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Income Tax Appellate Tribunal, B BENCH
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF AUGUST, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON’BLE MR. JUSTICE SACHIN SHANKAR MAGADUM ITA NO.693 OF 2019 C/W ITA NOS.692/2019 & 694/2019
IN ITA NO.693 OF 2019 BETWEEN
1 . THE COMMISSIONER OF INCOME TAX (TDS)
BANGALORE, 4TH FLOOR, H.M.T. BHAVAN
GANGANAGAR,
BANGALORE-560032
2 . ASSISTANT COMMISSIONER OF INCOME TAX (TDS) CIRCLE-2(1), 4TH FLOOR,
H.M.T BHAVAN, GANGANAGAR BANGALORE-560032 ...APPELLANTS (BY SRI T.N.C.SRIDHAR, ADVOCATE FOR SRI NEERALAGI J.J., ADVOCATES)
AND
M/S IDEA CELLULAR LTD., NO.75, RICHMOND ROAD BANGALORE-560025 …RESPONDENT (BY SRI SHARATH.S FOR SRI CHYTHANYA.K.K, ADVOCATES)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961 ARISING OUT OF THE ORDER DATED 08.02.2019 PASSED IN ITA NO.2206/BANG/2018 FOR THE ASSESSMENT YEAR 2012-2013 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS FRAMED ABOVE AND ALLOW THE APPEAL BY DECIDING THE SUBSTANTIAL QUESTIONS OF LAW IN FAVOR OF THE APPELLANTS AND SET ASIDE THE ORDER DATED 08.02.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH BENGALURU IN ITA NO.2206/BANG/2018 FOR THE ASSESSMENT YEAR 2012-2013 AND ETC.,
IN ITA.NO.692/2019 BETWEEN
1 . THE COMMISSIONER OF INCOME TAX (TDS)
BANGALORE, 4TH FLOOR, H.M.T. BHAVAN
GANGANAGAR,
BANGALORE-560032
2 . ASSISTANT COMMISSIONER OF INCOME TAX (TDS) CIRCLE-2(1), 4TH FLOOR,
H.M.T BHAVAN GANGANAGAR BANGALORE-560032 ...APPELLANTS (BY SRI T.N.C.SRIDHAR, ADVOCATE FOR SRI NEERALAGI J.J., ADVOCATES)
AND
M/S IDEA CELLULAR LTD., NO.75, RICHMOND ROAD BANGALORE-560025 …RESPONDENT
(BY SRI SHARATH.S FOR SRI CHYTHANYA.K.K, ADVOCATES)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961 ARISING OUT OF THE ORDER DATED 08.02.2019
PASSED IN ITA NO.1942/BANG/2018 FOR THE ASSESSMENT YEAR 2012-2013 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS FRAMED ABOVE AND ALLOW THE APPEAL BY DECIDING THE SUBSTANTIAL QUESTIONS OF LAW IN FAVOR OF THE APPELLANTS AND SET ASIDE THE ORDER DATED 08.02.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH BENGALURU IN ITA NO.1942/BANG/2018 FOR THE ASSESSMENT YEAR 2012-2013 AND ETC.,
IN ITA.NO.694/2019 BETWEEN
1 . THE COMMISSIONER OF INCOME TAX (TDS)
BANGALORE, 4TH FLOOR, H.M.T. BHAVAN
GANGANAGAR,
BANGALORE-560032
2 . ASSISTANT COMMISSIONER OF INCOME TAX (TDS) CIRCLE-2(1), 4TH FLOOR,
H.M.T BHAVAN GANGANAGAR BANGALORE-560032 ...APPELLANTS (BY SRI T.N.C.SRIDHAR, ADVOCATE FOR SRI NEERALAGI J.J., ADVOCATES)
AND
M/S IDEA CELLULAR LTD., NO.75, RICHMOND ROAD BANGALORE-560025 …RESPONDENT
(BY SRI SHARATH.S FOR SRI CHYTHANYA.K.K, ADVOCATES)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961 ARISING OUT OF THE ORDER DATED 08.02.2019 PASSED IN ITA NO.2207/BANG/2018 FOR THE ASSESSMENT YEAR 2013-2014 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION
OF LAW AS FRAMED ABOVE AND ALLOW THE APPEAL BY DECIDING THE SUBSTANTIAL QUESTIONS OF LAW IN FAVOR OF THE APPELLANTS AND SET ASIDE THE ORDER DATED 08.02.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH BENGALURU IN ITA NO.2207/BANG/2018 FOR THE ASSESSMENT YEAR 2013-2014 AND ETC.,
THESE APPEALS COMING ON FOR HEARING THIS DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING:
JUDGMENT
The present ITAs are arising out of the order dated 8.2.2019 passed in ITA.Nos. 1942, 2206 and 2207/Bang/2018 [The Assistant Commissioner .vs. M/s. Idea Cellular Limited]. 2. Regard being had to the similitude in the controversy involved in all the three cases, they are heard analogously together and a common order is being passed.
The facts of the case in ITA.693/2019 reveal that the respondent-company is engaged in the business of providing cellular telecom operations in various telecom circles in India and it sells sim cards to the distributors. A search was conducted under Section 133A of the Income Tax Act to verify TDS compliances and it was noticed that the respondent had
not deducted tax at source on payments of commission allowed to its distributors. Under those circumstances, the matter has finally travelled to the Tribunal and the Income Tax Appellate Tribunal has decided the appeal in favour of the assessee.
This Court has framed the following substantial questions of law:- 1. “WHETHER, the discount given on sale of prepaid services, SIM and recharge vouchers by the cellular operator (assessee) to its distributors cannot be treated as commission to attract the provisions of Section 194H of Income-Tax Act? 2. WHETHER, the ITAT is right in laying emphasis on Principal-Agent relationship for applying the provisions of Section 194H of Income-Tax Act while the definition of ‘Commission or brokerage’ does not make the principal- Agent relationship sine qua non for the application of Section 194H of Income-Tax Act? 3. WHETHER, the ITAT has erred in not appreciating the fact that the Section 194H is attracted on the trade discount allowed by the assessee/respondent to its distributors which amounts to payment of ‘Commission’
requiring deduction of tax of source under Section 194H of Income-Tax Act?”
When the matter was taken up for final hearing, it was brought to the notice of this Court by the assessee that a similar issue has been decided in Bharti Airtel Limited .vs. Deputy Commissioner of Income-Tax, Circle 18(1), Bangalore [(2015) 372 ITR 33(Karnataka)] in favour of the assessee. The operative paragraphs of the order passed by the Division Bench of this Court as contained by Paragraphs 61 to 65 reads as under: “61 .However, in the first instance, if the assessee accounted for only Rs. 80 and on payment of Rs. 80, he hands over the pre-paid card prescribing the MRP as Rs. 100, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of Rs. 20 if not reflected anywhere in the books of account, in such circumstances, section 194H of the Act is not attracted.
In the appeals before us, the assessees sell pre- paid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration
to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur expenditure for the purchase of pre-paid cards. Only after the resale of those pre-paid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of pre-paid card by the assessee to the distributor does not arise. The condition precedent for attracting section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words, the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income-tax thereon at the rate of 10 per cent, and then pay the remaining portion of the income to the distributor. In this context, it is pertinent to mention that the assessee sells sim cards to the distributor and allows a discount of Rs. 20, that Rs. 20 does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the sim cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on
the agreement between them and all of them have to share Rs. 20 which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee 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 not 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.
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 is chargeable to tax, the question of payer deducting any tax does not arise. As held by the apex court in Bhawani Cotton Mills Ltd.’s case, if a person is not liable for payment of tax 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.
In the case of Vodafone Essar Celluar Ltd.,(Supra) 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 pre-paid card at
Rs. 100 in their books of account 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. Hence, we pass the following order: ORDER 1. Appeals are allowed. 2. The impuged orders passed by the authorities are hereby set aside. 3. The matter is 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 the accounts are not reflected as set out above, in para 60, Section 194H of the Act is not attracted.
Ordered accordingly.”
In the light of the aforesaid judgment, this Court is of the opinion that the Tribunal was justified in dismissing the appeal preferred by the revenue and therefore, the substantial questions framed by this Court are answered in favour of the assessee and against the revenue.
Resultantly, the appeal is dismissed.
In the light of the aforesaid, the connected appeals also stand dismissed. No order as to costs.
All pending I.As, if any, stand disposed of.
Sd/- JUDGE
Sd/- JUDGE
*alb/-.