to s. 194H of the II Act, 1961. The contention of the Revenue in regard to the application of Expln. (i) below s. 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Expln. (i) below s. 194H would amount to reading the said provision in abstract. The application of the provision is required to be considered to the relevant facts of every case. We are satisfied that in the facts of the present case that as regards sales promotional expenditure in question, the provisions of Expln. (i) below s, 194H of the Act are rightly held to be not applicable as the benefit which is availed of by the dealers/stockists of the assessee is appropriately held to be not a payment of any commission in the concurrent findings as recorded by the CIT(A) and the Tribunal. 7. Having considered the findings recorded by the CIT(A) and the Tribunal and taking into consideration the provisions of Expln. (i) to s. 194H of the Act, we do not find that the appeal gives rise to any substantial question of law. It is accordingly dismissed.

Shri Bhim Sain Garg and others (in D.B. Income Tax Appeal No. 101/2015 vide order

dated 11.10.2017) has held as under:

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liable for TDS is commission of brokerage and not the incentives given on the basis of principal to principal relations.” 11. The assessee also furnished that they ought not to have been added in the income of the assessee in spite of making ground under section 194H or 40(a)(ia) of the I.T. Income Tax Act, 1961. 12. In our considered opinion, the Tribunal while considering the matter has righlty come to the conclusion that it is on the basis of principal to principal and does not constitute commission. Hence, no other view than the one taken by the Tribunal is possible. 39. A cohesive reading of the above case laws particularly that of the Hon'ble Bombay

High Court in the case of Piramal Healthcare Ltd. (supra), Qatar Airways (supra) and

Intervet India (P.) Ltd. (supra) would show that the ld. Counsel of the assessee’s plea that

the assessee should not be visited with the liability to deduct TDS for non deduction of

tax at source u/s. 194H on the difference between the discounted price at which it is sold

to the distributors and the MRP upto which they are permitted to sell, is cogent and is

sustainable view. As noted hereinabove the Hon’ble Jurisdictional High Court in the case

of Piramal Healthcare Ltd. (supra) and Qatar Airways (supra) has found that the

difference between MRP and the price at which item is sold to the distributor cannot be

held to be commission or brokerage. Similarly in the case of Intervet India (P.) Ltd.

(supra), the Hon'ble Bombay High Court has held that when the assessee had introduced

sales promotion scheme for distributors to boost sale of its product when it passed on

incentives to distributors/dealers/stockists through sale credit notes and claimed it, then

since the relationship between assessee and distributors/stockists was that of principal to

principal and infact distributors were customers of assessee to whom sales were effected

either directly or through consignment agent, it cannot be treated as commission payment

under section 194H. Thus it follows on similar facts it has been held that the distributors

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are customers of the assessee to whom sales are affected. The discounts and credit notes

credited cannot be considered to be commission payment u/s. 194H. Similarly we note

that on similar facts, the Hon’ble Karnataka High Court in the case of Bharti Airtel Ltd.

(supra) which has been duly followed by the ITAT Mumbai in Business Channels Ltd.

(supra) has decided the same issue in favour of the assessee. Though we are aware that

the ld. CIT(A) has referred to the decisions in favour of the Revenue on similar issue of

Hon’ble Delhi High Court, but however as held by the Hon’ble Apex Court in the case of

CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) if two views are possible, one

in favour of the assessee should be adopted. Moreover, as we have already found that the

ratios of decision of Hon'ble jurisdictional High Court as mentioned hereinabove are also

in favour of the assessee. Hence, there is no question of taking a contrary view following

the other high courts. The remarks of the ld. CIT(A) on the jurisdictional High Court

decision are totally uncalled for, neither permissible nor sustainable.

the assessee was not liable to deduct the tax at source on the impugned amounts in this

case.

Revenue’s appeal: (i) TDS on payment made to installation service provider 42. Brief facts of the case are as under: The assessee is engaged in the business of providing DTH services. The assessee

enters into agreement with third party Installation Service Providers ('ISPs') for the

installation of Tata Sky hardware at the premises of the subscribers. The Assessee

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transfers the Tata Sky hardware to the I3P for storage at the ISP's premises. When a

potential customer purchases the Tata Sky connection, the Assessee informs the ISP to

install the Tata Sky hardware at the premises of the subscriber. Thus, the relevant activity

carried out by an ISP is to install the Dish Antenna and incidental hardware at the

premises of the subscriber For this service, the assessee company paid installation

charges of Rs. 15,44,53,432/-, Rs. 41,27,138/- and Rs. 14,84,82,077/- respectively in the

three previous years relevant to the three assessment years under consideration. The

assessee deducted tax at source on the said payments as per the provisions of section

194C of the Income Tax Act, 1961. The AO on perusal of details in this regard was of the

view that the work relating to installation of hardware at the customer's/subscriber's

premises is carried out by a technically skilled person as the software is to be

synchronized with the TV set to provide the DTH services and other technical services

are also to be rendered. According to the AO the work involves professional services by

technical manpower and is therefore within the ambit or section 194J of the Act for the

following reasons:

• That the installation of DTH apparatus needs technical personnel and expertise. Common man or labourers cannot install a dish and other electronic apparatus, decide the place to fix the dish after checking the signals, explain the operation of the system, etc. Thus, skilled technical personnel are required to carry out the said job. • That the agreement with the ISPs states that ISP has to render services as to rectify any default in the installation, • That based on the assessee company's, qualification requirement, the ISP shall nominate its employees/associates for providing the services and inform the assessee of the same. . • That the appellant imparts training to the employees of the ISP.

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deducting TDS at a lower rate in respect of the payment made to Installation Service

Providers.

A.O. by holding as under:

6.8 A have considered the facts of the case, the written submissions of the appellant as well as the order of the AO on this issue. In this case, it has to be decided whether the payments made by the appellant would constitute 'fees for technical services' as defined in the Explanation 2 to Section 9(1)(vii) of the Act. The AO is of the view that activity of Installation of DTH apparatus needs certain skills and technical expertise. On the other hand, the case of the appellant is that from the nature of services being rendered by ISPs, it is evident that they do not fall within the scope of technical services. 6.9 The job of the Installation Service Provider is to go to the premises of the subscriber, to install dish antenna and Set-Top Box. Thereafter, the Installation Service Provider has to connect the Set-top Box to the Television of the subscriber by making few basic wiring connections. This can be done by any sound person after reading the installation manual carefully. So far as the training given by the appellant is concerned, it is seen that basic training/ instructions are provided for a short period to make them understand the process of Installation so that they can apply the same at the place of the subscriber. Further, the payment per installation is not very high and it is a few hundred rupees. It may be noted that services from skilled and technically qualified persons cannot be obtained at such a meager amount considering that the work has to be carried out at the place of the subscriber. The work, as is evident, is repetitive in nature. I agree with the appellant that in respect of these services/works outsourced, it cannot be said that the ISPs have rendered any managerial, technical or consultancy services to the appellant within the meaning of Explanation 2 to Section 9(1)(vii) of the Act. These services involve carrying out of "work" within the meaning of section 1S4C of the Act. The appellant has therefore, correctly deducted tax at source under the said section and the provisions of section 194J are not applicable. I hold accordingly and the demands of tax u/s 201(1) raised by the AO are hereby deleted.

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assessee has inter alia placed reliance upon the order of the ld. CIT(A) and has submitted

that its case is squarely covered by the decision of the Tribunal in the case of M/s. Bharat

Business Channels Ltd. (ITA Nos. 7047 & 7048/Mum/2012). Bharat Business Channels

Ltd is a DTH operator, same as the Assessee. In this case, Bharat Business Channels had

also obtained services of Installation Service Providers to install Dish Antenna, Set-Top

Box, etc. at the subscriber's premises similar to Tata Sky. That the Hon'ble Tribunal

observed that the installation work does not require any special technical expertise and

can be done by any sound person on reading through the installation manual. That the

Hon'ble Tribunal also noted that the installation services providers were given basic

training to make them understand the process of Installation. That having regard to the

facts, the Hon'ble Tribunal held that the assessee had correctly deducted tax under section

194C of the Act and tax was not required to be deducted under section 194J of the Act.

The relevant para has been reproduced as under;

"We observe that the work of installation of Set-Top Boxes and Antenna at the premises of the end-user is given as per the contract with Installation Service Providers (ISPs). The job of the Installation Service Provider is to go to the premises of the subscriber, to install Dish Antenna and Set-Top Box and connect them to the Television of the subscriber. The Installation Service Provider has to connect the Set-top Box to the Television by making few basic wiring connections. It does not require any special technical expertise or any technical degree and it can be done by any sound person on reading through the installation manual. Also, there is no specific qualification or recognized course required for installation Service Provider to become eligible for installation of Dish and Set^Top Box. They are given basic training/instructions for a short period to make them understand the process of Installation so that they can apply the same at the place of the subscriber. Accordingly, the CIT(A) was justified in holding that assessee was required to deduct tax u/s.194C of the Act. The CIT(A) has dealt with the issue threadbare and after relying on various judicial pronouncements

35 Tata Sky Limited

held that work of installation of Set-Top box amounts to 'works contract. The detailed finding so recorded by CIT(A) are as per material on record which has not been controverted by Id. DR by bringing any positive material. Accordingly, we do not find any reason to interfere in the order of CIT(A) holding that installation of Set-Top Box amounts to works contract and no technical expertise are required so as to make the assessee liable under the provisions of Section 194Jofthe IT Act."

CIT(A), which is also in consonance with ITAT decision as mentioned above .Hence, we

uphold the order of ld.CIT(A) on this issue.

TDS on payment of document management charges:

On this issue, the assessee’s submission was that its subscribers are required to

sign-up a contract with the Assessee for availing the DTH services. All these contracts

along with work orders generated for executing various jobs for subscribers and

correspondence received from the subscribers are required to be kept for life time with

the assessee as per TRAI guidelines. The assessee has entered into an Agreement with

IRON Mountain ('IM') to provide services in relation to secure maintenance of the

Assessee's documents like Agreements, invoices, work order, etc. For this service the

assessee company paid installation charges of Rs. 10,80,620/-, Rs. 10,80,620/- and Rs.

48,14,142/- respectively in assessment years under consideration. The assessee deducted

tax at source on the said payments as per the provisions of section 194C of the Income

Tax Act, 1961.

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to Document management is carried out by technically skilled persons as it requires the

use of store minder or alternate record management using its software for tracking stored

documents; the documents are to be stored with various security measures, access control

systems, CCTV systems, closed-circuit television monitoring of entries, cataloging and

bar coding of physical dockets etc. According to the AO, the work involved professional

services by technical manpower and is therefore within the ambit of section 194J of the

Act. Therefore, since the assessee had not deducted the tax at source under the provisions

of section 194J of the Act, the AO held the assessee to be an assessee in default and

raised demand of tax being the difference between the tax liable to be deducted under

section 194J and the tax deducted by the assessee under section 194C of the Act.

holding as under:

7.6 I have considered the facts of the case, submissions and the arguments of the Ld. ARs. The Appellant has made payment towards document management charges on which it has deducted tax u/s 194C of the Act. The document storage/ retrieval work is done by the third party. For providing document management services, a service provider is not required to possess any high level of technical knowledge and it is akin to routine filing/ maintenance of documents and maintenance work. Thus, such service provider is not rendering any technical services. Thus, section 194J of Act is not applicable on payments made towards document management charges and it is in the nature of 'work1 and will fail under section 194C of the Act. 7.7 In view of the above, I do not agree with the stand adopted by the AO. Since the Appellant has already deducted TDS under section 194C of the Act on the document management charges, the AO is directed not to consider the Appellant as assessee in default under Section 201(1) of the Act as there is no short deduction of tax by the Appellant. The demands of tax under section 201(1) are hereby deleted.

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assessee inter alia placed reliance upon the order of the ld. Commissioner of Income

tax(Appeals) and has submitted that this issue is also covered in its favour by the Hon’ble

Jurisdictional Mumbai Tribunal in the case of Reliance Life Insurance Co. Ltd. (ITA No.

3009 to 3011/M/2013). That in this case, the assessee was engaged in the life insurance

business. That it had obtained document management services which inter alia included

document management services, document delivery and collection services and document

storage, etc. That the assessee had deducted tax under section 194C while making

payment for these services and the Income-tax Authorities alleged that these are technical

/ managerial services and should be subject to TDS under section 194J of the Act. That

on appeal, the CIT(A) had held in favour of the assessee. That on appeal by the Income-

tax Authorities to the Tribunal, the Hon'ble Tribunal noted that the work assigned to the

service provider was not a technical or professional work which required special skills

but simple, basic and repetitive nature of work and accordingly subject to tax under

section 194C of the Act.

"The assessee made the payment for these services after deducting TDS under the provisions of section 1 94C of the Act believing these are basic type of services involving no technical or professional qualification whereas the AO came to the conclusion that these are technical services and were required to be subjected to TDS under the provisions of section194J of the Act and finally treated the assessee in default under the provisions of section 201(1) of the Act and raised the demand accordingly. The Id CIT(A) after having examined and perused agreements with the service providers and after going into the various services provided reached a

38 Tata Sky Limited

conclusion that the outsourced services do not require any kind of technical and professional expertise and are just simple and repetitive nature of work such as document storage, documents delivery and collection services and documents management services. The Id CIT(A) examined the contract with Writer Information Management Services and found that very basic services were contracted and rendered by the said party involving no special technical skill or professional qualification. On the basis of the rival arguments and perusal of the various records as placed before us we find that the work assigned to the service provider was not a technical or professional work which required special skills but simple, basic and repetitive nature of work and we are inclined to opine that the order of CIT(A) is correct and deserved to be upheld. In view of the above facts, we dismiss the ground no 1 raised by the revenue by upholding the order of FAA on this point.”

ld.CIT(A), which is also in consonance with the ITAT decision as mentioned above.

Hence, we uphold the order of ld.CIT(A) on this issue.

(iii) No liability on deductor to pay tax when tax is already paid by deductee:

TDS deduction u/s. 194H on discount and incentive on sale of STBs and RCVs on the

ground that the recipients would have paid the applicable tax on the respective taxable

income. Hence, in view of the decision of the Hon'ble Apex Court decision in the case of

Coca Cola Expt. Corpn. Vs. ITO [1998] 231 ITR 200 (SC) the taxes cannot be recovered

from the assessee.

tax deduction at source under section 194 H, adjudication of this ground is now only of

academic interest, hence we are not engaging into the same.

39 Tata Sky Limited

dismissed.

Order pronounced in the open court on 12.10.2018

Sd/- Sd/- (Amarjit Singh) (Shamim Yahya) Judicial Member Accountant Member Mumbai; Dated : 12.10.2018 Roshani, Sr. PS/JV,Sr. PS

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai