M/s. Bharti Airtel Limited, Ahmedabad V. The Income tax Officer,(TDS), Ahmedabad

ITA 1340/AHD/2011

• Counselvise Citation: 134020514 RSA 2011
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-01-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Assessee Lawyers: ANIL BHALLA
• Keywords: Opportunity of being heard
• Section: 80HHC; 201(1)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , !'# !'# !'# !'#, , , , $ $ $ $ . .. . . .. .% % % % , , , , &' % &' % &' % &' % & # & # & # & # BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND B.R. BASKARAN, ACCOUNTANT MEMBER) ITA NO.889 AND 890/AHD/2010 [ASSTT.YEAR : 2008-2009 AND 2009-2010] AND ITA NO.1340/AHD/2011 [ASSTT.YEAR : 2009-2010] M/S. BHARATI AIRTLE LTD. CIRCLE OFFICE IIND FLOOR, RUDRA SQUARE OPP: GURUDWARA, S.G.HIGHWAY AHMEDABAD. PAN : AAACB 2894 G /VS. ITO (TDS), AHMEDABAD. ( (( ()* )* )* )* / APPELLANT) ( (( (+,)* +,)* +,)* +,)* / RESPONDENT) -. / 0 &/ ASSESSEE BY : SHRI ANIL BHALLA % / 0 &/ REVENUE BY : SHRI KARTAR SINGH, CIT-DR 2 / .3'/ DATE OF HEARING : 24 TH JANUARY, 2012 456 / .3'/ DATE OF PRONOUNCEMENT : 25-01-2012 &7 / O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE, HAVING BEEN AGGRIEVED BY THE ORDERS PASSED BY LD CI T(A)-VI, AHMEDABAD IN CONFIRMING THE DEMANDS RAISED U/S 201(1) AND 201 (1A) OF THE ACT BY THE ASSESSING OFFICER FOR THE FINANCIAL YEARS 2007-08 A ND 2008-09 RELEVANT TO THE ASSESSMENT YEARS 2008-09 AND 2009-10, HAS FILED THESE APPEALS BEFORE US, ASSAILING THE SAID DECISION OF LD CIT(A). IN R ESPECT OF ASSESSMENT YEAR 2009-10, THE ASSESSING OFFICER HAS PASSED TWO SEPAR ATE ORDERS RAISING ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -2- DEMAND U/S 201(1) AND 201(1A). HENCE, TWO APPEALS CAME TO BE FILED FOR ASSESSMENT YEAR 2009-10. SINCE IDENTICAL ISSUES AR E AGITATED IN ALL THESE THREE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RAIS E TO THE FOLLOWING ISSUES:- (A) WHETHER THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF SEC. 194H ARE APPLICABLE FOR THE AMOUNTS PAID TO THE DISTRIBUTORS ON SALE OF PREPAID CARDS. (B) WHETHER THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF SEC. 194J IS APPLICABLE ON THE AMOUNTS PAID TO OTHE R TELEPHONY OPERATORS TOWARDS ROAMING CHARGES. (C) WHETHER THE LD CIT(A) IS JUSTIFIED IN CONFIRMING TH E ALTERNATIVE CONTENTION RAISED IN THE REMAND PROCEEDING THAT THE PROVISIONS OF SEC. 194I SHALL APPLY ALTERNATIVELY TO THE PAYMENT OF RO AMING CHARGES. AT THE TIME OF HEARING, THE LD A.R RAISED AN ALTERN ATIVE PLEA THAT THE ASSESSEE SHALL NOT BE REQUIRED TO DEDUCT TAX AT SOU RCE ONCE AGAIN, ONCE THE TAX ON THE SAID INCOME HAS BEEN PAID BY THE DEDUCTE ES. FOR THIS PROPOSITION, THE ASSESSEE HAS PLACED RELIANCE ON TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO-COLA B EVERAGES PVT LTD (293 ITR 226, PAGE 268-270). HE SUBMITTED THAT THE SAID ALTERNATIVE PLEA WAS ALSO RAISED BEFORE LD CIT(A), BUT THE FIRST APP ELLATE AUTHORITY DID NOT OFFER ANY COMMENTS THEREON. 3. THE FACTS RELATING TO THE FIRST ISSUE, I.E. REGARDING THE APPLICABILITY OF SEC. 194H ON THE AMOUNTS PAID TO THE DISTRIBUTORS O N SALE OF PREPAID CARDS ARE STATED IN BRIEF. THE ASSESSEE IS A TELEPHONE CO MPANY PROVIDING TELEPHONE SERVICES (AIR TIME USAGE FACILITY) TO ITS SUBSCRIBERS. IT HAS DEVISED TWO SCHEMES VIZ., PREPAID AND POST PAID, BY WHI CH A SUBSCRIBER CAN AVAIL THE TELEPHONE SERVICES OF THE ASSESSEE. UNDE R THE POST PAID SCHEME, THE SUBSCRIBER WOULD GET THE BILLS FOR USAGE OF SER VICES IN A PERIODIC ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -3- INTERVALS AND THE BILL AMOUNT HAS TO BE PAID WITHIN THE DUE DATE. UNDER PREPAID SCHEME, THE ASSESSEE SELLS PREPAID CARDS , I.E., THE CARDS EMBEDDED WITH CERTAIN USAGE VALUE. THE PURCHASERS O F THE SAID CARDS CAN AVAIL THE AIRTIME USAGE FACILITY ONLY TO THE EXTENT OF VALUE EMBEDDED THERE IN. FOR EXAMPLE, A PREPAID CARD HAVING A FACE VAL UE OF RS.100/-, MAY HAVE THE USAGE VALUE OF RS.100/- OR LESS/MORE THAN THE S AID AMOUNT. THE SUBSCRIBER OF THE PREPAID CARD CAN USE IT TO THE EX TENT OF USAGE VALUE OF RS.100/- OR LESS/MORE AS EMBEDDED THEREIN. THE ASS ESSEE HAS APPOINTED DISTRIBUTORS FOR MARKETING ITS PRODUCTS, I.E. BOTH POST PAID CONNECTION AND PREPAID CARDS. IN RESPECT OF POST PAID CONNECTIO NS, THE ASSESSEE PAYS COMMISSION TO ITS DISTRIBUTORS, ON WHICH THE TAX IS DEDUCTED AT SOURCE U/S 194H OF THE ACT. ACCORDING TO A.R, THE PREPAID CA RDS HAVE DEFINITE FACE VALUE AND THEY ARE SOLD TO THE DISTRIBUTORS AT A PR ICE, WHICH IS LESSER THAN THE FACE VALUE. THE DISTRIBUTOR SHALL, IN TURN, SELL T HE SAID PREPAID CARDS WITH A MARGIN, BUT IN ANY CASE NOT MORE THAN THE FACE VALU E. FOR EXAMPLE, A PREPAID CARD OF RS.100/- MAY BE SOLD BY THE COMPANY TO THE DISTRIBUTOR AT RS.97/- AND THE DISTRIBUTOR MAY SELL IT AT A PRICE BETWEEN RS.97 TO RS.100/-. 4. NOW THE ISSUE UNDER CONSIDERATION IS WHETHER THE DIFFERENCE BETWEEN THE FACE VALUE OF PREPAID CARD AND THE SELLING PRIC E OF THE CARD CAN BE TAKEN AS COMMISSION LIABLE FOR DEDUCTION AT SOURCE U/S 194H OF THE ACT. IN THE EXAMPLE CITED ABOVE, WHETHER THE DIFFERENCE BETWEEN THE FACE VALUE OF RS.100/- AND THE SELLING PRICE RS.97/- IS IN THE NA TURE OF COMMISSION OR NOT IS THE PRECISE QUESTION RAISED BEFORE US. 5. BEFORE PROCEEDING FURTHER, IT WOULD BE USEFU L TO REFER TO THE RELEVANT PROVISIONS OF SEC. 194H OF THE ACT, WHICH WERE DISC USSED BY THE AO IN PAGE 2 OF THE ORDER RELATING TO THE F.Y 2007-08 (A. Y 2008-09) AS UNDER:- IT IS PROVIDED IN SEC 194H THAT ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -4- ANY PERSON NOT BEING INDIVIDUAL OR HUF WHO IS RESPO NSIBLE FOR PAYING ANY INCOME BY WAY OF COMMISSION OR BROKERAGE SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF PAY EE IN CASH OR BY THE ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER DEDUCT INCOME TAX THERE ON AT THE RATE OF 1 0 PERCENT. EXPLANATION (1) OF THIS CLAUSE DEFINES COMMISSION OR BROKERAGE AS UNDER: COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEI VED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTIN G ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED. THIS MAKES IT CLEAR THAT EVEN IF THE AMOUNT IS NOT PAID IN CASH OR CHEQUE BUT IF IT CREDITED TO OTHER PERSONS ACCOUNT THE TAX IS REQUIRED TO BE DEDUCTED. THE DEFINITION OF COMMISSION ALSO STATES THAT EVEN IF THE AMOUNT IS RECEIVED INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED IT AMOUNTS TO COMMISSION/BROKERAGE WHICH ATTRACTS TDS U/S 194H OF THE ACT. ALL THE THREE CONDITIONS LAID DOWN IN SEC. 194H AS DISCUSSED ABOVE ARE APPLICABLE TO THE PAYMENT MADE BY THE ASSESSEE. 1. THE AMOUNT IS INDIRECTLY RECEIVED BY THE DISTRIBUTO R. 2. THE AMOUNT IS RECEIVED BY THE DISTRIBUTOR FOR SERVI CES RENDERED. 3. THE ASSESSEE HAS DEBITED THE EXPENSES BY CREDITING DISTRIBUTORS ACCOUNT. 6. ACCORDING TO THE AO, THE ASSESSEE IS SELLING THE PREPAID CARDS TO THE DISTRIBUTORS AT ITS FACE VALUE ONLY AND GIVES COMMI SSION IN THE FORM OF FREE PREPAID CARDS AND IN CASH. HOWEVER, BEFORE THE LD CIT(A), THE ASSESSEE HAS DISPUTED THIS OBSERVATION OF THE AO AN D HAS STATED THAT IT IS SELLING THE PREPAID CARDS AT THE DISTRIBUTOR PRICE , WHICH IS LESS THAN THE FACE VALUE. IT SEEMS THAT THE ASSESSEE DID NOT OFF ER ANY EXPLANATION ABOUT THE ISSUING OF PREPAID CARDS AT FREE OF COST AS S ALES INCENTIVE. THE AO ALSO NOTED THAT THE ASSESSEE IS ACCOUNTING FOR THE EXPENSES INCURRED TOWARDS ISSUING OF FREE PREPAID CARDS AND CASH INCENTIVES UNDER A/C CODES 4563001 AND 4563002 RELATED TO SALES INCENTIVES A ND COMMISSION. 7. BEFORE AO, THE ASSESSEE RELIED UPON THE FOLLOW ING CASE LAW TO CONTEND THAT THE PROVISIONS OF SEC. 194H SHALL NOT APPLY TO SALE OF PREPAID CARDS. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -5- (A) AHMEDABAD STAMP VENDORS ASSOCIATION (257 ITR 202 (GUJ.)) (B) M.S.HAMMED (249 ITR 186 (KER)) (C) IDEA CELLULAR LTD., DELHI TRIBUNAL A BENCH. THE AO DISTINGUISHED THE DECISION OF JURISDICTIONAL GUJARAT HIGH COURTS DECISION IN THE CASE OF AHMEDABAD STAMP VENDORS ASS OCIATION WITH THE FOLLOWING OBSERVATIONS:- . IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIAT ION, 257 ITR 202 (GUJ), IT HAS BEEN HELD THAT THIS IS A SALE OF STAMPS BY GOVT. TO STAMP VENDOR AND SEC. 5 OF SCH. 1 SPECIFICALLY EXEM PT SALE OF STAMP PAPERS FROM LEVY OF ANY TAX INCLUDING SALES TAX. I T HAS BEEN DISCUSSED BY HONBLE GUJARAT HIGH COURT THAT THE DO UBT IS CLEARED BY REFERENCE TO ENTRY 84 IN SCHEDULE 1 TO THE GUJARAT SALES TAX ACT, 1969. IF THESE LICENSED STAMP VENDORS WERE AGENTS O F THE STATE OF GUJARAT, NO SALES TAX WOULD HAVE BEEN LEVIABLE WHEN THE STAMP VENDORS SELL THE STAMP PAPERS TO THE CUSTOMERS BECA USE IT WOULD BE SALE BY THE GOVERNMENT THROUGH THE STAMP VENDORS. THUS IT WAS TREATED AS SALE OF STAMP PAPER WHICH WAS EXEMPT FRO M SALES TAX AND SINCE IT WAS A SALE TDS WAS NOT REQUIRED TO BE DEDU CTED IN THAT CASE. FURTHER, BY EXTRACTING FOLLOWING REMARKS MADE IN TH E ANNUAL REPORT RELATING TO THE F.Y 2007-08 OF ANOTHER TELEPHONE COMPANY VIZ ., IDEA CELLULAR LTD, THE AO CONCLUDED THAT THE SALE OF PREPAID CARDS CAN NOT BE TERMED AS SALE OF GOODS . ON MARCH 2, 2006 THE HONBLE SUPREME COURT PASSED AN ORDER ADJUDICATING THAT PROVIDING TELECOMMUNICATING SERVI CES CANNOT BE TERMED AS GOODS UNDER THE SALE OF GOODS ACT. THE AO ALSO HELD THAT THE OTHER TWO DECISIONS RELIE D UPON BY THE ASSESSEE ARE ALSO NOT APPLICABLE TO THE FACTS OF INSTANT CAS E. INSTEAD, THE AO, AT PAGE 11 OF THE ORDER RELATING TO THE F.Y 2007-08 (A.Y 20 08-09), HAS OBSERVED AS UNDER:- FURTHER IN ASSESSEES OWN CASE REPORTED IN 294 ITR 283 (KOLKATTA) IT HAS BEEN DECIDED THAT THE RELATION BETWEEN ASSESSEE AND DISTRIBUTOR ARE THAT OF PRINCIPAL AND AGENT AND NOT PRINCIPAL T O PRINCIPAL. THE PRICE DIFFERENCE CARRIES NOMENCLATURE OF THE COMMIS SION AND NOT AS DISCOUNT CLAIMED BY THE ASSESSEE. APART FROM THE O WNERSHIP OF SUCH PREPAID CARDS, THE ASSESSEE COMPANY IS STRICTLY REG ULATING AS TO THE MANNER OF BUSINESS OPERATIONS BY THE FRANCHISEES WH ILE SELLING SUCH CARDS FROM TIME TO TIME VIDE INVESTIGATION (SIC. IN VENTORY) CHECKING ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -6- BY THE AUDITORS APPOINTED BY THE COMPANY AND INSPEC TION OF RECORDS. THE ASSESSEE ONLY PAYS COMMISSION TO THE FRANCHISEE FOR THE SERVICES RENDERED BY THEM. THE PRICE DIFFERENCE IS NOTHING BUT A PAYMENT OF COMMISSION BY THE ASSESSEE TO ITS FRANCHIESEES. ACCORDINGLY, THE AO HELD THAT THE ASSESSEE IS LIABL E TO DEDUCT TAX AT SOURCE ON THE AMOUNTS PAID TO THE DISTRIBUTORS OF PREPAID CARDS EITHER BY WAY OF MARGIN ON THE FACE VALUE OR BY WAY OF SALES INCENTI VE (I.E., BOTH IN CASH AND IN KIND). ACCORDINGLY HE RAISED DEMAND U/S 201(1) AND INTEREST U/S 201(1A) OF THE ACT. DURING THE COURSE OF ARGUMENTS, THE LD A.R SUBMITTED THAT THE HONBLE KOLKATTA HIGH COURT HAS NOT CONSIDERED AND DECIDED ANY APPEAL OF THE ASSESSEE AND HENCE THE AO IS WRONG IN MAKING SU CH KIND OF OBSERVATIONS. HOWEVER, ON A REFERENCE TO THE RELEV ANT ITR, WE NOTICE THAT THE CASE LAW REFERRED BY THE AO PERTAINS TO THE DEC ISION OF KOLKATTA BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. BHARTI CELLULAR LTD REPORTED IN 294 ITR (AT) 283 (KOL). IT WAS SUBMITTED THAT M/S BHARTI C ELLULAR LTD, IS A SISTER CONCERN OF THE ASSESSEE HEREIN. 8. THE ASSESSEE CARRIED THE MATTERS IN APPEALS BEFORE LD CIT(A) BUT COULD NOT SUCCEED. HENCE THE ASSESSEE HAS PREFERRE D THESE APPEALS BEFORE US CHALLENGING THE ORDERS OF LD CIT(A). 9. BEFORE US, THE LD A.R ADVANCED DETAILED ARGU MENTS ON THIS ISSUE AND ALSO FILED WRITTEN SUBMISSIONS. FOR THE SAKE OF CO NVENIENCE, WE EXTRACT BELOW THE SAID WRITTEN SUBMISSIONS FILED BY THE LD A.R. 2.1 THE ISSUE REVOLVES AROUND THE QUESTION AS TO WH ETHER THE ASSESSEE COMPANY IS IN A RELATIONSHIP OF PRINCIPAL TO PRINCIPAL WITH ITS DISTRIBUTOR OF PREPAID PRODUCTS SOLD TO SUCH DISTRIBUTOR. THE PROVISIONS OF SECTION 194H OF THE ACT DO NOT APPLY TO SITUATION. 2.2 THOUGH THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF REVENUE BY DIFFERENT COURTS, EVEN THOUGH SOME OF THE TRIBUNALS HAVE DECIDED IN FAVOUR OF THE ASSESSEE AND THERE IS NO DECISION OF THE HIGH COURT IN THAT MATTER, YET BECAUSE OF THE DECISION OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOC IATION VS. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -7- UNION BANK OF INDIA (2002) 257 ITR 202 (GUJ), (PB 1 29-140), THIS ISSUE IS BEING AGITATED HERE. (DECISION OF THE JURI SDICTIONAL HIGH COURT HAS NOT BEEN FOLLOW IN THE ABOVE JUDGMENTS, B ECAUSE IT WAS HELD THAT THE DECISION OF THE GUJARAT HIGH COURT, W HICH RELATED TO STAMP PAPE4R WERE PURCHASE AND SALE OF GOODS, AND T HAT THIS TRANSACTION OF THE SALE OF PREPAID PRODUCT TO THE DISTRIBUTOR COULD NOT BE CONSIDERED AS GOODS.) 3. IN THIS CONNECTION IT IS IMPORTANT TO UNDERSTAND : 3.1 WHAT IS PREPAID PRODUCT? (SEE PARA 4) 3.2 WHETHER THIS PREPAID PRODUCT CAN BE TAKEN AS GOODS OR MERCHANDISE. 3.2.1 IT IS SIMILAR TO THE PRODUCT DESCRIBED IN THE JURISDICTIONAL HIGH COURT [257 ITR 202 (GUJ)], THERE ALSO THERE IS A RI GHT TO UTILIZE THE VALUE CAPTURED IN THE STAMP FOR ENTERING INTO AND E STABLISHING A TRANSACTION/AGREEMENT. SUCH GOODS CANNOT BE SOLD FU RTHER. IMPORTANT 3.3.2 THAT THE CONCEPT OF MERCHANDISE HAS CHANGED B ECAUSE OF TECHNOLOGICAL ADVANCEMENT HAS BEEN RECOGNIZED BY TH E HONBLE SUPREME COURT (PB 349-352). 3.2.3 THE ASSESSEE, WHO HAD BOUGHT RIGHTS OF VARIOU S DECODERS, RECORDED MOVIES ON BETA-CAM TAPES AND TRANSFERRED T HEM AS TELECASTING RIGHTS TO STAR TV FOR FIVE YEARS AND CL AIMED THE BENEFIT OF THE DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961, IN RELATION TO THE PROFIT THEREFROM. 3.2.4 THE ASSESSING OFFICER (AO) HELD THAT THE ASSE SSEE WAS NOT ENTITLED TO DEDUCTION U/S.80HHC, INTER ALIA, ON THE GROUND THAT THE EXPORT WAS NOT OF MERCHANDISE OR GOODS AS CONTEMPLA TED UNDER SECTION 80HC, BUT WAS MERELY AN EXPORT OF RIGHTS IN THE FILM. 3.2.5 BEFORE THE HONBLE SUPREME COURT, REVENUE, SU BMITTED THAT THE ASSESSEE IN THIS CASE WAS NOT ENGAGED IN THE EX PORT OF GOODS AND MERCHANDISE; THAT THE FILM RECORDED ON BETA-CAM TAP ES DID NOT QUALIFY EITHER AS GOODS OR MERCHANDISE. IN THIS CONNECTION, IT WAS URGED THAT THE BETA-CAM TAPE (CASSETTE) WAS ONL Y A MEDIUM OF TRANSFER; THAT THERE WAS NO SALE OF THE FILM INI BETA-CAM FORMAT AND THAT THE ASSESSEE HAD ONLY TRANSFERRED THE RIGH T TO USE FOR A PERIOD OF FIVE YEARS AND SINCE THE TITLE REMAINED W ITH THE ASSESSEE, DTHE IMPUGNED TRANSACTION FELL OUTSIDE SECTION 80HH C 3.2.6 IT WAS HELD AT PAGE 154 (PB 352) ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -8- QUOTE THE BASIC REQUIREMENT OF SECTION 80HHC IS EARNING IN FOREIGN EXCHANGE AND RETENTION OF PROFITS FOR EXPORT BUSINE SS. PROFITS ARE EMBEDDED IN THE :INCOME EARNED. EARNING OF INCOME DEPENDS ON SALE OF GOODS AND SERVICES. TODAY THE DIFFERENCE BE TWEEN THE TWO IS GETTING BLURRED WITH GLOBALIZATION AND CROSS-BORDER TRANSACTION. TODAY WITH TECHNOLOGICAL ADVANCEMENT ONE HAS TO CHA NGE OUR THINKING REGARDING CONCEPTS LIKE GOODS, MERCHANDISE AND ARTICLES. IN THE CASE OF B SURESH, THE ASSESSEE HAD BOUGHT RIGHT S OF VARIOUS DECODERS AND HAD RECORDED MOVIES ON BETA-CAM TAPES WHICH WERE TRANSFERRED AS TELECASTING RIGHTS TO STAR TV FOR FI VE YEARS (IT HAS A LIMITED LIFE). HENCE, SUCH RIGHTS WOULD CERTAINL Y FALL IN THE CATEGORY OF ARTICLES OF TRADE AND COMMERCE, HENCE, MERCHANDISE. 3.2.7 IT IS THEREFORE CLEAR THAT THE CONCEPT OF GOO DS HAS UNDERGONE A CHANGE AND IN THIS CONTEXT THE RIGHT TO USE AIRTIM E AND THE PROMISE TO PROVIDE AIRTIME IS A PRODUCT CAPABLE O F BEING TRANSFERRED FROM SERVICE PROVIDER TO THE DISTRIBUTO R FROM THE DISTRIBUTOR TO THE RETAILER AND FROM THE RETAILER T O THE CUSTOMER. THE HONBLE SUPREME COURT HAS HELD THAT RIGHT WOULD B E CLASSIFIED AS MERCHANDISE. 3.2.8 IT IS OF NO CONSEQUENCE THAT THE SERVICE TO B E PROVIDED WHICH IS CAPTURED IN THE START UP PACK IS TO BE DELIVERED AT A LATER STAGE. IMPORTANT FACT SITUATION TO DETERMINE THE RELATIONS HIP OF PRINCIPAL TO PRINCIPAL 3.2.9 THE AO STATED ON PAGE 7 THAT THE COUPONS ARE SOLD AT THE FACE VALUE IS NOT CORRECT AS EVIDENT FROM THE INVOICE AT PB PAGE 61 AND 62 3.2.10 THE RISKS AND REWARDS ARE THAT OF THE DISTRI BUTOR AND IN CASE THERE IS ANY LOSS, PILFERAGE OR DAMAGE THE DISTRIBU TOR WOULD BE RESPONSIBLE FOR SUCH LOSS, PILFERAGE OR DAMAGE. THI S PROVES THAT THE PROPERTY IN THIS CASE STANDS TRANSFERRED- REFER AGR EEMENT PARA 4.115 OF PB PAGE 47. 3.2.11 REFERENCE IS INVITED TO THE AGREEMENT AT PB PAGE 49 PARA 7.8, PAGE 56 PARA 16.1 AND 16.2 THIS PROVES THE NATURE O F RELATIONSHIP BETWEEN THE COMPANY AND DISTRIBUTOR. QUESTION 3.3 WHETHER IN THIS PREPAID PRODUCT: THERE CAN BE A TRADE SIMILAR IN NATURE TO A TRADE OF GOODS? ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -9- 3.4 IN THIS CONTEXT THE DECISION OF THE HONBLE SUP REME COURT WHICH WAS NOT NOTED BY ANY OF THE HIGH COURTS NEEDS TO BE EXPLAINED. 3.5 THE DECISION OF THE JURISDICTIONAL HIGH COURT I N AHMEDABAD STAMP VENDORS 257 ITR 202 (GUJ) HAS TO BE ANALYSE D AS TO WHETHER IT APPLIES TO THE PROPOSITION WHICH IS BEIN G MADE OUT. PB PAGE 139. 4. PREPAID PRODUCT THE PREPAID PRODUCT IS CAPTURED IN THE PREPAID STAR T UP PACK. IT CAPTURES THEREIN THE RIGHT TO USE AIRTIME TO T HE EXTENT OF SPECIFIED MINUTES OR A PROMISE TO PROVIDE SPECIFIE D MINUTES OF AIRTIME TO THE OWNER OF THE START UP PACK IT IS NOT ANY PROVISION OF ELECTRO MAGNETIC WAVES, BUT T IS A RIGHT TO ENABLE THE PREPAID CUSTOMER TO EXPEND THE MINUTES P AID FOR. THE START UP PACK COMPRISES OF SIM CARD AND IN THIS SIM IS CAPTURED THE RIGHT TO USE AIRTIME FOR SPECIFIED MINUTES. THE PROPERTY IN THE SIM CARD REMAINS THAT OF THE C OMPANY AND IT IS SIMILAR TO A BOTTLE OF SOFT DRINK THE SIM CARD CAN BE RECHARGED WITH ADDITIONAL AIRTI ME AS IN THE CASE OF SOFT DRINK BOTTLE. THIS RIGHT TO USE AIRTIME FOR A SPECIFIED MINUTE OR THE PROMISE TO DELIVER SUCH AIRTIME IS A PRODUCT WHICH IS TRAN SFERRED ON PAYMENT OF MONEY FROM THE ASSESSEE-COMPANY TO THE D ISTRIBUTOR AT A PRICE SAY RS.97/-. THIS PRODUCT IS THE RIGHT TO USE AIRTIME TO THE EXTENT OF RS.100/- AND A PROMISE TO DELIVER AIRTIME TO THE EXTENT OF RS.100/- BY THE ASSESSEE COMPANY. THE DISTRIBUTOR SELLS THIS PRODUCT TO A RETAILER AT SAY RS.98/- AND RETAILER IN TURN SELLS THIS PRODUCT TO THE CUSTOMER . (THE PRICING IS LEFT TO THE RETAIL CHAIN AS PER COMPETITION AND MARKET F ORCES). THE DISTRIBUTOR IS ALSO PAID TURNOVER TARGET ACHIEV EMENT INCENTIVE. RIGHT TO USE AIRTIME IS NOT A PRODUCT IN THE CON VENTIONAL SENSE, BUT IT IS A PRODUCT OR MERCHANDISE IN VIEW OF THE T ECHNOLOGICAL DEVELOPMENT. THIS TRADE TRANSACTION CREATES A RELATIONSHIP OF P RINCIPAL TO PRINCIPAL. 5. DECISION OF CIT(A). ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -10- CIT(A) ON PAGE 68 HAS GIVEN HIS FINDINGS: 1) BECAUSE THE SERVICES ARE PROVIDED BY THE TELECOM SE RVICE PROVIDER AND CAN NEVER BE PROVIDED BY THE DISTRIBUT OR, THEREFORE PROPERTY OF APPELLANT DOES NOT PASS. 2) THERE WILL BE NO SALE OF PROPERTY OF APPELLANT 3) 3) ACCESS TO NETWORK IS ALWAYS THE PROPERTY OF THE APPELLANT. 4) 4) THE CONDITION IMPOSED BY THE COMPANY REGARDING R EGULATIONS, RESTRICTIONS I.E. DISTRIBUTORSHIP, GEOGRAPHICAL ARE A OPERATIONS ETC., INDICATES THAT THERE IS A RELATIONSHIP OF PRINCIPAL TO AGENT AS THE DISTRIBUTOR CANNOT BE INDEPENDENT PRINCIPAL. 5) 5) THE OWNERSHIP OF SIM CARD IS ALWAYS WITH THE COM PANY 6) 6) SERVICES CANNOT BE SOLD BUT IT CAN ONLY BE PROVI DED 5.1 SUBMISSIONS IN RESPECT OF CIT(A)S FINDINGS 1) AS EXPLAINED THE PRODUCT IS A PROMISE TO PROVIDE S ERVICE ON THE PART OF THE SERVICE PROVIDER AND CAPTURES THEREIN RIGHT TO USE AIRTIME: AND THIS IS MERCHANDISE ARISING OUT OF AD VANCEMENT OF TECHNOLOGY, TRANSFER OF THIS MERCHANDISE WILL RESUL T IN THE PROPERTY PASSING TO THE DISTRIBUTOR AND SO ON. (RELIANCE IS PLACED ON DECISIONS OF THE HONBLE SUPREME COURT IN 313 ITR 1 49 AND JURISDICTIONAL HIGH COURT IN 257 ITR 202) 2) FOR REASONS EXPLAINED ALREADY,. THE SALE OF PROPERT Y/MERCHANDISE, NAMELY RIGHT TO USE AIRTIME: IS BY THE APPELLANT TO THE DISTRIBUTOR AND SO ON. 3) THE NETWORK IS PROPERTY OF THE ASSESSEE-COMPANY, HO WEVER, THE RIGHT TO GET ACCESS FOR A SPECIFIED PERIOD OF TIME IS EMBEDDED IN THE MERCHANDISE (NAMELY RIGHT TO USE AIRTIME: WHICH I S PASSED FROM THE COMPANY TO THE DISTRIBUTOR TO THE RETAILER AND FINALLY TO THE CUSTOMER. 4) THE IMPOSITION OF CONDITIONS BY THE COMPANY HAVE N O RELEVANCE AND THE DIRECT DECISION HAS BEEN DISCUSSED IN PARA 7.16 AND 7.17 OF CIT(A) ORDER. BHOPAL SUGAR INDUSTRIES VS STO 40 STC 42 (COPY AT PB PAGE 187-200) DISCUSSED IN THE GUJARAT HIGH C OURT DECISION PB 133. 5) THE OWNER OF THE SIM CARD IS THE COMPANY. THIS IS N OT IN DOUBT AND AS EXPLAINED THIS IS SIMILAR TO A COCO-COLA BOT TLE. IN THE SIM CARD RIGHT TO USE AIRTIME IS CAPTURED AND IT IS THE RIGHT TO USE AIRTIME WHICH IS TRANSFERRED. 6) AS EXPLAINED THE RIGHT TO USE SERVICES FOR A SPEC IFIED TIME CAN BE SOLD, AND THE PROMISE TO PROVIDE SUCH SERVICE WI LL BE THAT OF THE COMPANY. 7) FOR THE REASONS EXPLAINED ABOVE, DISTRIBUTOR OF PRE PAID PRODUCT IS NOT AN AGENT BUT IS AN INDEPENDENT PRINCIPAL. 6. HIGH COURT DECISIONS DISTINGUISHED ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -11- 6.1 DECISION OF THE DELHI HIGH COURT IN IDEA CELLUL AR LTD 325 ITR 148 (DEL) THE BASIC PROPOSITION IN THE DELHI HIGH COURT WAS: - THAT IN THE CASE OF SUPPLY AND DELIVERY OF SIM CAR DS AND OTHER RECHARGE COUPONS, THERE IS NO SALE AND PURCHA SE OF GOODS BUT ONLY SERVICES, - THAT DECISION OF THE AHMEDABAD HIGH COURT WAS NO APPLICABLE AS IT COVERS THE TRANSACTIONS OF PURCHAS E AND SALE OF GOODS, - THAT ON TERMINATION OF THE AGREEMENT THE STOCK WAS RETURNED BACK TO THE SERVICE PROVIDER. 6.1.1 IT HAS BEEN EXPLAINED THAT IN VIEW OF THE JUD GMENT OF THE HONBLE SUPREME COURT IN THE CASE OF B SURESH, THE RIGHT TO USE AIRTIME IS A MERCHANDISE, CAPABLE OF BEING SOLD AN D TRANSFERRED THE DECISION OF THE HONBLE SUPREME COURT WAS NOT N OTICED BY DELHI HIGH COURT. 6.1.2 THE FACT THAT NO SALES TAX OR VAT IS LEVIABLE CANNOT PROVE FATAL TO THE CHARACTER OF MERCHANDISE IN RIGHT TO USE AIR TIME, OR TO A RELATIONSHIP OF PRINCIPAL TO PRINCIPAL BETWEEN TWO INDEPENDENT BUSINESS ENTITIES. 6.1.3 TECHNOLOGICAL ADVANCEMENT IS RESULTING IN COM PLEXITIES IN THE TAXING REGIME, AS TO DETERMINE WHETHER A TRANSFERRE D PRODUCT IN THE FORM OF A RIGHT IS EXIGIBLE TO INDIRECT TAX OR NO T. THIS IS ALWAYS GOING TO BE A VEXED ISSUE. IN FACT TAXABILITY OF CO MMERCE THROUGH I.T. IS KEEPING THE LIGHTS BURNING ALL OVER THE WORLD. 6.1.4 AHMEDABAD HIGH COURT DECISION IN 257 ITR 202 APPLIES FOR THE REASONS EXPLAINED. 6.1.5 UNLIKE THE DELHI HIGH COURT 325 ITR 148 WHERE IT WAS NOTED AT PAGE 165 THAT STOCK WAS TO BE RETURNED BACK ON TERM INATION OF ARRANGEMENT, IT IS NOT SO IN THE CASE OF THE APPELL ANT AGREEMENT AT PB PAGE 39 (55) 6.2 VODAFONE ESSAR CELLULAR LIMITED VS. ASSTT. COMM ISSIONER OF INCOME TAX 332 ITR 255 (KER) 6.2.1 THE PRIME REASON IN THIS JUDGMENT WAS THE FAC T THAT THE KERAL HIGH COURT HAD IN THE CASE OF BPL MOBILE CELLULAR. LIMITED RENDERED A JUDGMENT IN A SALES TAX CASE WHEREIN IT WAS HELD THAT THERE IS NO SALES TAX LIABILITY ON SALE OF SIM CARDS AND RECHAR GE COUPONS SOLD THROUGH THE DISTRIBUTORS AND IT DOES NOT INVOLVE SA LE OF GOODS. IN SUCH CASE IT HAS BEEN HELD THAT THERE CANNOT BE A PRINCI PAL TO PRINCIPAL ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -12- RELATIONSHIP THEREFORE PROVISIONS OF SECTION 194H W ERE HELD APPLICABLE. 6.2.2 THE FACT THAT SUCH A PRODUCT IS NOT EXIGIBLE TO VAT BECAUSE IT IS NOT A CONVENTIONAL PRODUCT IN VAST LAW, CANNOT PROV E FATAL TO A BUSINESS RELATIONSHIP OF PRINCIPAL TO PRINCIPAL. 6.2.3 BUSINESS RELATIONSHIP OF PRINCIPAL TO PRINCIP AL IS A INDEPENDENT RELATIONSHIP ESTABLISHED BY CONDUCT OF THE PARTIES AND CANNOT BREAK DOWN ON ACCOUNT OF THE FACT THAT THE SERVICES OF TE LECOM CONNECTIVITY AND USE OF AIRTIME ARE TO BE PROVIDED BY TELECOM SE RVICE PROVIDER COMPANY AFTER THE PRODUCT HAS BEEN SOLD. 6.2.4 AS EXPLAINED THE PRODUCT WHICH HAS BEEN SOLD IS THE RIGHT TO USE AIRTIME FOR A SPECIFIED AMOUNT AND CONSEQUENT PROM ISE TO RENDER AIRTIME FOR THE USE BY THE ULTIMATE CUSTOMER. 6.2.5 BASICALLY PROMISE TO DELIVER IS A PRODUCT A ND THIS PRINCIPAL HAS BEEN FOLLOWED IN THE DECISION OF THE AHMEDABAD HIGH COURT 257 ITR 202. KERALA HIGH COURT IN THE CASE OF VODAFONE HAS DISAGREED THAT THE DECISION OF THE AHMEDABAD HIGH COURT IN ST AMP VENDORS ASSOCIATION AND ALSO OF THE KERALA HIGH COURT IN TH E CASE OF KERALA STAMP VENDORS ASSOCIATION 282 ITR 7 ADDITION THE CA SE OF MS HAMEED VS. DIRECTOR OF STATE LOTTERIES IN 249 ITR 1 86. 6.3 BHARTI CELLULAR LIMITED 2011-TIOL-396 (PB PAGE 386-393) THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF BHARTI CELLULAR LTD 2011-TIOL 396 HIGH COURT CANNOT BE REL IED UPON 6.3.1 THE DECISION IS BASED UPON THE UNDERSTANDING PROPERTY IN THE START UP PACK, PREPAID COUPONS AFTER EVEN THE TRANS FER OF DELIVERY OF FRANCHISE REMAINS WITH THE APPELLANT ASSESSEE.(PB P AGE 391) 6.3.1.1 THIS IS INCORRECT BECAUSE THE PROPERTY IN T HE SIM CARD REMAINS WITH THE COMPANY BUT NOTHING ELSE AND START UP PACK AND COUPONS HAS THE MERCHANDISE RIGHT TO USE AIRTIME. 6.3.2 THE HONBHE HIGH COURT HAS ALSO NOTED INCORRE CTLY THAT THE PAYMENT IS GIVEN BY THE FRANCHISE AFTER COLLECTING THE SAME FROM RETAILER (PB PAGE 392) 6.3.2.1 THIS IS INCORRECT. THE PAYMENT IS MADE IN A DVANCE BY THE DISTRIBUTOR/FRANCHISE AND NOT AFTER RECOVERY FROM R ETAILER. 6.3.3 CONTROL IS IMPOSED UPON THE RETAILER FOR CO MPLIANCE OF CONDITIONS. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -13- 6.3.3.1AS ALREADY EXPLAINED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF BHOPAL SUGAR AT PB PAGE 187-2 00 EXPLAINS THE CURRENT BUSINESS POLICIES OF CONTROL OF THE DISTRIB UTORS IN RETAILER BY THE MANUFACTURER, WHICH DOES NOT ALTER THE RELATION SHIP OF PRINCIPAL TO PRINCIPAL. 6.3.4 THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF AHMEDABAD STAMP VENDORS HAS BEEN THRUST ASIDE WITHO UT DETAILED DISCUSSIONS ON THE PRINCIPLES IN THE SAID JUDGMENT. 6.4 PROPOSITION 12) PRECEDENT HIGH COURT TRIBUNAL NOT BOUND BY DE CISION OF COURTS OTHER THAN JURISDICTIONAL HIGH COURT. MAHAINDRA AND MAHAINDRA LTD. (2009) 313Q ITR (AT) 2 63 (MUM) (SB) AT PAGE 308 IN SUCH A SITUATION TO ARGUE THAT A PARTICULAR HIGH COURT JUDGMENT OF THE NON-JURISDICTIONAL HIGH COURT IS BINDING ON THE TRIBUNAL IS NOT ACCEPTABLE. THE HONBLE BOMBAY HIGH COURT IN THANA ELECTRICITY SUPPLY LIMITED [1994] 206 ITR 727 HAS DISCUSSED THE BINDING NATURE OF THE JUDICIAL PRECEDENTS. THE POSITION HAS BEEN S UMMARIZED IN PARAGRAPH 17 OF THE CASE BY LAYING DOWN THAT THE LA W DECLARED BY THE SUPREME COURT IS BINDING ON ALL THE COURTS IN THAT THE LAW DECLARED BY THE SC IS BINDING ON ALL THE COURTS IN INDIA. THE D ECISION OF THE HIGH COURT IS BINDING ON THE SUBORDINATE COURTS AND THE AUTHORITIES OR THE TRIBUNAL S UNDER ITS SUPERINTENDENCE THROUGHOUT THE TERRITORIES IN RELATION TO WHICH IT EXERCISE ITS JURISDICTION. IT HAS FURTHER BEEN HELD THAT THE DECISION OF THE HIGH COURT DOES NOT EXTENT BEYOND ITS TERRITORIAL JURISDICTION. THE RELEVANT DISCUSSION O N THE BINDING NATURE OR OTHERWISE OF THE JUDGMENT OF A NON-JURISDICTIONA L HIGH COURT HAS BEEN MADE IN PARAGRAPH (D) AS UNDER (PAGE 738 OF 20 6 ITR): (D) THE DECISION OF ONE HIGH COURT IS NEITHER BIND ING PRECEDENT FOR ANOTHER HIGH COURT NOR FOR COURTS OR TRIBUNALS OUTSIDE ITS OWN TERRITORIAL JURISDICTION. IT IS WEL L-SETTLED THAT THE DECISION OF A HIGH COURT WILL HAVE THE FORCE OF BIN DING PRECEDENT ONLY IN THE STATE OR TERRITORIES ON WHICH THE COURT HAS JURISDICTION. IN OTHER STATES OR OUTSIDE THE TE RRITORIAL JURISDICTION OF THAT HIGH COURT IT MAY, AT BEST, HA VE ONLY A PERSUASIVE EFFECT. BY NO AMOUNT OF STRETCHING OF TH E DOCTRINE OF STARE DECISIS CAN JUDGMENTS OF ONE HIGH COURT BE GI VEN THE STATU9S OF A BINDING PRECEDENT SO FAR AS OTHER HIGH COURTS OR COURTS OR TRIBUNALS WITHIN THEIR TERRITORIAL JURISD ICTION ARE CONCERNED. ANY SUCH ATTEMPT WILL GO COUNTER TO THE VERY DOCTRINE OF STARE DECISIS AND ALSO THE VARIOUS DECI SIONS OF THE SC WHICH HAVE INTERPRETED THE SCOPE AND AMBIT THERE OF. THE ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -14- FACT THAT THERE IS ONLY ONE DECISION OF ANY ONE HIG H COURT ON A PARTICULAR POINT OR THAT A NUMBER OF DIFFERENT. HIG H COURTS HAVE TAKEN IDENTICAL VIEWS IN THAT REGARD IS NOT AT ALL RELEVANT FOR THAT PURPOSE. WHATEVER MAY BE THE CONCLUSION, T HE DECISIONS CANNOT HAVE THE FORCE OF BINDING PRECEDEN T ON OTHER HIGH COURTS OR ON ANY SUBORDINATE COURTS OR TRIBUNA LS WITHIN THEIR JURISDICTION. THAT STATUS IS RESERVED ONLY FO R THE DECISIONS OF THE SUPREME COURT WHICH ARE BINDING ON ALL COURT S IN THE COUNTRY BY VIRTUE OF ARTICLE 141 OF THE CONSTITUTIO N. SIMILAR POSITION HAS BEEN REITERATED AGAIN BY THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CONSOLIDA TED PNEUMATIC TOOL CO. (INDIA) LIMITED V. CIT [1994] 209 ITR 277 (BOM) BY HOLDING THAT THE DECISION OF OTHER HIGH COURT IS NOT A BINDING P RECEDENT FOR COURTS, AUTHORITIES OR TRIBUNALS OUTSIDE ITS TERRITORIAL JU RISDICTION/. AGAIN THE HONBLE BOMBAY HIGH COURT IN GEOFFREY MANNERS AND C O. LTD. V. CIT [1006] 221 ITR 695 HAS FOLLOWED THE EARLIER TWO AFO RENOTED JUDGMENTS FOR HOLDING THAT THE DECISIONS OF A HIGH COURT ARE NOT BINDING PRECEDENTS EITHER FOR OTHER HIGH COURTS OR TRIBUNALS OUTSIDE THE TERRITORIAL JURISDICTION OF THAT HIGH COURT. FR OM THE ABOVE JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT, IT IS APPARENT THAT ONLY THE JUDGMENTS RENDERED BY THE HONBLE SUPREME COURT OR THE JURISDICTIONAL HIGH COURT ARE BINDING ON THE TRIBUN AL. THE JUDGMENTS OF THE OTHER HONBLE HIGH COURTS THOUGH HAVE PERSUA SIVE VALUE, BUT CANNOT HAVE A BINDING FORCE. 7. DOUBLE COLLECTION OF TAX (*THIS IS ALTERNATIVE CONTENTION OF THE ASSESSEE, WHICH THE BENCH HAVE DEALT INFRA) 7.1 THE ASSESSEE-COMPANY HAD RAISED A GROUND WITHOU T PREJUDICE THAT THE TAX CONSIDERED TO BE IN DEFAULT HAS ALREADY BEE N PAID BY THE DISTRIBUTOR AND IT CANNOT BE COLLECTED AGAIN FROM T HE ASSESSEE- COMPANY. 7.2 THIS PROPOSITION IS BASED ON THE DECISION OF TH E HOBLE SUPREME COURT IN HINDUSTAN COCO-COLA BEVERAGE PVT. LTD. 293 ITR 226 (PB PAGE 268 TO 270) WHEREIN IT WAS HELD THAT TAX COULD NOT BE RECOVERED ONCE AGAIN FROM THE ASSESSEE ONCE THE TAX HAS BEEN PAID BY THE DEDUCTEE. THE COMPANY HAD FILED CERTIFICATION OF 4 DISTRIBUTORS (PB PAGE 63 TO 71) AND PERMANENT ACCOUNT NUMBER OF ALL THE DEDUCTEES (PB PAGE 116 TO 126) AND COPY OF ACCOUNT OF DISTRIB UTORS (PB PAGE 72 TO 115) 7.3 THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF VODAFOONE ESSAR LIMITED 9 ITR (TRIB) 182 AT PAGE 216 (PB PAGE 324 DTO 348 AT PAGE 348) IS REFERRED FOR THE PROPOSITION THAT WHER E THE PERMANENT ACCOUNT NUMBER IS MADE AVAILABLE TO THE AO, IT WOUL D NOT BE UNREASONABLE ON THE PART OF THE ASSESSEE TO ASK AO TO HAVE THE ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -15- PAYMENTS VERIFIED FROM THE RECORDS OF THE AO'S WITH IN WHOSE JURISDICTION THE PAYEES ARE ASSESSED. IN SUCH CASES THE ASSESSEE COULD NOT BE HELD TO BE IN DEFAULT AND THE TAXES COULD NO T BE RECOVERED FROM THE ASSESSEE. THE ACTION OF THE AO IN HOLDING THE ASSESSEE-COMPAN Y TO BE IN DEFAULT IN RESPECT OF TAX OF RS.3,76,39,070/- IS THEREFORE CONTRARY TO THE LAW OF LAND. 7.4 CIT(A) HAS NOT ADJUDICATED ON THIS ISSUE THOUGH DISCUSSED AT PAGE 43 & 44 OF HIS ORDER. 8. SUMMARY THE COMPANY HAS APPOINTED DISTRIBUTORS IN REGARD TO ITS PREPAID PRODUCT WHICH IS RIGHT TO USE SPECIFIED AIRTIME WHISH IS CAPTURED IN THE SIM CARD WHICH IS INCLUDED IN THE START UP PACK. THE PR EPAID PRODUCT IS A MERCHANDISE WHICH IS NOT SUBJECT TO SALES TAX. THAT BECAUSE IT IS NOT SUBJECT TO SALES TAX CANNOT PROVE FATAL TO CHARACTER OF MERCHANDISE, CAPABLE OF BEING TRANSFERRED TO THE RELATIONSHIP OF PRINCIPAL TO PRINCIPAL THE JURISDICTIONAL HIGH COURT IN AHMEDABAD STAMP VE NDORS APPLIES SQUARELY TO THE FACTS AND FUNDAMENTALS IN THIS APPE AL THE PROVISIONS OF SECTION 194H DO NOT APPLY. WITHOUT PREJUDICE THE TAX CANNOT BE RECOVERED FROM THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN HINDUS TAN COCO-COLA BEVERAGES 293 ITR 226. 10. ON THE OTHER HAND, THE LD D.R INVITED OUR A TTENTION TO ALL THE RELEVANT OBSERVATIONS MADE BY THE AO AND LD CIT(A) AND CONTE NDED THAT THE PAYMENT MADE TO THE DISTRIBUTORS OF PREPAID CARDS F ALLS IN THE CATEGORY OF COMMISSION LIABLE FOR DEDUCTION OF TAX AT SOURCE U /S 194H OF THE ACT. HE ALSO SUBMITTED THAT THE AO HAS RIGHTLY DISTINGUISHE D THE CASE LAW RELIED UPON BY THE ASSESSEE. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. THE LD A.R STRONGLY PLACED RELIANCE ON THE DECISION OF JURISDICTIONAL GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD STAMP V ENDORS ASSOCIATION, SUPRA AND SUBMITTED THAT THE DECISION RENDERED THER EIN SQUARELY APPLIES TO THE FACTS OF THE INSTANT CASE. IN EFFECT, THE CONT ENTION OF THE LD A.R IS THAT ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -16- THE PREPAID CARDS FALLS IN THE CATEGORY OF GOODS O R MERCHANDISE AND HENCE THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS DISTRIBUTORS IS THAT OF PRINCIPAL TO PRINCIPAL. HE ALSO PLACED R ELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF B SURESH (313 ITR 149), WHEREIN THE HONBLE APEX COURT HELD THAT THE TRANSFERRING OF TE LECAST RIGHT OF FILMS RECORDED ON BETA-CAM TAPES WOULD FALL IN THE CATEGO RY OF ARTICLES OF TRADE AND COMMERCE AND HENCE A MERCHANDISE FOR THE PURP OSE OF SEC. 80HHC OF THE ACT. THE LD A.R FURTHER SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF IDEA CELLURLAR LTD (325 ITR 14 8) DID NOT CONSIDER THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE C ASE OF B. SURESH, SUPRA. HE FURTHER SUBMITTED THAT IN THE CASE OF ID EA CELLULAR LTD, THE PREPAID CARD STOCK HAD TO BE RETURNED BACK ON TERMI NATION OF AGREEMENT, WHILE IT IS NOT SO IN THE ASSESSEES CASE. 12. THE LEARNED A.R DREW OUR ATTENTION TO THE DEC ISION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTAN CY SERVICES VS. STATE OF A.P. REPORTED IN (2004) (271 ITR 401), IN WHICH IT HAS BEEN HELD THAT THE DEFINITION OF GOODS GIVEN IN A SALES TAX ACT CAN NOT BE TAKEN AS THE ULTIMATE GUIDE TO DECIDE WHETHER A PARTICULAR ITEM FALLS UNDER THE CATEGORY OF GOODS OR NOT. IT IS PERTINENT TO NOTE THAT THE SAID DECISION WAS RENDERED BY HONBLE APEX COURT UNDER A.P. GENERAL SALES TAX ACT. IN THAT CASE, M/S. TATA CONSULTANCY SERVICES DEVELOPED CUSTOM MAD E SOFTWARE FOR THEIR CUSTOMERS (UNCANNED SOFTWARE) AND ALSO SOLD COMPU TER SOFTWARE PACKAGES OFF THE SHELF (CANNED SOFTWARE). THE QU ESTION RAISED IN THAT APPEAL WAS WHETHER THE CANNED SOFTWARE SOLD BY TH E APPELLANTS COULD BE TERMED AS GOODS, EXIGIBLE TO TAX UNDER ANDHRA PRA DESH GENERAL SALES TAX ACT. THE HON'BLE SUPREME COURT HELD THAT THE INTEL LECTUAL PROPERTY, ONCE IT IS PUT ON TO A MEDIUM, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS (IN CASE OF PAINTING) OR COMPUTER DISCS OR CASSETTES, AND MA RKETED WOULD BECOME ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -17- GOODS. WE FEEL THAT THE FOLLOWING OBSERVATIONS M ADE BY HON'BLE SUPREME COURT ARE PERTINENT HERE. THE EXPRESSION GOODS IS NOT A TERM OF ART. ITS MEANING VARIES FROM STATUTE TO STATUTE. THE TERM GOODS HAD BEEN DEFINED IN THE ACT AS ALSO IN ARTICLE 366(12) OF THE CONSTITUTION TO INCL UDE ALL MATERIALS, COMMODITIES AND ARTICLES. COMMODITY IS AN EXPRESSI ON OF WIDE CONNOTATION AND INCLUDES EVERYTHING OF USE OR VALUE WHICH CAN BE AN OBJECT OF TRADE AND COMMERCE. . INDIAN LAW DOES NOT MAKE ANY DISTINCTION BETWEEN T ANGIBLE PROPERTY AND INTANGIBLE PROPERTY. GOODS MAY BE TANGIBLE O R INTANGIBLE PROPERTY. A PROGRAM WOULD BECOME GOODS PROVIDED IT HAS THE AT TRIBUTES THEREOF HAVING REGARD TO (A) ITS UTILITY; (B) CAPABLE OF BE ING BOUGHT AND SOLD; AND (C) CAPABLE OF BEING TRANSMITTED, TRANSFERRED, DELI VERED, STORED AND POSSESSED. IF A SOFTWARE WHETHER CUSTOMIZED OR NON -CUSTOMISED SATISFIES THESE ATTRIBUTES, THE SAME WOULD BE GOODS. UNLIKE THE AMERICAN COURTS, THE SUPREME COURT OF INDIA HAS ALSO NOT GONE INTO T HE QUESTION OF SEVERABILITY. WHAT IS ESSENTIAL FOR AN ARTICLE TO B ECOME GOODS IS ITS MARKETABILITY. THUS, IT IS VERY MUCH CLEAR THAT THE MEANING OF GO ODS VARIES FROM STATUTE TO STATUTE. 13. THUS, WE NOTICE THAT THE DECISIONS RELIED UPO N BY THE ASSESSEE ARE NOT DIRECT ON THE ISSUES CONSIDERED IN THE INSTANT CASE S. THEY HAVE BEEN RENDERED IN DIFFERENT CONTEXTS. IT IS A WELL SETTL ED PROPOSITION OF LAW THAT A JUDGMENT IS TO BE READ WITH REFERENCE TO THE CONTEX T AND THE FACTS OBTAINED IN THAT CASE, I.E. THE COURT ONLY DECIDES THE QUEST ION WHICH WAS REFERRED TO IT. WE ALSO FEEL PERTINENT TO REFER TO THE FOLLOWING OB SERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS PVT LTD (198 ITR 320):- IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK O UT A WORD OR A SENTENCE FROM THE JUDGEMENT OF THIS COURT , DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATIO N AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THIS COURT. THE JUDGEMENT MUST BE READ AS A WHOLE AND THE OBSERVATI ONS FROM THE JUDGEMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FORM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISI ON TO A LATER ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -18- CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN TH E TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT A ND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGEMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THI S COURT, TO SUPPORT THEIR REASONINGS. IN MADHAV RAO JIVAJI RAO SCHINDIA BAHADUR VS. UNION OF INDIA (1971) 3 SCR 9; AIR 1971 SC 530, THIS COURT CAUTIONED (AT PAGE 578 OF AIR 1971 SC): IT IS NOT PROPER TO REGARD A WORD, A CLAUSE OR A SENTENCE OCCURRING IN A JUDGEMENT OF THE SUPREME CO URT, DIVORCED FROM ITS CONTEXT, AS CONTAINING A FULL EXP OSITION OF THE LAW ON A QUESTION WHEN THE QUESTION DID NOT EVE N FALL TO BE ANSWERED IN THAT JUDGEMENT. 14. THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF IDEA CELULAR LTD (2010) (325 ITR 148) IS DIRECTLY O N THE ISSUES AGITATED BEFORE US. HENCE, WE ARE INCLINED TO FOLLOW THE SA ME. IN THAT CASE, THE HONBLE DELHI HIGH COURT HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE, A CELLULAR OPERATOR AND THE PREPAID MARKET ASSOCIATES (PMAS) APPOINTED BY IT WHEREBY SIM CARDS/RECHARGE COUPONS ARE ULTIMATELY S OLD TO THE SUBSCRIBERS THROUGH THE LATTER DOES NOT AMOUNT TO SALE OF GOO DS AND, THEREFORE, THE DISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTOR S ON PAYMENTS MADE BY THE LATTER FOR THE SIM CARDS/RECHARGE COUPONS WHICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTED PRICE IS COMMISSION A ND IT IS SUBJECT TO TDS U/S 194H. BY RESPECTFULLY FOLLOWING THIS DECISION, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. 15. THE NEXT ISSUE PERTAINS TO THE APPLICABILI TY OF PROVISIONS OF SEC. 194J ON ROAMING CHARGES PAID BY THE ASSESSEE TO OTHER OP ERATORS. BEFORE ADDRESSING THIS ISSUE, IT IS PERTINENT TO UNDERSTAN D THE PURPOSE AND BACK GROUND OF MAKING PAYMENT OF ROAMING CHARGES. THE GOVERNMENT OF INDIA HAS CREATED VARIOUS CIRCLES FOR THE PURPOSE O F ISSUING LICENSE TO THE CELLULAR OPERATORS. ACCORDINGLY THE SUBSCRIBERS CA N USE THE SERVICES PROVIDED BY THE CELLULAR OPERATORS WITHIN THAT CIRC LE (LET US CALL IT AS HOME CIRCLE). WHEN A SUBSCRIBER MOVES TO SOME OTHER CI RCLE (LET US CALL IT AS ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -19- OUTSIDE CIRCLE), THE CONCERNED CELLULAR OPERATOR CANNOT PROVIDE SERVICES TO THAT SUBSCRIBER IN THAT CIRCLE AND HENCE THE SUBSCR IBER CANNOT USE THEIR CELL PHONES IN THE OUTSIDE CIRCLE. IN ORDER TO TIDE OVE R THIS PROBLEM, ALL THE CELLULAR OPERATORS OPERATING IN DIFFERENT CIRCLES N ORMALLY ENTERS INTO AGREEMENTS IN ORDER TO SEE THAT THE SUBSCRIBER CONT INUES TO RECEIVE THE SERVICES. SUCH KIND OF ARRANGEMENT WAS MADE POSSIB LE DUE TO TECHNICAL ADVANCEMENT. IN VIEW OF THE SAID AGREEMENTS AND AR RANGEMENTS BETWEEN THE CELLULAR OPERATORS, THE SUBSCRIBERS RECEIVE UNI NTERRUPTED SERVICES. 16. WE ARE AWARE THAT THE SUBSCRIBER IS CHARGED WITH OUTGOING CALLS ONLY WHEN THE PHONE IS USED WITHIN THE HOME CIRCLE. HOW EVER, IF HE USES THE PHONE IN AN OUTSIDE CIRCLE, HE SHALL BE CHARGED BOT H FOR INCOMING CALLS AND OUTGOING CALLS. IN SOME CASES, THE RATE CHARGED FO R OUTGOING CALLS IN THE OUTSIDE CIRCLE MAY BE LITTLE HIGHER THAN THAT CHARG ED IN THE HOME CIRCLE. WHEN THE SUBSCRIBER OF A PARTICULAR CIRCLE USES HIS PHONE IN AN OUTSIDE CIRCLE, THE CELLULAR OPERATOR OF HOME CIRCLE PAYS T O THE CELLULAR OPERATOR OF THE OUTSIDE CIRCLE A CHARGE CALLED ROAMING CHARGES . THE SAID ROAMING CHARGE IS PAID TO THE OPERATOR OF AN OUTSIDE CIRCLE FOR PROVIDING SERVICES (AIR TIME SERVICES) TO ITS SUBSCRIBERS. 17. NOW THE ISSUE BEFORE US IS WHETHER PAYMENT OF ROAMING CHARGES WOULD FALL IN THE CATEGORY OF TECHNICAL SERVICES WITHIN THE AMBIT OF SEC. 194J OF THE ACT. BOTH THE TAX AUTHORITIES HAVE HEL D THAT THE SAID PAYMENTS FALL IN THE CATEGORY OF TECHNICAL SERVICES. 18. THE LD A.R SUBMITTED THAT THE PROVISIONS OF SEC. 194J SHALL APPLY ONLY IF THE TECHNICAL SERVICES ARE PROVIDED WITH HU MAN INTERVENTION. HE SUBMITTED THAT THERE IS NO HUMAN INTERVENTION IN PR OVIDING ROAMING SERVICES TO THE SUBSCRIBERS. HE FURTHER SUBMITTED THAT THE REVENUE HAS WRONGLY UNDERSTOOD THE MODALITIES OF PROVIDING ROAMING FACI LITIES TO THE SUBSCRIBERS. THE REVENUE IS UNDER THE IMPRESSION THAT THE CELLUL AR OPERATORS OF OUTSIDE ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -20- CIRCLES ARE PROVIDING TECHNICAL SERVICES TO THE ASS ESSEE COMPANY. HOWEVER, THE FACT IS THAT THE SAID CELLULAR OPERATORS ARE PR OVIDING SERVICES (AIR TIME USAGE) DIRECTLY TO THE SUBSCRIBERS, WHICH IS IN ACC ORDANCE WITH THE AGREEMENT/ARRANGEMENT ENTERED BETWEEN THEM. HOWEVE R, AS PER THE AGREEMENT, THE CELLULAR OPERATOR OF HOME CIRCLE WOU LD RAISE THE BILL TO THE CUSTOMERS, EVEN FOR THE AIRTIME USAGE MADE BY THEM IN THE OUTSIDE CIRCLES AND THEREAFTER, REMIT BACK THE CHARGES RELATING TO THE OPERATORS OF OUTSIDE CIRCLES IN THE FORM OF ROAMING CHARGES. THE ASSE SSEE HAS ALSO FILED DETAILED WRITTEN SUBMISSIONS EXPLAINING THE MODALIT IES AND ALSO THE CONTENTIONS RELATING TO THE IMPUGNED ISSUE. WE EXT RACT THE SAME BELOW, FOR THE SAKE OF CONVENIENCE:- 1. FACTS AS TO ROAMING SERVICE. ROAMING SERVICE - AIRTEL SUBSCRIBER IN AHMEDABAD TRAVELING TO MUMBAI SWITCHES ON HIS MOBILE DEVICE AFTER REACHING MUMBAI (IN CASE OF AIR TRAVEL). WHERE THE SUBSCRIBER TRAVELS BY LAND HE AU TOMATICALLY RECEIVES A MESSAGE TRANSFERRING TO THE ROAMING NETW ORK ON VISITING ANOTHER TELECOM, CIRCLE. - THE SUBSCRIBER HAS A CHOICE OF MANUAL NETWORK SELEC TION OR AUTOMATIC NETWORK SELECTION - UNDER AUTOMATIC NETWORK SELECTION, THE SERVICES OF THE MOST PREFERRED ROAMING PARTNER OF THE SUBSCRIBERS HOME NETWORK WILL BE SELECTED. - UNDER, THE MANUAL SELECTION, THE SUBSCRIBER CAN CHO OSE THE ROAMING PARTNER WHOSE SERVICES HE WOULD LIKE TO USE OUT OF THE ONES WHICH ARE AVAILABLE IN THAT AREA (SUBSCRIBER C AN ONLY CHOOSE THE ROAMING PARTNER WITH WHOM, AIRTEL HAS TI E-UP) - VISITING NETWORK (E.G. VODAFONE) LOCATES MOBILE DEV ICE AND IDENTIFIES THAT IT IS NOT REGISTERED WITH ITS SYSTE M, I.E. VLR - VISITING NETWORK AUTOMATICALLY CONTACTS HOME NETWOR K OF AIRTEL SUBSCRIBER, I.E. HLR AND REQUESTS SERVICE INFORMATI ON ABOUT ROAMING DEVICE USING MSI NUMBER MSI NUMBER IS A U NIQUE SUBSCRIBER IDENTITY NUMBER GRANTED TO THE CUSTOMER AT THE TIME OF SUBSCRIPTION. - VISITING NETWORK MAINTAINS TEMPORARY SUBSCRIBER REC ORD FOR THE SAID MOBILE DEVICE AND PROVIDES AN INTERNAL TEMPORA RY PHONE NUMBER TO THE MOBILE DEVICE. - HOME NETWORK ALSO UPDATES ITS REGISTER TO INDICATE THAT THE MOBILE IS ON VISITOR NETWORK SO THAT INFORMATION SE NT TO THAT DEVICE IS CORRECTLY ROUTED. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -21- - THE ENTIRE PROCESS ABOVE IS AUTOMATIC AND DOES NOT INVOLVE ANY HUMAN INTERVENTION AT ANY STAGE. - THE AIRTEL SUBSCRIBER IN MUMBAI, WHO IS TEMPORARILY REGISTERED AS VODAFONE SUBSCRIBER MAKES CALLS IN MUMBAI AND TH E MINUTES ARE REGISTERED IN HIS IDENTITY FOR WHICH HE AHS TO PAY THROUGH AIRTEL AHMEDABAD. - ALTERNATIVELY, A CALLER FROM AHMEDABAD MAKES A CALL TO AIRTEL SUBSCRIBER WHICH IS ROUTED TO THE HOME NETWORK OF A IRTEL SUBSCRIBER IN AHMEDABAD. - HOME NETWORK THEN FORWARDS ALL INCOMING CALLS TO TH E TEMPORARY PHONE NUMBER WHICH TERMINATED AT THE DEVI CE OF ROAMING SUBSCRIBER (IN MUMBAI) WHO IS NOW USING THE SERVICES OF THE VISITING NETWORK (I.E. VODAFONE): - THE ENTIRE PROCESS ABOVE IS AUTOMATIC AND DOES NOT INVOLVE ANY HUMAN INTERVENTION AT ANY STAGE. BILLING PROCESS - USAGE OF ROAMING SUBSCRIBER IN VISITED NETWORK IS C APTURED IN A FILE CALLED TAP, I.E. TRANSFERRED ACCOUNT PROCEDU RE FOR GSM/CIBER I.E. CELLULAR INTER-CARRIER BILLING EXCHA NGE RECORD FOR. - TAP FILE CONTAINS DETAILS OF CALLS MADE BY SUBSCRIB ER, VIZ., LOCATION, CALLING PARTY, TIME OF CALL AND DURATION ETC. - TAP/CIBER FILES ARE RATED AS PER TARIFFS CHARGED BY VISITING NETWORK OPERATOR. - SUCH TAP/QBER FILE IS TRANSFERRED TO HOME NETWORK O F SUBSCRIBER (I.E. TO AIRTEL). - HOME NETWORK (I.E. AIRTEL) THEN BILLS THESE CALLS T O THE AIRTEL SUBSCRIBER AND PAYS ROAMING CHARGES BASED ON THE TA P TO THE VISITED NETWORK OPERATOR (I.E. VODAFONE). THE ROAMI NG OPERATOR CHARGES AS PER THE ROAMING AGREEMENT WITH AIRTEL, W HEREAS THE SUBSCRIBER IS BILLED AS PER THE TARIFF SUBSCRIBED. - THE ENTIRE PROCESS IS AUTOMATIC. 2. REVENUES PROPOSITION 3. MACHINES ARE USED TO RENDER THE SERVICE. TECHNICA L PEOPLE ARE USED TO MAINTAIN THE NETWORK - FOR A SUBSCRIBER OF HOME NETWORK TO BECOME THE SUBS CRIBER OF VISITING NETWORK, THERE HAS TO BE A CONTRACT BETWEE N THE HOME NETWORK AND VISITING NETWORK. - BECAUSE ROAMING SYSTEM IS FACILITATED BY IMSI (INTE RNATIONAL MOBILE SUBSCRIBER IDENTITY) OF THE SUBSCRIBER, THER EFORE IT RESULTS IN THE ROAMING SERVICE BECOMING TECHNICAL S ERVICE. - IMSI IS A UNIQUE MOBILE COMPRISING OF MOBILE COUNTR Y CODE, MOBILE NETWORK CODE AND SIM NUMBER. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -22- - SINCE THE ENTIRE SYSTEM DEPENDS SON IMSI WHICH IS B ASED ON THE SIM CARD ISSUED BY HOME SERVICE PROVIDERS THEREFORE THE ROAMING SERVICE IS A TECHNICAL SERVICE. - SERVICE TAX IS CHARGED ON ROAMING. 3. SECTION 194J STATES: QUOTE FEES FOR PROFESSIONAL OR TECHNICAL SERVICES. 194J (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A H INDU UNDIVIDED FAMILY WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF- (A) FEES FOR PROFESSIONAL SERVICES, OR (B) FEES FOR TECHNICAL SERVICES, OR (C) ROYALTY, OR (D) ANY SUM REFERRED TO IN CLAUSE (VA) OF SECTION 28, S HALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR A T THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO [TEN] PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: PROVIDE .. . (A) . .. . (B) . .. .. . (I) . . . . (II) (III) . . . . (IV) PROVIDED FURTHER PROVIDED ALSO (2) (3) EXPLANATION. FOR THE PURPOSES OF THIS SECTION, - (A) .. .. .. (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9. EXPLANATION 2 CLAUSE (VII) TO SUB-SECTION (1) OF SE CTION 9 STATES: QUOTE (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY (A) (B) .. (C) . .. PROVIDED [EXPLANATION 1. - .. .. .. .. .. [EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF NAY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISIONS OF S ERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -23- CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD SALARIES UNQUOTE 3.1 A PERUSAL OF THE ROAMING TRANSACTION PROCESS WOULD SHOULD THAT THE ENTIRE ROAMING IS AUTOMATIC AND THERE IS NO DELIVER Y OF THIS SERVICE BY ANY HUMAN. 3.2 A PERUSAL OF THE PROVISIONS OF SECTION 194J READ WI TH EXPLANATION (2) TO SECTION (1) (VII) BRINGS OUT VERY CLEARLY THAT F OR A SERVICE TO BE CATEGORIZED AS TECHNICAL SERVICE THERE HAS TO B INV OLVEMENT OF HUMAN BEING OR IN OTHER WORDS THERE HAS TO BE HUMAN INTER FACE. 3.3 IT HAS ALREADY BEEN EXPLAINED BY THE REVENUE THAT T HE ENTIRE PROCESS IS DEPENDENT UPON A (IMSI) UNIQUE NUMBER OF HOME SUBSC RIBER. HE AUTOMATICALLY BECOMES A SUBSCRIBER OF THE VISITING NETWORK AND THEREAFTER MAKES A CALL WHICH IS RECORDED IN THE TE MPORARY REGISTER OF THE VISITING NETWORK WHICH RECORD IS SENT AUTOMATIC ALLY TO THE HOME NETWORK WHICH RECOVERS THE CHARGES FROM THE ROAMING SUBSCRIBER AT A SPECIFIED RATE BASED UPON THE AIRTIME USED BY THE V ISITING SUBSCRIBER. IT IS EXACTLY SIMILAR TO CALLS MADE BY THIS SUBSCRIBER IN HIS HOME NETWORK. HE IS CHARGED FOR THE AIRTIME WHICH HE HAS USED. 3.4 THE CHARGE IN THE BILL OF THE SUBSCRIBER INCLUDES I NTER-ALIA CHARGES FOR USE OF AIRTIME IN THE HOME NETWORK AND CHARGES FOR THE AIRTIME USED IN THE VISITING (ROAMING) NETWORK. THE AMOUNT WHICH IS COLLECTED BY THE SERVICE PROVIDER IS PAID FOR BY THE HOME SERVICE PR OVIDER AGAINST THE BILL RAISED BY THE VISITING SERVICE PROVIDER WHICH IS AGAIN BASED UPON BY THE TIME USED BY THE ROAMING SUBSCRIBER IN THE V ISITING NETWORK. 3.5 THE CHARGES PAID BY THE HOME NETWORK TO THE VISITIN G NETWORK IS BASED PURELY ON AIRTIME USAGE AND THERE IS NO DIFFERENCE FROM THE AIRTIME USAGE BY THE SUBSCRIBER IN HIS HOME NETWORK 3.6 RELIANCE IS PLACED ON THE DECISION OF THE MADRAS HI GH COURT IN THE CASE OF SKYCELL COMMUNICATION LIMITED (WHICH IS NO W MERGED WITH BHARTI AIRTEL LIMITED) 251 ITR 53. (PB 290-294) SKY CELL COMMUNICATIONS LIMITED 251 ITR 53 (MADRAS) : THIS CASE LAW HAS BEEN DISTINGUISHED BY REVENUE ON THE GROUND THAT IN THE CASE OF ROAMING THE PAYMENT IS MADE BY ONE OPERATOR TO THE OTHER WHILE IN THE MATTER OF SKY CELL THE PAYMENT WAS MADE BY THE SUBSCRIBERS TO THE COMPANY I.E. SKY CELL COMMUNICATIONS LIMITED. IN OUR VIEW THE ABOVE UNDERSTANDING OF REVENUE IS N OT CORRECT AS; A) THE SERVICE IN BOTH THE CASES REMAINS SAME I.E. TEL ECOM SERVICE; B) IN THE CASE OF SKY CELL, THE PAYMENT WAS MADE BY T HE SUBSCRIBER TO THE COMPANY FOR TELECOM SERVICE AND I N THE PRESENT CASE ALSO THE PAYMENT IS MADE BY THE ASSESS EE- COMPANY TO THE OTHER OPERATOR ON BEHALF OF THE SUBS CRIBERS ONLY. WE WOULD LIKE TO REITERATE HERE THAT THE PAYM ENT TO OTHER VISITING OPERATORS IS BASED UPON THE AIRTIME USED B Y ROAMING ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -24- SUBSCRIBERS WHO WOULD USE THE NETWORK OF OTHER MOBI LE OPERATORS. C) THE PRINCIPLE ENUNCIATED BY THE JUDGMENT OF SKYCELL WAS THAT, EVEN IF THE SERVICE IS RENDERED WITH THE HELP OF MA CHINES, IT DOES NOT BECOME TECHNICAL SERVICES FOR THE PURPOSE OF SECTION 1954J OF THE ACT. D) EVEN IF FOR A MOMENT IT IS CONSIDERED THAT THE APPE LLANT HAS USED THE SERVICE, THE SAME PRINCIPLE SHALL APPLY. 3.7 THE FUNDAMENTAL ISSUE IS WHETHER THE SERVICE WH ICH IS RENDERED WITH THE HELP OF TECHNOLOGY RESULTS IN THE SERVICE BECOM ING TECHNICAL. THIS IS NOT SO AND THIS HAS WHAT HAS BEEN HELD BY THE HONB LE MADRAS HIGH COURT. 3.7.1 REFERENCE IS INVITED TO PB PAGE 292 FOR A VER Y IMPORTANT OBSERVATION MADE BY THE HONBLE HIGH COURT. TECHNICAL FEES 3.8 THE CONCEPT OF TECHNICAL FEES AS LAID DOWNU/S.1 94-J READ WITH SECTION 9(1)(VII) HAS BEEN ANALYSED AND THE BASIC UNDERSTAN DING IS THAT THERE HAS TO BE A HUMAN INTERFACE AT THE TIME OF DELIVERY OF SERVICE IN VIEW OF THE PRINCIPLES OF NOSCITUR A SOCIIS IN VIEW OF THE LA NGUAGE USED IN SECTION 9(1)(VII) EXPLANATION 2. THIS PROPOSITION IS FOUND FAVOUR WITH VARIOUS TRIBU NALS INCLUDING AUTHORIZED REPRESENTATIVE NAMELY MILLENNIUM TECHNOL OGIES 117 ITD 114 (DEL), HFCLK INFOTEL LIMITED-99 TTJ (CHD.) 440, INF OSYS 45SOT 157 (BANGLORE), PACIFIC IERNETD318 ITR AT 179 (MUM), CABLE & WIRELESS 315 ITR 72 AAR., DELL 218 CTR 209 AAR, VARIOUS HIGH COURTS NAMELY BHARTI CELLULAR LIMITED 208 TDIOL 5 57 (DEL) PB 295- 302 AND OF COURSE BY MADRAS HIGH COURT IN SKYCEL CO MMUNICATIONS LTD- 251 ITR 53. THE REFERENCE TO THE CALCUTTA TRIBUNAL DECISION IN HUTCHSON IS MISPLACED AND NOT IN CONSONANCE WITH THE DECISION OF THE HIGH COURT. JUST BECAUSE A SERVICE IS TECHNOLOGY BASED, IT DOES NOT CONVERT SU CH SERVICE INTO TECHNICAL FEES. THERE IS A DIRECT OBSERVATION ON THIS PROPOSI TION BY THE MADRAS HIGH COURT AND DELHI HIGH COURT, THEREFORE THE CALCUTTA TRIBUNAL DECISION CARRIES NO PRECEDENT. 3.8.1 THE DECISION OF AHMEDABAD TRIBUNAL IN CANARA BANK IS ALSO OF NO RELEVANCE AS THE FACTS ARE ENTIRELY DIFFERENT. THER E WAS AN ACTIVITY CARRIED OUT BY HUMAN BEINGS WHEREAS IN A CASE OF ROAMING AC TIVITY THERE IS NO HUMAN BEING INVOLVED IN THE DELIVERY OF SERVICE. 3.9 APPLICABILITY OF SECTION 194I ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -25- 3.9.1 DURING THE COURSE OF APPELLANT PROCEEDINGS TH E A.O RAISED AN ALTERNATIVE PLEA IN REGARD TO APPLICABILITY OF SECT ION194-I TO THE ROAMING CHARGES PAID BY THE ASSESSEE-COMPANY. 3.9.2 THE CIT(APPEALS) CONFIRMED THE APPLICABILITY OF SECTION 194-J AND IN ANOTHER PARA CONFIRMED THE APPLICABILITY OF SECT ION 194-I ALSO. 3.9.3 IN REGARD TO APPLICABILITY OF SECTION 194-I, REFERENCE IS INVITED TO THE DECISION OF MU9MBAI TRIBUNAL IN THE MATTER OF VODAF ONE ESSAR LIMITED 9 ITR (TRIB) 182 (MUM) (PB PAGE 324-358). THE MAIN IS SUE IN ABOVE REFERRED CASE WAS IN REGARD TO APPLICABILITY OF SEC TION 194-I TO THE ROAMING CHARGES. AT PAGE 208 PARA 29, IT WAS HELD OUR CONCLUSION IN REGARD TO SECTION 194-I IS THAT THE PAYMENT OF ROAMING CHARGES BY THE ASSESSEE TO THE OTHER SERVIC E PROVIDES CANNOT BE CONSIDERED AS RENT WITHIN THE MEANING OF THE EXPLANATION BELOW SECTION 194-I. THEREFORE, THERE WAS NO LIABIL ITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX FROM THE SAME UNDER T HAT SECTION 3.9.4 IN THIS DECISION THE ISSUE OF SECTION 194-J W AS ALSO RAISED HOWEVER SINCE THE CIT(APPEALS) HAD CONFIRMED THE APPLICABI LITY OF SECTION 194-J THE HONBLE ITAT RESTORED THE MATTER FOR A FRESH DE CISION. DOUBLE COLLECTION OF TAX 4. WITHOUT PREJUDICE WE SUBMIT THAT THE BHARTI HEXACOM LIMITED (THE OPERATOR) WHO HAS RECEIVED THE ROAMING CHARGES FROM BHARTI AIRTEL LIMITED (PLEASE REFER TO PAGE 11 OF THE ORDER) HAS PAID TAX ON THE INCOME EARNED BY HIM. WE ENCLOSE HEREWITH COPIES OF RELEVANT EVIDENCE I.E., DECLARATION FROM BHARTI HEXACOM LIMI TED AND COPIES OF INCOME TAX RETURNS (PAGE 127 TO 128 OF PAPER BOOK) TO SHOW THAT BHARTI HEXACOM, LIMITED IS A REGULAR ASSESSEE AND T HEREFORE THE TAX WAS PAID BY HIM. IN THE CIRCUMSTANCES THE AO CANNOT RECOVER THE TAX IN REGARD TO WHICH THE ASSESSEE IS CONSIDERED TO BE IN DEFAULT. REFERE NCE IS INVITED TO DECISION OF SUPREME COURT IN HINDUSTAN COCA COLA BE VERAGE (P)) LTD. 293 ITR 226 (SC). PB PAGE 268-270 5. SUMMARY:- IT HAS BEEN EXPLAINED THAT THE PAYMENT OF ROAMING C HARGES IS IN FACT A PAYMENT ON BEHALF OF THE SUBSCRIBER OF THE APPELLAN T WHO HAD TEMPORARILY BECOME A SUBSCRIBER OF ANOTHER SERVICE PROVIDER. THIS MATTER IS SQUARELY COVERED BY THE DECISION OF SKYCELL (SUPRA). WITHOUT PREJUDICE EVEN IF THIS IS CONSIDERED AS PAY MENT BY THE COMPANY ON ITS OWN RIGHT, THE JUDGMENT IN THE CASE OF SKYCELL (SUPRA) WILL STILL APPLY. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -26- THE REGULATIONS IN THE TRANSACTION AND THE SUBSTANC E OF THE TRANSACTION PROVE CLEARLY THAT THE SAID TRANSACTION IS NOT LIAB LE TO TDS U/S.194J OF THE ACT. THE ACTION OF THE AO IS UNCALLED FOR. THE DEMAND OF RS.1,01,25,095/- U/S. 201(1) AND RS.14,91,969/- U/S 201(1A) HAS TO BE CANCELED. 19. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS IS SUE AND CAREFULLY PERUSED THE RECORD. IN OUR VIEW, THIS ISSUE COULD BE RESOL VED IF THERE IS PROPER UNDERSTANDING OF THE TECHNICAL DETAILS CONCERNING T HE FUNCTIONING OF HOME CIRCLE CELLULAR OPERATORS AND OUTSIDE CIRCLE OPERAT ORS. FROM THE ARGUMENTS OF THE LD A.R, WE UNDERSTAND THAT THE CASE OF THE A SSESSEE IS THAT THE HOME CIRCLE CELLULAR OPERATOR DOES NOT ACTUALLY PROVIDE AIRTIME USAGE FACILITY TO THE SUBSCRIBER, ONCE HE MOVES OUT OF THE HOME CIRCL E TO AN OUTSIDE CIRCLE. THE AIRTIME USAGE IN THOSE OUTSIDE CIRCLES IS ACTUA LLY PROVIDED BY THE OPERATORS OF CONCERNED OUTSIDE CIRCLES. WITH REGAR D TO THE BILLING, THE UNDERSTANDING BETWEEN THE CELLULAR OPERATORS IS THA T THE CHARGES FOR THE USAGE IN OUTSIDE CIRCLES SHALL ALSO BE COLLECTED BY THE HOME CIRCLE CELLULAR OPERATOR, WHO IN TURN, SHALL PASS IT ON TO THE CONC ERNED OUTSIDE CIRCLE OPERATOR. 20. ON OTHER HAND, THE UNDERSTANDING OF THE DEP ARTMENT IS THAT HOME CIRCLE CELLULAR OPERATORS CONTINUE TO PROVIDE SERVI CES TO THE SUBSCRIBERS BY UTILIZING ALL THE TECHNICAL FACILITIES THAT WERE AV AILABLE WITH THE OUTSIDE CIRCLE CELLULAR OPERATORS. THE ASSESSEE IN THE WRIT TEN SUBMISSIONS HAS FILED THE NATURE OF FUNCTIONING OF THE CELLULAR OPERATOR WHEN A SUBSCRIBER MOVES OUT OF HOME TOWN. AS STATED EARLIER, THIS ISSUE CA N BE SETTLED, IF THE MODALITIES OF THE OPERATIONS OF THE CELLULAR OPERAT ORS ARE WELL APPRECIATED AND UNDERSTOOD. SINCE NEITHER THE AO NOR THE BENCH IS NOT TECHNICAL EXPERT IN THIS REGARD, IN OUR VIEW, THE RIGHT COURSE OF AC TION WOULD BE TO SEEK OPINION OF A TECHNICAL EXPERT ON THE MODALITIES OF OPERATIONS OF ROAMING FACILITY. ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -27- 21 ACCORDINGLY, WE ARE OF THE VIEW THAT THIS IS SUE NEEDS TO BE EXAMINED AFRESH BY OBTAINING PROPER TECHNICAL ASSISTANCE. A CCORDINGLY, WE SET ASIDE THE ORDERS OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE IS SUE AFRESH AFTER OBTAINING OPINION OF THE TECHNICAL EXPERTS IN THIS REGARD. 22. THE NEXT ISSUE PERTAINS TO THE APPLICABILITY OF PROVISIONS OF SECTION 194I TO ROAMING CHARGES. IT IS PERTINENT TO NOTE T HAT THE AO HAS RAISED AN ALTERNATIVE CONTENTION BEFORE THE LEARNED CIT(A) IN REMAND PROCEEDING THAT THE PROVISIONS OF SECTION 194I SHALL ALSO APPLY TO PAYMENT OF ROAMING CHARGES AND THE SAID VIEW WAS ALSO CONFIRMED BY THE LEARNED CIT(A). IN OUR VIEW, THE OPINION OF THE TECHNICAL EXPERTS WILL ASSIST IN DECIDING THE APPLICABILITY OF SECTION 194I OF THE ACT TO THE IMP UGNED PAYMENT. ACCORDINGLY, WE SET ASIDE THIS ISSUE ALSO TO THE FI LE OF THE AO. 23. THE ASSESSEE HAS RAISED AN ALTERNATE PLEA WITHO UT PREJUDICE TO THE EARLIER GROUNDS THAT THE TAX CANNOT BE COLLECTED UN DER SECTION 201(1) OF THE ACT IF THE DEDUCTEE HAS ALREADY PAID THE TAX DUE FR OM THEM ON THE IMPUGNED PAYMENTS. FOR THIS PROPOSITION, IT HAS RELIED ON T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO COLA BE VERAGE PVT. LTD., 293 ITR 226. THE ARGUMENTS OF THE ASSESSEE ON THIS ALT ERNATE PLEA ARE AVAILABLE IN PARA-7.2 AND 7.3 OF THE WRITTEN SUBMISSIONS RELA TING TO THE APPLICABILITY OF SECTION 194H AND ALSO IN PARA-4 OF THE WRITTEN SUBM ISSIONS RELATING TO THE APPLICABILITY OF SECTION 194J. BOTH THE WRITTEN SU BMISSIONS HAVE BEEN EXTRACTED BY US SUPRA. IN ADDITION TO THE CASE LAW AND ARGUMENTS STATED IN THE WRITTEN SUBMISSIONS CITED ABOVE, THE LEARNED AR ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. ELI LILLY & CO. (INDIA) P. LTD., 312 ITR 225 (SC) IN THIS REGAR D. IN OUR VIEW, THIS ISSUE NEEDS RECONSIDERATION AT THE END OF THE AO SINCE TH E CLAIM OF THE ASSESSEE, THAT THE DEDUCTEES HAVE ALREADY PAID THE TAX DUE FR OM THEM ON THE ITA NO.889 AND 890/AHD/2010 AND ITA NO.1340/AHD/2011 -28- IMPUGNED INCOME, NEEDS TO BE VERIFIED. THOUGH THE LD CIT(A) DID NOT DISPOSE OF THIS ALTERNATIVE PLEA, WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO. ACCORDINGLY, WE SET THE SAME TO HI S FILE WITH A DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF V ARIOUS CASE LAWS RELIED UPON BY HIM AND TAKE APPROPRIATE ACTION IN ACCORDAN CE WITH LAW. 24. NEEDLESS TO MENTION THAT THE ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. 25. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( . .. . . .. . /G.C. GUPTA) !'# !'# !'# !'# /VICE-PRESIDENT ( . .. . . .. .% % % % /B.R. BASKARAN) &' % &' % &' % &' % /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD