Bharath Sanchar Nigam Limited, Secunderabad V. ACIT, Circle-15(1), Hyderabad

ITA 1077/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74600 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 16-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T VENKATESWARA RAO
• Assessee Lawyers: K HARITA
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1077/HYD/2013 ASSESSMENT YEAR 2011-12 M/S. BHARAT SANCHAR NIGAM LTD., SECUNDERABAD PAN: AABCB5576G VS. THE ASST. CIT CIRCLE-15(1) HYDERABAD [APPELLANT] [RESPONDENT] APPELLANT BY: SRI T. VENKATESWARA RAO ASSESSEE BY: SMT. K. HARITA DATE OF HEARING: 10.02.2014 DATE OF PRONOUNCEMENT: 10.02.2014 ORDER PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-II, HYDERABAD DATED 22.4.2013 F OR A.Y. 2011-12. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE APPELLATE AUTHORITY IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED APPELLATE AUTHORITY FAILED TO UNDERSTAND NATURE AND INTRICACIES OF THE TRANSACTIONS WITH REGARD TO PRE-PAID RE-CHARGE COUPONS. IN FACT, THE CARDS ARE FIRST SOLD TO THE FRANCHISEES WHO MERELY BUY AT THEIR OWN RISKS AND REWARDS ON A PRINCIPAL-TO-PRINCIPAL BASIS WITH PROPER TITLE TO THE SAID GOODS. AT THAT POINT OF TIME OF SALE THE APPELLANT WOULD NOT PROVIDE ANY SERVICE TO ANY PERSON NOR THE FRANCHISEES USE THESE CARDS FOR THEMSELVES BUT HOLD THEM IN STOCKS AT THEIR OWN RISK WITHOUT ANY SORT OF INTERFERENCE BY BSNL. LIKE ANY ITA NO. 1077/HYD/2013 M/S. BHARAT SANCHAR NIGAM LTD. =========================== 2 OTHER MERCHANDISE, THE FRANCHISEES AND SUB- FRANCHISEES SELL CARDS TO ULTIMATE USERS AND THEREAFTER THE REQUIREMENT OF SERVICES WILL COME INTO EFFECT WHICH ARE PROVIDED BY BSNL DUE TO THE SPECIALTY OF THE PRODUCT. 3. THE APPELLATE AUTHORITY HAD FAILED TO UNDERSTAND THE CHARACTERISTICS AND ESSENTIAL INGREDIENTS OF CONTRACTS ON PRINCIPAL-TO- PRINCIPAL RELATIONSHIP BASIS FOR PRODUCTS OF RECHARGE COUPONS, AGREEMENTS SIGNED WITH PERSONAL PARTY WHO WOULD BE BUYING THE RECHARGE COUPONS ON DISCOUNTED PRICE. 4. FURTHER, THE LEARNED APPELLATE AUTHORITY FAILED TO UNDERSTAND THAT THE SALES REVENUE ON PREPAID RECHARGE COUPONS ARE TAKEN NET OF DISCOUNT, TREATING THE DISCOUNT AS TRADE DISCOUNT, AS PER THE BSNL CORPORATE OFFICE CIRCULAR DATED 13/12/2007 , OR AS MAY BE NOTIFIED FROM TIME TO TIME. EVEN THE INVOICES ON THE FRANCHISEES AND OTHERS ARE RAISED ACCORDINGLY. NO COMMISSIONS WERE PAID TO THE FRANCHISEES AND OTHERS FOR THE SAID SALE OF CASH CARDS. FURTHER, THAT THE FRANCHISEES AND OTHERS HAVE NOT CARRIED OUT ANY OTHER ACTIVITY THAN THE SALE OF CASH CARDS. THEY ARE NOT INVOLVED IN SALES PROMOTION ACTIVITIES, ETC., SO AS TO BE PAID ANY COMMISSION OR OTHER FEES. 5. THE APPELLATE AUTHORITY HELD THE SALE OF TOP UP CARD / RECHARGE COUPON AS SERVICE BUT NOT A SALE OF MERCHANDISED GOODS BUT A MERE TOKEN AND REITERATED THE VIEWS OF THE ASSESSING OFFICER. THE CASH CARDS ARE SOLD TO CUSTOMER WITH CODE NUMBER EMBEDDED IN RECHARGE COUPON BY STATING THE TERMS AND CONDITIONS THAT THE CARDS ALONG WITH THE EMBEDDED VALUE WOULD BE TRANSFERRED TO THE USER, AS APPLICABLE, UNDER THE SALE OF GOODS ACT, 1930. WHEN THE FRANCHISEE PAYS THE CONSIDERATION AND COLLECTS THE RECHARGE COUPONS, THEY BECOME THE PROPERTY OF THE FRANCHISEE AND THE OBLIGATION OF BSNL IS ONLY TO THE CUSTOMER FOR VALUE OF SERVICE TO BE RENDERED. FURTHER, DISCOUNT EARNED BY THE FRANCHISEE IS CONDITIONAL ONE THAT IT IS UNDER OBLIGATION TO TRANSFER MAJOR ITA NO. 1077/HYD/2013 M/S. BHARAT SANCHAR NIGAM LTD. =========================== 3 PORTION OF THE DISCOUNT TO SUB FRANCHISEE, RETAILER ETC. FURTHER, SERVICES TO THE ULTIMATE BUYER IS ASSURED BY THE BSNL AS PER THE IMPLIED WARRANTIES GIVEN AS PER THE SECTION 14 & 15 OF SALE OF GOODS ACT, 1930 AND OWNERSHIP IN GOODS, THAT IS RECHARGE COUPONS HAVE PASSED TO THE FRANCHISEES WHEN THE GOODS ARE ASCERTAINED AND POSSESSION IS GIVEN. 6. THE LEARNED APPELLATE AUTHORITY'S CONTENTION IS NOT JUSTIFIED THAT THERE WAS A CHANGE IN NOMENCLATURE OF DISCOUNT FROM COMMISSION, AS IT WAS BASED UP BY SOUND PRINCIPLES AND POLICY GUIDELINES AND STATUTES. FURTHER, THE APPELLANT IS OF THE VIEW THAT THERE WAS A WRONG CLASSIFICATION OF THE AMOUNTS INVOLVED IN THE TRANSACTIONS, I.E., DISCOUNT WAS CALLED COMMISSION, WHERE, IN THE ACTUAL POSITION IT IS NOTHING BUT DISCOUNT. AS THE TRANSACTION IS ON PRINCIPAL-TO- PRINCIPAL BASIS AND THAT NO COMMISSIONS OTHER FEES WERE PAID, TDS IS NOT APPLICABLE. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OW N CASE IN ITA NO. 109/HYD/2012 FOR A.Y. 2010-11. THE TRIBUNAL VIDE ORDER DATED 25.4.2013 HELD AS UNDER: '13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 2009-10 WHEREIN THE TRIBUNAL HELD AS UNDER: '17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE DELHI HIGH COURT IN IDEA CELLULAR LTD., HELD AS UNDER:- 'SERVICE CANNOT BE SOLD OR PURCHASED AND IT CAN ONLY BE PROVIDED. THE OPERATIONAL FEATURES ITA NO. 1077/HYD/2013 M/S. BHARAT SANCHAR NIGAM LTD. =========================== 4 EXPLAINED BY THE ASSESSEE-COMPANY ARE NECESSARY IN RUNNING A MAMMOTH SYSTEM OF PROVIDING MOBILE TELEPHONE SERVICES OVER A LARGE GEOGRAPHICAL AREA. THE DISTRIBUTORS PROVIDE ESSENTIAL SERVICES TO THE ASSESSEE-COMPANY IN RUNNING SUCH A HUGE OPERATIONAL SYSTEM. THE DISTRIBUTORS ARE LINKING AGENTS IN THE CHAIN OF DELIVERY OF SERVICES TO CONSUMERS. THEREFORE, THE RELATIONSHIP IS NOT OF A PRINCIPAL TO PRINCIPAL. WE ARE OF THE OPINION THAT THE LEGAL RELATIONSHIP IS ESTABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMER/SUBSCRIBER, WHO IS SOLD THE SIM CARD BY THE AGENTS FURTHER APPOINTED BY THE PMAS WITH THE CONSENT OF THE ASSESSEE. IT IS CREATED BY: A) ACTIVATION OF THE SAID SIM CARD BY THE ASSESSEE IN THE NAME OF THE CONSUMER/SUBSCRIBER. B) SERVICE PROVIDED BY THE ASSESSEE TO THE SUBSCRIBER. FURTHER, DEALINGS BETWEEN THE SUBSCRIBERS AND THE ASSESSEE IN RELATION TO THE SAID SIM CARD INCLUDING ANY COMPLAINT, ETC. FOR IMPROPER SERVICE/DEFECT IN SERVICE. C) ENTERING INTO THE ULTIMATE AGREEMENT BETWEEN THE SUBSCRIBER AND THE ASSESSEE (CLAUSE 15 OF THE AGREEMENT). IT IS TO BE BORNE IN MIND THAT THE NATURE OF THE SERVICE PROVIDED BY THE ASSESSEE TO THE ULTIMATE CONSUMERS/SUBSCRIBERS, WHETHER IT IS PREPAID OR POST-PAID SIM CARD-REMAINS THE SAME. IN THE INSTANT CASE, THE SIM CARDS ARE PREPAID, WHICH ARE SOLD BY THE ASSESSEE TO THE CONSUMERS THROUGH THE MEDIUM OF PMAS. IN THE CASE OF POST PAID, SIM CARD TRANSACTION IS ENTERED INTO DIRECTLY BETWEEN THE ASSESSEE AND THE SUBSCRIBER AND THE SUBSCRIBER IS SENT A BILL PERIODICALLY DEPENDING UPON THE USER OF THE SIM CARD FOR THE PERIOD IN QUESTION. IN BOTH TH E CASES, THE LEGAL RELATIONSHIP IS CREATED BETWEEN TH E SUBSCRIBER AND THE ASSESSEE THAT TOO BY ENTERING INTO SPECIFIC AGREEMENT BETWEEN THESE TWO PARTIES. IN CONTRAST, THE LEGAL POSITION WHEN THE GOODS ARE SOLD BY A PRINCIPAL TO ITS DISTRIBUTORS CREATING 'PRINCIPAL AND PRINCIPAL' RELATIONSHIP WOULD BE ENTIRELY DIFFERENT. ON THE SALE OF GOODS, THE ITA NO. 1077/HYD/2013 M/S. BHARAT SANCHAR NIGAM LTD. =========================== 5 OWNERSHIP PASSES BETWEEN THE MANUFACTURER AND THE DISTRIBUTORS. IT IS THE RESPONSIBILITY OF THE DISTRIBUTOR THEREAFTER TO SELL THOSE GOODS FURTHER TO THE CONSUMERS-THE ULTIMATE USERS. THE PRINCIPAL/ MANUFACTURER DOES NOT COME INTO THE PICTURE AT ALL. OF COURSE, HE MAY BE LIABLE FOR SOME ACTION BY THE CONSUMER BECAUSE OF DEFECTIVE GOODS, ETC., WHICH IS THE RESULT OF OTHER ENACTMENTS CONFERRING CERTAIN RIGHTS ON THE CONSUMER OR COMMON LAW RIGHTS IN HIS FAVOUR AS AGAINST THE MANUFACTURER.' 18. IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. VS. ACIT (SUPRA), THE HON'BLE KERALA HIGH COURT HELD AS UNDER:- 'IT WAS THE SIM CARD WHICH LINKED THE MOBILE SUBSCRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SUPPLY OF SIM CARD BY THE ASSESSEE-TELECOM COMPANY WAS ONLY FOR THE PURPOSE OF RENDERING CONTINUED SERVICES TO THE SUBSCRIBER OF THE MOBILE PHONE. THE POSITION WAS THE SAME SO FAR AS RECHARGE COUPONS OR E-TOP UPS WERE CONCERNED WHICH, WERE ONLY AIR TIME CHARGES COLLECTED FROM THE SUBSCRIBERS IN ADVANCE UNDER A PREPAID SCHEME. THERE WAS NO SALE OF ANY GOODS INVOLVED AS CLAIMED BY THE ASSESSEE AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE FROM THE DISTRIBUTORS AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS WERE ONLY FOR RENDERING SERVICES TO ULTIMATE SUBSCRIBERS. THE ASSESSEE WAS ACCOUNTABLE TO' THE SUBSCRIBERS FOR FAILURE TO RENDER PROMPT SERVICES PURSUANT TO CONNECTIONS GIVEN BY THE DISTRIBUTOR. THEREFORE, THE DISTRIBUTO R ONLY ACTED AS A MIDDLEMAN ON BEHALF OF THE ASSESSEE FOR PROCURING AND RETAINING CUSTOMERS AND THEREFORE THE DISCOUNT GIVEN TO HIM WAS WITHIN THE MEANING OF COMMISSION U/S 194H ON WHICH TAX WAS DEDUCTIBLE.' 19. RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN IN THE ABOVE DECISIONS AND AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DISMISS THE APPEAL OF THE ASSESSEE. 14. SINCE THE ISSUE UNDER CONSIDERATION IS ITA NO. 1077/HYD/2013 M/S. BHARAT SANCHAR NIGAM LTD. =========================== 6 MATERIALLY IDENTICAL TO THAT OF AY 2009-10, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY THE ASSESSEE, AS NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED.' 4. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE, WE ARE INCLINED TO REJECT T HE GROUNDS TAKEN BY THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2014. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 10 TH FEBRUARY, 2014 TPRAO COPY FORWARDED TO: 1. M/S. BHARAT SANCHAR NIGAM LTD., 4 TH FLOOR, CTO BUILDING, MG ROAD, SECUNDERABAD. 2. THE ASST. CIT, CIRCLE-15(1), HYDERABAD. 3. THE CIT(A)-II, HYDERABAD. 4. THE CIT (TDS), HYDERABAD. 5. THE DR BENCH 'A', ITAT, HYDERABAD