Appeal Details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 5304 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 6 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-04-2011
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
27-01-2011
Assessment Year
2008-2009
Appeal Filed On
08-09-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, CHENNAI BEFORE SHRI U.B.S. BEDI, J.M. & SHRI B. RAMAKOTAIAH, A.M. I.TA. NOS.1415 AND 1416/MDS/2009 ASSESSMENT YEARS: 2007-07 AND 2008-09 THE INCOME TAX OFFICER, TDS WARD I (3), COIMBATORE. VS . M/S. VODAFONE ESSAR CELLULAR LTD., NEAR ANNA STATUE, BALASUNDARAM ROAD, COIMBATORE. [PAN: AAACB8614L] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB ASSESSEE BY : S/SHRI S.E. DASTUR & NIRAJ SHETH O R D E R PER BENCH THESE TWO APPEALS OF THE REVENUE AR E DIRECTED AGAINST THE CONSOLIDATED ORDER PASSED BY THE LD. CIT(A) II, COIMBATORE DATED 16.06.2009 FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09, WHEREBY DELE TION OF DEMAND CREATED UNDER SECTION 201(1) OF ` .67,51,439/- AND ` .4,16,11,639/- IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE AS PER PROVISION UNDER SECTION 194H AND `. 19,74,375/- AND `. 34,67,636/- BEING INTEREST UNDER SECTION 201( 1A) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY HAS BEEN CHALLENGED BY THE REVENUE. 2. FACTS INDICATE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CELLULAR MOBILE PHONE SERVIC ES IN INDIA. THIS COMPANY WITH IT S PRINCIPAL OFFICE SITUATED AT COIMBATORE, CA RRIED ON THE BUSINESS OF DEALING WITH THE BRANDED PRODUCTS OF THE COMPANY VIZ. MAINLY STARTER PACKS AND RECHARGEABLE COUPONS VIZ. SIM CARDS AND PREPAID COUPONS. T HE ASSESSEE I.E. M/S VODAFONE ESSAR CELLULAR LIMITED DEALING WITH THE PRODUCTS OF THE COMPANY WITHIN THE TERRITORIAL REGIONS ASSIGNED TO THEM. ITS NATURE OF OPERAT ION OF BUSINESS IS MAINLY TO IDENTIFY ITA NO.1415 & 1416/MDS/09 2 AND APPOINT DISTRIBUTORS FOR THE SALE OF THE ABOVE MENTIONED PRODUCTS. THE ASSESSEE COMPANY IDENTIFIED THE DISTRIBUTORS AT DIFFERENT PLACES IN THE REGION AND ENTERED INTO WRITTEN AGREEMENTS WITH THEM WHEREIN VARIOUS TERMS AND CONDITIONS ARE STIPULATED. ONCE, BOTH THE ASSESSEE CO MPANY AND THE DISTRIBUTORS AGREE TO ALL THE TERMS AND CONDITIONS STI PULATED, SUCH DISTRIBUTOR IS APPOINTED AS A DEALER TO DEAL WITH THE PRODUCTS. THE ASSESSEE RAISES COMMERCIAL INVOICES IN RESPECT OF EACH AND EVERY SALE OF PR ODUCT TO THE DISTRIBUTOR. WH ILE THE MRP VALUE OF THE PRODUCTS ARE FIXED AT THE TIME OF RAISING INVOICES THE PRODUCTS ARE PRICED AT THE DISCOUNTED PRICE AGREED TO BETWEEN T HE ASSESSEE AND THE DISTRIBUTOR. THE DISTRIBUTOR, HOWEVER, IS FREE TO SELL THE PRO DUCTS TO RETAILER AT ANY PRICE (BUT NOT EXCEEDING THE MRP) AND RETAIN THE MARGIN WITH THEM AS T HEIR SHARE OF PROFIT. IN ORDER TO EVIDENCE THE ABOVE FACT, THE A CCOUNT COPY OF THE DISTRIBUTORS WAS PRODUCED. IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER I.E. THE INCOME-TAX OFFICER, TDS WARD, CONSIDERED THE TE RMS AND CONDITIONS OF THE AGREEMENT AND ALSO GOING BY THE NATURE OF SERVICES PROVIDED, CONCLUDED THAT THE ACTUAL RELATIONSHIP IN REGARD TO THIS TRANSACTI ON BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL AND AGENT. HE ALSO CONCLUDED THAT THE DIFFERENCE BETWEEN THE PRICE FIXED (I.E. MRP) AND T HE PRICE CHARGED FOR THEM BY THE ASSESSEE, CONSTITUTES ONLY COMMISSION PAYMENT. THEREFORE, THE ST AND OF THE ASSESSING OFFICER IS THAT THE DIFFERENCE DENOTES DEEMED PAYMENT OF COMMISSION WHICH FALLS UNDER THE REALM OF THE PROVISIONS OF SECTION 194H. THE ASSESSEE ON THE OTHER HAND TOOK THE STAND THAT ON THE BASIS OF THE TERMS A ND CONDITIONS ENTERED INTO WITH THE DISTRIBUTORS, THE RELATIONSHIP WAS NOT THAT OF PRINCIPAL AND AGENT AS HAS BEEN HELD ITA NO.1415 & 1416/MDS/09 3 BY THE ASSESSING OFFICER. IT WAS THE STAND OF THE ASSESSEE THAT THE DIFFERENCE BETWEEN THE INVOICED PRICE AND THE MRP IS ONLY IN THE NATURE OF SALES / TRADE DISCOUNT. THE RELATIONSHIP BETWEEN THE AS SESSEE AND DISTRIBUTOR IS NOTHING BUT PRINCIPAL TO PRINCIPAL. HENC E, WHEN THERE IS NO PAYMENT OF COMMISSION INVOLVED. THE ASSESSING OFFICER WAS NOT CONVINCED. HE HELD THAT THE ASSESSEE HAVING FAILED TO DEDUCT TAX AS REQUIRED UND ER SEC. 194H IS A DEFAULT ER WITHIN THE MEANING OF SEC. 201(1) OF THE AC T AND CREATED DEMAND OF `. 67,51,439/- AND ` .4,16,11,639/- AND ALSO LEVIED INTEREST UNDER SEC. 201 (1A) AMOUNTING TO `. 19,74,375/- AND ` .34,67,636/- FOR ASST. YEAR S 2007-08 AND 2008-09 RESPECTIVELY FOR THE DEFAULTS. THE ASSESSING OFFICER IN HIS ORDER PASSE D UNDER SEC. 201 (1) READ WITH SEC. 201 (1A) HAS STATED THE FOLLOWING FACTS IN T HE ORDER BY HOLDING T HAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DIS TRIBUTOR IS THAT OF PR INCIPAL AND AGENT AND BY FURTHER HOLDING THAT THE PAYMENT PARTAK ES THE CHARACTER OF COMMISSION :- '1. THE PERSON WHO SELL THE STARTER PACKS AND RE-CHARGEABLE COUPONS NEEDS TO GET THEM APPOINTED BY THE CELLULAR CO MPANY) THROUGH A SERIES OF FORMALITIES IMPOSED UPON THEN. SOMETIMES THEY ARE NOT ALLOWED TO SELL SUCH COUPONS OF RIVAL CELLULAR COMPANIES. MOREOVER) THE INTERM EDIATE SELLING ORGANIZATIONS ARE GIVEN THE AUTHORITY TO VERIFY THE CREDENTIALS OF THE CONSUMERS . 2 THAT IT IS A PROVEN SITUATION THAT THERE REMAIN PRINCIPAL AGENT RELATIONSHIP BETWEEN THE CELLULAR COMPANY AND THE ORGANIZATIONS SELLING STARTER PACKS ON WHICH THEY ENJOY FINANCIAL BENEFITS. 3. THAT THE BENEFIT ALLOWED TO THE AGENTS IN THE NAME OF DISCOUNT MAY BE TREATED AS COMMISSION. 4. THAT THE COMMISSION IS RECOMPENSE OF REWARD OF AN AGENT) FACTOR) BROKER OF BAILEE, WHEN THE SAME IS CALCULATED AS A PERCENT AGE OF THE AMOUNT OF THE TRANSACTION OR ON THE PROFIT TO THE PRINCIPAL - SUNDERLAND V DAY (145 N E 2D.39) 41 12111 2D 50) 5. THAT COMMISSION IS COMPENSATION PAID TO ANOTHER FOR SERVICES RENDERED IN THE HANDLING OF ANOTHER BUSINESS OR PROPERTY AND BASED PROPORTIONATELY UPON THE ITA NO.1415 & 1416/MDS/09 4 AMOUNT OF THE VALUE THEREOF - ROBINDSTEIN. VS RUBINSTERIN (109 N.Y.S 2D, 725, 734). 6. THAT COMMISSION IS A WORD WITHOUT TECHNICAL MEANING BUT USED TO EXPRESS COMPENSATION FOR THE SERVICES RENDER ED) IT USUALLY DENOTES A PERCENTAGE OF THE AMOUNT OF THE MONEYS PAID OR RECEIVED - PURIFY V GODFREY. THE FRANCHISEE'S PRICE AND PAY FOR THE SERVICES WILL BE SPECIFIED BY VODAFONE ESSAR CELLULAR LIMITED FR OM TIME TO TIME. THE RATES ARE SUBJECTED TO VARIATION DURING THE TIME OF AGREEM ENT AL THE SALE DISCRETION OF VODAFONE ESSAR CELLULAR LIMITED AND SHA LL BE INTIMATED TO THE DISTRIBUTORS FROM TIME TO TIME. IT IS UNDERSTOOD THAT THE RELATIONSHIP BETWEEN THE PARTIES SOLELY ON THE PRINCIPAL TO PRINCIPAL BASIS. THE FRANCHISEE SHA LL NOT ACQUIRE, BY VIRTUE OF ANY PROVISION OF THE AGREEMENT OR OTHERWISE ANY RATE, AN AGENT OR COMMERCIAL REPRESENTATIVE OF VODAFONE FOR ANY PURPOSE WHATSOEVER. THE DISTRIBUTOR SHALL NOT ASSIGN ANY OF ITS RIGHTS OR OBLIGATIONS TO ANY THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT OF VODAFONE ESSAR CELLULAR LIMITED. THE DISTRIBUTOR SHALL NOT BE ENTITLED TO ANY COMPENSATION OR INDEMNIFY (WHETHER FOR LOSS OF DISTRIBUTION RIGHTS, GOODWILL OR OTHERWISE) AS A RESULT OF THE TERMINATION OF THE AGREEMENT IN ACCORDANC E WITH THE TERMS. OBLIGATION OF THE PARTIES RELATING TO CONFIDENTIALITY AND INDEMNITY HAS CONTAINED IN THE AGREEMENT WHICH SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THE AGREEMENT. ALL INTELLECTUAL PROPERTY RIGHTS RELATING TO SERVICE TICKETS AND SHALL REMAIN THE PROPERTY OF VODAFONE ESSAR CELLULAR LIMITED AND ITS LICENSORS. COMING TO THE CASE LAW RELIED ON BY THE ASSESSEE, I FIND THAT THE ASSESSEE HAS PLACED RELIANCE IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION (2002) 257 ITR 2002 BUT THE SAME IS NOT IDENTICAL TO THE FACTS INVOLVED IN THE PRESENT CASE AS THE RESTRICTIONS INVOLVED IN THE STAMP VENDORS ARE PLACED BY THE LAW OF LAND AND THEREFORE ARE MANDATORY. WHEREAS THE PRESENT CASE, RESTRICTIONS HAS BEEN IMPOSED BY THE ASSESSEE ITSELF ON THE FRANCHISEE BEFORE BEING SOLD ULTIMATELY TO THE RETAILERS / CUSTOMERS AND THEREFORE, THE ABOVE CASE IS NOT OF HELP TO THE ASSESSEE. THE ITAT, KOLKATTA BENCH HELD THE SAME VIEW IN THE CASE OF ASST. COMMISSIONER OF INCOME-TAX VS BHARTI CELLULAR LTD. VIDE 294 ITR (AT) KOLKATTA (2007 DT. 04.04.2006 - PAGE NO. 283).' 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND FILED ITS WRITTEN SUBMISSIONS AS UNDER: I. THE ASSESSING OFFICER OUGHT TO HAVE FOUND FROM THE TERMS AND CONDITIONS ITA NO.1415 & 1416/MDS/09 5 LAID DOWN IN THE AGREEMENT THAT NOWHE RE WAS THERE ANY MENTION THAT THE RELATIONSHIP IS THAT OF A FR ANCHISEE OR AN AGENCY. IN THE CASE OF A FRANCHISEE OR AN AGENCY, THE PERSONS (I.E. THE FRANCHISEE OR THE AGENT) ARE REQUI RED TO ACT ON BEHALF OF THE PRINCIPAL AND THEY WOULD BE UNDER THE CONTROL AND SUPERVISION OF THE PRINCIPAL. ALL THE TRANSACTIONS CARRIED OUT BY THESE PERSONS WOULD ACTUALLY RELATE TO THE PRINCIPAL. THE SALE EFFECTED BY THES E PEOPLE WOULD REPRESENTS THE SALE OF THE PRINCIPAL WHO WILL ALWAYS RETAIN THE OWNERSHIP OF THE GOODS. THE FRANCHISEE OR AN AGENT SHALL BE ENTITLED TO A FIXED RATE OF REMUNERATION OR A FIXED RATE OF COMMISSION. THE DETAILS OF SALE EFFECTED BY THESE PEOPLE ARE COMMUNICATED TO THE PRINCIPAL WHO ALONE SHALL ACCOUNT FOR THE SAME. ON THE OTHER HAND, THE RELATIONSHIP WITH THE APPELLANT'S DISTRIBUTOR IS THAT OF PRINCIPAL TO PRINCI PAL BASIS ONLY AND THE TRANSACTION INVOLVED IS A CLEAR TRANSACTIO N OF SALE. CLAUSE 17- 2 OF THE AGREEMENT AFFIRMS THIS POSITION. FROM THE MRP PRICE FIXED, SALE DISCOUNT IS ALLOWED TO THE DISTRIBUTOR. AFTER SALE PRODUCTS THAT AR E SOLD BECOMES OF THE PROPERTY OF THE DISTRIBUTOR. AFTER THE DEDUCTI ON OF THE DISCOUNT, THE BALANCE SALE IS ACCOUNTED FOR BY THE PRINCIPAL. II. SECTION 194H DEFINES COMMISSION AND BROKERAGE AS PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED' (NOT BEI NG PROFESSIONAL SERVICES) OR FO R ANY SERVICE IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELA TION TO ANY TRANSACTI ONS RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEI NG SECURITIES. THE RECIPIENT WILL CREDIT HIS PROFIT AND LOSS ACCOUNT, THE GROSS COMMISSION RECEIVED OR RECEIVABLE WHICH ALONE WOULD ATTRACT THE PROVISIONS OF SEC. 194H. BUT, IN THE CASE OF THE APPELLANT THE TRANSACTION IS THAT OF SALE ONLY AND THERE IS NO OPERATION OF PROVISIONS OF SECTION 194H. THE GOODS OR PRODUCTS OWNED BY THE A PPELLANT ARE STRAIGHT AWAY SOLD TO THE DISTRIBUTOR AND THAT FROM THE MRP A FIXED SALE DISCOUNT IS ALLOWED. ONCE THE SALE IS EFFECTED, THEN THE PROPERTY SHALL BE THE PROPERTY OF THE DISTRIBUTOR AND PRINCIPAL SHALL HAVE NO RIGHT OVER THEM. IN THE CASE OF THE APPELLANT, THE ACTIVITY INVOLVED IS SELLING OF SIM CARDS AND PREPAID CARDS AS PER INVOICE. THERE IS NO ELEMENT OF EITHER BROKERAGE OR COMMISSION. ITA NO.1415 & 1416/MDS/09 6 III. FOR SALES-TAX PURPOSES, DISCOUNT IS TR EATED AS AN ABATEMENT OF COST, SO THAT SALES TAX IS LEVIABLE ONLY ON THE NET AMOUNT. THE POSITIO N AS REGARDS THE CENTRAL EXCISE ACT IS ALSO SIMILAR. THE DECISIONS OF THE SUPREME COURT IN THE CASE OF DCST VS ADVANI ORLIKON (P) LTD. (1980) (45 ST C 32 (SC) AND DCST VS KERALA RUBBER AND ALLIED PRODUCTS (1993) 90 STC 170 (S C) SUPPORT THE STAND. THE ASSESSING OFFICER HAS ERRED IN OVERLOOKING THE PR INCIPLES ESTABLISHED BY THE JUDICIARY. 4. AFTER CONSIDERING SUCH WRITTEN S UBMISSIONS, THE LD. CIT(A) AFFORDED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GI VE HIS COMMENTS ON SOME OF THE POINTS PUT FORTH BY THE LD. AR IN THE COURSE OF APPEAL PROCEEDING AND CONCERNED ITO (TDS) FILED REPORT, WHEREIN IN RESPECT OF VARIOUS CLAUSES OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE DISTRIBUTOR S, HE HAS RAISED FOLLOWING POINTS: ' 1) SUB-CLAUSE (V) BELOW THE SUBHEADI NG 'RESPONSIBILITIES OF THE DISTRIBUTOR IN RESPECT OF E-STOCK (PAGE 12) 'THE DISTRIBUTOR SHALL APPOINT AT ITS OWN, IN CONSULTATION WITH VECL, RETAILERS FOR TH E E.STOCK TO SUCH MERCHANTS WHO SHALL OBTAIN A VALID ACCESS CARD FROM THE DISTRIBUTOR AFTER AUTHENTIFICATION FROM VECL. THE SUB-CLAUSE AMPLY SHOWS THAT THE RELATIONSHIP THE APPELLANT HAS WITH THE DISTRIBUTOR'S IS PRINCIPAL-AGENT RELATIONSHIP AS CLAIMED BY THE APPELLANT. IF IT IS PRINCIPAL-PRINCIPAL RELATIONSHIP AS CLAIMED, THERE NEED NOT BE APPROVAL FROM THE APPELLANT FOR APPOINTMENT OF RETAILERS BY THE DISTRIBUTOR. 2) FURTHER, UNDER (ANNEXURE III) BR AND IMAGE GUIDELINES (PAGE 13 OF THE AGREEMENT) SUB- CLAUSE (I) STATES AS UNDER: 'NOT DURING THE CONTINUANCE OF THE AGREEMENT (AND FOR THE PERIOD OF 1 YEAR AFTER ITS TERMINATION (WHETHER ALONE OR JOINTLY AND WHETHER DIRECTLY OR INDIRECTLY) BE CONCERNED OR INTERESTED IN MARKETING ,DISTRIBUTION OR SERVICE OF ANY SERVICE TICKETS WHICH ARE SIMILAR TO OR COMPETITIVE WITH ANY OF THE SERVICE TICKETS OR PERFORM THE SAME OR SIMILAR FUNCTIONS . FROM THE ABOVE IT IS QUITE CLEAR THAT THE DISTRIBUTOR IS BARRED FROM TRADING/'DISTRIBUTING ANY OTHER SERVICE TICKETS OF ANY OTHER COMPANY EVEN AFTER TERMINATION OF THE AGREEMENT WITH THE APPELLANT COMPANY AND THERE IS AN OBLIGATION TO THAT EFFECT WITH THE DI STRIBUTOR. HENCE, IT CAN BE RIGHTLY INFERRED THAT THE DISTRIBUTOR IS NOT THE PERSON WHO MERELY BUYS SERVICE TICKETS FROM THE APPELLANT EVEN AFTER THE TERMINATION OF THE AGREEMENT. ITA NO.1415 & 1416/MDS/09 7 3. BESIDES THIS} SUB-CLAUSES (N)} (V) )( W) AND (Y) OF ANNEXURE III AMPLY SHOWS THAT THE DISTRIBUTORS HAS PRINCI PAL-AGENT RELATIONSHIP. SUB CLAUSE (N) STATE AS UNDER;-- A) THE DISTRIBUTOR SHALL ((USE VECL'S TRADE MARKS AND TRADE NAMES RELATING TO THE SERVICE TICKETS ONLY IN THE REGISTERED OR AGREED STYLE IN CONNECTION WITH THE MARKETING AND SALE S OF THE SERVICE TICKETS AND SHALL NOT USE SUCH TRADE MARKS OR TRADE NAMES IN CONNECTION WITH ANY OTHER PRODUCTS OR SERVICES OR AS PART OF THE CORPORATE OR ANY TRADE NAME OF THE DISTRIBUTOR'. BY THIS SUB CLAUSE) THE DISTRIBUTOR IS BANNED FROM MARKETING/ DISTRIBUTING/ SALE OF THE SERVICE TICKETS OF ANY OTHER TRADE NAME. THIS ALSO POINT TO THE FACT THAT THE DISTRIBUTOR IS AN AGENT OF THE APPELLANT. B) SUB CLAUSE (V) STATES THAT THE DISTRIBUTOR SHALL CO-OPERATE WITH VECL IN THE RECALL OF ANY OF THE SERVICE TICKETS FOR SAFETY CHECKS OR MODIFICATION'. FROM THIS IT IS OBVIOUS THAT THE DISTRIBUTOR HAS NO CONTROL OVER THE SERVICE TICKETS HE HAD PURCHASED FROM THE APPELLANT. DISTRIBUTOR IS UNDER OBLIGATION TO RE SUBMIT THE SERVICE TICKETS AS AND WHEN THE APPELLANT DEMANDS. HAD IT BEEN AN OUT RIGHT PURCHASE HE WO ULD' BE UNDER NO CIRCUMSTANCES OBLIGED TO RETURN THE SERVICE TICKETS TO THE APPELLANT. THIS CLEARLY INDICATES THAT THERE IS A PRINCIPAL- AGENT RELATIONSHIP. C) SUB CLAUSE (W) STATES THAT THE DISTRIBUTOR SHALL 'PROVIDE FECL WITH QUARTERLY STOCKS REPORTS SHOWING THE DIST RIBUTORS STOCK OF EACH OF THE SERVICE TICKETS AT BEGINNING AND END OF EACH QUARTER AND THE MOVEMENT OF STOCKS DURING THE QUARTER AS PER THIS SUB CLAUSE, THE DISTRIBUTOR IS SUPPOSED TO GIVE QUARTERLY REPORTS OF STOCKS OF EACH OF THE TICKETS TO THE APPELLANTS. IF THE STOCK OF SERVICE TICKETS HAD BEEN PURCHASED AS IN THE 'BUYER-SELLER' STYLE, REPORTS ON STOCK OF THE SAME NEED NOT BE GIVEN TO THE SELLER I.E, APPELLANT. D) SUB CLAUSE (Y) OF ANNEXURE IN STATES THAT THAT THE DISTRIBUTOR SHALL PERMIT VECL AND ITS AUTHORIZED AGENTS AT ALL RESPONSIBLE TIMES TO ENTER ANY OF THE DISTRIBUTION PREMISES FOR TH E PURPOSE OF ASCERTAINING THAT THE DISTRIBUTOR IS COMPLYING WITH ITS OBLIGATIONS UNDER THIS AGREEMENT. E) THE FOLLOWING ARE ALSO BROUGHT TO KIND ATTENTION OF CIT(APPEALS): THE APPELLANT'S CONTENTION IS THAT THE FAVORABLE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL DELHI IN THE CASE OF IDEA CELLULAR LIMITED VS. DCIT WOULD APPLY TO THEIR CASE. IN PARA 4 OF THE TR IBUNAL'S ORDER, IN ITA NO. 30311 DELL 2006 DATED 28-03-2008 THE FOLLOWING OBSERVATION HAS BEEN MADE. ITA NO.1415 & 1416/MDS/09 8 PMAS (DISTRIBUTORS) APPOINTED THE RETAILERS WITHOUT APPROVAL OF THE IDEA CELLULAR AND HENCE THE IDEA CELLULAR DID NOT HAV E ANY CONTROL ON THE APPOINTMENT OF RETAILERS BY THE DISTRIBUTORS. THEREFORE, IT COULD NOT BE SAID THAT THERE EXIST PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR. IN CONTRAST, THE RELEVANT PORTION OF AGREEMENT IN THE CASE APPELLANT READS AS FOLLOWS IN PARA 13, IN PAGE OF 6/16 OF THE AGREEMENT DATED 28'L2'2007 UNDER THE HEAD 'ASSIGNMENT' IT IS STATED THAT 'THE DISTRIBUTOR SHALL NOT ASSIGN ANY RIGHT OR OBLIGATION TO ANY THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT OF VECL. ' ANNEXURE II PARA(V) OF RESPONSIBILITIES OF THE DISTRIBUTOR IN RESPECT OF E STOCK READS (I.E.) PAGE 12 OF 16 OF THE AGREEMENT DATED 28 TH DECEMBER, 2007) 'THE DISTRIBUTORS SHALL APPOINT AT ITS OWN CONSULTATION WITH VECL RETAILERS FOR THE E STOCK TO SUCH MERCHANTS WHO SHALL OBTAIN A VALID ACCESS CARD FROM THE DISTRIBUTOR AFTER AUTHENTIC ATION FROM VECL. HOWEVER VECL SHALL NOT BE LIABLE FOR ANY ACT OR OMISSION OF THE MERCHANT OR DISTRIBUTOR' THE SUB CLAUSE AMPLY SHOWS THAT THE RE LATIONSHIP THE APPELLANT HAS WITH THE DISTRIBUTOR IS THAT OF PRINCIPAL AGENT ONLY. OTHERWISE THERE NEED NOT BE NECESSITY FOR APPROVAL IN CONSULTATION WITH THE APPELLANT FOR A PPOINTMENT OF RETAILERS BY THE DISTRIBUTOR. THE VERY CONCEPT OF APPOINTING THE DISTRIBUTOR BY M/ S VECL, AT ITS OWN TERMS & CONDITIONS NEGATES THE TENETS OF PRINCIPAL TO PRINCIPAL RELATIONSHIP AS CLAIMED. 2. THOUGH THE APPELLANT CLAIMS IN PARA 4 OF PAGE 2 OF THE REPRESENTATION BEFORE THE COMMISSIONER IN ITA NO: 39-C OF 08-09 THAT, CLAUSE 17.2 OF THE AGREEMENT CLEARLY REFERS TO THE TERM 'SELLER & BUYER' THEN THE NECESSITY OF HAVING A CONDITION AS REFERRED TO IN PARA 17.1 (PAGE 7/16 OF THE AGREEMENT DATED 28.12.2007), UNDER THE HEADING NO CREATION OF THIRD PARTY OBLIGATION DOES NOT APPEAR TO BE CLEAR. THE RELEVANT CONDITION IS REPRODUCED BELOW. 'NOTWITHSTANDING ANYTHING CONTRARY CONT AINED HEREIN, THE DISTRIBUTOR SHALL NOT, WITHOUT VECL'S PRIOR SPECIFIC APPROVAL CONSENT IN WRITING, ASSUME OR CREATE ANY OBLIGATIONS ON VECL'S BEHA LF OR INCUR ANY LIABILITY ON BEHALF OF VECL OR IN ANY WAY PLEDGE OR PURPORT TO PLEDGE VECL'S CREDIT OR ACCEPT ANY CONTRACT BINDING UPON VECL ALSO 18.2(A) OF THE AGREEMENT PAGE 8/16 READS AS FOLLOWS: ALL INTELLECTUAL PROPERTY RIGHTS IN OR RELATING TO THE SERVICE TICKETS ARE AND SHALL REMAIN THE PROPERTY OF VEC,L OR ITS LICENSORS. ACTIVATION OF THE PREPAID SIM CARD IS IN THE DOMAIN OF THE APPELLANT HENCE, THE DISTRIBUTOR DOES NOT HAVE PRINCIPAL TO PRINCIPAL RELATION VIS.A.VIS APPLICANT. ITA NO.1415 & 1416/MDS/09 9 CLAUSE 10.1L UNDER 'EFFECT OF TERMINATION IN PAGE 6/16 OF THE AGREEMENT CONTAINS THE FOLLOWING:- THE DISTRIBUTOR HEREBY AGREES TO GRANT AN IRREVOCABLE LICENSE TO VECL AND ITS DESIGNATED EMPLOYEES TO ENTER THE PREMISES AND REMOVE ALL VECL SIGNAGE'S IF THE DISTRIBUTOR HAS NOT DONE SO ITSELF TO THE SATISFACTION OF VECL WITHIN 7 DAYS OF TERMINATION OF THE AGREEMENT. FROM THE ABOVE IT IS QUITE EVIDENT THAT THE DISTRIBUTOR IS UNDER THE OBLIGATION TO ALLOW THE APPELLANT OR ITS AUTHORIZED AGENTS TO ENTER ANY OF THE DISTRIBUTORS PREMISES FOR ENSURING THAT THE DISTRIBUTOR IS COMPLYING WITH HIS OBLIGATIONS. IF THE SERVICE TICKETS PURCHASED BY THE DISTRIBUTORS IS IN ACCORDANCE WITH THE COMMON COMMERCIAL PARLOR OF PURCHASE AND SALE NO SUCH COMPLIANCE IS TO .BE OBSERVED BY THE PURCHASER. CBDT IN ITS CLARIFICATION TO QUERY BY INS (INDIAN NEWS SERVICE) OBSERVED THUS, 'A DISCOUNT IS GIVEN ON SALE OR PURCHASE OF AN ARTICLE IN WHICH THERE IS NO AGREEMENT BETWEEN THE SELLER AND THE BUYER. 'THE BOARD EXAMINED THE CONTENTIONS OF THE INS THAT SUCH PAYMENT IS IN THE NATURE OF A DISCOUNT. THE DISCOUNT IS GIVEN ON SALE OF PURCHASE OF AN ARTICLE IN WHICH THERE IS NO AGREEMENT BETWEEN SELLER AND BUYER. THE BOARD FOUND THAT THE INS GRANTED ACCREDITATION TO THE ADVERTISING AGENCY AND USUALLY THE NEWSPAPERS WOULD ENTER INTO AN AGREEMENT WITH AGENCIES. HENCE, THE NEWSPAPERS AND AGENCIES WERE NOT ACTING INDEPENDENTLY AND THE AGENCY WAS IN FACT AN AGENT OF THE NEWSPAPER AND WAS BEING PAID A COMMISSION FOR THE SERVICES RENDERED. ON THE BASIS OF ABOVE CIRCULAR, THE NATUR E OF THE APPELLANT TRANSACTIONS CANNOT BE TREATED AS PRINCIPAL TO PRINCIPAL BASIS. UNDER THE HEADING TRAINING' UNDER PARA 6.1 OF THE DISTRIBUTORSHIP AGREEMENT, IT IS STATED AS UNDER: VECL SHALL PROVIDE TRAINING IN THE USE OF INSTALLATION AND RENDERING OF AFTER SALE SERVICES IN RESPECT OF THE SERVICE TICKETS TO THE DISTRIBUTOR AND ITS PERSONNEL WHENEVER REQUIRED. SUB CLAUSE (M) SAYS THAT THE DISTRIBUTOR SHALL SUPPLY TO VECL SUCH REPORTS, RETURNS, OTHER INFORMATION RELATING TO ORDERS AND PROJECTED ORDER FOR THE SERVICE TICKETS AS VECL MAY FROM TIME TO TIME REASONABLY REQUIRE. COMMISSION PAID TO CELLULAR COMPANIES TO SELLERS OF THE STARTER PACKS AND RECHARGED COUPONS FOR CELL PHONES IS ONE OF THE AREAS RECOMMENDED FOR TDS AS PER ACTION PLAN FOR F Y 2008-09. FROM THE ABOVE FACTS, IT IS CRYSTAL CLEAR THE DISTRIBUTOR HAS ONLY AGENT PRINCIPAL RELATIONSHIP. THE DECISION OF THE DELHI TR IBUNAL IN THE CASE OF DCIT VS IDEA ITA NO.1415 & 1416/MDS/09 10 CELLULAR LIMITED DOES NOT APPLY TO THE FACTS OF THE APPELLANT'S CASE.' 4.1 THE LD. CIT(A) GAVE A COPY OF SUCH REPORT FILED BY THE ITO TO THE ASSESSEE, WHOSE AR SUBMITTED HIS REPLY AS UNDER: 4.1 AS REGARDS THE FIRST ISSUE, IT IS SUBMITTED THAT BY THE VERY NATURE OF THE PRODUCT SUCH NECESSITY OF GETTING AUTHENTIC ATION BECOMES NECESSARY. FURTHER, VECL HAS EARNED NATIONAL AND INTERNATIONAL REPUTATION. ITS PRODUCT HAS A NAME AND VALUE. THEREFORE, THE RETAILERS WHO SELL TH E PRODUCT HAVE AN IMPORTANT ROLE TO PLAY IN PRESERVING AND MAINTAINING THE IMAGE OF THE PRODUCT. THEY SHOULD BE CAPABLE OF DISPLAYING EFFECTIVEL Y THE VALUE AND QUALITY OF THE PRODUCT. THEY ARE ALSO REQUIRED TO POSSESS THE NECESSARY INFRASTRUCTURE, FURNITURE AND PLACE FO R THE SALE OF THE PRODUCT. ANY GRIEVANCE OR COMPLAINT OF THE CUSTOMER WOULD CREATE AN ADVERSE IMPACT ON THE IMAGE AS WELL AS MARKET OF THE PRODUCT. ONLY WITH THE AIM AND INTENTION OF ENSURING THAT THE RETAILERS ARE CAPABLE OF DEALING WITH THESE PRODUCTS AND IN ORDER TO SATISFY THAT THE RETAILE RS ARE CAPABLE OF SELLING THE PRODUCTS, THE CLAUSE NECESSITATING THE APPROVAL HAS BEEN INSERTED. WHILE SUM AND SUBSTANCE OF THE WHOLE TERM OF THE AGREEMENT CLEARLY MEANS THAT THE GOODS ARE TRANSFERRED TO THE DISTRIBUTORS RAISING INVOICES, THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER TO SAY THAT BECAUSE OF THE APPROVAL CLAUSE ONLY IT COULD BE ASSUMED THAT THE VECL HAS CONTROL OVER THE DISTRIBUTORS AND FOR THIS REASON THE RELATIONSHIP WILL BE THAT OF PRINCIPAL AND AG ENT. THIS SORT OF PROCEDURE CAN ALWAYS BE FOUND IN THE CASE OF MANUFACTURING COMPANIES WHO DE AL WITH REPUTED PRODUCTS IN THE COUNTRY, LIKE CAR, ELECTRONIC EQUI PMENTS AND COMPUTERS. UNLESS, THEY VERIFY THE ABILITY OF THE RETAILER TO DISPLAY AND SELL THE PRODUCTS EFFECTIVELY, THEIR IMAGE MAY SUFFER. 4.2 IN REGARD TO THE SECOND POINT RA ISED BY THE ASSESSING OFFICER, IT WAS CONTENDED THAT THAT SUCH EXCLUSIVITY OF TH E DISTRIBUTION OF THE PRODUCTS OF VECL IS REQUIRED FOR THE EFFECTIVE MAINTENANCE OF THE REVENUES OF VECL. THE DISTRIBUTORS WITH THEIR INFLUENCE AND RELATIONSHIP THAT THEY HAVE GAINED WITH THE CLIENTS IN THE ITA NO.1415 & 1416/MDS/09 11 COURSE OF THEIR DISTRIBUTI ONSHIP WITH VECL AND WITH THEI R EXPERIENCE AND ABILITY MAY TERMINATE THIS AGREEMENT AND IMME DIATELY COMMENCE THE SALE OF RIVAL COMPANIES PRODUCTS. ALONG WITH THE PRODUCTS OF VECL THEY MAY ALSO DEAL WITH THE OTHER COMPANY PRODUCTS. IF SUCH AN ACT IS DONE, IT WOULD ADVERSELY AFFECT THE INTEREST OF VECL AND WILL HAVE ADVERSE IMPACT OF THE MARKETING OF VECL'S PRODUCTS IN INDIA. IN INDIA, THE VECL HAS TO FACE STIFF COMPETITION ALONG WITH E QUALLY REPUTED COMPANIES. ONLY WITH A VIEW TO SAFEGUARD THE INTERESTS OF THE MARKETING REVENUES OF VECL, THIS CLAUSE HAS BEEN FOUND NECESSARY. IT COULD BE FOUND THAT SUCH EXCLUSIVITY OF THE SALE OF PRODUCTS BY THE RETAILERS OR DISTRIBUTORS COULD BE FOUND IN RESPECT OF ANY OTHER BRANDED PRODUCTS, LIKE TVS, REFRIG ERATORS, CARS, PETROLEUM PRODUCTS ETC. EVEN AFTER TERMINATION OF THE AGENCY, SUCH SAFEGUARD IS NECESSARY. THE ASSESSING OFFICER HAS ERRED IN STATING THAT EVEN AFTER TERMINATION OF THE AGREEMENT, THE RELATIONSHIP WOULD CONTINUE. LEGALLY, IT IS NOT POSSIBLE. IN THE CIRCUMSTANCES, MERELY BECAUSE OF THE FACT THAT THERE IS A STIPULATION THAT THE DISTRIBUTOR IS BARRED FROM MARKETING OTHER PRODUC TS DURING THE CONTINUANCE OF THE AGREEMENT AND FOR THE PERIOD OF ONE YEAR AFTER TERM INATION, CANNOT MAKE THE RELATIONSHIP AS PRINCIPAL AND AGENT., WHEN OTHERWISE THERE IS A CLEA R TRANSFER OF GOODS BY VECL TO THE DISTRIBUTOR BY WAY OF SALE. 4.3 AS REGARDS THE THIRD POINT, IT IS SUBMITTED THAT THE CLAUSES HAVE NOT BEEN PROPERLY UNDERSTOOD. WHAT IS REQUIRED IN TH IS CLAUSE IS THAT THE DISTRIBUTORS ARE REQUIRED TO USE VECL'S TRADE NAMES RELATING THE SERVICE TICKETS IN THE REGISTERED AGREED STYLE AND THEY ARE PROHIBITED FROM USING SUCH TRADE NAMES FOR MARKETING AND SALE/OF SERVICE TICKETS OF ANY OTHER PR ODUCTS. THIS CLAUSE HAS NATURALLY BEEN INSERTED IN ORDER TO AVOI D ANY MISUSE OF VECL'S BRAND NAME BY THE DISTRIBUTORS. THIS HAS NO IMPACT ON THE RELATIONSHIP AS VIEWED BY THE ASSESSING OFFICER. 4.4 CITING CLAUSE (V), THE ASSESSING OFFICER STATES THAT IT IS OBVIOUSLY KNOWN THAT THE DISTRIBUTOR HAS NO CONTROL OVER THE SERVICE TICKETS PURCHASED FROM THE APPELLANT AS HE IS UNDER OBLIGATION TO RE -SUBMIT THEM AS AND WHEN THE APPELLANT DEMANDS. HAD IT BEEN AN OUTRIGHT PURCHASE, UNDER NO CIRCUMSTANCES, THE ITA NO.1415 & 1416/MDS/09 12 DISTRIBUTOR IS OBLIGATED TO RETURN THE SE RVICE TICKETS. THIS CLAUSE CLEARLY RELATES THAT THE RELATIONSHIP IS THAT OF PRINCIPAL TO AGENT ONE ONLY. HERE ALSO IT IS SUBMITTED WHAT CLAUSE (V) REQUIRES IS THAT THE DIST RIBUTORS ARE REQUIRED TO COOPERATE WITH VECL IN THE MATTER OF RECALL OF SERVICE TI CKETS FOR SAFETY CHECKS OR MODIFICATIONS. THIS CLAUSE EXISTS ONLY FOR THE LIMITED PUR POSE TO ENSURE THE SAFEGUARD OF THE PRODUCT. FURTHER, IF VECL HAS DECIDED TO MODIFY ITS PRODUCTS AND HAS ADVERTISED SUCH MODIFICATIONS, NATURALLY THE PRODUCTS TH AT ARE TO BE SOLD OUGHT TO BE MODIFIED OR ELSE THE CUSTOMERS MAY INSIST ON SUCH MODIFIED PRODUCT. THE ASSESSING OFFICER IS NOT JUSTIFIED IN CONCLUDING THAT THIS CLAUSE MEANS THAT VECL HAS RIGHT TO RECALL EACH AND EVERY SERVICE TICKETS SOLD AND HENCE IS EXERCISING A CONTROL OVER THE DISTRIBUTORS. BECAUSE OF THIS FACTOR, IT IS NOT CORRECT TO HOLD THAT THERE IS ONLY A PRINCIPAL - AGENT RELATIONSHI P ON ACCOUNT OF EXISTENCE OF THIS CLAUSE . REQUIRING THE CO-OPERATION OF THE DISTRIBUTOR FOR THE LIMITED PURPOSE OF MAKING SAFETY CHECK OR MODIFICATION DOES NOT MEAN THAT VECL IS EXERCISING COMPLETE CONTROL OF THE PRODUCTS SOLD TO THE DISTRIBUTORS. POINTI NG CLAUSE (W), THE ASSESSING OFFICER STATES THAT BECAUSE OF THE DI STRIBUTOR IS REQUIRED TO FURNIS H QUARTERLY REPORTS OF STOCKS OF EACH OF THE SERVICE TICKETS TO THE APPELLANT, THERE IS NO PRINCIPAL TO PRINCIPAL RELATIONSHIP. HE IS OF THE VIEW THAT IF THE STOCK OF SERVICE TICKETS HAD BEEN PURCHASED, THEN, THE REPORTS ON THE STOCK OF TH E SALE NEED NOT BE GIVEN TO THE SELLER. IN REGARD TO THE ARGUMENTS, IT IS SUBMITTED THAT THIS CL AUSE HAS BEEN INTRODUCED ONLY WITH AN AIM OF THE COMPILATION OF THE STATIS TICS WITH A VIEW TO STUDY THE MARKET CONDITIONS AND THE MOVEMENT OF THE GOODS ON DAY-TO-DAY BASIS. DEPENDING UPON THE STOCKS HELD BY THE DISTRIBUTORS VECL WILL BE ABLE TO MONITOR AND MAINTAIN THE SUPPLY OF GOODS. A REPUTED COMPANY LIKE VEC L WOULD NATURALLY BE INTERESTED IN COLLECTING STATISTICS REGARDING THE SU PPLY AND DEMAND OF THE GOODS AND EXTENT OF STOCK HELD AT ANY POINT OF TIME. THIS W OULD ALSO ENABLE VECL TO COMPARE THE SALE AND MOVEMENT OF ITS PRODUCTS WITH OTHER COMPETITORS. IF THERE IS STAGNATION OF UNSOLD GOODS, THEN VECL HAS TO NECESSARILY TO TAKE REMEDIAL MEASURE TO IMPROVE THE MOVEMENT OF ITS GOODS. THEREFORE, ON ACCOUNT OF THIS CLAUSE, THE ASSESSING OFFICER HAS NO JUSTIFICATION TO CONCLUDE THAT THE RELATIONSHIP WOULD BE THAT OF ITA NO.1415 & 1416/MDS/09 13 PRINCIPAL TO AGENT AS VECL WOULD REQUIRE THE DISTRIBU TORS TO SUBMIT INFORMATION REGARDING QUARTERLY STOCKS HELD. CLAUSE (Y ) ONLY REQUIRES THE DISTRIBUTORS TO PERMIT VECL OR ITS AUTHORIZED AGENTS AT ALL REASONABLE TIMES TO ENTER THE DISTRIBUTORS' PREMISES FOR THE PURPOSE OF ASCERTAINING THAT THE DISTRIBUTOR IS COMPLYING WITH ITS OBLIGATIONS UNDER THE AGREEMENT. THIS CLAU SE ONLY ENABLES THE VECL TO ENTER THE DISTRIBUTORS' PREMISES FOR THE LIMITED PUR POSE OF ENSURING WHETHER THE DISTRIBUTORS ABIDE BY THE OBLIGATIONS. THIS CLAUSE IS INSERTED ONLY FOR SA FEGUARDING THE BUSINESS INTERESTS AND THIS WILL NOT IN ANY WAY HAVE AN IMPACT ON THE RELATIONSHIP. 4.5 AS REGARDS THE ASSESSING OFFICER'S CITING CLAUSE 17 (1), IT WAS SUBMITTED THAT THIS CLAUSE ONLY MEANS THAT DISTRIBUTOR IS NOT EMPOWERED TO ASSUME OR CREATE ANY OBLIGATION ON VECL'S BEHALF OR INCUR ANY LIABILITY ON BEHALF OF VECL OR IN ANY WAY PLEDGE, OR CREATE ANY CREDIT OR A CCEPT ANY CONTRACT BINDING UPON VECL. THIS CLAUSE ALL THE MORE EXPLAINS THAT THE RE LATIONSHIP IS LIMITED AND DISTRIBUTOR IS BARRED FROM ACTING ON BEHALF OF VECL. THEREF ORE, IT IS NOT CORRECT TO CITE THIS CLAUSE FOR HOLDING THAT THE RELATIONSHIP IS THAT OF PRINCIPAL AND AGENT. THE ASSESSING OFFICER POINTS OUT CLAUSE 18 (2 A) OF THE AGREEMENT IN PAGE 8 /16 WHICH SAYS AS FOLLOWS: 'ALL INTELLECTUAL PROPERT Y RIGHTS IN OR RELATING TO THE SERVICE TICKETS ARE AND SHALL REMAIN THE PROPERTY OF VE CL OR ITS LICENSORS' IT IS STATED THAT THE ACTIVATION OF THE PREPAID SIM CARD IS IN THE DOMINE OF THE APPELLANT AND HENCE ITS DISTRIBUTORS DOES NOT HAVE PRINCIPAL TO PRINCIPAL RELATIONSHIP VIS-A-VIS APPELLANT. IT IS SUBMITTED T HAT THIS VIEW IS ERRONEOUS. WHAT IS REITERATED IN CLAUSE 18 (2) IS REGARDING THE PRESERVATION OF RE SERVATION OF INTELLECTUAL RIGHT OF VECL. THIS IS FOR THE LIMITED PURPOSE OF PROT ECTING THE INTELLECTUAL RIGHTS OF THE VECL'S MANUFACTURED PRODUCTS. THIS CLAUSE WILL NOT IN ANY WAY COME IN THE WAY OF DECIDING THE RELATIONSHIP BETWEEN AND SELLER . , IN REGARD TO THE HIGH TECHNICAL VALUE OF THE PRODUCT LIKE SIM CARD THE MANUFACTUR E OF THE PRODUCT IS THE INTELLECTUAL RIGHT OF VECL. THIS RIGHT IS INTENDED TO BE PROTECTED BY INSERTING THIS CLAUSE. 4.6 AS REGARDS THE VIEW OF THE ASSESSING OFFICER'S INTERPRETATIO N OF AGREEMENT IN CLAUSE 10(1) IN PAGE 6 OF THE AGREEMENT, IT IS CONTENDED THAT THIS CLAUSE HAS BEEN WRONGLY UNDERSTOOD BY THE ITO. THIS TERM ONLY STIPULATES THAT AFTER TERMINATION OF ITA NO.1415 & 1416/MDS/09 14 THE AGREEMENT, THE DISTRIBUTOR IS REQUIRED TO REMOVE ALL THE VECL SIGN BOARDS AND OTHER DISPLAY MATERIALS. ONLY IF SUCH A THING IS NOT DONE, THE N, THE VECL GETS THE IRREVOCABLE LICENSE TO ENTER THE PREM ISE AND REMOVE SIGNAGES. THIS CLAUSE WILL OPERATE ONLY AFTER THE TERMINATION OF AGR EEMENT AND NOT DURING THE COURSE OF THE EXISTENCE OF THE AGREEMENT. THEREFORE, THIS CLAUSE IS QUITE IN TUNE WITH THE COMMERCIAL PARLOURS. EVEN AFTER THE TERMI NATION OF THE AGREEMENT, THE DISTRIBUTOR CONTINUES TO HAVE THE INFRASTRUCTURE, THEN, IT SHOULD BE VIEWED AS AN UNFAIR TRADE PRACTICE. ONLY TO NULLIFY SUCH ILLEGAL ACTS, THIS CLAUSE HAS BEEN INSERTED. 4.7 AS REGARDS THE ASSESSING OFFICE R'S CITING THE BOARD'S CIRCULAR AND COMPARING THE SAME TO THE APPELLANT'S CASE , IT IS SUBMITTED THAT SINCE THE ACTIVITY OF THE APPELLANT IS BUYING AND SELLING OF PR ODUCTS AFTER RAISING INVOICES, THE ABOVE CIRCULAR HAS NO APPLICATION. THE ABOVE CIRCULAR WHICH DEALS WITH SERVICES IN REGARD TO ADVERTISING AGENCY CANNOT BE APPLIED TO THE FACTS OF THIS CASE. THE ASSESSING' OFFICER FURTHER ARGUES POINTING OUT THE TERM APPEARING UNDER THE HEAD TRAINING IN PARA 6.1 (PAGE 4) WHICH STATES AS FOLLOWS: 'VECL SHALL PROVIDE TRAINING IN THE USE OF INSTALLATION AND RENDERING OF AFTER SALE AND SERVICE AND IN RESPECT OF SERVICE TICKETS TO THE DISTRIBUTORS AND PERSONNEL WHENEVER REQUIRE' ON THE ASSUMPTION THAT THERE IS ELEMENT OF RE NDERING SOME SERVICE IT IS PRESUMED BY THE ASSESSING OFFICER THAT THERE IS ELEMENT OF SERVICE AND HENCE, THERE IS APPLICABILITY OF SEC. 194 H. IT IS SUBMITTED THAT THIS ASSUMPTION IS NOT CORRECT. THE PRODUCTS SOLD BY VECL ARE OF HIGHLY TECHNICAL NATURE WHEREIN TH E HANDLING OF SUCH PR ODUCTS REQUIRES SKILL AND TRAINING. UNLESS THE SELLERS ARE AWARE OF THE ENTIRE KNOWLEDGE, THEY CANNOT EFFECTIVELY SELL THESE PRODUCTS. WHILE THE SELL ERS OR THE DISTRIBUTORS CANNOT AFFORD TO EMPLOY TECHNICIANS, THE VECL HAS GOT UNDE R ITS EMPLOYMENT SUCH TECHNICIANS. THEREFORE, IN ORDER TO MAINTAIN QUALITY OF SERVICE TO THE CU STOMERS WHO BUY THE PRODUCTS, VECL UNDERTAKES TO PROVIDE TRAINI NG IN USE OF INSTALLATION AND TO RENDER AFTER SALE SERVICES IN RESPECT OF SERVI CE TICKETS TO THE DISTRIBUTORS AND ITS PERSONNEL WHENEVER REQUIRED. THEREFORE, THE INSTA LLATION AND SERVICES HAPPEN ONLY AFTER THE PRODUCT IS SOLD. THEREFORE, WHAT VECL MEANS BY THE TERM IS TO PROVIDE NECESSARY TECHNICAL TRAINING TO THE DISTRIBUTORS' PERSONNEL TO EFFECTIVELY HANDLE THE PRODUCTS ITA NO.1415 & 1416/MDS/09 15 AND RENDER AFTER SALES SERVICE. THESE CLAUSES ARE COMMON IN ALL THE CASES OF BRANDED GOODS SOLD AT THE COUNTRY, FOR EXAMPLE, REFRIGERATOR, WASHING MACHINES, OR COMPUTERS. WHEN THESE EQUIPMENTS AR E SOLD BY THE RESPECTIVE RETAILERS, THE MANUFACTURING COMPANY ALWAYS UNDERTAKES TO TRAIN PERSONNEL FOR TAKING AFTER SALES CARE AND ALSO PROVIDE NECESSARY TRAINING TO THE PEOPLE INSTALLED THESE EQUIPMENTS. IN THE CIRCUMSTANCES, THIS CLAUSE DOES NOT CONVEY THE MEANING THAT THERE IS AN ELEMENT OF SERVICE AT THE TIM E OF OR IN THE COURSE OF BUYING AND SELLING GOODS. VECL DOES NOT PROVIDE THIS SERVICE AT THE TIME OF TRANSFER OF GOODS. THIS IS WHAT IS COVERED BY SECTION 194 H. 4.8 IT IS SUBMITTED THAT IN BHARTI CE LLULAR'S CASE THEY HAVE BEEN INITIALLY DEDUCTING TAX ON THE DISCOUNT AND LATER DISCON TINUED AS IS EVIDENT FROM THE ITAT'S DECISION. FURTHER AS PER TERM 4.8 OF AGR EEMENT OF BHARTI CELLULAR (AS CITED BY ITAT) THERE IS A DENIAL OF RIGHT OR TITLE OF PREPAID CARDS TO THE DISTRIBUTOR. IN THE APPELLANT'S CASE, NO SUCH CLAUSE EXISTS. CERTAIN CLAUSES RECALL OF GOODS SOLD ARE EXISTING WITH THE LIMITED AIM OF MONITORI NG THE QUALITY OR SAFETY CHECKS OR QUALITY MODIFICATION OTHERWISE THERE IS NO SUCH RESTRICTION ON THE RIGHTS OF GOODS TRANSFERRED OR SOLD TO VECL ON THE BASIS OF SALE INVOICES. 4.9 IT IS ALSO CONTENDED THAT IT IS NOT FAIR TO PICK UP A FEW CLAUSES OF THE AGREEMENT HERE AND THERE TO ARGUE THAT THER E IS RELATIONSHIP OF PRINCIPAL AGENCY. BUT, IF THE AGREEMENT IS READ AS A WHOLE THE EFFECT OF TRANSAC TIONS AND THE NATURE OF RELATIONSHIP WOULD EMERGE CLEARLY. WHEN THE REPUTED PRODUCT S AND BRANDED GOODS ARE SOLD TO THE DISTRIBUTORS GENERALLY THESE CLAUSES HAVE TO EXIST IN ORDER TO KEEP THE TEMPO OF SALES TO MEET THE DEMAND OF THE MARKET, TO FACE COMPETITION AND TO MAINTAIN THE BRAND IMAGE NAME AND QUALIFY OF THE PRODUCTS. 4.10 AS REGARDS THE POINT RAISED REGARDING THE RETENTION OF IN TELLECTUAL PROPERTY, IT WAS SUBMITTED THAT THE INTELLECTUAL PROPE RTY RIGHTS, TRADE MARKS, ARE ALWAYS THE PROPERTY OF VECL OR FOR THAT MATTER ANY COMPANY MANUFACTURING THE HIGHLY BRANDED PRODUCT WOULD ONLY FOLLOW THIS METHO D. IRRESPECTIVE OF THE FACT THERE IS SUCH A MENTION IN THE AGREEMENT OR NOT THE DISTRIBUTORS SHALL ALWAYS HAVE NO RIGHT IN SUCH BRAND NAME ETC. THEREFORE, RAISING THIS POINT AGAINST THIS ISSUE IS UNFAIR. ITA NO.1415 & 1416/MDS/09 16 4.11 IT WAS SUBMITTED THAT BY THE ID THAT THE DECISION OF IT AT IN BHARTI CELLULAR IS BASED ON THE DECISION IN THE CASE OF C I T VS HINDUSTAN COCA COLA COMPANY COLD BEVERAGES (JAIPUR BENCH IN 97 ITO 105). BUT, IT IS SEEN FROM THIS DECISION THAT THE HON'BLE TRIBUNAL DR EW ADVERSE VIEW ON ACCOUNT OF THE FACT THAT THERE WAS NO WRITTEN AGREEMENT AND THAT THERE WAS A RE STRICTION THAT COCA COLA INSISTED AT WHAT PRICE THE SELLER SHOULD SELL THE PRODUCT, FURTHER IN THE COURSE OF SURVEY, THE DEPARTMENT FOUND CERTAIN MATERIALS TO POINT OU T THAT THE DISCOUNT IS IN THE FORM OF COMMISSION ONLY. IT WAS ALSO FOUND THAT THE COMPANY COCA COLA UNDERTOOK TO REIMBURSE THE EXPENSES OF THE AGENTS ON DI ESEL, PETROL, VEHICLE, SALARY OF SALESMEN AND LEAKAGE BREAKAGE CLAIM. THE COMPANY ALSO GAVE AN UNDERTAKING THAT LOSS INCURRED BY THE SELLERS ON ACCOUNT OF SELLI NG THE PRODUCT AT THE PR ICE STIPULATED BY COCA COLA WOULD BE REIMBURSED. ONLY ON ACCO UNT OF THESE CLAUSES, IT WAS HELD THAT THERE WAS PRINCIPAL TO AGENCY RELATIONSHIP. THEREFORE, THERE IS NO COMPARISON OF FACTS OF HINDUSTAN COCA COLA CASE TO THE CASE OF THE APPELLANT. THERE IS NO COMPARISON OF BHARTI CELLULAR'S CASE TO THE FACTS OF THE CASE. THE APPELLANT SUBMITS THAT THE ABOVE FACTS HAVE BEEN CONSIDERED IN DETAIL BY THE DELHI 'A' BENCH OF THE IT AT TRIBUNAL IN THE CASE OF M/S IDEA CELLULAR LIMITED VS DCIT, AND ON IDENTICAL FACTS IT WAS HELD THAT PROVISIONS OF S ECTION 194H ARE NOT APPLICABLE. A COPY OF THE DECISION OF HON'BLE ITAT P UNE BENCH IN ITA NO.957 TO 960/ PUNE/ 2006 DATED 28.04.2008 IN THE CASE OF FOSTER INDIA (P) LTD. VS I T O. IS SUBMITTED. IN THIS CASE, THE ITAT HAS CONSIDERED BOTH THE DECISION RENDERED IN THE CASE OF ACIT VS BHARTI CELLULAR LIMITED AND IN THE CASE OF C IT VS HINDUSTAN COCA COLA BEVERAGES. THE ITAT TOOK INTO THE CONSIDERATION THE BI NDING NATURE OF APEX COURT IN THE CASE OF BHOPAL SUGAR INDUSTRIES LIMITED VS S T 0 AIR 1977 OF SC 1279 AND WAS CITED BY THE LEARNED IT AT AS UNDER: ' THE ESSENCE OF THE MATTER IS THAT IN A CONTRACT OF SALE, TITLE AND THE PROPERTY PASSES ON TO THE BUYER ON THE DELIVERY OF GOODS FOR A PRICE PAID OR PROMISED. ONCE THIS HAPPENS, BUYER BECOMES THE OWNER OF THE PROPERTY AND BUYER HAS NO VESTIGE LEFT IN THE PROPERTY. THE CONCEPT OF SALE, HOWEVER, HAS UNDERGONE REVOLUTIONARY CHANGE, HAVING REGARD TO THE COMPLEXITIES OF THE MODERN TIMES AND EXPANDING ITA NO.1415 & 1416/MDS/09 17 NEEDS OF SOCIETY, WHICH HAS MADE A DEPARTU RE FROM THE DOCTRINE OF LAISSEZ FAIRE BY INCLUDING A TRANSACTION WITHIN THE FOLD OF A SALE EVEN THOUGH THE SELLER MAY, BY VIRTUE OF AGREEMENT, IMPOSES A NUMBER OF CONDITIONS ON THE BUYER E.G. FIXATION OF PRICE, SUBMISSION OF ACCOUNTS, SELLING IN A PARTICULAR AREA OF TERRITORY AND SO ON. THESE RESTRICTIONS PER SE WOULD NOT CONVERT A CONTRACT OF SALES INTO A CONTRACT OF AGENCY, BECAUSE IN SPITE OF THESE RESTRICTIONS, THE TRANSAC TION WOULD STILL BE A SALE AND SUBJECT TO ALL THE IN CIDENTS OF SALE. 4.12 ON THE BASIS OF THE ABOVE OBSERVATION OF THE HON'BLE SUPREME COURT CITED, THE HON'BLE TRIBUNAL CONCLUDED THAT TH E NORMATIVE EFFECT OF THE JUDGMENT OF HON'BLE SUPREME COURT IS OBVIOUSLY FAR GREA TER THAN THAT OF THE JUDGMENT OF THE CO- ORDINATE BENCHES. ON THE BASIS OF CONC LUSION, THE HON'BLE TR IBUNAL DECIDED THAT ONCE ON THE BASIS OF THE PRINCIPLES DECIDE D BY THE SUPREME COURT, IF THE NATURE OF RELATIONSHIP BETWEEN THE APPELLANT AND THE DISTRIBUTOR IS THAT OF PRINCIPAL AND PRINCIPAL, THEN THE NATURE OF DISCOUNT DEDUCTED FROM THE SALE INVOICES AT THE TIME OF SALE OF GOODS WILL NOT BE IN THE NATURE OF COMMISSION FALLING WITHIN THE DEFINITION OF SECTION 194H. 4.2 THE LD. AR OF THE ASSESSEE, ON T HE BASIS OF THE ABOVE SUBMISSIONS HAS PLEADED THAT THE ORDER OF THE ITO UNDER SECTIONS 201 AND 201(1A) BE VACATED. 5. THE LD. CIT(A), WHILE CONSIDERING AND ACCEPTI NG THE PLEA OF THE ASSESSEE HAS CONCLUDED TO HOLD THAT THE TRANSACTION OF SALE AND PURCHASE OF GOODS BETWEEN THE ASSESSEE AND ITS DISTRIBUTOR WAS THAT OF PRINCIPLE TO PRINCIPLE BASIS AND PROVISIONS OF SECTION 194H ARE NOT APPLICABLE, WHILE REFERRING AND DISCUSSING DECISIONS IN THE CASE OF KE RALA STATE STAMP VENDORS ASSO CIATION V. OFFICE OF THE ACCOUNTANT GENERAL AND OTHER S 282 ITR 7, BHOPAL SUGAR INDUSTRIES LTD. V. STO [1977] 40 STC 42(SC), ACIT VS. BHARTI CELLULAR LIMITED (I.T.A. NO. 1678 AND 1679 ITA NO.1415 & 1416/MDS/09 18 (KOL) DATED 04.04.2006, IDEA CELLULAR (I.T.A. NO. 3031/ DEL/2005 AND DELHI BENCN DECISION IN ITA NO1875/ DEL/2006 DATED 28.03.2008. 6. AGGRIEVED BY SUCH ORDER OF THE LD . CIT(A), THE DEPARTMENT HAS COME UP IN APPEAL FOR BOTH THE YEARS BY RAISING FOLL OWING IDENTICAL COMMON GROUNDS NO. 2 TO 2.8, WHEN GROUND NO.1 IS GENERAL AND GROUND NO . 3 IS PRAYER PART. SO THE EFFECTIVE COMMON GROUNDS 2 TO 2.8 ARE AS UNDER: 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE NATURE OF TRANSACTION BETWEEN M/S VODAFONE ESSAR CELLULAR LT D(VECL) AND ITS DISTRIBUTORS IS ON PRINCIPAL TO PRINCIPAL ONLY AND THAT THE PROVISIONS OF SECTION 194H OF THE IT ACT ARE NOT APPLICABLE. 2.1 THE LD. C!T(A) HAVING REFE RRED TO THE HON'BLE APEX COURT DECISION IN THE CASE OF BHOPAL SUGAR INDUSTRIE S 40 STC OUGHT TO HAVE APPRECIATED THAT THE ALLE GED SALE OF SIM CARD, SERVICE COUPONS ETC. BY M/S VECL TO THE DISTRIBUTOR DOES NOT BY ITSELF ANY TRANSFER OF PROPERTY AT THAT POINT OF TIME BUT IT ONLY REFLEC TS COMMITMENT TO RENDERING SERVICE TO THE CUSTOMERS. 2.2. THE LD. CIT{A) OUGHT TO HAVE APPRECIATED THAT CLAUSE 22 OF THE CUSTOMER AGREEMENT WHIC H STATE THAT 'SIM CA RD AND MOBILE PHONES SERVICE NUMBERS SHALL ALWAYS BE T HE SOLE PROPERTY OF M/S. VECL AND SHALL BE RETURNED BY YOU(CUST OMER) UPON TERMINATION AND/OR DE- ACTIVATION OR TEMPORARY SUSPENSION OF SERVICES. YOU SHALL HAVE NO RIGHT TO THE SAME AT ANY POINT IN TIME, FOR ANY REASON WHATSOEVER CLEARLY INDICATES THAT THE ESSENCE- OF THE AGENCY ONLY EXISTS IN THE ABOVE TRANSACTIONS BETWEEN M/S. VECL AND THE DISTRIBUTORS AS AGAINST PRINCIPAL TO PRINCIPAL RELATIONSHIP. 2.3. THE LEARNED CI T{A) OUGHT TO HAVE FOLLOWED THE DECISION OF HON'BLE TRIBUNAL OF COCHIN IN THE ASSESSEE'S OWN CASE IN ITA NO. 106 TO 113/COCHLN/2009 & SP NOS. 11 TO 18/COCHLN/2009 DT: 30/04/2009 WHERE IN IT WAS HELD THAT 'THE DI STRIBUTORS ARE LINKING AGENTS IN THE CHAIN OF DELIVERY OF SERVICES TO C ONSUMERS AND AS SUCH THE RELATIONSHIP IS NOT OF A PRINCIPA L TO PRINCIPAL'. 2.4 THE LEARNED C.I.T{A) HAVING RE FERRED TO CLAUSE 17.2 (ERRONEOUSLY QUOTED AS 17.3 INSTEAD OF 17.2) OF THE AGREEMENT HAS FAILED TO APPRECIATE THAT ROLE PLAYED BY T HE DISTRIBUTOR ONLY THAT OF AN INTERMEDIARY WITHOUT ANY ABSOLUTE HOL D ON THE PRODUCTS DEALT BY HIM AND NO EXPRESS CLAUSE IN THE WR ITTEN AGREEMENT WOULD REVERSE THE FACTUAL POSITION. ITA NO.1415 & 1416/MDS/09 19 2.5 THE LD. C.I.T(A) OUGHT TO HAVE APPRECIATED M/S. VECL NOT ONLY RETAINS THE OWNERSHIP OF THE SERVICES BUT ALSO AS PER THE CLAUSES OF DISTRIBUTORSHIP AGREEMENT, AUTHORIZES T HE DISTRIBUTOR TO COLLECT CHEQUES/ PAYMENTS IN FAVOUR OF THEM FOR THE SA ID SERVICES AND AS SUCH BY ACT OF PARTIES M/S. . VECL HAS ASSIGNED THE ROLE OF AGENCY. 2.6. THE LD. CIT(A) HAVING DROWN SUPPORT FROM THE BOOKS OF ACCOUNT THAT NO AMOUNT AS COMMISSION OR BR OKERAGE IS DEBITED TO P&L ACCOUNT OUGHT TO HAVE APPRECIATED THE PROVISI ONS OF EXPLANATION (1) TO THE SECTION 194H WHICH STATES THAT THE TERM 'COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIV ABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED: 2.7. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE BOARD'S CIRCULAR NO. 619 DATED 22/11/1991 WHICH DISCUSSES THE APPLICABILITY OF SECTION 194 VIDE PARA 4 THAT THE RETAINED COMMISSION BY A CONSIGNEE/AGENT, AMOUNTS TO CONSTRUCTIVE PAYMENT AND THAT PROVISIONS OF 194H WOULD APPLY INSPITE OF THE FACT THAT NO PAYMENT IS BEING MADE. 2.8. THE LD. CIT(A) HAVING OBSERVED IN THE CASE OF ACIT VS. BHARATI CELLULAR LTD. IN ITA NO. 1678 AND 1679 OF KOLKATTA BENCH, THE LD. ITAT, KOLKATA WAS SWAYED AWAY PRIMARILY FROM THE FACT THAT' AS PER THE CLAUSE 4.5 OF THE AGREEMENT, EVEN AFTER THE SALE, ALL RIGHTS, TITLE, OWNERSHIP AND PROPERTY RIGHTS IN RESPECT OF THE SIM CARDS REMAINED VEST WITH THE COMPANY AT ALL TIMES AND NO SUCH AGREEMENT IN THIS CASE, HAS FAILED TO CONSIDER THE FACT THAT THE SAID CLAUSE IS IDENTICALLY CONTAINED IN CLAUSE 22 OF THE CUSTOMER AGREEMENT AS DISCUSSED ELSEWHERE. 6.1 THE LD. DR, WHILE RELYING UPON T HE ORDER OF THE ASSESSING OFFICER AND REPEATING THE GROUNDS RAISED IN THE APPEAL HAS PLEADED THAT THE ASSESSEE WAS ALLOWED COMMISSION OR DISCOUNT ON WHICH IT HAD NOT DEDUCTED TAX AT SOURCE, WHICH IS REQUIRED UNDER SECT ION 194H FOR BOTH THE YEARS. T HEREFORE, THE ASSESSING OFFICER IS VERY MUCH JUSTIFIED IN RAISING THE DEMANDS UNDER SECTION 201(1) AND INTEREST UNDER SECTION 201(1A), SINCE IT WAS PAYMENT TO THE AGEN T, FROM THE AMOUNT OF PAYMENTS TOWARDS PRE-PAID CARD AND SIM CARDS, THEREFORE, THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE AS PER SECT ION 194H,MOREOVER ,T HE ASSESSEE ITSELF IS DEDUCTING AND PAYING THE TAX ON POST PAID CARD ON THE AMOUNT OF ITA NO.1415 & 1416/MDS/09 20 COMMISSION/BROKERAGE AND THERE IS NO MA TERIAL DIFFERENCE BETWEEN TWO TRANSACTIONS, THUS IT WAS FURTHER PLEADED T HAT THE ISSUE IN THE CASE OF THE ASSESSEE HAS BEEN DECIDED IN FAVOUR OF THE REVEN UE BY COCHIN BENCH OF THE TRIBUNAL IN I.T.A. NO. 106 TO 113/COCHIN/2009 & SP NOS. 11 TO 18/COCHIN/2009 DATED 30.04.2009 WHICH DECISION HAS FURTHER BEEN UPHELD BY THE HONBLE KERALA HIGH COURT IN 2010-TIOL-655-HC-KERALA-IT IN I.T.A. NO. 1742 OF 2009 DATED 17.08.2010 [2010] 194 TAXMAN 518 (KER.) SO IT IS COVERED MATTE R WHICH NEEDS TO BE DECIDED IN FAVOUR OF THE DEPARTMENT. THAT APART, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. IDEA CELLULAR LTD. [2010] 189 TAXMAN 118 (DELHI ) HAS ALSO DECIDED SIMILAR ISSUE WITH REGARD TO APPLICATI ON OF 194H IN RELATION TO O FFERING DISCOUNT TO THE PRE- PAID CALLING SERVICE TO ITS DISTRIBUTORS AND TAKEN SIMILAR VIEW VIDE ORDER DATED 19.02.2010 BY DISCUSSING AND APPLYING COCH IN BENCH OF TRIBUNALS DECISION IN THE CASE OF VODAFONE ESSAR CELL ULAR LTD. DATED 30.04.2009. WHILE REFERRING VARIOUS CLAUSES OF THE AGREEMENT ENTER ED INTO BY THE ASSESSEE WIT H THE DISTRIBUTORS, IT WAS PLEADED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RESTOR ING THAT OF THE ASSESSING OFFICER BECAUSE THERE ARE TWO HIGH COURTS DECISIONS, ONE OF KERALA AND OTHER OF DELHI HIGH COURT WITH RESPECT TO IMPLEMENTATION OF 194H IN RELATION TO PROVIDING COMMISSION/DISCOUNTS TO THE DISTRIBUTORS BY THE PRINCIPALS AND NON DEDUCTION OF TAX AT SOURCE, WHICH ARE DIRECT ON THE POINT, SO ORDERS OF THE LD. CIT(A) BE REVERSED. 7. THE LD. COUNSEL FOR THE ASSESSEE WHILE RELYING UPON THE ORDER PASSED BY THE LD. CIT(A) HAS STRONGLY PLEADED THAT FIRS T REQUIREMENT OF SECTION 194H IS THAT THERE SHOULD BE PAYMENT M ADE OF COMMISSION OR BROK ERAGE BY ANY PERSON OTHER ITA NO.1415 & 1416/MDS/09 21 THAN INDIVIDUAL OR HUF TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION, NOT BEING INSURANCE COMMISSION, (REFER TO 194-D) OR BROKERAGE, BUT IN THIS CASE, THE ASSESSEE IS RECEIVING THE AMOUNT FROM TH E DISTRIBUTOR BELOW THE MRP AMOUNT OF SIM CARDS AND PRE-PAID CARDS AND IS FREE TO FIX THE PRICE TO BE CHARGED WHICH SHOULD BE BELOW THE MRP, SO, THERE IS NO PAYMENT OF ANY AMOUNT TO THE DISTRIBUTOR BY THE ASSESSEE. NO REFUND IS PERMISSIBL E AND THERE IS LOT OF DIFFERENCE BETWEEN PRE PAID CARDS AND POST PAID TRANSACTIONS. T HEREFORE, PROVISIONS OF SECTION 194H ARE NOT APPLICABLE IN THIS CASE AND THE ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE DISCOUNTS ALLOWED AS PAYMENT MADE TO THE DISTRIBUTORS AND IN THIS CASE THE DISTRIBUTOR IS REQUIRED TO RETURN SIM CARDS, THE ASSE SSEE HAS ONLY RECORDED THE AMOUNT RECEIVED/RECEIVABLE IN THE BOOKS. SINCE IT IS A CA SE OF RECEIPT OF PAYMENT AND NOT OF PAYMENT MADE, SO, IT IS NOT UNDERSTOOD AS TO HOW THE ASSESSEE HAS TO DEDUCT WHEN NO PAYMENT OR CREDIT OF ANY AM OUNT OR SO CALLED DI SCOUNT IS ALLOWED EXCEPT IN PAPERS ONLY AND AS TO HOW DO THE ASSESSEE IMPLEMENT SUCH PROVISION AND IT IS ALSO NOT A CASE WHERE METHODOLOGY OF THE COLLECTION OF THE TAX AT SOURCE CAN BE WORKED OUT/APPLICABLE. SINCE AMOUN T CANNOT BE EXCHANGED FROM WHICH TAX IS TO BE DEDUCTED AND THE H ONBLE HIGH COURTS OF KERALA AS WELL AS DELHI HAS NOT CONSIDERED THIS VITAL ASPECT. SO, THE HI GH COURTS JUDGMENTS RELIED UPON BY THE LD. DR ARE DISTINGUISHABLE AND ARE NOT APPLICABLE IN THIS CASE. THAT APART, THESE DECISIONS ARE OF NON-JURISDICTIONAL HIGH CO URTS, WHEREAS, THERE IS ANOTHER DECISION OF THE HONBLE KERALA HIGH C OURT IN THE CASE OF M.S. HAMEED V. DIRECTOR OF STATE LOTTERIES [2001] 114 TAXMAN 394 (KER.), W HEREIN IN RELATION TO PROVISIONS OF SECTION 194G WITH REGARD TO LOTTERY TICKETS , VIEW HAS BEEN TAKEN IN FAVOUR OF THE ITA NO.1415 & 1416/MDS/09 22 ASSESSEE TO THE EFFECT THAT WHERE THER E IS NO INCOME, THERE SHOULD NOT BE TDS WHEN INCOME OR EARNING IS ONLY TAXABLE. IF THE CLAUSE OF THE AGREEMENT OF THE ASSESSEE COMPANY WITH DISTRIBUTORS ARE LOOK ED INTO, THERE IS A CLEAR PROVISION THAT ONCE SIM CARDS AND PRE-PAID CARDS ARE GI VEN TO THE DISTRIBUTORS, NO REFUND IS PERMISSIBLE AND AS REGARDS CASE OF M.S. HAMEED AND OTHERS (SUPR A) IS CONCERNED, THE SLP FILED BY THE DEPARTMENT AGAINST T HE HONBLE KERALA HIGH COURT JUDGMENT HAS ALREADY BEEN DISMISSED ON 03.12.2010. SO RELYING UPON SUCH DECISION OF THE KERALA HIGH COURT AND MAKING SPECIAL REFE RENCE TO PAGE 530, IT WAS PLEADED THAT WHEN TWO NON-JURISDICTIONAL HIGH COURT DECIS IONS ARE THERE ON THE SAME POINT, THE DECISION FAVOURABLE TO THE ASSESSEE IS TO BE APPLIED AND AS REGARDS SUCH DECISION, THE DEPARTMENTS SLP HAS ALSO BEEN DI SMISSED WITH THE REMARKS WE SEE NO REASON TO INTERFERE, IT WAS THUS PLEADED THAT SINCE IT IS NOT SIMPLE DISMISSAL OF THE SLP, BUT REASONED ORDER HAS BEEN PASSED BY OBSERVING THAT TH E HONBLE SUPREME COURT DID NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE HONBLE HIGH COURT. FURTHER, IT WAS SUBMITTED THAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE TO ASCERTAIN WHETHER ITEM IS TAXABLE OR NOT AND RELIANCE WAS PLACED ON 227 ITR 172 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD SO ACCOUNTING PROCEDURE ADOPTED WILL NOT EFFECT REAL NATURE OF TRANSACTION. THE ASSESSEES COUNSEL HAS STRONGLY PLACED RELIANCE ON CIT (TDS) V. QUTAR AIRW AYS 2009-TIOL-182-HC-MUM-IT, WHICH IS ALMOST DIRECTLY ON THE POINT, AND HAS PLEADED THAT, IF TWO VIEWS ARE POSSIBLE FAVOURABLE TO THE ASSESSEE IS TO BE APPL IED AND RELIANCE WAS PLACED ON 143 ITR 120 (BOM) IN THE CASE OF SIEMENS INDIA LTD. & ANR. VS. ITO, FURTHER SUBMITTED THAT WHEN DIFFERENT HIGH COURT DECISIONS ARE THERE AND NO JURISDICTIONAL HIGH COURT ITA NO.1415 & 1416/MDS/09 23 DECISION IS AVAILABLE ON A PARTICULAR POIN T, THE DECISION FAVOURABLE TO THE ASSESSEE HAS TO BE AND SHOULD BE FOLLOWED. RELIANCE WAS ALSO PLACED ON 121 ITD 596 IN THE CASE OF KANEL OIL & EXPOR T INDS. LTD. VS. JCIT [(2009) 126 TTJ (AHD)(TM) 158]. FURTHER RELIANCE WAS PLACED ON THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. THANA ELECTR ICITY SUPPLY LTD. 206 ITR 7 27. THE LD. COUNSEL FOR THE ASSESSEE CATEGORICALLY ADMITTED THAT SUPPL YING OF SIM CARDS AND PRE-PAID CARDS TO THE DISTRIBUTORS, IT IS OF SERVICE AND NOT OF SALE AND WHILE MAKING REFERENCE TO PARA 4 OF PAGE 529 OF HON BLE KERALA HIGH COURTS DECIS ION IN J.B. BODA VS CBDT, WHEN THERE WAS ENTIRELY OPPOSITE VIEWS TAK EN, FAVOURABLE TO THE ASSESSEE TO BE APPLIED AND AS FAR AS J.B. BODAS CASE IS CONCERNED, DISCOUNT IS PAID TO THE ASSESSEE AND COMMISSION FOR SERVICES R ENDERED. THE LANGUAGE IF WORDED THAN ONLY IN THAT MANNER TAX CAN BE PAID. THE PAYMENT MADE IS THE PRIME REQUIREMENT AND IN THIS CASE, PAYMENT WAS NOT MADE BY THE ASSESSEE AT ALL AND LESS AMOUNT HAS BEEN RECEIVED FROM THE DISTRIBUTOR BY THE ASSESS EE, SO NO DEDUCTION IS REQUIRED. RELIANCE WAS PLACED ON 128 ITR 294 (SC) IN THE CASE OF CIT V. SRINIVASA SETTY (B.C.), HONBLE DELHI HI GH COURTS DECISION IN THE CASE OF DARUVALA BROS. (P) LTD. 80 ITR 213. RELIANCE WA S ALSO PLACED IN THE CASE OF CIT VS. ARUN DUA 186 ITR 494 (CAL). IN ORDER TO EXPLAIN FURTHER , THE LD. COUNSEL FOR THE ASSESSEE SHRI S.E. DASTUR STRONGLY PLAC ED RELIANCE ON CIT (TDS) VS. QUTAR AIRWAYS (SUPRA). IT WAS FURTHER SUBMITTED THAT EVEN IF SO ME DECISIONS HAVE BEEN PRONOUNCED INCORRECTLY, WITHOUT CONSIDERING THE SA ME, THE HONBLE HIGH COURTS DECISION ALREADY PRONOUNCED IN WHICH SLP FILE D BY THE DEPARTM ENT HAS ALSO BEEN DISMISSED BY THE HONBLE S UPREME COURT, SO, THIS BENCH CAN TAKE A DIFFERENT VIEW ITA NO.1415 & 1416/MDS/09 24 IN THE LIGHT OF HONBLE SUPREME COURT S DECISION IN THE CASE OF DISTRIBUTORS (BARODA) P. LTD. V. UNION OF INDIA AND OTHERS 155 ITR 120 IN WHICH IT HAS CATEGORICALLY BEEN HELD THAT TO PERPETUATE AN ERROR IS NOT A HEROISM AND TO CORRECT IT ,IS THE COMPULSION OF LA W. THEREFORE, IT WAS STRONGLY PLEADED THAT THE HONBLE KERALA HIGH COURTS DECISION IN THE CASE OF M.S. HAMEED (SUPR A), WHICH IS ALMOST ON SIMILAR FACTS, THOUGH IN RELATION TO 194G, THIS BENCH SHOULD FOLLOW THE SAID DECISION TO CONFIRM THE ORDER OF THE LD . CIT(A) AND DISMISS THE APPEALS OF THE DEPARTMENT FOR BOTH THE YEARS. 8. THE LD. DR IN ORDER TO COUNTER T HE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT EVEN IN T HE ABSENCE OF ANY PAYMENT HAVING BEEN MADE TO THE DISTRIBUTORS AND ONLY DISC OUNTS HAVING BEEN ALLOWED, WHICH IS PAYMENT AND RELIANCE WAS PLACED ON 240 ITR 740 (MAD), HONBLE SUPREME COURTS DECISION IN THE CA SE OF 223 ITR 271 (SC) AND 189 TAXMAN 315. IT WAS ALSO SUBMITTED THAT THE HO NBLE DELHI HIGH COURT DESPI TE HAVING REFERRED TO M.S. HAMEEDS CASE AND THE COCHIN BENCH OF THE TRIBUNALS DECISION IN THE CASE OF THE ASSESSEE, HAS TAKEN AN INDEPENDENT VIEW BY CONSIDERING THE ENTIRE TRANSACTION. FURTHER RELIANCE WAS PLACED ON 103 ITR 66 (SC) AND HONBLE DELHI HIGH COURT AND SO FAR AS NOT TREATING AN ACCOUNTING ENTRIES AS RECORDED IN THE BOOKS OF ACCOUNTS, RELIANCE WAS PLACED ON 116 ITR 1 (SC). SINC E IT IS A COMMISSION AS ITAT COCHIN BENCH HAS HELD, WHICH VIEW HAS BEEN UPHELD BY THE H ONBLE KERALA HIGH COURT AND SO FAR AS QUTAR AIRWAYS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, THE SAME IS IN RELATION TO DIFFERENT ISSUE AS NAT URE OF TRANSACTION IS NOT THE SAME AS IN THE CASE OF THE ASSESSEE, WHETHER, IT IS DISCOUNT OR COMMISSION, IT HAS CLEARLY BEEN ITA NO.1415 & 1416/MDS/09 25 HELD TO BE LIABLE TO TDS BY THE HONBLE KERALA AND DELHI HIGH COURTS AND AS PER KANEL OIL & EXPORT INDS. LTD. S CASE, IN THE THIRD MEMBERS CASE, IT HAS CLEARLY BEEN HELD THAT IF TWO VIEWS ARE THERE, ONE OF S PECIAL OR SAME BENCH AND OTHER OF NON JURISDICTIONAL HIGH COURT, THE HIGH COUR TS DECISION TO BE FOLLOWED AND HONBLE BOMBAY HIGH COURT HAS HELD THAT COORDINATE BENCH LATER DECISION IS TO BE FOLLOWED AND FURTHER RELIANCE HAS BEEN PLACED ON 23 8 ITR 113 (DELHI), 113 ITR 598 (BOM) AND 53 ITD 1 (AHD). 8.1 SO FAR AS DISMISSAL OF THE SLP IS CONCERNED, THE LD. DR SUBMITTED THAT THE HONBLE SUPREME COURT HAS HELD IN T HE CASE OF 231 ITR 50 AND 222ITR523 (ALL) THAT SUCH DISMISSAL OF SLP DOES NOT LAY DOWN LAW AND SO FAR AS DARUVALA BROS. (P) LTD.S CASE IS CONCERNED, THE SAME IS IN RELATION TO THE SALARY PAYMENT, WHICH IS ONE WAY PAYMENT AND IT IS ALTOGETHER IN RE LATION TO A DIFFERENT ISSUE. IT WAS, THUS PLEADED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RESTOR ING THAT OF THE ASSESSING OFFICER. 9. THE LD. COUNSEL FOR THE ASSESSEE TRI ED TO DISTINGUISH ALL THE DECISIONS CITED BY THE LD. DR AND HAS ALSO ARGUED AND PL EADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 10. WE HAVE HEARD BOTH THE SIDES, CONSI DERED THE MATERIAL ON RECORD, RELEVANT PROVISIONS OF LAW AS WELL AS PRECEDENTS RELIED UPON BY RI VAL SIDES AND FIND THAT THE ASSESSEE HAS PROVIDED SIM CARDS AND PRE-PAI D CARDS TO VARIOUS DISTRIBUTORS BELOW THE MRP PRESCRIBED FOR SUCH CARDS AND THE ASSESSING OFFICER AFTER OBTAINING NECESSARY DETAILS FROM THE ASSESSEE HAS CONCLUDED TO HOLD THAT THE AMOUNT BELOW MRP ALLOWED BY THE ASSESSEE TO VARIOUS DISTRIBUTOR IS DISCOUNT/COMMISSION AND AS ITA NO.1415 & 1416/MDS/09 26 THE ASSESSEE HAS FAILED TO DEDUCT ANY TA X AT SOURCE ON SUCH LESS AMOUNT, SO HE WORKED OUT THE TDS AS PAYABLE BY THE ASSESSEE UNDER SECTION 194H AND RAISED DEMAND UNDER SECTION 201(1) AND 201(1A) AS DETAILED IN PARA 2 ABOVE. THE ASSESSEE FILED APPEAL AND SAME WAS ALLO WED BY THE FIRST APPELLATE AUTHORITY, AGAINST WHICH THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US AND IT IS THE MAIN ARGUMENT OF THE LD. DR THAT SINCE AMOUNT HAS BEEN ALLOWED AS DISCOUNT/ COMMISSION TO THE DISTRIBUTORS AS THE A SSESSEE HAS CHARGED THE AMOUNT LESS THAN THE MRP, THEREFORE, IT AMOUNTS TO COMMI SSION/BROKERAGE AND TAX IS LIABLE TO BE DEDUCTED AT SOURCE IN TERMS OF SECTI ON 194H, WHICH WAS NOT DEDUCTED, SO THE DEMAND CREATED BY A O IS PROPER AND JUSTIFI ED. WHEREAS, THE LD. AR HAS MAINLY CONTENDED THAT THE ASSESSEE HA S NOT PAID ANY COMMISSION TO THE DISTRIBUTORS, SO THERE IS NO QUESTION OF MAKING DEDUCTION OF TAX AT SOURCE. THEREFORE, THE DEMAND RAISED BY THE ASSESSING OFFICER IS NOT SUSTAINABLE WHICH HAS CORRECTLY BEEN DELETED BY THE LD.CIT(A). RIVAL SIDES HAVE REFERRED TO VARIOUS CLAUSES OF AGREEMENT WITH THE DISTRIBUTOR S AND DIFFERENT CASE LAW ALSO, DETAILS OF WHICH HAS BEEN GIVEN IN EARLIER PARAGRAPHS TO SUPPORT THEIR RESPECTIVE ARGUMENTS AND LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY PLEA DED THAT SINCE THE HONBLE KERALA HIGH COURTS DECISION IN ASSESSEES OWN CASE, MA IN PLEA ABOUT NOT CONSIDERING THE FACT THAT THERE IS NO PAYMENT OR CREDIT OF THE AMOUNT BY T HE ASSESSEE, THEREFORE, IT CANNOT BE HELD TO BE PRECEDENT TO DECIDE T HE ISSUE AGAINST THE ASSESSEE AND THE HONBLE DELHI HIGH COURT HAS ALSO NOT CONSIDERED THIS VITAL ASPECT, WHILE REFERRING TO ITAT COCHIN BENCHS DECISION IN THE CASE OF THE ASSESSE E. THEREFORE, BOTH THESE DECISIONS OF BEING NON-JURISDICTI ONAL HIGH COURTS ARE NOT APPLICABLE WHEN ITA NO.1415 & 1416/MDS/09 27 OTHER EARLIER DECISIONS ONE OF HONBLE KERALA HIGH COURT A ND OTHER THAT OF BOMBAY HIGH COURT FAVOURABLE TO THE A SSESSEE ARE TO BE CONSIDERED AND APPLIED IN VIEW OF VARIOUS PRECEDENT S, THEREFORE, THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 10.1 AFTER CONSIDERING THE RELEVANT MATERIAL IN THE LIGHT OF PROVISIONS OF LAW AND PRECEDENTS, WE FIND THAT THE MAIN QUESTI ON TO BE CONSIDERED IS WHETHER SECTION 194H IS APPLICABLE FOR THE 'DISCOUNT' GIVEN BY THE ASSE SSEE TO THE DISTRIBUTORS IN THE COURSE OF SELLING SIM CARDS AND RECHARGE COUPONS UND ER PREPAID SCHEME AGAINST ADVANCE PAYMENT RECEIVED FROM THE DISTRIBUTORS. WE HAVE TO NECESSARILY EXAMINE THIS CONTENTIO N WITH REFERENCE TO THE STATUTORY PROVISIONS NAMELY, SECTION 194H WHICH IS EXTRACTED HER EUNDER FOR EASY REFERENCE: 'S.194H. ANY PERSON, NOT BEING AN INDI VIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) OR BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CASH OR BY THE I SSUE OF A CHEQUE OR DRA FT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATE OF TEN PER CENT: ........ EXPLANATION:- FOR THE PURPOSES OF THIS SECTION,-- (I) 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSO N ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SE LLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTI CLE OR THING, NOT BEING SECURITIES; ........' ITA NO.1415 & 1416/MDS/09 28 WHAT APPEARS FROM EXPLANATION (I) OF THE DEFINITION CLAUSE ABOVE IS THAT COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE SERVICES RENDERED. WE HAVE ALREADY TAKEN NOTE OF OUR FINDI NG IN BPL CELLULAR'S CASE ABOVE REFERRED THAT A CUSTOMER CAN HAVE ACCESS TO M OBILE PHONE SERVICE ONLY BY INSERTING SIM CARD IN HIS HAND SET (MOBILE PHONE) AND ON ASSESSEE ACTIVA TING IT. BESIDES GETTING CONNECTION TO THE MOBILE NETWORK, THE SIM CARD HAS NO VALUE OR USE FOR THE SUBSCRIBER. IN OTHER WORDS, SIM CARD IS WHAT LINKS THE MOBILE SUBSCRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SUPPLY OF SI M CARD, WHETHER IT IS TREATED AS SALE BY THE ASSESSEE OR NOT, IS ONLY FOR THE PUR POSE OF RENDERING CONTINUED SERVICES BY THE ASSESSEE TO THE SUBSCRIBER OF T HE MOBILE PHONE. BESIDES THE PURPOSE OF RETAINING A MOBILE PHONE CONNECTION WITH A SERVICE PROVIDER, THE SUBSCRIBER HAS NO USE OR VALUE FOR THE SIM CARD PURCHASED BY HIM FROM ASSESSEE'S DISTRIBUTOR. THE POSITION IS SAME SO FAR AS RECHARGE C OUPONS OR E TOPUPS ARE CONCERNED WHICH ARE ONLY AIR TIME CHARGES COLLECTED FROM TH E SUBSCRIBERS IN ADVANCE. WE HAVE TO NECESSARILY HOLD THAT OUR FINDINGS BASED ON THE OBSERVATIONS OF THE SUPREME COURT IN BSNL'S CASE IN THE CONTEX T OF SALES TAX IN T HE CASE OF BPL CELLULAR LTD. SQUARELY APPLY TO THE ASSESSEE WHICH IS NOTHING BUT THE SUCCESSOR COMPANY WHICH HAS TAKEN OVER THE BUSINESS OF BPL CELLULAR LT D. IN KERALA. SO MUCH SO, THERE IS NO SALE OF ANY GOODS INVOLVED AS CLAIMED BY THE ASSE SSEE AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIME OF DELIVERY OF SIM CA RDS OR RECHARGE COUPONS IS ONLY FOR RENDERING SERVICES TO UL TIMATE SUBSCRIBERS AND THE DISTRIBUTOR IS ONLY THE MIDDLEMAN ARRANGING CUSTOMERS OR SUBSCRIBERS FOR THE ASSESSEE. THE ITA NO.1415 & 1416/MDS/09 29 TERMS OF DISTRIBUTION AGREEMENT CLEARLY INDICATE THAT IT IS FOR THE DISTRIBUTOR TO ENROLL THE SUBSCRIBERS WITH PROPER I DENTIFICATION AND DOCUMENTATI ON WHICH RESPONSIBILITY IS ENTRUSTED BY THE ASSESSEE ON THE DISTRIBUT ORS UNDER THE AGREEMENT. IT IS PERTINENT TO NOTE THAT BESIDES THE DISCOUNT GIVEN AT THE TIME OF SUPPLY OF SIM CARDS AND RECHARGE COUPONS, THE ASSESSEE IS NOT PAYI NG ANY AMOUNT TO THE DISTRIBUTORS FOR THE SERVICES RENDERED BY THEM LIKE GETTI NG THE SUBSCRIBERS IDENTIFIED, DOING THE DOCUMENTATION WORK AND ENROLLI NG THEM AS MOBILE SUBSCRIBERS TO THE SERVICE PROVIDER NAMELY, THE ASSESSEE. EVEN T HOUGH THE ASSESSEE HAS CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DI STRIBUTORS IS PRINCIPAL TO PRINCIPAL BASIS, WE ARE UNABLE TO ACCEPT THIS CONTENT ION BECAUSE THE ROLE OF THE DISTRIBUTORS AS EXPLAINED ABOVE IS THAT OF A MIDDLEMAN BETWEEN THE SERVICE PROVIDER NAMELY, THE ASSESSEE, AND THE CONSUMERS. THE E SSENCE OF A CONTRACT OF AGENCY IS THE AGENT'S AUTHORITY TO COMMIT THE PRINCIPAL. IN THIS CASE THE DISTRIBUTORS ACTUALLY CANVASS BUSINESS FOR THE ASSESSEE AND ONLY THROUGH DISTRIBUTORS AND RETAILERS APPOINTED BY THEM ASSESSEE GETS SUBSCRI BERS FOR THE MOBILE SERVICE. ASSESSEE RENDERS SERVICES TO THE SUBSCRIBERS BASED ON CONTRACTS ENTERED INTO BETWEEN DISTRIBUTORS AND SUBSCRIBERS. WE HAVE ALREAD Y NOTICED THAT THE DI STRIBUTOR IS ONLY RENDERING SERVICES TO THE ASSESSEE AND TH E DISTRIBUTOR COMMITS THE ASSESSEE TO THE SUBSCRIBERS TO WHOM ASSESSEE IS ACCOUNTABLE UNDER THE SERVICE CONTRACT WHICH IS THE SUBSCRIBER CONNECTION ARRANGE D BY THE DISTRIBUTOR FOR THE ASSESSEE. THE TERMINOLOGY USED BY THE ASSESSEE FOR THE PAYMENT TO THE DISTRIBUTORS, IN OUR VIEW, IS IMMATERIAL AND IN SUBSTANCE THE DI SCOUNT GIVEN AT THE TI ME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY THE ASSE SSEE TO THE DISTRIBUTORS IS A PAYMENT ITA NO.1415 & 1416/MDS/09 30 RECEIVED OR RECEIVABLE BY THE DISTRIBUTOR FO R THE SERVICES TO BE RENDERED TO THE ASSESSEE AND SO MUCH SO, IT FALLS WITHIN THE DEFINITION OF COMMISSION OR BROKERAGE UNDER EXPLANATION (I) OF SECTIO N 194H OF THE ACT. THE TEST TO BE APPLIED TO FIND OUT WHETHER EXPLANATION (I) OF SE CTION 194H IS APPLICABLE OR NOT IS TO SEE WHETHER ASSESSEE HAS MADE ANY PAYMENT AND IF SO, W HETHER IT IS FOR SERVICES RENDERED BY THE PAYEE TO THE ASSESSEE. IN THIS CASE THERE CAN BE NO DISPUTE THAT DISCOUNT IS NOTHING BUT A MARGIN GIVEN BY THE ASSESSEE TO THE DISTRIBUTOR AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS AGA INST ADVANCE PAYMENT MADE BY THE DISTRIBUTOR. THE DISTRIBUTOR UNDOUBTEDLY CHARGES OVER AND ABOVE WHAT IS PAID TO THE ASSESSEE AND THE ONLY LIMITATI ON IS THAT THE DISTRIBUTO R CANNOT CHARGE ANYTHING MORE THAN THE MRP SHOWN IN THE PRODUCT NAMELY, SIM CARD OR RECHARGE COUPON. DISTRIBUTOR DIRECTLY OR INDIRECTLY GETS CUSTOMERS FOR THE ASSESSEE AND SIM CARDS ARE ONLY USED FOR GIVING CONNECTION TO THE CU STOMERS PROCURED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE ASSESSEE IS ACCOUNTABLE TO THE SUBSCRIBERS FOR FAILURE TO RENDER PROMPT SERVICES PURSUANT TO CONNECTIONS GI VEN BY THE DISTRIBUTOR FOR THE ASSESSEE. THEREFORE, THE DISTRIBUTOR ACTS ON BEHALF OF THE A SSESSEE FOR PROCURING AND RETAINING CUSTOMERS AND, THER EFORE, THE DISCOUNT GIVEN IS NOTHING BUT COMMISSION WITHIN THE MEANING OF EXPL ANATION (I) ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 194H OF THE ACT. THE CONTENTION OF THE A SSESSEE THAT DISCOUNT IS NOT PAID BY THE ASSESSEE TO THE DISTRIBUTOR BUT IS R EDUCED FROM THE PRICE AND SO MUCH SO, DEDUCTION UNDER SECTION 194H IS NOT POSSIBL E ALSO DOES NOT APPLY BECAUSE IT WAS THE DUTY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE AT THE TIME OF PASSING ON THE DISCOUNT BENEFIT TO THE DISTRIBUTORS AND T HE ASSESSEE COULD HAVE GIVEN DISCOUNT NET ITA NO.1415 & 1416/MDS/09 31 OF THE TAX AMOUNT OR GIV EN FULL DISCOUNT AND RECOVER ED TAX AMOUNT THEREON FROM THE DISTRIBUTORS TO REMIT T HE SAME IN TERMS OF SECTI ON 194H OF THE ACT. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF THE SUPREME COUR T CITED BY STANDING COUNSEL FOR THE RESPONDENT IN J.B.BO DA AND CO. PVT. LTD. V. CENTRAL BOARD OF DIRECT TAXES REPORTED IN (1997) 223 ITR 271 WH EREIN THE SUPREME COURT HAS HELD AS FOLLOWS. 'A TWO-WAY TRAFFIC IS UNNECESSA RY. TO INSIST ON A FORMAL REMITTANCE FIRST AND THEREAFTER TO RECE IVE THE COMMISSION FROM THE FOREIGN REINSURER, WILL BE AN EMPTY FO RMALITY AND A MEANINGLESS RIT UAL, ON THE FACTS OF THIS CASE.' WE, THEREFORE, DO NOT FIND ANY MERI T IN THE CONTENTION OF THE ASSESSEE THAT RECOVERY OF TAX IS NOT PERMISSIBLE AT THE TI ME OF GIVING DISCOUNT ON THE DELIVERY OF PRODUCTS TO THE DISTRIBUTORS. 10.2 SO FAR AS OTHER CASE LAW WITH RESPEC T TO DEDUCTION OF TAX AT SOURCE ON THE AMOUNT OF DISCOUNT/COMMISSION IS CONCERNED, WE FIND THAT THE HONBLE KERALA HIGH COURT WHILE DEALING WITH THIS ISSUE IN THE CASE OF THE ASSESSEE IN ITA NO. 1742 OF 2009 DATED 17.08.2010, AFTER INCO RPORATING THE RELEVANT FINDI NGS OF THE TRIBUNAL ON ACCOUNTING ENTRIES IN PARA 3 AND REPRODUCING SECTION 194H IN FIRST PART OF PARA 4 HAS CONCLUDED TO DECIDE THE I SSUE IN FAVOUR OF THE REV ENUE AND RELEVANT PORTION OF PARA 3, AND PARA 6 OF THE J UDGMENT ARE GIVEN AS UNDER: 3. .. 'THE ASSESSEE COMPANY IS CREDITING THE SALES ACCOUN T BY THE GROSS AMOUNT AND NOT BY NET PROCEEDS. FOR EXAMPLE, TH E MRP OF A PRE-PAID CARD IS `100/-; MARGIN AVAILED BY THE DIST RIBUTOR IS `.20/-. THE NET PR OCEEDS AVAILABLE TO THE ASSESSEE IS `.80/-. LET US SEE HOW THE ASSESSEE IS ACCOUNTING FOR THE ABOVE. WHEN THE SIM CARD IS GIVEN TO THE DISTRIBUTOR, THE ASSESSEE COMPANY IS CREDITING THE SALES ACCOUNT FOR AN AMOUNT OF `.100/-. ASSESSEE IS DEBITING THE CASH ACCOUNT WITH `.80/- BEING THE CASH PAID BY THE DISTRIBUTOR. ASSESSEE ITA NO.1415 & 1416/MDS/09 32 COMPANY IS DEBITING THE COMMISSION ACCO UNT FOR `.20/-.THIS IS THE MARGIN ENJOYED BY THE DISTRIBUTOR. AS FAR AS THE ASSESSEE CO MPANY IS CONCERNED, IT HAS GIVEN A COMMISSION OF `2 0/-. ON DELIVERY OF A PRE-PAID CARD OF `.100/-, ASSESSEE IS ADJUSTING THE PAYMENT OF COMMISSION THROUGH ACCOUNTS AND INVOICE. IN THE FIRST INST ANCE SALE IS ACCOUNTED FOR `. 100/-; THE SECOND CASH IS ACCOUNTED FOR `.80/-; AND THE THIRD CO MMISSION IS ACCOUNTED FOR `.20/-. IT SHOWS THAT AS FAR AS THE SALE IS CONC ERNED, IT IS `.100/- AND THE ASSESSEE HAS GIVEN A COMMISSION OF `.20/- TO THE DIST RIBUTOR AND THE NET CASH PROCEEDS IS `.80/-. INSTEAD OF TREATING THE SALE AT THE NET VALUE OF `.80/-, THE ASSESSEE IS ACCOUNTING THE SALES AT TH E GROSS VALUE OF `.100/- AND THEREAFTER DEBITING AN EXPENSES ACCOUNT FOR COMMISSION PAID OF `.20/-. TH EREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE FINDING OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.BPL MOBILE CELLULAR LTD. (WRIT PETITION NO.29202 OF 2005) THAT THE ESSENCE OF TH E CONTRACT BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS THAT OF SERVICE, WE FIND THAT THE DISTRIBUTORS ARE ACTING AS AGENTS OF THE ASSESSEE CO MPANY AND THE MARGIN ENJOYED BY THE DISTRIBUTORS ARE THE COMMISSION/BROKERAGE ALLOWED BY THE ASSESSEE COMPANY. COUNSEL FOR THE ASSESSEE SOUGHT TO SUBS TANTIATE THE POSITI ON CONTRARY TO THE ABOVE FINDING OF THE TRIB UNAL BY REFERENCE TO TH E DISTRIBUTION AGREEMENT WHICH ASSESSEE HAS WITH THE DISTRIBUTORS. IT IS STATED IN THE AGREEMENT THAT DISTRIBUTORS ARE FREE TO C HARGE ANY AMOUNT FROM THE SUBSCRIBERS OR RETAILERS BELOW THE MRP. IN OTHER WORDS, DISTRI BUTORS ARE NOT BOUND TO SELL THE GOODS NAMELY, SIM CARDS OR RECH ARGE COUPONS AT THE MRP TO TREAT THE DISCOUNT AS CHARGES OR COMMISSION RECEIVED OR RECE IVABLE BY THE DISTRIBUTORS. RELYING ON THIS CLAUSE IN THE AGREEMENT, THE CONTENTI ON OF THE SENIOR COUNSEL IS THAT EVEN IF TAX IS RECOVERED AT SOURCE ON THE DI SCOUNT AMOUNT, IT MA Y BE ON AN AMOUNT THAT MAY NOT ULTIMATELY BE REALISED BY TH E DISTRIBUTOR AT THE TIME OF THEIR SALES TO CONSUMERS OR TO RETAILERS WHEREIN THEY ARE FREE TO PASS ON PART OF THE DISCOUNT RECEIVED BY THEM I.E. BY SELLI NG THE PRODUCTS AT BELOW THE MRP. IN THIS CONTEXT STANDING COUNSEL FOR THE DEPARTMENT REFERRED TO SECTION 197 OF THE ACT WHERE UNDER THE PAYEE IS ENTITLE D TO APPLY TO THE DEPARTMENT FOR OBTAINING PAYMENT WITHOUT DEDUCTION OF TAX OR WITH DEDUC TION AT RATES LOWER THAN WHAT IS PROVIDED IN THE STATUTE. WE ARE IN FULL AGREEMENT WITH THIS CONTENTION OF THE DEPART MENT BECAUSE IF IT IS COMMI SSION ON WHICH TDS IS PAYABLE UNDER SECTION 194H, THE DIST RIBUTORS CAN APPROACH THE DEPARTMENT AND GET CERTIFICATES TO RECEIVE DISCOUNT OR COMMISSION WITHOUT DEDUCTION OR WITH DEDUCTION AT LOWER RATES. THEREF ORE, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE SE NIOR COUNSEL THAT THE POSSIBILITY OF DISTRIBUTORS SELLING THE PRODUCTS AT BELOW MRP LE ADING TO HIGHER RECOVERY OF TAX WILL STAND IN THE WAY OF ASSESSEE RECOVERING TAX AT S OURCE OR COLLECTING TAX FROM THE DISTRIBUTORS ON THE DISCOUNT PASSED ON TO THEM AT THE TIME OF SALE OF THE ITA NO.1415 & 1416/MDS/09 33 PRODUCTS, IF THE TRANSACTION IS SUBJECT TO DEDUCTION AT SOURCE UNDER SECTION 194H OF THE ACT. FURTHER, IT IS COMM ON KNOWLEDGE THAT RECOVERY OF TAX AT SOURCE IS NOT THE ACTUAL TAX PAYABLE BY THE RECIPIENT WHO IS FREE TO CLAIM REFUND OF TDS AMOUNT WITH INTEREST, IF EXCESS TAX IS RECOVERED UNDER TDS SCHEME. 6. SENIOR COUNSEL APPEARING FOR THE ASSESSEE HAS RELIED ON SEVERAL JUDGMENTS, PARTICULARLY TWO DECISIONS OF THIS COURT IN M.S.HAMEED V. DIRECTOR OF STATE LOTTERIES REPORTED IN (2001) 114 TAXMAN 394 (KER.) AND KERALA STATE STAMP VENDORS ASSOCIATION V. OFFICE OF THE ACCOUNTANT GENERAL REPORTED IN (2006) 150 TAXMAN 30(KER.), THE DECISION OF THE GUJARAT HIGH COURT IN AHMED ABAD STAMP VENDORS ASSO CIATION V. UNION OF INDIA REPORTED IN (2002) 124 TAXMAN 628 (GUJ.), AND THE DECISION OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX V. QUTAR AIRWAYS IN I.T.A. NO.99 OF 2009 DATED 26.3.2009. THE FIRST DECISI ON OF THIS COURT PERTAINS TO SALE OF LOTTERY TICKETS WHEREIN THIS COURT HE LD THAT THE COMMISSION GIVEN BY WAY OF DISCOUNT AT THE TIME OF SALE OF LOTTERY TIC KETS IS NOT A COMMISSION ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 194G OF THE ACT. THE SECOND DECISION OF THIS COURT PERTAINS TO SALE OF STAMP PAPER BY THE LICENSED ST AMP VENDORS WHEREIN ALSO THE FINDING OF THIS COURT FOLLOWING THE DECISION OF THE GUJARAT HIGH CO URT IN AHMEDABAD STAMP VENDORS' CASE IS THAT THE TRANSACTION IS SALE OF GOODS AND SO MUCH SO, NO DEDUCTION OF TAX IS CALLED FOR UNDER SECTION 194G OF THE ACT. SO FAR AS THE LOTTERY TICKET IS CONCERNED, THE TRANSACTION IS DIFFE RENT AND THE SUPREME COURT HAS HELD THAT THE TRANSACTION IS SALE OF GO ODS AND SO MUCH SO, THE DECI SION RENDERED BY THIS COURT HAS NO APPLICATION IN REGARD TO COMMISSION PAID BY THE A SSESSEE TO THE DISTRIBUTORS IN THE FORM OF DISCOUNT WHICH WE HAVE FO UND TO BE IN ESSENCE AND SUBSTANCE FOR RENDERING SERVICES. THE NEXT JUDGMENT RELIED ON BY THE PETITIONER WHICH IS IN KERALA STAMP VENDORS ASSOCIATIO N CASE RENDERED BY ONE OF US (C.N.RAMACHANDRAN NAIR, J.), RELATES TO SALE OF ST AMP PAPER BY THE LICENSED VENDORS. HERE AGAIN, THIS COURT BY RELYING ON DECISION OF THE GUJARAT HIGH COURT IN AHMEDABAD STAMP VENDORS CA SE HELD THAT THE TRANS ACTION IS A SALE. ON A RECONSIDERATION OF THIS JUDGMENT, WE FEEL THIS COURT'S JUDGMENT MAY REQUIRE RECONSIDERATION BECAUSE CONS IDERATION RECEIVED BY THE STAMP VENDORS FOR THE STAMP PAPER DOES NOT REALLY REPRES ENT IT'S VALUE BUT IS NOTHING BUT STAMP DUTY. VALUE OF EACH STAMP PAPER MAY BE FIFTY PAISE OR EVEN A RUPEE, WHATEVER BE IT'S QUALITY, BUT WHAT IS COLLECTED DEPENDS ON THE AMOUN T STAMPED THEREON WHICH IS NOTHING BUT STAMP DUTY RECOVERED BY THE ST ATE FROM THE ULTIMATE USER IN TERMS OF THE STAMP ACT. RIGHTLY OR WRONGLY THIS COURT HELD THAT TH E TRANSACTION IS SALE BECAUSE LOSS OF STAMP PAPER IS TO THE ACCOUNT OF THE STAMP VEND ORS, IF IT IS LOST IN THEIR CUSTODY. THE GOVERNMENT ALSO TREATS THE TRANSACTION AS SALE OF GOODS AND SPECIFIC EXEMPTION IS GRANTED FROM PAYMENT OF SALE S TAX IN TERMS OF PROVISI ONS OF THE SALES TAX ACT. THEREFORE, THE FINDING THAT SECTION 194H IS NOT APPLICABLE IS ON THE SPECIFIC FINDING ITA NO.1415 & 1416/MDS/09 34 IN THAT CASE THAT THE TRANSACTION IS SALE OF GOODS, WHEREAS IN THIS CASE FOLLOWING THE DIVISION BENCH JUDGMENT OF THIS COURT WE HAVE FOUND T HAT THE DISTRIBUTOR IS PAID COMMISSION IN THE FORM OF DISCOUNT FOR SE RVICES RENDERED TO THE ASSESSEE. THEREFORE, NONE OF THESE DECISIONS RELIED ON BY THE ASSESSEE APPLIES TO THE FACTS OF THIS CASE WHICH IS PAYMENT OF COMMISSION BY WAY OF DISCOUNT FOR SERVICES RENDERED BY THE DISTRIBUTOR. SENIOR COUNSEL FOR THE ASSESSEE HAS IN SUPPORT OF HIS CONTENTIONS RELIED ON THE FOLLOWING DECISIONS OF THE SUPR EME COURT ALSO, ADDITIONAL COMMISSIOENR OF INCOME TAX V. SURAT ART SILK CLOTH MANUFACTURERS ASSO CIATION REPORTED IN (1980) 121 ITR 1, KEDARNATH JUTE MANUFACTURING CO. V. COMMI SSIONER OF INCOME TAX REPORTED IN 82 ITR 363, COMMISSIONER OF INCOME TAX V. MO TORS 7 GENERAL STORES (P) LTD. (1967) 66 ITR 692, COMMISSIONER OF INCOME TAX V. AJAX PRODUCTS LTD. (1965) 55 IT R 741, COMMISSIONE R OF INCOME TAX V. B.C.SRINIVASA SETT Y (1981) 128 ITR 294 , TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. COMMISSIONER OF INCOME TAX (1997) 227 ITR 172 AND DE CISIONS OF HOUSE OF LO RDS IN INLAND REVNUE COMMISSIONERS V. WESLEYAN GENERAL ASSURANCE SOCIETY REPORTED IN (1948) 16 ITR 101 AND A NOTHER DECISION IN REVENUE COMMISSIONERS V. DUKE OF WESTMINSTER REPORTED IN (1936) A.C. 1.HOWEVER, ON GOING THROUGH THESE JUDGMENTS WE DO NOT FIND ANY OF THE JUDGMENT HAS AN Y DIRECT APPLICATION TO THE FACTS OF THIS CASE. THE VERY SCHEME OF DEDU CTION OF TAX AT SOUR CE UNDER THE INCOME TAX ACT IS TO TRACE RECIPIEN TS OF INCOME AND THEIR ACCO UNTABILITY TO THE DEPARTMENT FOR PAYMENT OF TAX ON VARIOUS TRANSACTIONS. IN FACT, MAJOR PORTI ON OF THE INCOME TAX COLLECTION IS THROUGH RECOVERY OF TAX AT SOURCE AND BUT FOR THE MECHANISM, THERE WOULD HAVE BEEN MASSIVE EVASI ON OF TAX BY THE RECIPIEN TS OF VARIOUS KINDS OF INCOME. THE TREND IN LEGISLATION IS TO IN CREASE COVERAGE FOR RECOVERY OF TAX AT SOURCE AND ON A STEADY BASIS VARIOUS SERVICES ARE BROUGHT UNDER THE TDS SCHEME SO THAT TAX EVASION IS AVOIDED. WE HAVE AL READY TAKEN NOTE OF THE PROVISION UNDER SECTION 197 OF THE ACT WHICH MITIGATES AGAI NST HARDSHIP IF ANY IN RECOVERY OF TAX IN AS MUCH AS A PAYEE IS ENTITLE D TO APPROACH THE DEPARTMEN T AND APPLY FOR CERTIFICATE TO RECEIVE ANY AMOUNT WHICH WO ULD BE OTHERWISE SUBJECT TO DEDUCTION OF TAX AT SOURCE WITHOUT RECOVERY OF ANY TAX OR ON RECOVERY AT LESSER RATES. WE ARE OF THE VIEW THAT THE GRIEVANCE IF ANY AGAINST RE COVERY OF TAX BY THE ASSESSEE IS ON THE DISTRIBUTORS, AND THEY ARE ALREADY ON THE ROLE S OF THE DEPARTMENT BECAUSE ASSESSEE IS MAKING DEDUCTION OF TAX AT SOURCE FOR PAYMENT OF COMMISSION MADE UNDER THE POST PAID SCHEME. AS ALREADY POINTED OUT, IF DI STRIBUTORS HAVE ANY GRIEVANCE AGAINST ASSESSEE RECOVERING TAX FOR THE COMMISSION PAID IN THE FORM OF DISCOUNT IN RESPECT OF PREPAID SERVICES, ANY SUCH DISTRIBUTOR IS FREE TO APPROACH THE DEPARTMENT FOR GETTING HIS GRIEVANCE REDRESSED BY FILING AN APPLICATION UNDER SECTION 197 OF THE INCOME TAX ACT. HOWEVER, WE MAKE IT CLEAR T HAT THIS IS NOT THE GROUND ON WHICH WE HAVE HELD THE ASSESSEE LIABLE FOR RECOVERY OF TAX AT SOURCE UNDER SECTION 194H WHICH IS ONLY BECAUSE WE HAVE CLEARLY FOUND THAT THE DISC OUNT PAID TO THE ITA NO.1415 & 1416/MDS/09 35 DISTRIBUTORS IS FOR SERVICE RENDERED BY TH EM AND THE SAME AMOUNTS TO 'COMMISSION' WITHIN THE MEANING OF THAT TERM CONTAINED UNDER EXPLANATION (I) TO SECTION 194H OF THE ACT. THE IMPUGNED ORDERS ISSUED UN DER SECTION 201(1) AND 201(1A) OF THE ACT ARE ONLY CONSEQUE NTIAL ORDERS PASSED ON ACCOUNT OF DEFAULT COMMITTED BY THE ASSESSEE UNDER SECTION 194H AND, THEREFORE, THOSE ORDERS WERE RIGHTLY UPHELD BY THE TRIBUNAL. WE, THEREFORE, DISMISS A LL THE APPEALS FILED BY THE ASSESSEE. 10.3. SIMILARLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. IDEA CELLULAR LTD. (SUPRA), SAME ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE WITH RESPECT TO APPEALS FOR THE ASSESSMENT YEARS 2003- 04 AND 04-05 AND RELEVANT HELD PORTION OF THE SAID JUDGMENT IS REPRODUCED AS UNDER: TDS - UNDER S. 194HCOMMISSION OR DISCOUNT TO DISTRIBUTORS OF SIM CARDS/RECHARGE COUPONSASSESSEE, A CEL LULAR OPERATOR, PROVIDES PREPAID CONNECTIONS TO THE SUBSCRIBERS THROUG H DISTRIBUTORS CALLED PREPAID MARKET ASSOCIATES (PMAS) APPOINTED BY ITIT OFFERS DISCOUNT FOR PREPAID CALLING SERVICES TO ITS DISTRIBUTORSLEGAL RE LATIONSHIP IS ESTABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMER/SUBSCR IBER, WHO IS SOLD THE SIM CARD BY THE AGENTS FURTHER APPOINTE D BY THE PMA5 WITH THE CONSENT OF THE ASSESSEE FACT THAT THE PMA IS SUP POSED TO MAKE THE PAYMENT IN ADVANCE AS PER THE AGREEMENT DOES NOT MAKE ANY DIFFERENCE TO THE NATURE OF THE TRANSACTION IN VIEW OF THE OTHER TERMS OF THE AGR EEMENTEVEN THOUGH ADVANCE PAYMENT IS MADE BY THE PMA QUA SIM CARDS, IT DOES NO T AMOUNT TO SALE OF GOODS IN AS MUCH AS UNSOLD SIM CARDS ARE TO BE RETURNED TO THE ASSESSEE AND IT IS REQUIRED TO MAKE PAYMENT AGAINST THEM THIS IS AN ANTITHESIS OF SALE THEREFORE, THE DISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTORS ON PAYMENTS MADE BY THE LATTER FOR THE SI M CARDS/RECHARGE COUPONS WHICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTED PRICE IS COMMISSION AND IT IS SUBJECT TO TDS UNDER S. 194HCONTENTI ON OF THE ASSESSEE THAT 5. 194H IS NOT APPLICABLE AS THERE IS NO PAYMENT OR CREDIT BY THE ASSESSEE TO THE DISTRIBUTOR CANNOT BE ACCEPTED. HELD THE ARGUMENT OF THE COUNSEL THAT S. 194H IS NOT APPLICABLE, AS THERE IS NO PAYMENT OR CREDIT BY THE ASSESSEE TO ITS DISTRIBUTOR IS TO BE REJECTED. LIKEWISE, THE ARGUMENT THAT THE AMOUNT MUST BE SHOWN TO BE THE INCOME OF THE RESPONDENT ALSO DOES NOT HOLD GOOD. THE LEGAL RELATIONSHIP IS ES TABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMER/SUBSCRIBER, WHO IS SOLD THE SIM CARD BY THE AGENTS FURTHER ITA NO.1415 & 1416/MDS/09 36 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) SERV ICE PROVIDED BY THE ASSESSEE TO THE SUBSCRIBER. FURTHER, DEALINGS BETWEEN THE SUBSCRIBE RS AND THE ASSESSEE IN RELATION TO THE SAID SIM CARD INCLUDING ANY COMPLA INT, ETC. FOR IMPROPER SERV ICE/DEFECT IN SERVICE. (C) ENTERING INTO THE ULTIM ATE AGREEMENT BETWEEN THE SUBSCR IBER AND THE ASSESSEE. IT IS TO BE BORNE IN MIND THAT THE NATURE OF 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 AR E PREPAID, WHICH ARE SOLD BY THE ASSESSEE TO THE CONSUME RS THROUGH THE MEDIUM OF PM AS. IN THE CASE OF POST- PAID, SIM CARD TRANSACTION IS ENTERED IN TO DIRECTLY BETWEEN THE ASSESSEE AND THE SUBSCRIBER AND THE SUBSCRIBER IS SENT BILL PERIODICALLY DE PENDING UPON THE USER OF THE SIM CARD FOR THE PERIOD IN QUESTION. IN BOTH, THE CASES, LEGAL RELATIONSHIP IS CREATED BETWEEN THE SUBSCRIBER AND THE ASSE SSEE THAT TOO BY ENTERING INTO SPECIFIC AGREEMENT BETWEEN THESE TWO PARTIES. IN CONT RAST, THE LEGAL POS ITION WHEN THE GOODS ARE SOLD BY PRINCIPAL TO ITS DISTRIBUT ORS CREATING PRINCI PAL AND PRINCIPAL RELATIONSHIP WOULD BE ENTIRELY DIFFERENT. ON THE SALE OF GOODS, THE OWNERSHIP PASSES BETWEEN THE MANUFACTURER AND THE DISTRIBUT ORS. IT IS THE RESPONSIBILITY OF THE DISTRIBUTOR THEREAFTER TO SELL THOSE GOODS FURTHER TO THE CONSUMERSTHE ULTIMATE USERS. THE PRINCIPAL/MANUFACTURER DOES NOT CO ME IN PICTURE AT ALL. OF COURSE, HE MAY BE LIABLE FOR SOME ACTION BY THE CONS UMER BECAUSE OF DEFECTIVE GOODS, ETC., WHICH IS THE RESULT OF OTHER ENACTMENTS CO NFERRING CERTAIN RIGHTS ON THE CONSUMER OR COMMON LAW RIGHTS IN HIS FAVOUR AS AGAINS T THE MANUFACTURER. NO DOUBT, AS PER CL. 6(A) OF THE AGREEMENT, PMA IS SUPPOSED TO MAKE THE PAYMENT IN ADVANCE. THAT WOULD NOT MAKE ANY DIFFERENCE TO THE NATURE OF TRANSACTION IN VIEW OF CI. 25(D) OF THE AGREEMENT. THUS, EVEN IF ADV ANCE PAYMENT IS MADE BY TH E PMA ON RECEIPT OF THE SIM CARDS, QUA THOSE SIM CARDS, IT DOES NOT AMOUNT TO SALE OF GOODS. THE PURPOSE IS TO ENSURE THAT THE PAYMENT IS RECEIVED IN RESPECT OF THOSE SIM CARDS, WHICH ARE ULTIMATELY SOLD TO THE SUBSCRIBE RS IN AS MUCH AS UNSOLD SIM CARDS ARE TO BE RETURNED TO THE ASSESSE E AND THE ASSESSEE IS REQUIRED TO MAKE PAYMENT AGAINST THEM. THIS IS AN ANTITHESIS OF SALE. THERE CANNOT BE ANY SUCH OBLIGATION TO RECEIVE BACK THE UNSOLD STOCKS. FURTHER, CL. 25(F) LAYS DOWN THAT ON TERMINATION OF AGREEMENT, PMA OR ITS AUTHORIZED RETAILER APPOINTED BY IT, IS NOT ENTITLED TO ANY COMPENSATION FOR COST OR EXPE NSES INCURRED BY IT IN EITH ER SETTING UP OR PROMOTION OF ITS BUSINESS, ETC. NO SUCH CLAUSE WAS RE QUIRED IN CASE OF SALE. THUS, THE TRIBUNAL ERRED IN HOLDING THAT THE PAYMENTS PAID BY THE ASSESSEE ARE NOT COMMISSION AS ENVISAGED UNDER S. 194H.CIT VS. SINGAPORE AIRLINES LTD. & ORS. (2009) 224 CTR (DEL) 168 : (2009) 22 DTR (DEL) 129 : 2009-ITOL-183-HC-DEL-IT FOLLOWED; BHARAT SANCHAR NIGAM LTD. & ANR. VS. UNIO N OF INDIA & ORS. (2006) 201 CTR (SC) 346 : AIR 2006 SC 1383 RELIED ON; VODAFO NE ESSAR CELLULAR LTD. VS. ASSTT. CIT (2010) 35 DTR (COCH)(TRIB) 393 AND ASSTT. CIT VS. BHAR TI CELLULAR LTD. (2007) 108 TT] (KOL) 38 APPROVED; VIJA Y TRADERS VS. BAJAJ AUTO LTD. (1995) 6 SCC 566, ITA NO.1415 & 1416/MDS/09 37 AHMEDABAD STAMP VENDORS ASSOCIATION VS . UNION OF INDIA (2002) 176 CTR (GUJ) 193 : (2002) 257 ITR 202 (G UJ) AND BHOPAL SUGA R INDUSTRIES LTD. VS. STO 1977 CTR (SC) 284 : (1977) 40 STC 42 DISTINGU ISHED; IDEA CELLULAR LTD. VS. DY. CIT (2009) 18 DTR (DEL)(TRIB) 475 : ( 2009) 121 TI] (DEL) 352 SET ASIDE. (PARAS 22 TO 26) CONCLUSION TRANSACTION BETWEEN THE ASSESSEE, A CELLU LAR OPERATOR, AND THE PREPAID MARKET ASSOCIATES (PMAS) APPOINTED BY IT WH EREBY SIM CARDS/RECHARGE COUPONS ARE ULTIMATELY SOLD TO THE SUBSCR IBERS THROUGH THE LATTER DOES NOT AMOUNT TO SALE OF GOODS AND, THEREFORE, THE DISCOUNT OFFE RED BY THE ASSESSEE TO THE DISTRIBUTORS ON PAYMENTS MADE BY THE LATTER FOR THE SI M CARDS/RECHARGE COUPONS WHICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTED PRIC E IS COMMISSION AND IT IS SUBJECT TO TDS UNDER S. 194H. 11. SO FAR AS THE PLEA OF THE LD. COUN SEL NOT TO FOLLOW KERALA HIGH COURTS AND DELHI HIGH COURTS DECISION IN THE CASE OF THE ASSESSEE AND IN THE CASE OF CIT V. IDEA CELLULAR LTD. RESPECTIVE LY IS CONCERNED, WE, AFTER CA REFUL CONSIDERATION OF RIVAL SUBMISSIONS AND PRECEDENTS, FI ND THAT THESE TWO DECISIONS ARE DIRECT ON THE POINT RELATABLE TO INTERPRETATION OF SECTION 194H IN RELATION TO COMMISSION / DISCOUNT ALLOWED TO THE DISTRIBUTORS ON SIM CA RDS AND RECHARGE COUPONS AND NO SIMILAR DECISION WITH REGARD TO INTERPRETATION OF SAME PROVISION HAS BEEN CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, CONS IDERING THESE DECISIONS AND FACTS OF THE CASE, WE HOLD THAT THE PLEA OF THE ASSESSEE IN THIS REGARD IS NOT TENABLE AND AS SUCH CANNOT BE ACCEPTED. 12. CONSIDERING THE ENTIRET Y OF FACTS, CIRCUMSTANCES AND MATERIAL ON RECORD IN THE LIGHT OF RELEVANT PROVISIONS, PREC EDENTS AND DISCUSSION HELD ABOVE, WE HOLD THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF COMMISSION/DISCOUNT ALLOWED TO THE DISTRI BUTORS UNDER SECTION 194H FOR BOTH THE ITA NO.1415 & 1416/MDS/09 38 YEARS UNDER CONSIDERATION AND SINCE IT HAS FA ILED TO DO SO, THEREF ORE, THE ASSESSING OFFICER HAS CORRECTLY CREATED DEMANDS UNDER SECTIONS 201(1) AND 201(1A) OF THE INCOME TAX ACT AND THE LD. CI T(A) IS NOT JUSTIFIED AT A LL TO DELETE SUCH DEMANDS. AS SUCH, WHILE ACCEPTING THE APPEALS OF THE REV ENUE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER IN THIS REGARD 13. AS A RESULT, APPEALS OF T HE DEPARTMENT ARE ACCEPTED. ORDER PRONOUNCED ON 01.04.2011. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI, DATED, THE 01.04.2011 VM/- COPY TO : APPELLANT/RES PONDENT/CIT(A)- /CIT, /DR
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