ACIT, CIR-2, TDS, KOLKATA, KOLKATA vs. IDEA CELLULAR LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.1204 &1302/Kol/2016 Assessment Year :2012-13

M/s Idea Cellular Ltd. V/s. ACIT (TDS)-58, Srijan Tech Park, 7th 10B, Middleton Row, 7th Floor, Kolkata-71 Floor, DN-52, Sector-V, Salt Lake City, Kolkata- 91 [PAN No. CALIO 2834 G]

ACIT, Circle-2, TDS, V/s. Idea Cellular Ltd., 10B, Middleton Row, 7th Srijan Tech Park, 7th Floor, Kolkata-71 Floor, DN-52, Sector-V, Salt Lake, Kolkata-91 .. अपीलाथ� /Appellant ��यथ�/Respondent

ITA No.2490/Kol/2016 & ITA No.22/Kol/2017 Assessment Year :2013-14

M/s Idea Cellular Ltd. V/s. DCIT, Circle-2 (TDS) Srijan Tech Park, 7th 10B, Middleton Row, 7th Floor, Kolkata-71 Floor, DN-52, Sector-V, Salt Lake City, Kolkata- 91 [PAN No. CALIO 2834 G]

ACIT, Circle-2, TDS, V/s. Idea Cellular Ltd., 10B, Middleton Row, 7th Srijan Tech Park, 7th Floor, Kolkata-71 Floor, DN-52, Sector-V, Salt Lake, Kolkata-91 .. अपीलाथ� /Appellant ��यथ�/Respondent

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 2

Mrs. Somdipta Basu, Staff of Company आवेदक क� ओर से/ By Assessee Md Usman, CIT-DR & राज�व क� ओर से/By Revenue S. Dasgupta, Addl. CIT-DR 17-05-2018 सुनवाई क� तार�ख/Date of Hearing 31-05-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- The assessee and Revenue have filed their respective cross-appeals in assessment years in former AY 2012-13 against Commissioner of Income-tax (Appeals)-24, Kolkata’s order dated 17.03.2016 in case No.1534, 882, 1275/CIT(A)24/Kol/2012-13 & 13-14 (taken up together) and dated 31.10.2016 in appeal No.1590/CIT(A) 24/Kol/2015-16 in latter AY 2013-14; respectively involving proceedings u/s 201(1)/201(1A) of the Income Tax Act, 1961; in short ‘the Act’.

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 3 was that said SIM cards etc. did not have any value in themselves as well. All this failed to convince the Assessing Officer who raised then impugned demand. 4. The CIT(A) upholds Assessing Officer’s action in question as follows:- “4. The grounds No. I, IT, III & TV in respect of Appeal Nos. 1534 & 882 and Grounds Nos. II, Ill, V & VI in respect of Appeal No.1275 are common nature in all the three appeals. They are, therefore, decided together as under. 5. The appellant is a Cellular/Mobile Telephone Service Provider and has engaged distributors for collection of various charges from its ultimate customers, who are the users of its various services. Instead of directly paying these distributors, there is a system of collection in which margins are left for the distributors. These margins being the difference in the price paid to the appellant and that collected from the customers are the gross revenue in the hands of the distributors. The A.O.'s case is that the appellant service provider is a principal having engaged distributors as its agents and in return for the said service the above said difference is being allowed by the appellant to the distributors. The A.O., therefore, has held the appellant liable for deduction of tax at source on commissions/discounts allowed to the said distributors in the above said manner. As the A.O. held it liable for TDS and the appellant did not deduct TDS, the liability u/s.201(1) , in respect of tax ought to have been deducted but not deducted by the appellant ,was raised by the A.O. The grounds of appeal raised in effect challenges the A.O’s above said case. The plea taken by the appellant is that the distributors are not its agents, that the distributors are not being paid commissions by the appellant and that the distributors are acting as independent business partners. The appellant has relied on various judicial decisions on the point of above said liability determined by the A.O. 5.1 The issue is covered in favour of Revenue by the following decisions of the High Courts:- a) Vodafone Essar Cellular V. ACIT (2010) 7 Taxman (Ker). b) Bharati Cellular Ltd. V. ACIT(2013) 354 ITR 507 (Cal.)(HC) 5.2 Though conflicting decisions are there on the issue I am following the above decisions of the Hon'ble High Court of Calcutta and of Kerala as these two decisions according to me correctly define the relations between the appellant and its distributors and the payments involved. According to the above decision of the Kerala High Court, the discounts given to the distributors at the time of sale of SIM Card or Recharge coupons is nothing but commission on which tax is deductible. The test to be applied has been held as one to see whether or not assessee appellant has made any payment and whether it was for services rendered by the payee to the assessee deductor. The jurisdictional High Court of Calcutta has held the views to the following effect :- 1) the property in the starter pack and pre-paid coupons even after transfer and delivery to the franchises remained with the assessee; 2) the franchises really acted as a facilitator or instrumentality of providing services by the assessee to the ultimate subscriber;

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 4 3) the franchises had no free choice to sell it and everything was being regulated and guided by the assessee, and 4) the rate at which the franchises sold to retailers and that's at which the assessee sold to the franchises, was also regulated and fixed by the assessee. It was thus held that there was indirect payment to the franchisees of the commission and the commission would be liable to tax: deduction at source. Whatever the effect of the terms of agreement, the appellant is a principal exercising overall control on the business, various schemes and products and services, reducing the distributors or franchisees to agents. In effect the distributors or the franchises have thus been held liable as agent and there is indirect payment. I, therefore, agree with the A.O.'s view that the discount or commission is hit by section 194H and thus the appellant is liable to the provision of TDS. This ground, there/ore, is not allowed. 6. The second issue is that the A,O. should have ascertained whether the recipient assessees or distributors failed to pay tax directly and in case the recipient thus paid, the appellant's plea is that the deductor cannot be treated as assessee in default. The appellant has relied on the case of DCIT v/s Jagaran Prakashan Ltd. (2012) Allahabad High Court [345 ITR 288]. This plea was also taken before the A.O. in the course of determination of the liability u/s.201, who rejected it on the ground that the appellant did not comply with all the provisions of TDS and did not furnish any evidence that the tax was already paid by the deductees. The appellant has also relied on the decision of Hon'ble Lucknow Tribunal in the case of ICICI Bank [36 taxmann.com 433]. The extract of the submission on the point as in para-4 dated 24.12.2015 is reproduced as under :- "4. The decision of Hon 'ble Lucknow Tribunal in the case of lClCI Bank Ltd. Vs. Deputy CIT (36 taxmann.com 433) (Refer page no. 51 to 55 of LPB which has after following the decision of Jagran Prakashan Ltd. (supra), categorically held as under: � The onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, ands it is only when the primary liability is snot discharged that vicarious recovery liability can be invoked. � Once all the details of the person to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income-tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. � As a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan Ltd. case, there is a paradigm shift in the manner in which recovery provisions u/s.201 (1) can be invoked. � As observed by Their Lordships, the provisions of section 201(1) cannot be invoked and the "tax deductor cannot be

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 5 treated an assessee in default till it is found that assessee has also failed to pay such tax directly. � Once this finding about the non-payment of taxes by the recipient is held to a condition precedent to invoking section 201 (1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all the information about the recipient as he is obliged to maintain under the law, once this information is submitted, it is for the Assessing Officer to ascertain whether or not the ta;'1;es have been paid by the recipient of income" 6.1 In my view! in view of various judicial decisions on the point, it is not correct to collect the tax twice - ones from the deductee and then from the deductor. The A.O should have examined whether the distributors included the commission in its income chargeable to tax and offered it in the return. Only in cases of failure to pay taxes on the part of the deductees the A.O. can resort to the collection mechanism of section 201 of the l.T. Act. I, therefore, direct the A.O. to verify the payment of taxes by the distributors of the appellant and restrict the liability u/s.201(1) of the I.T. Act only to the amount of tax not deducted by the appellant and not paid by the deductee distributors. The ground relating to this issue is accordingly treated as allowed, for statistical purposes but subject to finding of the above direction. 7. Interest u/s.201(lA) As the A.O treated the appellant as defaulter in respect of discounts/commission to the distributors the interest was levied u/s.201(IA) @ 30%. The appellant's plea is that the interest can be levied only in cases of defaults in the payment of taxes and that in cases of refund claims and loss returns by the recipients the interest cannot be levied. It has further been pleaded that interests should be calculated after considering the advance tax and self assessment tax paid by the distributors and only upto the date on which the distributor has paid taxes on their income as advance tax or self assessment tax. It is, therefore directed that in cases where tax contained in the commissions/discounts were paid by the distributors or recipients the interest u/s.201(lA) should be restricted to the period from the date of deductibility to the date when the taxes were paid by the recipients. Furthermore, in cases where tax was not paid by the recipients or distributors the interests should be levied from the date of deductibility to the date when the tax was actually paid by the appellant deductor. The grounds are treated as partly allowed as above.” 5. We have given our thoughtful consideration to rival pleadings qua the instant issue. The assessee vehemently contends that both the Assessing Officer and CIT(A) ought not to have treated it to be in default u/s. 201(1) and interest u/s. 201(1A) of the Act. We find that instant issue as to whether there is commission element embedded or not in sale of prepaid SIM cards /prepaid

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 6 vouchers/recharge coupons is no more res integra in view of hon'ble jurisdictional high court’s judgment in Bharti Cellular Ltd. vs. ACIT (2013) 354 ITR 507 (Cal). It is submitted from the taxpayer’s side that various hon'ble high courts have also deleted the very kind of demand as well. We find no merit since all the relevant issues involved herein including that of principle to principle relationship stands adjudicated in hon’ble jurisdictional high court against the assessee. We thus decline assessee’s instant ground challenging correctness of the impugned demand.

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 7 instant case. The assessee’s appeal ITA No.1204/Kol/2016 raising the these issues of section 201(1) demand and 201(1A) interest fails accordingly.

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 8 The appellant prays that it be held that payment of roaming charges neither fall within “fees for technical services” as defined under Explanation 2 to section 9(1)(vii) nor falls within “Royalty” as defined Explanation 2 to section 9(1)(vi). Therefore, no tax is deductible u/s.194J on roaming charges and, consequently, the action of the AO in holding the Appellant as ‘assessee in default’ under section 201 LWS 194J be set aside/quashed. The Appellant prays that it be held that no tax is deductible u/s. 194J of the Act and hence, the Appellant cannot be held as an “assessee in default” under section 201(1) of the Act. In the statement of facts the appellant has challenged the Assessing Officer's action based on the following two propositions:- a) Any payment for the use of standard facilities doesn’t amount to fee for technical services and; b) In absence of any human intervention during the actual roaming process payment would not be fees for technical services. 8.1 On both the above propositions reliance has been made on various judicial decision. In roaming there is no human intervention. This facility is standard and similarly there is no finding from the Assessing Officer that human intervention is required to facilitate the roaming. As this facility is only standard or general in nature and has no human intervention in ensuring facilities between the users and the visiting operators and the home operators, I have to intervene in the Assessing Officer's order on the point. 8.2 A regards treating of roaming charge as royalty by the AO, it is seen that the amendment to the said effect was w.r.e.f. 01.06.1976 brought in by the Finance Act, 202, which comes into operation only after 31.03.2012. 8.3 The appellant’s submission is not addressing this aspect of the amendment which has been utilized by the AO to include Data / Signal transmissions in the definition of process and thus treatment of commission as royalty by the AO. The appellant cannot be held liable to deduct as at the material time there was no such liability. In other words, some judicial decisions hold that the TDS provisions cannot be made retrospective. In view of the above consideration I hold the AO not correct and allow the grounds relating to roaming charges.” 9. Learned Departmental Representative strongly supports the Assessing Officer’s findings treating assessee’s roaming charges payments as royalty liable for TDS deduction. We find no substance in Revenue’s instant grievance. It fails to rebut the CIT(A)’s clinching finding of fact that the assessee had availed / used standard facilities only not amounting to royalty u/s. 9(1)(vi) of the Act. We quote hon'ble Delhi high court’s judgment in Asia

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 9 Satellite Telecommunications Co. Ltd vs. DIT 332 ITR 340 (Del) holding that mere use of an equipment not in assessee;’s control without any right vested in it for using standard services does not amount to royalty u/s 9(1)(vi) of the Act as followed in co-ordinate bench’s decision in Yahoo (India) Pvt. Ltd. in ITA 506/Mum/2008 decided on 24.06.2011. Learned Departmental Representative quotes retrospective amendment in Section (9)(1)(vi) inserting Explanation-4 with effect from 01.06.1976 by Finance Act, 2012 as well. This plea is also declined in view of hon'ble Bombay high court’s judgment in CIT vs. N.G.C. Network Pvt. Ltd. in Tax Appeal No.397 of 2015 decided on 29.01.2018 concluding that above amendment cannot be held applicable retrospectively as per doctrine of impossible compliance. We therefore reject Revenue’s latter substantive grievance as well as its main appeal ITA No.1302/Kol/2016. Assessment Year: 2013-14 (Assessee’s appeal ITA No.2409/Kol/2016 and Revenue’s cross-appeal ITA 22/Kol/2017 10. The assessee raises two substantive grounds in challenging correctness of both the lower authorities action treating as an assessee in default u/s 201(1) & 201(1A) of the Act for not deducting TDS upon prepaid SIM card/ recharge vouchers/ service coupons qua its discounted price offered to its distributors. We have already rejected its similar substantive grounds in forgoing discussion in preceding assessment year (supra). The Revenue’s cross appeal assails correctness of CIT(A)’s directions regarding 201(1A) interest amount in tune with those in said preceding assessment year. We have already upheld similar direction in preceding paras. The very discussion is followed mutatis mutandis to reject both parties respective pleadings pertaining to this former issue of u/s 201(1) demand r.w 201(1A) interest. The Revenue’s appeal ITA 22/Kol/2017 fails accordingly.

ITA No.1204,1302,2409/Kol/2016 & 22/Kol/2017 A.Ys 12-13 & 13-14 M/s Idea Cellular Ltd. Vs. ACIT/DCIT (TDS) Kol. Page 10 grievance challenging Assessing Officer’s action treating it as assessee in default on account of short deduction of tax to be tune of ₹27,949/- in respect of payments made for subscriber’s acquisition service charges. We find that the assessee’s representative himself had made it clear in the lower appellate proceedings that the Assessing Officer had issued necessary rectification dated 24.04.2015 to this effect. We therefore decline assessee’s instant substantive ground as well main appeal ITA 2409/Kol/2016.