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

14. Reading of the above order clearly show that fact situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd (supra) would squarely apply. We also find that the said decision has been followed by Ahmedabad bench in the case of Vodafone Essar Gujarat Lid. v. ACIT (TDS) (ITA NO.386/Add/2011. dt.07.07.2015). Following these, we are of the opinion that assessee could not have been Page | 4 to 5146/D/2011 Vodafone Mobile Services Limited deemed as one in default for non-deduction of tax at source on roaming charges paid by it to other service provide is allowed.

7. The aforesaid shows that the Tribunal by relying upon the decision of the Delhi High Court found that the fact situation are also the same and the payment made for roaming connectivity cannot be termed as "technical services" and, ultimately, it was found that the assessee could not be said as in default for non deduction of TDS at source on the roaming charges paid by it to the other service provider and the appeals are allowed to that extent. Under the circumstances, the present appeals before this Court.

11. In our view, the contention is not only misconceived, but is on non existent premise., because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Company to another mobile service provider Company. Hence, we do not find that the observations made are of any help to the Revenue.

7. The Coordinate Bench in A.Y.2009-10 in & 3674/M/2014 had the occasion to consider the identical issue and following the earlier orders of the coordinate bench held as under:- “Ground no. 3 pertains to disallowance of Rs. 54,47,48,738/- on account of domestic roaming charges paid to other telecom operators u/s. 40(a)(ia) of the Act. This issue is identical to what discussed and decided in AY 2009-10 also by the Coordinate Bench vide ITA No. 3425/Mum/2014. Relevant findings of Coordinate Bench are as under:- 4.1. We have heard rival submissions and perused the materials available on record. During the year, the assessee has debited Rs.15,39,23,749/ on account of roaming charges in its profit and loss account which was claimed as deduction. The Id. AO observed that this expenditure was incurred without deduction of tax at source. The Id. AO show- caused the assessee as to why the same should not be disallowed u/s. 40(a)(ia) of the Act as the said payment would tantamount to rendering fee for technical services" in terms of Section 194) of the Act. The assessee gave a detailed written submissions explaining the entire modus operandi as under:- 1. Roaming facility is a standard facility provided by the OTOs to the assessee and vice versa. When a subscriber is roaming in circles (states) where the assessee's network is Page | 7 to 5146/D/2011 Vodafone Mobile Services Limited not available, he is all able to make and receive calls by using network of OTOS. In such a scenario, since the subscriber is using the network of OTO, ideally such service provider should directly recover charges from that subscriber. But since it is impossible practically to do so, there is a mutual agreement entered between the network operators to allow use of each other's network by each other subscriber and then recover roaming charges from each other, which ultimately would be recovered from the end user subscriber. Thus, in substance, it is in nature of revenue sharing.

5. Roaming Agreement Process: In order that a subscriber is able to "latch" on to a visited network, a roaming agreement needs to be in place between the visited network and the home network. Agreement is established after completing of following processes. Business Agreement Network and Billing configuration IREG & TADIG Testing Launch of commercial service. Aforesaid process is enumerated in be as under: Page | 8 to 5146/D/2011 Vodafone Mobile Services Limited  Business Agreement - A business agreement is signed between two networks as per GSMA guidelines to setup roaming service.  Network & Billing configuration - Post business agreement, necessary configures required to be done in visited and home network and billing system.  IREG & TADIG Testing - Once configuration is done, series of testing is done as per GSMA specified guidelines defined in IREG & TADIO testing document.  (i) IREG (International Roaming Expert Group)-IREG testing is to test the proper functioning of the established communication links.  (1) TADIG (Transferred Account Data Interchange Group) - The TADIG testing is to check the billability of the calls  Commercial Service Launch - After success testing of all scenarios defined in IREG document and TADIG verification, visited network is opened for commercial subscriber to roam in visited network. After commercial launch subscriber will automatically latch in visited network and will be able to use the services when they are in visited network coverage area.

6. Effort required for providing roaming service - GSM Service provider has to deploy and maintain a GSM network infrastructure to provide service to its own subscriber. Same infrastructure is used to provide service to roaming subscriber as well, hence service provider does not make any extra effort to provide service to roaming subscribers.

7. On commercial launch of any network, the entire telecommunication services (locally or roaming) is done automatically with negligible human intervention. Factually, it is impossible for the employee of a telecom company to connect lakhs of subscriber to the desired networks.

8. Thus, at the cost of repetition, may the assessee submit that even under the rooming, the entire set up/network infrastructure is the same as would be for the subscriber when using telecom services in his home Page | 9 to 5146/D/2011 Vodafone Mobile Services Limited circle. Only, difference being, due to the roaming agreement, the Home Operator would allow the subscriber of the visited Operator to use his network and make and receive call. The actual process of roaming is completely automated.

9. The assessee's contention that no tax is deductible under section 1943 of the Act on roaming charges paid to the OTOS is based on two separate and distinct propositions: I. Any payment for the use of standard facility does not amount to FTS; and II. Without prejudice, in absence of any human intervention during the actual roaming process, payment would not be FTS. 4.8. As in the present appeal before us, the Id. CIT(A) had relied on the decision of the Id. CIT(A) Chandigarh in the case of Idea Cellular Ltd by stating that the facts and circumstances are identical in both the cases when the said order of Id. CIT(A) Chandigarh had been reversed by the decision of the Chandigarh Tribunal referred to supra vide order dated 28/06/2018, we do not find any case in the argument advanced by the Id. DR before us in support of the orders of the lower authorities. Hence, respectfully following the aforesaid decision of the Chandigarh Tribunal which has dealt the decision on the impugned issue, the ground No.III raised by the assessee is hereby allowed.

8. Respectfully following the prcedents (supra), we direct by Ld.AO to delete the impugned disallowance. In the result, the appeal is allowed.

ITA No.5142 to 5146/D/2011 Vodafone Mobile Services Limited (A.Y.2008-09) 9. Ground No. 1 is not pressed and the same is dismissed as not pressed. Ground No.2 relate to the liability to deduct tax at source on discount extended to its prepaid distributors on transfer of prepaid simcards/talktime. 10.This quarrel was considered by the coordinate bench in for A.Y.2013-14 vide order dated 22/10/2024 while considering ground no. 2 to 2.2 of its order and followed the decision of coordinate bench as under:- “Having considered the rival submissions and on perusal of the record we find that identical issue has been decided by the Mumbai Bench of the Tribunal in the case of the Appellant for the Assessment Year 2009-10 [ITA No. 1121/Mum/2014 and ITA No. 1885/Mum/2014], vide order dated 08/11/2023. The relevant extract of the aforesaid order read as under: 11. The next issue urged in Ground no.9 relates to disallowance of discount extended on pre-paid cards/recharge vouchers u/s 40(a)(ia) for non-deduction of tax at source. It was brought to our notice that an identical issue was examined by the co-ordinate bench in ITA No.3425/Mum/2014 relating to AY 2009-10 in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd) and the Tribunal, vide its order dated 24-02- 2023, has held that the TDS is not deductible from the discount paid on prepaid cards. The relevant observations are extracted below:- "3.30. In view of the above observations, we hold that the decision rendered by us in assessee's own case for A.Y.2008-09 in ITA No.2285/Mum/2014 dated 12/10/2022 would be squarely applicable to the facts of the assessee"s case before us for the year Page | 11 ITA No.5142 to 5146/D/2011 Vodafone Mobile Services Limited under consideration also. The relevant operative portion of the said order of this Tribunal is reproduced hereunder:- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS) in 1042, 1953- 1955/Pun/2013 and ITA Nos. 1867 19 M/s. Vodafone India Ltd. 1870/Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement before us in the instant case before us, as it is not in dispute that all the distributors agreements are standard agreements across India. We also find that the Pune Tribunal relied on para 62 of the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd vs DCIT reported in 372 ITR 33 (Kar). We find that the Pune Tribunal had taken note of the fact that Hon'ble Karnataka High Court in 372 ITR 33 had distinguished all the three High Court judgements (i.e. Kerala, Calcutta and Delhi) relied upon by the Id. DR hereinabove. Effectively Pune Tribunal adopted the decision of Hon'ble Karnataka High Court. The Id. DR relied on para 64 of decision of Hon'ble Karnataka High Court and argued that it is against assessee for the first 7 months since discount is separately shown in the books of the assessee as an expenditure. In our considered opinion, what is to be seen is the broader question raised before the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 1129 of 2017 dated 13/01/2020 in assessee's own case against the order of Pune Tribunal. For the sake of convenience, the entire order is reproduced hereunder:- "Heard learned counsel for the parties.

2. The Appellant-Revenue challenges the order dated 4 January 2017 passed by the Income Page | 12 to 5146/D/2011 Vodafone Mobile Services Limited 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 a substantial questions of law :- "(a) Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in holding the discount given by the assessee to its distributors on prepaid SIM Cards does not require deduction of tax under Section 194H of the Income Tax Act? (b)Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in setting aside the case to the Assessing Officer?"

1.

59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. ……………………..

61. In view of the above discussion, all the appeals of assessees are allowed and those of Department are dismissed. 2.8.5. We further find that the Hon'ble Rajasthan High Court in the case of CIT (TDS) Jaipur vs Idea Cellular Ltd in Income Tax Appeal No. 90/2018 dated 12/04/2018 had taken an identical view on the identical set of facts. Further Page | 15 to 5146/D/2011 Vodafone Mobile Services Limited we find that the Hon'ble Jurisdictional High Court in the case of CIT(TDS) Pune vs Vodafone Cellular Ltd (assessee's own case) in Income Tax Appeal Nos. 1152, 1274, 1995, of 2017 & Income Tax Appeal Nos. 571, 1266 of 2018 dated 27/01/2020 had also taken an identical view in respect of identical issue. 2.8.6. The Id. DR before us placed heavy reliance on the decision of Hon'ble Supreme Court in the case of Union of India vs Association of Unified Telecom Service Providers of India and Others reported in (2020) 3 SCC 525 dated 24/10/2019 to drive home the point that the assessee had erred in accounting the discounted price of sales as its revenue when sim cards are sold to distributors. We have gone through the said decision and we find that the said decision was rendered in the context of determination of Annual Gross Revenue for the purpose of fixing the licence fee payable to Government by the telecom service providers. It further held that while reckoning the Gross Revenues, no deduction would be available such as discount, commission etc. First of all, we have already held that the assessee had not made any payment of discount to the distributors. In any case, we have already held that the entries in the books of accounts are not determinative of tax liability of an assessee by placing reliance on various decisions of Hon'ble Apex Court. Those decisions still rule the field as they were not overruled by the latest Supreme Court decision relied upon supra by the Id. DR. It is trite law that though the decision of Hon'ble Apex Court would be binding as per Article 141 of the Constitution of India, still the judgement of the Hon'ble Supreme Court should be understood from the issue raised before it. In our considered opinion, this decision has got absolutely nothing to do with the applicability of provisions of section 194H of the Act. Hence we hold that the reliance placed by the Id. DR on the said decision is grossly misplaced. 2.8.7. The Id. DR before us vehemently submitted that the orders of Hon'ble Rajasthan High Courts and Hon'ble Jurisdictional High Courts and Hon'ble Karnataka High Court had not attained finality as they had been appealed by the revenue before the Hon'ble Supreme Court. This argument of the revenue, in our considered opinion, cannot Page | 16 to 5146/D/2011 Vodafone Mobile Services Limited be a deterrent for this Tribunal to follow those High Court orders. We find that the similarly worded distribution agreement had been subject matter of adjudication and examination by the Hon'ble Rajasthan High Court and Hon'ble Jurisdictional High Court wherein the Hon'ble High Courts had taken a categorical view that the relationship between assessee and distributor is only that of Principal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to Agent and accordingly there is no obligation for the assessee to deduct tax at source in terms of section 194H of the Act. 2.8.8. In view of the aforesaid observations and findings given thereon, we do not deem it fit to adjudicate other arguments advanced by the Id. AR on the applicability of second proviso to section 40(a)(ia) read with section 201 of the Act, as it would become academic in nature. This aspect of the issue is left open." 3.31. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the sale of prepaid sim cards/recharge vouchers by the assessee to distributors cannot be treated as commission/discount to attract the provisions of section 194H of the Act and hence there cannot be any obligation on the part of the assessee to deduct tax at source thereon and consequentially there cannot be any disallowance u/s 40(a)(ia) of the Act. Accordingly, the Ground No. II raised by the assessee is allowed. The Ground No. I raised by the assessee is only supporting the Ground No. II for furnishing of additional evidences, the adjudication of which becomes academic in nature. Hence Ground No. I is also allowed." (Emphasis Supplied) 11.1 Facts being identical, following the above said decision of the coordinate bench in the case of M/s Vodafone Idea Page | 17 to 5146/D/2011 Vodafone Mobile Services Limited Ltd (As successor to Spice Communications Ltd), we hold that the assessee is not liable to deduct tax at source from the discount paid on prepaid sim card/recharge vouchers. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(a)(ia) of the Act." 5.6. On perusal of above extract of the decision of the Tribunal it can be seen that in the above case the Tribunal had concluded that tax was not required to be withheld under Section 194H of the Act from the upfront discount offered to Pre-paid Distributors, and consequently, no disallowance could be made under Section 40(a)(ia) of the Act for failure to deduct tax at source.”

16. In the result, the appeal is partly allowed. ITA No. 5146/D/2011(A.Y.2011-12)

17. The first issue relates to the liability to deduct tax at source u/s. 194H of the Act on discount extended to its prepaid distributors on transfer of simcards/talktime. This issue has been considered and decided by us in for our detailed discussion therein. This ground is allowed.