SH.ANIL DHIWAN S/O SH.A.K.DHWAN vs. DY.COMMISSIONER OF INCOME TAX, MANDI

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1298/Chd/2016 (Assessment Year : 2009-10) Sh.Anil Dhawan, S/o Sh.A.K.Dhawan, Vs. The D.C.I.T., Moti Bazar, Mandi, Distt. Mandi (H.P.) Circle-Mandi (H.P.) PAN: AEJPD7188M (Appellant) (Respondent)

Appellant by : S/Shri Ashwani Kumar, CA & Aditya Kumar, CA Respondent by : Smt.Chanderkanta, Addl.CIT, DR Date of hearing :28.03.2018 / 17.07.2018 Date of Pronouncement : 17/07/2018 ORDER PER ANNAPURNA GUPTA, A.M. :

This appeal has been preferred by the assessee against

the order of Ld. Commissioner of Income Tax (Appeals),

Palampur dated 2.9.2016 relating to assessment year 2009-

10.

Ground No. 1 raised by the assessee reads as under:

disallowance of expenses made u/s 40(a)(ia) of the Income

Tax Act, 1961 (in short ‘the Act’) for non-deduction of tax at

source on the same.

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Officer had noted that the assessee was an authorized

dealer of BSNL and was engaged in the business of sale and

purchase of sim cards, recharge coupons, mobile phones

and accessories etc. During the year, the Assessing Officer

noted that the assessee had debited Rs.44,63,094/- in the

trading-cum-Profit & Loss Account under the head

‘commission to parties’ which fell within the ambit of the

provisions of section 194H of the Act. On perusal of the

books of accounts it was noticed by the Assessing Officer

that the assessee had paid commission amounting to

Rs.11,46,311/- to 54 dealers, where the amount of

commission paid was at a time more than Rs.2500/-, while

in the remaining cases, the commission paid was less than

Rs.2500/-. The Assessing Officer accordingly, held that the

assessee, by not deducting tax at source on the commission

paid amounting to Rs.11,46,311/-, had violated the

provisions of section 194H of the Act and, therefore, the

said expenses were liable to be disallowed as per the

provisions of section 40(a)(ia) of the Act. Reliance was

placed by the Assessing Officer on the decision of the

Hon'ble High Court of Kerala in the case of Vodafone Essar

Cellular Ltd. Vs. ACIT (2010) 194 Taxman 518 (Ker.) and

I.T.A.T. Mumbai in the case of Mahesh Enterprises Vs. ITO,

Mumbai (2010) 42 SOT 125 (Mum). Accordingly,

disallowance of expenses to the extent of Rs.11,46,311/-

claimed under the head ‘commission’ was made by the

Assessing Officer.

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that the payments made were not in the nature of

commission but that it was only passing on part of the

discount received by it from BSNL to its retailers that too

by reducing the value of products sold to them and not in

cash. The assessee also submitted that the decision in the

case of Vodafone Essar Cellular Ltd. (supra) was not

applicable to the facts of the present case since in that case

the assessee was a telecom service provider, which the

assessee was not in the present case. It was also contended

that the assessee was not accountable for any service

contract with the customers and the transaction with its

customers was on principal to principal basis and,

therefore, the incentive given to them could not be termed

to be in the nature of commission so as to attract TDS u/s

194H of the Act. The Ld.CIT(Appeals) rejected assessee’s

contention holding that the agreement between BSNL and

the assessee clearly showed that the assessee was providing

various services to customers on behalf of the BSNL and

relationship between BSNL and the assessee was of

principal and agent and the services provided by the

assessee were covered within the definition of commission.

The Ld.CIT(Appeals) further held that for the said services

to BSNL the assessee had appointed agents and retailers to

assist it in execution of the contract with BSNL which

clearly attracted the provisions of section 194H of the Act

to the incentive given to the retailers of the assessee. The

disallowance of expenses of Rs.11,46,311/- on account of

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non-deduction of tax on the same u/s 194 of the Act was,

therefore, upheld by the CIT(A). The relevant findings of the

Ld.CIT(Appeals) at pages 7 and 8 of its order are as under:

“The appellant has contended that the appellant used to get 5% discount/ commission from the BSNL which used to deduct tax thereon at source and subsequently the appellant had to pass on 4% of the above said discount/ commission which was not paid in cash but was to be adjusted by reducing the value of the product i.e. upfront basis. The appellant has stated that the judgment of Kerala High Court in the case of Vodafone Essar Cellular Ld. Vs SCIT (2010 194 Taxman 518 (Ker.)] is not applicable since appellant is not providing any cellular service, BSNL is the principal nor the appellant and appellant is not accountable for any service contract with customers. The contract between the appellant and BSNL is for marketing and selling telecom services. Clause 5 gives the details of scope of work highlights the scope of marketing and distribution services. The Franchisee shall provide BSNL services to walk-in- {customers, it shall also establish through its sales force, direct contact with prospective customers and register as many new BSNL customers as possible. The appellant will be responsible for the verification of credentials of customers. These telecom services come within the purview of services provided by the distributors As per clause 8 of the agreement Franchisee shall exclusively engaged himself/ itself in marketing and selling only BSNL's Telecom Services under this agreement and shall not involve itself/ himself in any manner either directly or indirectly in any business or activity other than of the BSNL The appellant is responsible for the verification of the documents of the new customers as is clearly evident from clause No. 9 of the agreement: "The Franchisee will be fully responsible for the Verification of credentials of new customers-Both as per documents submitted as well as per physical verifications. Franchisee will be responsible for the verifications done by all the channels i.e. sub- franchisees and retailers working under them as per the instructions as laid down in Ir. No. MOB-27/Security- 2006 dated 06.02.2007 and any further instructions issued on the subject from time to time shall be scrupulously followed by the franchisees/ point of sale in all channels'. The agreement between BSNL and the appellant clearly shows that appellant is providing telecom services of verification of credentials of the customers. BSNL services to walk-in- customer, distribute all type of authorized telecom services. These services clearly shows that the relationship between BSNL and the appellant is of principal and agent and the

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provisions of services are covered within the definition of commission, In order to provide the services appellant has appointed agents and retailers who are assisting the appellant in execution of the contract with BSNL As per section 194H, commission or brokerage includes any payment received directly or indirectly by the person acting on behalf of another person for services rendered or for any services in the course of buying and selling of goods. Therefore, it is clearly evident that provisions of section 194H r.w.s. 40(a)(ia) the disallowance of expenses of Rs.11,46,311/- made by the Ld.A.O. is upheld.” 5. Aggrieved by the same, the assessee has come up in

appeal before us.

contention made before the Ld.CIT(Appeals) emphasizing

that the relationship between the assessee and the retailers

was on principal to principal basis which was evident from

the fact that there was no oral or written agreement

between the assessee and its retailers exhibiting any

control of the assessee over the goods sold to the retailers

and further by the fact that the transaction was undertaken

in cash entirely and the bills clearly showed the discount

given to the retailers and not commission to them. The Ld.

counsel for assessee stated that the facts of its case were

identical to that decided by the I.T.A.T. in a number of

cases wherein after appreciating the aforementioned facts it

was held by the I.T.A.T. that the relationship between the

assessee and its retailers was of principal to principal and

the incentive given to them, therefore, did not tantamount

to commission for the purpose of tax deduction at source

u/s 194H of the Act. The case laws relied upon by the

assessee in this regard are as under:

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1) ITO Vs. M/s Tarun Sales in ITA No.967/DEL/2014, dated 9.12.2016 2) DCIT Vs. Shri Shrawan Kumar Aggarwal, Prop. M/s Usha Agencies in ITA No.1401/JP/2010, dated 21.10.2011 3) M/s Pareek Electrical Vs. ACIT in ITA No.354/CTK/2012, dated 28.9.2012 4) M/s Gurpreet Singh Sethi, Prop. M/s Electronics Vs. ITO, ITA No.608 & 609(Asr)/2013, dated 15.4.2014 7. The Ld. DR, on the other hand, relied upon the order

of the CIT(Appeals) stating that the agreement of the

assessee with the telecom services provider i.e. BSNL

clearly reflected the existence of principal and agent

relationship between the two and for rendering the services

under the said agreement the assessee had taken the

services of the retailers and, therefore, incentive given to

them was in the nature of commission attracting the TDS

u/s 194H of the Act.

issue before us is whether the incentive given by the

assessee to its retailers/customers on the sale of sim cards,

recharge coupons, etc tantamounted to commission

amenable to tax deduction at source u/s 194H of the Act,

non-deduction of which would result in attracting the

provisions of section 40(a)(ia) of the Act resulting in

disallowance of the said expenses incurred by the assessee.

Ld. counsel for assessee before us. We find that in all the

said cases the Tribunal had on the facts of each case given

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a finding that the relationship between the assessee and its

retailers ,on account of the transaction of sale of sim cards

and recharge coupons, was on principal to principal basis.

For the said reason, the incentives paid to them, therefore,

were held to be in the nature of discount and not

commission.

No.967/Del/2014 dated 9.12.2016 (supra), the assessee was

an authorized dealer of BSNL. The ITAT in the said case

found that as per the agreement between BSNL and the

assessee no dealer or sub-dealer was appointed either by

BSNL or by the assessee for the purpose of marketing the

products and/ or services of BSNL. The ITAT further noted

that the entire sales made by the assessee to the retailers

was in cash at discount and no payment of incentive by way

of commission was made. The ITAT, therefore, held that the

incentive paid was not in the nature of commission but was

in fact discount which was given to the

retailers/shopkeepers. The relevant findings of the I.T.A.T.

are as under:

“ We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issued having similar facts had already been adjudicated in assessee’s own case for the preceding year by the ITAT Delhi Bench ‘H’, New Delhi in ITA No. 3523/Del/2011 wherein relevant findings have been given in paras 15 to 25 of the order dated 22.02.2013 which read as under: “15. We have heard the parties and have perused the material on record. The assessee paid discount of Rs.66,57,565/- and activation scheme of Rs.6,25,600/. Both these amounts, total amounting to Rs. 77,31,395/- were claimed in the Profit & Loss Account. The stand of the

ITA No No.1298/Chd/2016 8 A.Y. 2009-10

assessee has been that discount/activation charges were not paid in cash to any retailer. Rather, they were in the nature of trade discount given at the time of sale. The sales were recorded at the maximum retail price and the discount regarded as discount was the retailer’s margin. There was no agreement in existence between the assessee and the customers. The assessee, during the year, was an authorized franchisee of Bharat Sanchar Nigal Ltd. (i.e. BSNL) vide agreement dated 12.01.2007 (copy at pages 17- 36 of the assessee ’s paper book-“APB for short)”. Under the agreement, the assessee was to provide services to walk-in customers. It was to distribute all types of authorized telecom services. No dealer or sub-dealer was appointed. The discount/commission was allowed as per the agreement. This position remains undisputed. The retailers simply bought SIM cards/recharge coupons from the assessee at a discounted price. These were sold in the market with no specific obligation towards the distributor. 16. The Assessing Officer, however, concluded that the assessee was having the same relationship with the dealers/retailers, as the one of BSNL with the dealers/retailers; that it was a case of collection of money from the customers for various services to be provided/already provided by BSNL and, as such, it was in the nature of payment to an agent for collection of money on behalf of BSNL; that the assessee had shown the expense as ‘commission’ in its Profit & Loss Account; that therefore, even though the payments were covered u/s 194H of the IT Act, no TDS had been deducted thereon. It was on this basis that the Assessing Officer made the disallowance. The Ld.CIT(A) deleted the same. 17. The question is as to whether the Ld.CIT(A) correctly deleted the disallowance, holding that there was no principal to agent relationship between assessee and the customers. Now, undoubtedly, the ‘commission’ in question was, in fact, ‘Discount’. It was only that there being no head of ‘discount’ in ITR-4, the depiction was of ‘commission’ in column No.23 of the Profit & Loss Account. Thus, however, by itself does not lead to the conclusion that it was ‘commission’ rather than ‘discount’. As per the agreement between the BSNL and the assessee:- “The Franchisee shall provide BSNL services to walk-in- customers. It shall also establish, through its sale-force direct contact with prospective customers and register as many new BSNL customers as possible subject to a minimum number fixed by BSNL. Franchisee shall also distribute all types of authorized telecom services for marketing to its Franchisees and cash card (prepaid) to its retailers. No dealer/sub-dealer was either appointed by BSNL on the assessee. The assessee is allowed commission/discount as per Annexure-B and section-III of the said agreement.

ITA No No.1298/Chd/2016 9 A.Y. 2009-10

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payment of full price less discount and they sell such stamp papers to retail customers, neither of the two activities, i.e, buying from the Government and selling to the customers, can be termed as service in course of buying and selling of goods; and that so the discount made available to the license stamp vendors was outside the expression ‘commission’ or brokerage u/s 194H of the It Act and as such, no TDS is required to be made from the discount. 23. The SLP filed by the Department was dismissed by the Hon’ble Supreme Court vide Order dated 06.09.2012 (copy at page 48 of the case laws paper book filed by the assessee), holding that the discount given to the stamp vendors was for purchasing the stamps in bulk quantity and the discount was in the nature of cash discount, due to which the transaction was a sale and consequently, Section 194H of the IT Act had no application. 24. No decision to the contrary has been brought to our notice. 25. In view of the above, finding no merit therein, the grievance sought to be raised by the Department is rejected.” 8. Since the facts involved in the year under consideration are identical to the facts involved in the preceding year of the assessee’s case. So, respectfully following the aforesaid referred to order dated 22.02.2013 in ITA No. 3523/Del/2011 for the assessment year 2008-09 in assessee’s own case, we do not see any merit in this appeal of the department.” 11. In the case of Shri Shrawan Kumar Aggarwal, Prop.

M/s Usha Agencies (supra), the assessee was an authorized

dealer of BSNL, selling SIM cards, recharge coupons, etc. of

BSNL. The ITAT found that as per the agreement between

the assessee and BSNL, the assessee was a franchisee of

BSNL doing marketing and distribution of BSNL Telecom

Service and was not acting as an agent of BSNL. That in

doing its business of selling the SIM Cards and recharge

coupons by doing marketing and distribution ,it had

engaged certain persons in the market and had parted with

its share of incentive earned from BSNL. The ITAT held this

engagement to be not as agent as there was no independent

ITA No No.1298/Chd/2016 11 A.Y. 2009-10

contract with the retailers and thus no supervision or

control of the assessee over the retailers for the sale of

recharge coupons to them. It was also noted that most of

the assessee’s sale to retailers was in cash and thereafter

there was hardly any obligation of the retailers towards the

assessee. Further it was found that the sales made to

retailers was in cash and discount had been given to them

on the Bill raised by reducing the price and that no

commission had been paid to the retailers. Therefore, on

these facts, the ITAT held that the relationship between the

assessee and its retailers was to be treated as that of

principal to principal and not that of principal and agent

and the provisions of section 194H, therefore, were not

applicable in respect of the sale of BSNL products by the

assessee to its retailers. The relevant findings of the

I.T.A.T. at para 22.1 of the order is as under:

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distribution of BSNL Telecom Services. The assessee is doing this business by engaging some persons in the market and have parted with some share of commission earned by him from BSNL. Parting of the commission, the AO has treated that assessee has engaged his Agents and, therefore, is liable to deduct tax in view of provisions of section 194H. In fact, the assessee has not engaged any distributor by appointing agents but has used the services of other persons in the market to do the marketing and distribution work in a large scale on behalf of BSNL and this engagements cannot be termed as his Agent or his broker as there is no independent agreement either with the sub brokers or sub agents who are selling SIM Card or Recharge Coupons on behalf of the assessee. The assessee was making sales of Cash Cards and SIM Cards to retailers at a price which was net of discount. No where in the documents viz. the sale bills etc. issued by the assessee to the retailers the word commission has been mentioned. No commission was paid by the assessee to the retailers. Whatever the price was paid by the assessee to BSNL, the BSNL gave discount/commission to the assessee and assessee has reduced the same in the purchase price and has sold to the retailers on a discounted figure. In this way the assessee has parted some discount availed by it to the retailers. Being Franchisee, a person cannot be termed as Agent as held in the case of Idea Cellular Ltd. 121 TTJ 352 (Del.) wherein it is held that under section 194H discount to market associates on SIM cards and recharge coupons - discount allowed on transactions resulting in outright purchases cannot be treated as brokerages or commission. There should be in existence the relationship of principal and agent in order to bring the discount in the ambit of commission or brokerage. Similar view has been taken in case of Idea Cellular Ltd. by ITAT Hyderabad Bench also. 22.1. In case of Ahmedabad Stamp Vendors Association vs. Union of India, 176 CTR 193 (Guj.), again similar view has been taken by Hon'ble Gujarat High Court. It is also a matter of fact that the BSNL itself has changed the nomenclature of this payment from word 'Commission' to 'discount' with effect from 31.5.2008 and copy of this clarification was issued. From this fact, it is amply proved that assessee is not an agent or BSNL but a Franchisee. Thereafter, the assessee after making full payment of SIM Card/Research Coupons had sold the same to the retailers and on the basis of bill issued by assessee the full payment has been charged. There is no word of any discount or commission in the bill issued by the assessee. Therefore, this is not the case of the department that assessee has deputed any sub agents and charging commission from them. It is also seen that the assessee has purchased SIM Card and Discount Coupons and they have become the property of the assessee as assessee is liable for damage/loss of SIM Card and Discount coupons. Therefore, also it cannot be said that assessee was an agent and assessee has engaged further sub agents. All these facts have been considered by Id. CIT (A) and thereafter he has given his

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findings which are recorded in para 6.3 at pages 32 to 33, are also reproduced here as under :- " 6.3. I have carefully considered the facts of the case and submissions of Ld. AR. On perusal of the relevant records, find that the nature of the relationship between the BSNL and the appellant assessee (franchisee of BSNL) was different, as compared to the nature of the relationship between the assessee and his retailers In this regard, it is observed that the appellant was appointed a franchisee of the BSNL, as per the detailed terms and conditions of franchiseeship contained in the agreement dated 21/03/2005, entered into between the BSNL and the appellant, which was subsequently modified, vide another agreement dated 13/11/2006. Therefore, the appellant was obliged to fulfill and conditions of that agreement and, in a way, was under the supervision and control of BSNL, while performing his duties as the franchisee of BSNL, in respect of the sale of recharge coupons etc. of BSNL by him. Hence, the relationship between the BSNL and the appellant is to be treated as that of a Principal and Agent and thus, the commission/discount paid by the BSNL to the appellant fell in the ambit of the provisions of S.194-H of the I.T. Act. In this regard, it is noticed that the BSNL had also treated the aforesaid commission/discount given to the appellant s commission and had also made TDS thereon u/s 194-H of the I.T. Act. However, on going through the relevant material placed on record, I find that the relationship between the appellant and his numerous retailers is not the same, as is between the BSNL and the appellant. In this regard, it is observed that there is no agreement of any kind between the appellant and his retailers and hence, there is no supervision or control of the appellant over the retailers, after the sale of the recharge coupons etc. by the appellant to the retailers. Further, it is also observed that most of the appellant's sales of recharge coupons etc. to the retailers are in cash and, thereafter, there is hardly any obligation of the retailers towards the appellant. Therefore, on these facts, the relationship between the appellant and his retailers is to be treated as that of Principal to Principal and not that of a Principal and Agent. Hence, it is held that though the appellant sold the BSNL products to the retailers at a price, which was lower than the MRP (after passing on a of his commission as a discount to the retailers), yet as the relationship between the appellant and his retailers was that of Principal to Principal, the provisions of S. 194-H of the I.T. Act were not applicable, in respect of the aforesaid sale of the BSNL products by the appellant to his retailers. Thus, it is held that as the appellant was not liable to make TDS, in respect of the sale discount given by him to his retailers, the impugned disallowance of Rs.91,83,554/- made by the Ld. AO u/s 40(a)(ia) of the I.T. Act is not sustainable

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Accordingly, the AO is directed to delete the impugned addition and consequently, this ground of appeal is treated as allowed.” 12. In the case of Gurpreet Singh Sethi (supra) the

assessee was also an authorized dealer of BSNL selling its

products. The I.T.A.T. in the said case, on perusal of the

agreement between the assessee and BSNL found that the

recharge coupons purchased by the assessee from BSNL

became property of the assessee and not of BSNL and on

sale of such recharge coupons to sub-distributors they

became the property of the sub0distributors who were free

to sell them at a price deemed fit though the maximum

price was fixed by BSNL. The I.T.A.T. on consideration of

these facts held the sale of recharge coupons to sub-

distributors different on principal to principal basis finding

that there was no written agreement with the sub-

distributors and the bills shows discount to the distributors

and not commission. In the said case, the I.T.A.T. held that

the relationship of the assessee with the BSNL was different

from that of the assessee with its sub-franchisee because

the assessee had no control over the sub-franchisee and,

therefore, was on principal to principal basis. The I.T.A.T.,

therefore, held that the incentive given to the sub-franchise

was, therefore, no in the nature of commission and,

therefore, no TDS was required to be deducted u/s 194H of

the Act. The relevant findings of the I.T.A.T. at para 10 of

its order are as under:

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after providing such services, the margin so earned is termed as commission liable under the provisions of section 194H to deduct tax at source on the payment made to sub franchisee and since PR assessee has failed to do so, the same is liable u/s 201(1) alongwith interest u/s 201(1A) of the Act. On perusal of record and arguments of both the authorities below, we are of the view that the assessee has declared himself as franchisee of M/s. Bharat Sanchar Nigam Limited (BSNL) and is in the business of purchasing SIM cards and Recharge coupons from BSNL against payment and resells them to Sub Contractors/Sub Distributors/Sub- Franchisee. The assessee is a franchisee of BSNL, who claims himself as a trader and not as service provider or cellular operator. The role of Franchisee is limited to booking of new connections i.e. Subscriber Identification Module cards and sale of Recharge. Booking of new connections i.e. SIM cards. Contributes to less than5% of total business. Accordingly, it was explained that the assessee's role is limited to booking of new connections only and commission after deducting TDS is given on new connections by BSNL and similarly, TDS is deducted and deposited on commission disbursed to Sub- Franchisee on account of new connections booked by them.. On the other hand, sale of Recharge contributes more than 95% of business and only dispute is with regard to Recharge of coupons and Top-ups. The Ld. counsel for the assessee invited our attention to page 68 & 89 of the agreement dated 22.12.2004 and August, 2009 in which the Recharge coupons purchased by the assessee becomes the property of the assessee and when the same are lost or destroyed or not sold the responsibility rests with the assessee. The BSNL does not recoup the loss to the assessee, which is clearly mentioned in clause 22 of the agreement dated 22.12.2004. The assessee has sold the Recharge coupons to the Sub-Distributors so that they also earn some margin of profit and such Recharge coupons once sold become the property of the said Sub- Distributor and such Sub-Distributor is free to sell the same at a price as he deems fit though the maximum price has been fixed by the BSNL with regard to the market condition. The Ld. counsel for the assessee also invited our attention at page 68 of the agreement dated 22.12.2004 and at page 89 of the agreement dated August, 2008 where in clause 24.1, it is clearly stated that there shall not be any partnership, joint venture, employment or relationship of principal and agent between parties. As regards the decisions relied upon by the AO in the cases of Bharti Cellular Ltd; BPL Mobile Cellular Ltd; Ideal Cellular Ltd; and Vodafone Essar Cellular Ltd; the Id. counsel for the assessee distinguished the same by submitting that all these entities are themselves Cellular Operators and service providers and in terms of the agreement between these service providers and franchisees, the Hon'ble Courts held that the margin provided is in the nature of Commission. These cases are not applicable in the present case since the assessee is not a service provider, as he purchased recharge coupons from the service provider i.e. BSNL and not provides any service to the subscribers. The assessee simply sells

ITA No No.1298/Chd/2016 16 A.Y. 2009-10

recharges to the sub-distributors, which is on principal to principal basis and there is no relationship off principal and agent. Further, there is no written agreement with the sub- distributors. The sale bills are issued to the sub-distributors and copies were produced before the authorities below. The books of account are audited and transactions has been shown as sale and purchase. None of the conditions referred to in section 194H to Explanation (i) is fulfilled. But equal margin earned/profit earned as commission i.e. the sub-distributor is not receiving the payment on behalf of the assessee but on his own and he is not accountable to the assessee. Once the assessee has sold the SIM cards or Recharge coupons, the assessee has no control or liability towards the sub- distributors. A copy of the bills filed before the authorities below issued by the BSNL show that BSNL has allowed the discount in some cases and allowed commission in other cases. The relationship with BSNL is different from the relationships of sub-franchisee and is on principal to principal basis because the assessee has no control over the sub franchisees whatsoever. The sub franchisees are from to sell SIM cards and Top Ups to any customer at any price and once these are sold the assessee loses its control over the same. The authorities below have not appreciated that sub-franchisees themselves are showing purchase and sale, which has not been questioned or objected to by the Department in their cases, whether the assessee has paid the commission, the assessee has duly deducted tax at source, which is not disputed. The reliance has been placed by the Id. counsel for the assessee on the cases mentioned hereinabove. On perusal of the same and the submissions of the Ld. counsel of the assessee and also cases relied upon by the AO and the Ld. CIT(A), having been distinguished and the department having accepted purchase and sale during the preceding year 2007-08 and looking to the doctrine of consistency and in view of the judgment of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT reported in 266 ITR 99, we find that the assessee is a Trader' and relationship is that of the principal to principal and the authorities below are not justified to hold relationship of principal and that of an agent. Accordingly, the assessee is not liable for the provisions of Section 201(1) & 201(1 A) of the Act. Thus, the order of the Ld. CIT(A) and that of the A.O. is reversed and all the grounds of the assessee are allowed. 13. In all the above cases, we find that the I.T.A.T. on

examination of the facts of the case found that when

recharge coupons and pre-paid SIM cards were sold to the

retailers/shopkeepers by the assessee, the assessee lost

complete control over the goods and the retailers had full

freedom to sell the goods at the price they deemed fit within

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the maximum limits set by the BSNL. It was found that the

there was no oral or written agreement, stipulating that the

assessee retained the control over the goods sold to the

retailers/shopkeepers. It was also found that the entire sale

was made in cash and the incentive given was shown as

discount in the bill issued and no payment of any

commission was made. On consideration of these facts, the

I.T.A.T. held that the relationship between the assessee and

the retailers was on principal to principal basis and the

incentive, therefore, given to the retailers was held not to

be in the nature of commission attracting TDS u/s 194H of

the Act.

that in various cases referred to above by the assessee .The

assessee in the present case we find has entered into an

agreement with BSNL to act as its Franchisee for marketing

and selling of BSNL telecom services. The same is clearly

evident from the copy of agreement placed at paper book

page no.6-18. As per clause 1.8 & 5 of the agreement

dealing with Agent/Sales Executive/Sales force and the

scope of marketing and distribution respectively, the

assessee was to entitle to discharge its function of

increasing the market base of BSNL by appointing sub

franchisees for booking new connections and retailers for

selling BSNL products. The relevant clause read as under:

“1.8 Agent/Sales Executive/Sales Force: In the interest of increasing the customer base, the Franchisee can appoint sub franchises retailer solely for the purpose of booking new

ITA No No.1298/Chd/2016 18 A.Y. 2009-10

BSNL connections and retailers for selling BSNL products and service cards. 5. Scope of Marketing & Distribution: The Franchisee shall provide BSNL services to walk-in-customers. It shall also establish, through its sales-force, direct contact with prospective customers and register as many new BSNL customers as possible subject to a minimum number fixed by BSNL. Franchisee shall also distribute all types of authorized telecom services for marketing to its Franchisee and cash card (prepaid) to its retailers.” 15. Thus clearly all the functions of the assessee of

marketing the telecom products of BSNL was to be done by

the assessee through sub franchisees and retailers only and

not by appointing any agents. Further there is no oral or

written agreement with the retailers by virtue of which the

assessee could be said to be exercising any control over the

goods sold to the retailers. Moreover entire sales to the

retailers have been made in cash and the incentive given to

them have been shown as discount in the bills raised

,copies of which were placed before us also at P.B124-

135.Clearly once the products have been sold for cash to

the retailers the assessee loses all control over the

products. Further only discount has been passed on to the

retailers and nothing has been brought on record to show

any payment made by the assessee to the retailers by way of

incentive. Clearly the facts in the present case are identical

to that cited above of the Coordinate Benches of the

I.T.A.T., and the issue therefore is squarely covered by the

aforesaid decisions. The transaction between the assessee

and its retailers can safely be held to be on principal to

principal basis. The incentive, therefore, paid by the

ITA No No.1298/Chd/2016 19 A.Y. 2009-10

assessee to the retailers/shopkeepers does not qualify as

commission for the purpose of TDS u/s 194H of the Act.

by the assessee is allowed.

relates to claim of the assessee of incentive having been

paid to small retailers, which was disallowed by the AO for

the lack of evidence that the assessee had made payments

to the retailer.

that the assessee had paid Rs.8,80,619/- as incentive to

the parties. The A.O. conducted detailed enquiry from the

dealers and retailers engaged with the assessee who stated

that only 3% commission had been received, but no

discount and incentive was received. When the A.O.

confronted the same to the assessee the asessee explained

that that the incentive had been offered on SIM Cards only.

It was because of the fact that the SIM Cards were sold

more talk time would be required, therefore, the emphasis

was to sell SIM Cards at higher price from BSNL and selling

price was much less. The difference was offered as

incentives to parties. Further, the assessee submitted

confirmation certificates from eleven parties out of which

ITA No No.1298/Chd/2016 20 A.Y. 2009-10

three parties statement was recorded by the Inspector of

which two persons i.e. Sh. Sunil Sharma Prop. M/s Besar

Pan House and Sh. Ajay Kasyap Prop. M/s Kasyap Digital

World had used the same language as, "I hereby certify that

I have purchase BSNL Sim cards, recharge vouchers & easy

recharge from Anil Dhawan in the year 2008-09 for sale

purpose. I further clarify regarding earlier statement given

that I did not know the fact that commission received on

Sim cards was named as incentive and commission received

in last two months of that financial year was named as

discount". In remaining nine cases, all parties had used

same language that they had purchased Sim card, recharge

vouchers and easy recharge from Anil Dhawan in the year

2008-09. The Font, Language and Page setup in all case

were found similar. Further the assessee was asked to

produce the persons who had supplied the self made

certificate for verification. On 28.12.2011 the assessee

produced Sh. Sunil Sharma Prop. Besar Pan House who in

his statement recorded accepted that he was not aware of

difference between commission and discount. He further

accepted that he had purchase Sim and received incentive

of Rs. 15-20 in per Sim during the year 2008-09 from Sh.

Anil Dhawan but that he had never maintained books of

account so it skipped from mind during his 1 s t statement.

The AO thereafter accepted part of the transaction

amounting to Rs. 2,30,488/- made through bank and

documentary evidence of which was supplied by the

assessee. However, the remaining cases, in which as per the

ITA No No.1298/Chd/2016 21 A.Y. 2009-10

assessee's submission he had made transaction and paid

incentive to the respective parties in cash amounting to Rs.

6,50,131/-, the same were not accepted since the assessee

had failed to supply/ justify by any means of evidence that

the assessee had made payment of incentive to the

respective small retailers, who had clearly admitted that

they had received no incentive during the period from

01.04.2008 to 31.03.2009 from the assessee except

commission. Hence, the remaining amount of incentive Rs.

6,50,131/- where cash transaction was made, as claimed by

assessee, was disallowed.

The same was upheld by the Ld. CIT(A)holding that the

detailed enquiry conducted by the AO established that no

incentive had been paid by the assessee to retailer to the

tune of Rs. 6,50,131/- and therefore the addition made in

this regard was justified.

for the assessee contended that the addition made was not

justified since identical incentive paid to the retailer from

whom payments for purchase of SIM Card had been received

by way of cheques and which were allowed to sell SIM Card

at higher price and thereby retain the surplus as incentive

was not doubted. Having accepted the modus operandi of

the transaction in the case of such retailers there was no

reason for the AO to have doubted identical transaction in

the case of those retailers with which transaction had beem

undertaken in cash especially when those retailers had

ITA No No.1298/Chd/2016 22 A.Y. 2009-10

later on confirmed that they did receive incentive from the

assessee.

the Ld. CIT(A).

find merit in the contention of the Ld. Counsel for the

assessee. Undeniably the assessee had explained the

manner of giving incentive to the small retailers. The said

manner of passing on incentive has not been doubted by the

AO in the case of similar retailers who had made payment

by way of cheques, since the AO had duly verified the

manner of passing the incentive. Having accepted the mode

and manner of transferring incentive we find there was no

reason to doubt the manner of passing the incentive to

those retailers also who had made payment in cash

considering the fact that the said retailers had confirmed

receiving incentive from the assessee on account of sale of

SIM Card made to them and had clarified also in their

statement that they had misunderstood the question posed

to them earlier and had therefore wrongly stated that they

had received only commission @3% which infact was the

incentive received by them and that they had no knowledge

of difference between the two being small time operators.

There was no merit in the contention of the department that

the certificate confirming the receipt of incentive now

furnished by these retailers were not authentic, since they

were in a standard format, in the same font, since these

factors may lead to a doubt that the statements /

ITA No No.1298/Chd/2016 23 A.Y. 2009-10

confirmation were fabricated but do not conclusively

establish the same. For the aforesaid reasons we hold that

the genuineness of the incentive paid to the small retailers

in cash was duly established and therefore deletion of

addition made on account of same to the tune of Rs.

6,50,131/-.

allowed.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 17/07/2018 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR