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Facts
Assessee, Vodafone Idea Limited, provides cellular mobile services. Following a survey, the AO held the assessee in default for not deducting TDS under Section 194H on cash discounts treated as commission for prepaid/postpaid sales, and levied tax and interest under Sections 201(1)/201(1A) for AY 2012-13. The CIT(A) upheld this order, leading to the present appeal before the ITAT.
Held
The Tribunal held that based on precedents from the Supreme Court (Bharti Cellular) and Delhi High Court (Vodafone Idea), Section 194H of the Income Tax Act is not applicable to the facts. The assessee is not obligated to deduct tax at source on the income/profit component from payments received by distributors/franchisees from third parties or on sales of pre-paid coupons/starter-kits to distributors.
Key Issues
Whether cash discounts on pre-paid/postpaid sales to distributors constitute commission attracting TDS under Section 194H, and if the assessee is liable for default under Section 201(1)/201(1A).
Sections Cited
201(1), 201(1A), 194H, 133A, 194J
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
Assessee by: Ms. Ananya Kapoor, Advocate Department by: Shri Vivek Vardhan, Sr. DR Date of Hearing: 15.04.2024 Date of 30.04.2024 pronouncement: O R D E R PER VIMAL KUMAR, JM
The appeal is against order dated 21.09.2020 of the Learned Commissioner of Income Tax (Appeals), New Delhi upholding order dated 31.03.2015 of the Assessing Officer, ACIT, Circle- 50(1), New Delhi (in short “the AO”) under section 201(1)/201(1A) of Income Tax-Act, 1961 (hereinafter referred to as “the Act”) for F.Y. 2012-13/2013-14.
Brief facts of case are that assessee is engaged in business of providing cellular mobile telephone services in the state of New Delhi (Delhi Circle). A survey under section 133A of the Income Tax Act was carried out on 17.01.2011 to verify as to whether idea Cellular Ltd. does discharge the TDS liability on account of payments covered under various TDS related provisions of the Act, especially considering the decision of the Hon’ble Jurisdictional High Court in its own case, on the issue of treating the cash discounts on pre-paid and postpaid sales as commission covered under section 194H and also the treatment on account of payment towards IUC/Roaming charges covered under section 194J of the Act. The statement of Shri Anil Mittal was subsequently recorded on oath. As a matter of TDS compliance verification under section 201(1)/201(1A) of Income Tax Act, 1961 for AY 2012-13 a notice dated 24.4.2014 was issued to the assessee company. In response to the notice Ms. Neha Virmani and Mr. Himanshu Sharma representatives of the assessee appeared and filed the details called for from time to time. The case was discussed with them.
The computation of the assessee company for liability under the provisions of TDS compliance u/s 201(1)/201(1A) is computed as under- Issue TDS liability u/s Interest liability Total 201(1) of the Act u/s 201(1A) of the Act Failure to 5,80,43,007 1,77,07,041 7,57,50,048 deduct tax u/s 194H of the Act as discussed in para 2 above TOTAL 5,80,43,007 1,77,07,041 7,57,50,048
Being aggrieved appellant assessee preferred appeal before Learned Commissioner of Income Tax (Appeals) which was dismissed vide order dated 21.09.2020.
In the present appeal Learned AR submitted that Learned Commissioner of Income Tax (Appeals) erred in upholding order of ACIT (TDS) treating appellant as an assessee in default under section 201r.w.s 194H of the Act despite of the fact that the TDS Officer failed to give a finding that the recipient had not paid taxes or discharged its liability. Learned CIT(A) erred in upholding order of TDS Officer that the relationship between the appellant and its distributors is that of Principal and Agent. Learned CIT(A) erred in upholding order of TDS treating appellant as assessee in default under section 201 of the Act. Learned CIT(A) erred in upholding TDS officer levying interest under section 201(1A) on the ground that appellant has not deducted tax under section 194H. Hon’ble Supreme Court of India in the case of Bharti Cellular Limited vs ACIT has held as under:- “42. In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case.”
Hon’ble High Court of Delhi in the case of Vodafone Idea Limited vs ACIT decided in appeal No.446/2019 is in above terms.
Learned DR submitted that order of Commissioner of Income Tax is legal.
From examination of record in light of aforesaid pleadings and submissions in view of above it is crystal clear that Learned CIT(A) vide order dated 21.09.2020 upheld order of Learned AO imposing of tax liability under section 201 r.w. s 194H&J. As per ratio of judgment in Bharti Cellular Ltd., it is well settled that assessee would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case. In view of the above material facts and circumstances and well settled principle of law impugned orders dated 21.09.2020 is unsustainable and liable to be set aside.
No other points were argued.