M/s. Bharti Airtel Limited, Hyderabad V. ACIT, Cir-14(1), Hyderabad

ITA 1184/HYD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74508 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 17-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: A V RAGHURAM
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS. 1184, 1185, 1186, 1187, 1188, 1189 & 1190/ HYD/2011 ASSESSMENT YEARS: 2004-05, 2005-06, 2006-07, 2007- 08, 2008-09, 2009-10 & 2010-11 BHARTI AIRTEL LTD., HYDERABAD. PAN AAACB2894G VS. ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 14(1), HYDERABAD APPELLANT RESPONDENT ASSESSEE BY: SRI A.V. RAGHURAM REVENUE BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 16/01/2014 DATE OF PRONOUNCEMENT: 16/01/2014 O R D E R PER CHANDRA POOJARI, AM: THESE APPEALS PREFERRED BY THE ASSESSEE ARE DIRECT ED AGAINST THE ORDERS OF CIT(A)-II, HYDERABAD DATED 08 /04/2011 FOR THE ASSESSMENT YEARS 2004-05 TO 2010-11. SINCE COMMON I SSUES ARE INVOLVED IN THESE APPEALS, THE SAME WERE CLUBBED AN D HEARD TOGETHER, THEREFORE, A COMMON ORDER IS PASSED FOR T HE SAKE OF CONVENIENCE. 2. AS THE FACTS AND GROUNDS OF APPEAL ARE IDENTICAL IN ALL THESE APPEALS, TO DISPOSE OF THESE APPEALS, WE REFER TO THE FACTS IN APPEAL IN ITA NO. 1184/HYD/2011 FOR AY 2004-05. THE GROUNDS WHICH ARE COMMON IN ALL THE APPEALS ARE AS UNDER AN D THERE IS ONLY CHANGE IN AMOUNT. 1. THE ACIT (TDS)(ASSESSING OFFICER) HAS ERRED BOTH ON FACTS AND IN LAW IN APPLYING THE PROVISIONS OF SECT ION 194H OF THE IT ACT TO THE TRANSACTION OF TELEPHONY CONDUCTE D THROUGH PREPAID VOUCHERS. THE LEARNED CIT(A) HAS FURTHER ER RED BOTH I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 2 ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE LEANED ASSESSING OFFICER. 2. THE ASSESSING OFFICER (TDS) HAS ERRED BOTH ON FA CTS AND IN LAW IN TREATING THE BUSINESS RELATIONSHIP BETWEEN T HE COMPANY AND THE DISTRIBUTOR AS PRINCIPAL TO AGENT A S AGAINST THE ACTUAL RELATIONSHIP OF PRINCIPAL TO PRINCIPAL. THE LEARNED CIT(A) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW I N UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER. 3. THE LEARNED ASSESSING OFFICER(TDS) HAS ERRED BOT H ON FACTS AND IN LAW IN PASSING AN ORDER U/S 201(1) AND HOLDING THE ASSESSEE COMPANY TO BE IN DEFAULT IN RESPECT OF NON- DEDUCTION OF TAX AMOUNTING TO RS. 35,54,613/- U/S 1 94H ON THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE PREPA ID CARD IS SOLD TO THE DISTRIBUTOR AND THE PRICE AT WHICH THE END CUSTOMER BUYS ALLEGING THE DIFFERENCE TO BE PAYMENT OF COMMI SSION. THE LEARNED CIT(A) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER. 4. THE LEARNED ASSESSING OFFICER(TDS) HAS ERRED BOT H ON FACTS AND IN LAW IN CHARGING INTEREST OF RS. 26,54, 955/- U/S 201(1A) OF THE ACT. THE LEARNED CIT(A) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBIL E TELEPHONE SERVICES TO ITS CUSTOMERS IN ANDHRA PRADESH THROUGH A NETWORK OF DISTRIBUTORS AND CHANNEL PARTNERS OF AIRTEL RELATIO NSHIP CENTRES. IN ORDER TO VERIFY ITS COMPLIANCE TOWARDS TDS PROVISIO NS, A SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF ASSESSEE ON 0 9/10/2009. 3.1 THE ASSESSEE COMPANY IS PROVIDING SERVICES OF P OST PAID AND PREPAID MOBILE CONNECTIONS. THE COMPANY HAD ENTERED INTO AGREEMENTS WITH DISTRIBUTORS FOR THE PURPOSE OF DIS TRIBUTING PRE-PAID SIM CARDS AND OTHER SERVICE PRODUCTS TO THE CONSUME R AT LARGE. IN RESPECT OF POST PAID CELLULAR SERVICES, THE ASSESSE E COMPANY HAD PROVIDED POST PAID MOBILE CONNECTION THROUGH CHANNE L PARTNERS OR AIRTEL RELATIONSHIP CENTRES (ARCS IN SHORT). IN THI S SEGMENT OF ACTIVITY, THE CONSUMER IS PERIODICALLY BILLED AFTER A SPECIFIC PERIOD LIKE ONE MONTH AND THE CHARGES FOR THAT PERIOD IS C OLLECTED AFTER I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 3 RENDERING MOBILE SERVICES. THE CONSUMER FIRST ENJOY S THE SERVICE PROVIDED BY THE ASSESSEE AND THEREAFTER MAKES THE P AYMENT TO THE ASSESSEE COMPANY AGAINST THE BILLS ISSUED TO THEM. THE COLLECTION CENTRES ARE ALLOWED COMMISSION FOR COLLECTION OF TH ESE AMOUNTS FROM THE CLIENTS AND TAX IS DEDUCTED AT SOURCE FROM SUCH PAYMENTS. 3.2 THE ASSESSING OFFICER NOTED THAT IN PREPAID MOB ILE SERVICES, THE ASSESSEE COMPANY IS HOWEVER, NOT DEDUCTING ANY TAX IN RESPECT OF TRANSACTIONS ARISING OUT OF PROVIDING PREPAID CE LLULAR SERVICES TO THE CONSUMERS. THE PREPAID CELLULAR SERVICES ARE PR OVIDED BY THE ASSESSEE COMPANY BY DISTRIBUTING PREPAID CARDS, REC HARGE COUPONS AND ELECTRONIC RECHARGES THROUGH A SERVICE CHAIN OF PREPAID DISTRIBUTORS AND RETAILERS. IN FACT THE MAJOR CHUNK OF THE MOBILE TELEPHONY REVENUE TO THE COMPANY (MORE THAN 75%) IS THROUGH THIS SEGMENT. THE ASSESSEE HAS ENTERED INTO SEPARATE AGR EEMENTS WITH ITS DISTRIBUTORS FOR PROVIDING PREPAID CELLULAR SER VICES. GENERALLY THE DEVICES USED FOR PROVIDING THE PREPAID CELLULAR SER VICES ARE KNOWN AS SIM CARDS/ELECTRONIC RECHARGE. 3.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER VIDE HIS LETTER DATED 17/11/2009 ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY IT SHOULD NOT BE TREATED AS ASSESSE E IN DEFAULT U/S 201(1) AND 201(1A) OF THE IT ACT, FOR NOT DEDUCTING TAX AT SOURCE U/S 194H IN RESPECT OF PAYMENTS MADE TO PREPAID CON NECTION DISTRIBUTORS. 3.4 IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE VIDE ITS REPLY DATED 10/12/2009 HAD CONTENDED THAT NO INCOME ACCR UES OR PAID TO THE DISTRIBUTOR AND IT WAS CLEAR FROM THE BUSINESS MODEL THAT PRICE OF THE SALE OF THE PREPAID PRODUCT IS AT THE DISCRE TION OF THE DISTRIBUTOR. FURTHER IT WAS SUBMITTED THAT THE COMP ANY IS RAISING AN INVOICE ON THE DISTRIBUTOR FOR THE PREPAID SERVICE OFFERINGS IN THE FORM OF THE SIM CARDS/RECHARGE VOUCHERS/VTOP UP ETC ., SUPPLIED TO I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 4 THE DISTRIBUTOR AND DISTRIBUTOR MAKES PAYMENT IN AD VANCE OR SIMULTANEOUSLY WITH THE PURCHASE OF THE SAME. THE DETAILED SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OF FICER WAS EXTRACTED BY THE CIT(A) AT PAGES 3 & 4 OF HIS ORDER . THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION TH AT THERE WAS NO PRINCIPAL-AGENT RELATION BETWEEN THE ASSESSEE AND T HE DISTRIBUTORS AND COMPLETED THE ASSESSMENT RELYING ON THE DECISIO NS OF THE ITAT OBSERVING THAT FOLLOWING THE DECISIONS OF THE HONB LE ITAT, KOLKATTA BENCH IN THE ASSESSEES OWN CASE I.E. BHARTI CELLUL AR LTD. CASE AND THE HONBLE ITAT, COCHIN BENCH IN THE VODOFONE CASE AND THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT OF AP, HELD THAT THERE IS A PRINCIPAL TO AGE NT RELATIONSHIP BETWEEN THE ASSESSEE COMP[ANY AND THE DISTRIBUTORS AND MARGIN EARNED BY THE DISTRIBUTORS ON SIM CARDS AND OTHER S ERVICES ARE IN THE NATURE OF COMMISSION AND THEREFORE, THE ASSESSE E IS LIABLE TO DEDUCT TAX AT SOURCE U/S 194H OF THE IT ACT. THE A SSESSING OFFICER FINALLY CONCLUDED THAT AS THE ASSESSEE HAD NOT COMP LIED WITH THE PROVISIONS, THE ASSESSEE IS TREATED AS AN ASSESSEE IN DEFAULT AS PER THE PROVISIONS OF SECTION 201(1) AND IS CONSEQUENTL Y LIABLE TO PAY INTEREST U/S 201(1A) OF THE IT ACT ALSO. ACCORDING LY, THE ASSESSING OFFICER CALCULATED THE TDS DEDUCTIBLE U/S 194H OF T HE ACT ON COMMISSION PAYMENTS OF RS. 6,93,58,293/-, WHICH WOR KED OUT TO RS. 35,54,613/- U/S 201(1) AND INTEREST OF RS. 26,54,95 5/- U/S 201(1) OF THE ACT, FOR THE AY 2004-05. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE FILED W RITTEN SUBMISSIONS, WHICH WERE EXTRACTED BY THE CIT(A) AT PAGES 5 TO 13 OF THE IMPUGNED ORDER. AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE, THE CIT(A) HELD AS FOLLOWS: 9.3 .....................THE ASSESSING OFFICER IS D IRECTED TO VERIFY THE VERACITY OF THE CLAIM OF PAYMENT OF TAXES BY TH E PREPAID CARD DISTRIBUTORS FROM THE PAYMENT RECEIVED FROM TH E APPELLANT AND GIVE CREDIT FOR THE SAME AND TAX THE BALANCE, IF ANY, U/S 201(1) OF THE IT ACT AND CHARGE INTEREST U /S 201(1A) I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 5 OF THE ACT FROM THE DATE TAX WAS PAYABLE TO THE DAT E ON WHICH SUCH TAX WAS ACTUALLY PAID BY THE DEDUCTEES I .E. PREPAID CARD DISTRIBUTORS. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. WE FIND THAT THE ISSUE IN DISPUTE IS S QUARELY COVERED BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BHARTI CELLULAR LTD., (NOW BHARTI AIRTEL LTD.), [2013] 354 ITR 507 (CAL.) WHEREIN DISMISSING THE APPEAL OF THE ASSESSEE, THE HONBLE COURT HELD AS FOLLOWS: THAT THE SALIENT FEATURES OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE FRANCHISEES WERE (I) THE PROPERTY IN THE START UP PACK AND PREPAID COUPONS EVEN AFTER TRANSF ER AND DELIVERY TO THE FRANCHISEES REMAINED WITH THE ASSES SEE, (II) THE FRANCHISEE REALLY ACTED AS A FACILITATOR OR INS TRUMENTALITY OF PROVIDING SERVICES BY THE ASSESSEE TO THE ULTIMATE SUBSCRIBER, (III) THE FRANCHISEE HAD NO FREE CHOICE TO SELL IT AND EVERYTHING WAS BEING REGULATED AND GUIDED BY THE ASSESSEE, AND (IV) THE RATE AT WHICH THE FRANCHISEE SOLD TO RETAILERS AND THAT AT WHICH THE ASSESSEE SOLD TO THE FRANCHISEE, WAS ALSO REGUL ATED AND FIXED BY THE ASSESSEE. FROM THE CONDITIONS IN CLAUS ES 16, 16.1, 16.2 AND 16.3 OF THE AGREEMENT, IT EMERGED TH OUGH THE NOMENCLATURE HAD BEEN USED AS FRANCHISEE, THE AGREE MENT WAS ESSENTIALLY THAT OF THE PRINCIPAL AND AGENT ALB EIT THE STIPULATION IN CLAUSE 16.2. IN THE REAL SENSE, THE FRANCHISEE ACTED ON BEHALF OF THE ASSESSEE FOR SELLING START U P PACKS AND PREPAID RECHARGE COUPONS TO THE CUSTOMERS OF THE AS SESSEE. THERE HAD BEEN INDIRECT PAYMENT BY THE ASSESSEE TO THE FRANCHISEE OF THE COMMISSION AND THE COMMISSION WOU LD ATTRACT TAX DEDUCTION AT SOURCE UNDER SECTION 194H. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE SAID CASE, WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE. 6.2 AS THE ISSUE UNDER CONSIDERATION IN OTHER ASSES SMENT YEARS FROM 2005-06 TO 2010-11 ARE MATERIALLY IDENTICAL TO THAT OF AY 2004- 05, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DISM ISS THE ASSESSEES APPEALS IN THESE YEARS ALSO. I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 6 7. BEFORE US, THE ASSESSEE FILED A PETITION U/S 158 A OF THE ACT, STATING THAT THE ASSESSEE HAS FILED APPEAL BEFORE T HE HONBLE SUPREME COURT FOR EARLIER ASSESSMENT YEARS. THEREFO RE, WE DIRECT THE AO THAT IN THE EVENT OF HONBLE SUPREME COURT D ECIDING THE ISSUE IN FAVOUR OF ASSESSEE, CONSEQUENTIAL ORDER SH ALL BE PASSED BY THE ASSESSING OFFICER EFFECTING THE DECISION OF THE HONBLE SUPREME COURT IN THE APPEALS UNDER CONSIDERATION. THEREFORE , THE ASSESSING OFFICER IS DIRECTED TO IMPLEMENT THE DIRECTIONS OF THE HONBLE SUPREME COURT AS SOON AS THE DECISIONS IS TAKEN BY THE HONBLE SUPREME COURT IN THE PRESENT ASSESSMENT YEARS ALSO. 8. IN THE RESULT, ALL THE APPEALS UNDER CONSIDERATI ON ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 16/01/2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH JANUARY, 2014. KV COPY FORWARDED TO: 1. M/S BHARTI AIRTEL LTD., CIRCLE OFFICE, 1-8-437, 438, 364 & 445, SPLENDID TOWER, OPP. BEGUMPET POLICE STATION, HUDA ROAD, BEGUMPET, HYDERABAD 500 016. 2. ACIT, CIRCLE 14(1), HYDERABAD. 3. CIT(A)-II, HYDERABAD 4. CIT(TDS(, HYDERABAD. 5. THE DR, ITAT, HYDERABAD S.NO. DESCRIPTION DATE INTLS I.T.A. NOS. 1184 TO 1190/HYD/2011 M/S BHARTI AIRTEL LTD. 7 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER