M/s. Cellular Mobile Telecom Services, CHENNAI V. ITO, CHENNAI

ITA 1560/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64496 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-10-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 13-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Keywords: Non-deduction of tax
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NOS. 1560 & 1561/MDS/2011 ASSESSMENT YEARS : 2009-10 & 2010-11 M/S. CELLULAR MOBILE TELECOM SERVICES, CHENNAI TELEPHONES (WING OF BSNL), NO. 78, PURASAWALKAM HIGH ROAD, CHENNAI-600 010. V. THE INCOME TAX OFFICER, TDS WARD-I(1), CHENNAI. (PAN : CHECO5110A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PHILIP GEORGE, ADVOCATE RESPONDENT BY : SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 17.1 0.2012 DATE OF PRONOUNCEMENT : 30.10.201 2 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF THE CIT(APPEALS)-IV, CHENNAI DATED 30-06-2 011 FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. ITA NOS.1560 & 1561/MDS 2011 2 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS SELLING SIM CARDS AND RECHARGE COUPONS OF CELLONE O F THE CHENNAI TELEPHONES TO VARIOUS WHOLESALE DEALERS AND PAYING COMMISSION TO THEM UPTO THE FINANCIAL YEAR 2007-08. M/S. CHENNAI TELEPHONES HAS FOLLOWED THE PROVISIONS OF S ECTION 194H OF THE INCOME TAX ACT, 1961 ('THE ACT' FOR SHO RT). FROM THE FINANCIAL YEAR 2008-09 ONWARDS THE ASSESSEE COM PANY HAS DISTINGUISHED THE SALE OF SIM CARD AND RECHARGE COU PONS. IN RESPECT OF SALE OF RECHARGE COUPONS THE COMMISSION PAID TO THE DEALERS HAS BEEN TREATED AS DISCOUNT OFFERED AN D NO TDS U/S 194H WAS DEDUCTED. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS OBSERVED THAT UPTO THE FINANC IAL YEAR 2007-08 THE ASSESSEE HAS DEDUCTED TDS ON AMOUNTS PA ID ON SALE OF RECHARGE COUPONS BY TREATING THE SAME AS CO MMISSION. IMMEDIATELY FROM NEXT YEAR THE ASSESSEE STOPPED DED UCTING TDS ON THE GROUND THAT IT IS NOT COMMISSION BUT ONL Y DISCOUNT. THERE WERE NO CIRCUMSTANCES WARRANTING SUCH A DECIS ION AND THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE DT. 15-09-2009 U/S 201/201(1A) OF THE ACT CALLING FOR EXPLANATION FROM THE ASSESSEE FOR FAILURE TO DEDUCT TDS U/S 194H OF THE ACT. IT WAS SUBMITTED BEFORE THE ASSES SING ITA NOS.1560 & 1561/MDS 2011 3 OFFICER THAT THE TRANSACTION BETWEEN BSNL AND PURCH ASE DEALER WAS PRINCIPAL TO PRINCIPAL AND NOT PRINCIPAL TO AGE NT. THEREFORE, NO TDS IS NECESSARY TO BE DEDUCTED. THE ASSESSEE FURTHER SUBMITTED THAT SIM CARD SUPPLIED BY THE DIS TRIBUTOR IS STILL THE PROPERTY OF THE SERVICE PROVIDER, I.E. TH E ASSESSEE COMPANY. IT IS ONLY FOR THE ULTIMATE CONSUMER OR TH E ASSESSEE COMPANY WHO HAS THE AUTHORITY TO UNCOVER THE SECRET NUMBER AND BRING THE CARD INTO ACTIVATION. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT THE ASSESSEE HAS NEVER EXPLAINED THE REASON FOR NOT DED UCTING TDS FROM THE FINANCIAL YEAR 2008-09 ONWARDS IN RESP ECT OF SALE OF RECHARGE COUPONS EVEN THOUGH THE ASSESSEE HAS CO RRECTLY AND PROMPTLY DEDUCTED TDS UPTO THE FINANCIAL YEAR 2 007-08. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE AS SESSEE, M/S. CELLULAR MOBILE TELECOM SERVICES, CHENNAI TELEPHONE S, IS AN ASSESSEE IN DEFAULT AS PER THE PROVISIONS OF SECTIO N 201(1) OF THE ACT FOR ` 45,12,636 WHICH WAS THE AMOUNT OMITTED TO BE DEDUCTED FROM THE COMMISSION AMOUNT DISBURSED. IN ADDITION TO THE ABOVE, THE ASSESSEE WAS ALSO HELD LIABLE TO PAY INTEREST U/S 201(1A) OF THE ACT AMOUNTING TO ` 8,62,787/-. ULTIMATELY THE TOTAL AMOUNT AS DETERMINED BY THE ASSESSING OFF ICER WAS ` ITA NOS.1560 & 1561/MDS 2011 4 53,75,423/- U/S 201(1) AND 201(1A) OF THE ACT AND T AXED ACCORDINGLY. 3. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE CIT(APPEALS). BEFORE THE LEARNED CIT(AP PEALS) IT WAS SUBMITTED THAT THE AMOUNT PAID TO THE DEALER IS PRINCIPAL TO PRINCIPAL BASIS. IT IS ONLY DISCOUNT AND NOT CO MMISSION AND THEREFORE NO TDS IS NECESSARY TO BE DEDUCTED. RECH ARGE COUPON IS DIFFERENT FROM SIM CARD. THE LEARNED CIT (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE O BSERVED AS UNDER : 6. I HAVE, CONSIDERED THE WRITTEN SUBMISSIONS FILED BY ID. AR, ASSESSMENT ORDER OF A.O. AND PROCEED TO DECIDE THE ISSUE. I AM OF THE CONSIDERED VIEW THAT TDS IS DEDUCTIBLE ON THE C 9MMISSION PAYMENTS MADE BY BSNL WHILE SELLING SIM CARDS/RECHA RGE COUPONS, TO ITS FRANCHISEES, FOR THE FOLLOWING REAS ONS: (A) THE ASSESSEE COMPANY DEDUCTED THE TI?S ON THESE PAYMENTS UPTO AY 200708 AND FROM THE AY 200809 ONWARDS, TH EY STOPPED DEDUCTING TAX. BEFORE THE ASSESSING OFFICER, THE AS SESSEE COMPANY DID NOT GIVE ANY PROPER REASON AS TO WHY THERE IS A SUDDEN CHANGE,AS MENTIONED BY ASSESSING OFFICER IN HIS ASS ESSMENT ORDER PAGE 6, PENULTIMATE PARA. THE FACTS AND CIRCUMSTANC ES REMAINING THE SAME, THE ASSESSEE COMPANY CANNOT TAKE AN ADMIN ISTRATIVE UNILATERAL DECISION OF NOT DEDUCTING THE TAX, WHEN THERE IS NO CHANGE IN THE LAW. (B) THIS ISSUE OF MAKING TDS U/S 194H ON SALE OF SI M CARDS/RECHARGE COUPONS CAME UP FOR HEARING BEFORE HON'BLE HAT CHENNAI RECENTLY IN THE CASE OF VODAFONE ESSAR CELL ULAR LIMITED ITA NO.1415 & 1416/MDS/2009, 'A' BENCH DATED 01/04/ 2011. THE FACTS IN OUR CASE ON HAND ARE EXACTLY, THE SAME. EL ABORATE ARGUL1IIENTS WERE ADDUCED BY ID. COUNSEL OF ASSESSE E, SHRI S.E. DASTUR AND NIRAJ SHETH, WHICH WERE CONSIDERED BY HO N'BLE ITAT AND THEN ONLY HELD THAT THE TDS PROVISIONS U/S 194H ARE APPLICABLE ITA NOS.1560 & 1561/MDS 2011 5 FOR SALE OF SIM CARDS AND RECHARGE COUPONS SOLD BY ASSESSEE COMPANY LE. THE DIFFERENTIAL PORTION SHOULD BE TREA TED AS 'COMMISSION' AND ON THESE COMMISSION PAYMENTS, TAX IS TO BE DEDUCTED AT SOURCE AS PER SEC. 194H OF I.T.ACT. (C) THE ASSESSEE COMPANY MADE AN ARGUMENT BEFORE TH IS APPELLATE AUTHORITY, ALTERNATIVELY THAT TDS PROVISIONS TO BE MADE APPLICABLE ONLY FOR SIM CARDS BUT NOT RECHARGE COUPONS BECAUSE THE ASSESSEE COMPANY IS THE OWNER OF SIM CARDS WHEREAS FOR THE R ECHARGE COUPONS, THEY ARE NOT THE OWNERS, LE. ONCE RECHARGE COUPONS ARE SOLD TO FRANCHISEES, THEY DON'T COME BACK TO ASSESS EE NOR DO THEY HAVE ANY CONTROL OVER RECHARGE COUPONS. BUT, THIS A RGUMENT IS NOT CORRECT SINCE THERE IS NO INDEPENDENT EXISTENCE OF RECHARGE COUPONS WITHOUT SIM CARDS. UNLESS SIM CARD IS ISSUED TO A S UBSCRIBER, RECHARGE COUPON CANNOT BE ISSUED IE. THEY ARE INTER -LINKED AND CANNOT BE SEPARATED. IN OTHER WORDS, THE RECHARGE C OUPON IS AN EXTENSION OF ORIGINAL SIM CARDS I.E. A RECHARGE COUPON CANNOT EXIST OR WORK WITHOUT SIM CARD BEING ACTIVATED I.E. A REC HARGE COUPON CANNOT WORK ONCE THE SIM CARD (WHICH ASSESSEE ADMIT S THAT TDS IS TO BE DEDUCTED) IS DEACTIVATED. SO, THE SIM CARD AN D RECHARGE COUPON WILL GO TOGETHER. IF THERE' IS A DEFECT IN R ECHARGE COUPON, THE SUBSCRIBER GOES TO FRANCHISEE/RETAILER WHO IN TURN WILL COMPLAIN TO ASSESSEE COMPANY. THUS, THE LINK BETWEEN THE ASSESS EE COMPANY WITH FRANCHISEE VERY MUCH EXISTS FOR BOTH SIM CARDS AND RECHARGE COUPONS AND THE UMBILICAL CHORD IS NEVER CUT. MOREO VER, HON'BLE ITAT OF CHENNAI IN THE ABOVE MENTIONED CASE HAS CAT EGORICALLY HELD THAT SEC. 194H IS APPLICABLE FOR BOTH SIM CARD S AND RECHARGE COUPONS (PARA 11, PAGE 37 OF HON'BLE ITAT'S ORDER). SIMILARLY, BOTH HON'BLE DELHI HIGH COURT AND HON'BLE KERALA HIGH CO URT IN THE CASE OF IDEA CELLULAR LIMITED 325 ITR 148(DEL.) AND VODAFONE ESSAR LIMITED 235 CTR:393(KER.) HAVE HELD THAT TDS IS APPLICABLE U/S 194H ON BOTH SIM CARDS AND RECHARGE COUPONS. HENCE, THIS ALTERNATE ARGUMENT OF ASSESSEE COMPANY IS ALSO REJE CTED. (D) THE ASSESSEE COMPANY RELIED ON IDEA CELLULAR DE CISION OF DELHI ITAT BEFORE THE A.C. AND ARGUED THAT THE PROVISIONS U/S 194H ARE NOT APPLICABLE FOR THE 'DISCOUNT' GIVEN BY ASSESSEE COMPANY TO ITS FRANCHISEES. ACTUALLY, THE AMOUNT PAID TO FRANCHISE ES IS 'COMMISSION', BUT THE ASSESSEE COMPANY CHOSE TO TER M IT AS 'DISCOUNT' TO COME OUT OF THE PROVISIONS OF SECTION 194H. SINCE THERE IS NO OTHER INCENTIVE PAYABLE TO FRANCHISEES BY ASSESSEE COMPANY, THE AMOUNT PAID AT REDUCED PRICE IS ACTUAL LY 'COMMISSION' ONLY AND THE ASSESEE COMPANY ACCEPTED THIS PROPOSITION TILL AY 199798. THERE BEING NO CHANGE IN FACTS, CIRCUMSTANCES AND LAW, THE ASSESSEE COMPANY SHOULD HAVE CONTINUED TO DEDUCT TAX AS IN EARLIER YEARS. MOREOV ER, THE DECISION RELIED ON BY ASSESSEE COMPANY BEFORE THE ASSESSING OFFICER WAS SET ITA NOS.1560 & 1561/MDS 2011 6 ASIDE BY HON'BLE DELHI HIGH COURT IN THE SAME CASE WHICH SHOWS THAT ASSESSEE'S LOGIC OF NON-DEDUCTION OF TAX IS IN CORRECT. IN THIS CONTEXT, I RELY ON DELHI MILK SCHEME VS ITO 300 ITR 373(DEL.) WHERE THE CONSIDERATION WAS PAID TO ITS AGENTS FOR SELLING MILK THROUGH BOOTHS AND CLAIMED IT AS 'DISCOUNTED SALE', BUT HON'BLE HIGH COURT OF DELHI HAS HELD IT TO BE 'COMMISSION' AS DEFINED IN SECTION 194H RELYING ON EXPLANATION 1 OF SECTION 19 4H. IT IS QUITE USUAL FOR ASSESSEES TO CLAIM THE AMOUNT AS 'DISCOUN T' AND NOT AS 'COMMISSION', EVEN THOUGH IT IS COMMISSION ONLY TO COME OUT OF SECTION 194H OF THE LT. ACT. I ALSO RELY ON THE DEC ISION OF HON'BLE DELHI HIGH COURT, IN THIS CONTEXT, CIT VS SINGAPORE AIRLINES 319/29 (DEL) WHERE THE TRAVEL AGENTS COLLECTED FARE FROM PASSENGERS AND AGENTS COLLECTED FARE FROM PASSENGERS AND REMIT TED IT TO AIRLINES SUBJECT TO DEDUCTION OF COMMISSION DUE TO THEM AND CLAIMED IT TO BE 'DISCOUNT'. EVEN IN SUCH CASES, WHERE COMMISSION IS RETAINED BY DISTRIBUTORS, THE BOARD HAS CLARIFIED IN PARA 16.2 OF ITS CIRCULAR NO.619 DATED 04.12.1991, 193 ITR (ST.) 17 THAT THE RETAINED AMOUNT IS A CONSTRUCTIVE PAYMENT BY THE PRINCIPAL AND REQU IRED TAX DEDUCTION AT SOURCE. IN THE PRESENT CASE OF OURS AL SO, THE APPELLANT BSNL IS SELLING SIM CARDS/RECHARGE COUPONS AT REDUC ED PRICE TO ITS FRANCHISEES AND CLAIMED THE REDUCED PRICE AS 'DISCO UNT'. APPLYING THE ABOVE ANALOGY, IT IS HELD THAT THE REDUCED PRIC E IS TREATED AS' 'COMMISSION', BUT NOT 'DISCOUNT' AS CLAIMED BY APPE LLANT COMPANY. I ALSO RELY ON THE DECISION OF HON'BLE KOLKATA ITAT 'S DECISION ACIT VS BHARTI CELLULAR LIMITED 108 TTJ(KOL.) 38, 2 94 ITR 283 (KOL.)(AT) WHERE IT WAS HELD THAT THE PAYMENTS MADE BY ASSESSEE COMPANY ARE IN THE NATURE OF COMMISSION PAYMENTS, B UT NOT DISCOUNTS AND ADJUDICATED THE ISSUE IN FAVOUR OF RE VENUE BY STATING THAT SECTION 194H IS APPLICABLE. THE KOLKATA BENCH FOLLOWED HINDUSTAN COCA COLA BEVERAGES PRIVATE LIMITED 98 TT J L(JP) WHERE ASSESSEE SOLD PREPAID CARDS TO DISTRIBUTORS A ND CLAIMED THE SAME AS 'DISCOUNTED SALE'. IN THIS CASE, HON'BLE BE NCH HAS HELD THAT SINCE THE AMOUNTS ARE FIXED MARGINS AND FURTHER HEL D THAT THERE IS A PRINCIPAL TO AGENT RELATIONSHIP. IT WAS HELD THAT S ECTION 194H IS APPLICABLE. (E) THE ASSESSEE COMPANY IN ITS WRITTEN SUBMISSIONS RELIED ON THE DECISION OF AHMEDABAD STAMP VENDORS ASSOCIATION VS UNION OF INDIA 257 ITR 202 TO SUPPORT HIS ARGUMENT OF NON-DE DUCTION OF TAX. THIS CASE WAS CONSIDERED BY HON'BLE DELHI HIGH COUR T IN THE CASE OF CIT VS IDEA CELLULAR LIMITED 325 ITR 148 (DEL.) AND SINCE THE FACTS AND CIRCUMSTANCES WERE DIFFERENT, IT WAS HELD THAT SECTION 194H WAS APPLICABLE FOR THE DIFFERENTIAL PORTION WH ILE SELLING SIM CARDS/RECHARGE COUPONS. SO, THIS ARGUMENT OF ASSESS EE COMPANY IS DECIDED AGAINST IT ON MERIT. ITA NOS.1560 & 1561/MDS 2011 7 (F) THE ASSESSEE COMPANY ARGUED THAT THERE IS ONLY A PRINCIPAL TO PRINCIPAL RELATIONSHIP BUT NOT PRINCIPAL TO AGENT R ELATIONSHIP AND HENCE 194H IS NOT APPLICABLE. THIS IS NOT CORRECT. THE AGREEMENT BETWEEN BSNL AND FRANCHISEE CLEARLY SHOWS THAT THER E IS ONE-WAY FLOW I.E. IT IS ONLY ASSESSEE COMPANY SELLS TO FRAN CHISEES AND FRANCHISEES NEVER SELLS GOODS TO ASSESSEE COMPANY N OR THE FRANCHISEE COMPANIES GIVE DISCOUNT/COMMISSION TO AS SESSEE COMPANY. THIS ARGUMENT OF PRINCIPAL TO PRINCIPAL RE LATIONSHIP WAS REPELLED BY HON'BLE DELHI HIGH COURT IN THE CASE OF IDEA CELLULAR LIMITED 325 ITR 148 (DEL.) BY STATING THAT ALL THE SERVICES WERE RENDERED BY ASSESSEE COMPANY AND HENCE THE RELATION SHIP BETWEEN ASSESSEE COMPANY AND FRANCHISEE IS THAT OF PRINCIPA L TO AGENT AND NOT PRINCIPAL TO PRINCIPAL AS CLAIMED BY ASSESSEE C OMPANY. THE SERVICES PROVIDED BY THE ASSESSEE COMPANY THROU GH VARIOUS DISTRIBUTORS ARE REGULATED BY LAW. CARRYING ON THE BUSINESS OF PROVIDING SERVICE IS SUBJECT TO SO MANY STATUTOR Y COMPLIANCE REQUIREMENTS, LIKE VERIFICATION OF THE IDENTITY OF THE CONSUMER AND THE RELATED DOCUMENTATION, ETC. THE ASSESSEE COMPAN Y IS HAVING ALL LAWFUL OBLIGATIONS TO A PREPAID CONSUMER, EVEN THOU GH THE DIRECT DEAL IS BETWEEN THE DISTRIBUTOR AND THE CONSUMER. T HIS IS BECAUSE THE DISTRIBUTOR DOES NOT HAVE ANYTHING TO PROVIDE ' AS SERVICE' TO THE CONSUMER. THESE ARE ALL FEATURES OF AGENCY RELATION SHIP. SERVICE CANNOT BE SOLD OR PURCHASED AND IT CAN ONLY BE PROVIDED. THE OPERATIONAL FEATURES EXPLAINED BY THE ASSESSEE COMPANY ARE NECESSARY IN RUNNING A MAMMOTH SYSTEM O F PROVIDING MOBILE TELEPHONE SERVICES OVER A LARGE GEOGRAPHICAL AREA. THE DISTRIBUTORS PROVIDE ESSENTIAL SERVICES TO THE ASSE SSEE COMPANY IN RUNNING SUCH A HUGE OPERATIONAL SYSTEM. THE DISTRIB UTORS ARE LINKING AGENTS IN HE CHAIN OF DELIVERY OF SERVICES TO CONSU MERS. THEREFORE, THE RELATIONSHIP IS NOT OF A PRINCIPAL-TO-PRINCIPAL , BUT ESSENTIALLY THAT OF PRINCIPAL TO AGENT ONLY. MOREOVER, CIRCULAR NO.1 31DATED 15/04/2008 ISSUED BY CHIEF GENERAL MANAGER OF BSNL, AT PARA 2 CLEARLY STATES THAT ALL THE FRANCHISEES OF BSNL ARE ACTING AS AN .AGEN1 OF BSNL WHILE SELLING BSNL PRODUCTS AND SERVICES AN D THE AMOUNT PAID TO FRANCHISEES SHALL BE TREATED AS COMMISSION EXPENDITURE OF BSNL. IT WAS FURTHER HELD BY HONBLE DELHI HIGH COURT THA T IN THE ABOVE CASE OF IDEA CELLULAR LIMITED 325 ITR 148 (DE L.) THE LOGIC REMAINS SAME FOR PRE-PAID AND POST PAID RECHARGE CO UPONS I.E. EFFECTIVELY 194H IS APPLICABLE TO SIM CARDS (ADMITT ED BY THE ASSESSEE COMPANY ALSO), PRE-PAID AND POST PAID RECH ARGE COUPONS. WHILE HOLDING THAT 194H PROVISIONS ARE APPLICABLE T O ASSESSEE COMPANY, HONBLE DELHI HIGH COURT HAS HELD THAT IT IS FOLLOWING ITS DECISION OF CIT VS SINGAPORE AIRLINES LIMITED 224 C TR 168 ITA NOS.1560 & 1561/MDS 2011 8 (DEL.). HON'BLE DELHI HIGH COURT, WHILE COMING TO T HIS CONCLUSION, RELIED ON THE APEX COURT'S DECISION OF BSNL VS. UNI ON OF INDIA 201 CTR 346(SC). SINCE HON'BLE DELHI HIGH COURT REL IED ON HON'BLE SUPREME COURT'S DECISION, IT HAS A BINDING EFFECT ON THE PEOPLE AND COURTS OF ALL OVER INDIA AS PER ARTICLE 141 OF CONSTITUTION OF INDIA. (G) THE ASSESSEE COMPANY RELIED ON KERALA STAMP VEN TORS ASSOCIATION VS OFFICE OF ACCOUNTANT GENERAL 150 TM 30(KER.), IN HIS WRITTEN SUBMISSIONS TO ARGUE THAT TDS PROVISIONS ARE NOT APPLICABLE FOR HIS CASE ALSO. HO N'BLE KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR LIM ITED 235 CTH 393 (KER.) HAS CONSIDERED AND DISTINGUISHED THE ABOVE CASE RELIED ON BY ASSESSEE STATING THAT IN TH AT CASE, STAMP VENDORS ARE LICENCED DISTRIBUTORS OF GOVERNME NT AND MOREOVER SPECIFIC EXEMPTION WAS GRANTED TO THEM BY STATE GOVERNMENT FROM S.T. ACT. SINCE THE FACTS AND CIRCUMSTANCES IN THAT CASE ARE DIFFERENT, HON'BLE K ERALA HIGH COURT HAS HELD THAT THE CASE RELIED ON BY ASSESSEE WILL NOT COME TO THE RESCUE OF ASSESSEE. IN OTHER WORDS, SIN CE THE CASE RELIED ON BY ASSESSEE COMPANY WAS DISCUSSED AND DISTINGUISHED BY HON'BLE KERALA HIGH COURT IN THE A BOVE CASE AND HELD IN FAVOUR OF DEPARTMENT, THIS ARGUMEN T OF ASSESSEE COMPANY ALSO IS LIABLE TO BE REJECTED. (H) THE ASSESSEE COMPANY HAS ALSO ARGUED THAT FROM THIS ASSESSMENT YEAR ONWARDS, THEY HAVE CHANGED THEIR ACCOUNTING SYSTEM AND. NOT DEDUCTING TAX AS PER SEC TION 194H. NOW, IT IS A SETTLED LAW AND ACCOUNTING ENTRI ES IN THE BOOKS OF ACCOUNT OF ASSESSEE CANNOT ALTER THE LEGAL POSITION NOR CAN OVERRIDE THE STATUTORY PROVISIONS AS HELD B Y HON'BLE SUPREME COURT IN THE CASES REPORTED COMMISSIONER OF LNCOME-TAX VS PANIPET WOOLLEN & GENERAL MILLS CO. LIMITED [103 ITR 66(SC)] AND SUTLEJ COTON MILLS LIM ITED VS COMMISSIONER OF INCOME-TAX [116 ITR L(SC)]. AS L ONG AS THE LAW IS NOT CHANGED, THE SAME PROCEDURE AS PER L AW BUT NOT AS PER BOOKS OF ACCOUNT IS TO BE FOLLOWED BY AS SESEE COMPANY. (I) THE ASSESSEE COMPANY HAS ARGUED THAT 80% OF THE COMMISSION GIVEN TO FRANCHISEES SHOULD GO TO RETAIL ERS AND HENCE, ALTERNATELY TDS IS APPLICABLE TO 20% OF TOTA L AMOUNT ONLY. THIS ARGUMENT IS INCORRECT AND NOT LOGICAL. T HE ACT PRESCRIBES DIFFERENT RATES OF TDS FOR CONTRACTORS A ND SUB- CONTRACTORS. WHEN THE TDS IS TO BE MADE FOR A TRANS ACTION BETWEEN ASSESSEE COMPANY AND PAYEE, THOSE PROVISION S ARE ONLY TO BE RECKONED I.E. THE MOMENT COMMISSION IS P AID TO ITA NOS.1560 & 1561/MDS 2011 9 FRANCHISEES, RELEVANT TDS PROVISIONS ARE ONLY APPLI CABLE BUT NOT WHAT WILL HAPPEN SUBSEQUENT TO PAYMENT TO FRANC HISEE. SUBSEQUENT TDS PAYMENT BY FRANCHISEE IS THE ISSUE T O BE ADJUDICATED IN THE CASE OF A FRANCHISEE AND NOT IN THIS CASE. FOR EXAMPLE, IF A PERSON AWARDS A CONTRACT TO ONE P ERSON, ACT SAYS THAT 2% OF THAT AMOUNT IS TO BE DEDUCTED, EVEN THOUGH THE CONTRACTOR AGAIN GIVES IT AS SUB-CONTRAC TOR TO OTHER PERSON. WHEN, A CONTRACTOR GIVES THE SAME AS SUB- CONTRACT 1% OF TDS IS TO BE MADE BY HIM AGAIN AND T HE ORIGINAL PERSON WHO AWARDS THE CONTRACT CANNOT SAY THAT HE WILL DEDUCT ONLY 1% OF THE RECEIPTS AS TDS BECAUSE THE CONTRACTOR IS FURTHER GIVING IT AS SUB-CONTRACT. TH E TWO TRANSACTIONS ARE SEPARATE AND INDEPENDENT AND HENCE THE ASSESSING OFFICER IS CORRECT IN APPLYING SECTION 19 4H FOR THE ENTIRE AMOUNT. IN THIS CONNECTION, I RELY ON COMMIS SION PAID BY TRAVEL AGAIN TO ITS AGENT SELLING AIRLINES TICKE TS ON HIS BEHALF BUT ALSO ON AGENT DISCOUNT AND SPECIAL COMMI SSION PASSED ON TO THEM. THUS, TDS TO BE DEDUCTIBLE ON WH OLE AMOUNT. CIT VS DEX TRAVEL (P) LIMITED 172 TM 142(DE L.). WHILE ASSESSEE COMPANY IS GIVING SIM CARDS/RECHARGE COUPONS TO VARIOUS FRANCHISEES AT REDUCED RATE AND CORRECTLY TREATED IT AS 'COMMISSION'. (J) THE ASSESSEE COMPANY ARGUES THAT THERE IS NO LO SS OF REVENUE BECAUSE FRANCHISEES/RETAILERS ARE ALL ASSESSED TO TAX. THIS ARGUMENT IS TOTALLY ILLOGICAL AND IF THIS ARGUMENT IS ACCEPTED, THERE IS NO NEED OF APPLICABILITY OF TDS PROVISIONS FOR ALL LT. ASSESSE ES WHEN THE, HON'BLE PARLIAMENT PASSED THE INCOME-TAX ACT WITH THE CHAPTER OF 'TAX DEDUCTED AT SOURCE' PROVISIONS, THE SAME ARE TO BE FOLLOWED AND IF THE ASSESSEE COMPANY WANTS TO CHALLENGE THE 'VIRES' OF A PROVISION/SECTION, THE APPROPRIATE FORUM IS HIGH COURT OR SUPREME COURT, BUT NOT THIS APPELLATE AUTHORITY. MOREOVER, IT IS A SETTLED LAW THAT PROVISIONS OF TDS ARE LEGAL AND CONSTITUTIONAL. (K) PAYMENT OF TAX BY PAYEE IS NOT RELEVANT FOR CHA RGING OF INTEREST U/S 201(1A) WHICH IS MANDATORY - 243 ITR 1 3 (KER.) DHANALAXMI WEAVING WORKS ; CRESCENT HOUSING &0 ITD 317(MAD.) AND AIR CANADA 88 ITD 545(DEL.) WHERE HON 'BLE DELHI ITAT FOLLOWED THE DECISJON OF HON'BLE SUPREME COURT IN THE CASE OF K.K. ENGG. RECENTLY, HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA 293 ITR 226(SC) HAS HELD THAT INTEREST U/S 201(1A) IS MANDATORY EVEN IF THE PAYEE ADMITS THE INCOME IN HIS RETURN OF INCOME. ITA NOS.1560 & 1561/MDS 2011 10 7. IN VIEW OF THE ABOVE LEGAL POSITION, FACTS AND C IRCUMSTANCES, THE ENTIRE ADDITION OF RS.53,75,423/- FOR THE ASSESSMEN T YEAR 2009-10 AND RS.85,13,970/- FOR THE ASSESSMENT YEAR 2010-11 IS HEREBY CONFIRMED. 4. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE A SSESSEE HAS SUBMITTED THAT THERE IS A DIFFERENCE BETWEEN SIM CA RD AND RECHARGE COUPON. THE SIM CARD IS THE PROPERTY OF THEASSESSEE. RECHARGE COUPON IS NOT THE PROPERTY O F THE ASSESSEE. THEREFORE ON THE DISCOUNT PAID ON THE RE CHARGE COUPON NO TDS IS REQUIRED TO BE DEDUCTED U/S 194H O F THE ACT. ALTERNATIVELY, IT WAS SUBMITTED THAT AT THE TIME OF PURCHASE NO INCOME HAS ACCRUED TO THE ASSESSEE. THEREFORE HE I S NOT UNDER OBLIGATION TO DEDUCT TDS U/S 194H OF THE ACT. 5. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS ALREADY COVERE D BY VARIOUS DECISIONS OF THE HIGH COURTS AND I.T.A.T. AND THE L EARNED CIT(APPEALS) BY FOLLOWING THE SAME CONFIRMED THE OR DER OF THE ASSESSING OFFICER HE STRONGLY SUPPORTED THE ORDER PASSED BY THE LEARNED CIT(APPEALS). 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ITA NOS.1560 & 1561/MDS 2011 11 ASSESSEE IS A CELLULAR COMPANY SELLING SIM CARDS AN D RECHARGE COUPONS. THE ASSESSEE HAS DEDUCTED TDS ON BOTH THE SALE, I.E. SIM CARDS AS WELL AS RECHARGE COUPONS UPTO THE FINANCIAL YEAR 2007-08. THEREAFTER TDS WAS DEDUCTED ONLY ON SIM CARDS AND NO TDS WAS DEDUCTED INSOFAR AS THE RECHAR GE COUPONS ARE CONCERNED. IT WAS EXPLAINED BEFORE THE ASSESSING OFFICER THAT BECAUSE OF CHANGE OF POLICY DECISION T DS WAS NOT DEDUCTED. THE AMOUNT PAID ON SELLING OF RECHARGE COUPONS WAS NOT COMMISSION BUT ONLY A DISCOUNT. THIS ARGUM ENT WAS CONSIDERED ELABORATELY BY THE LEARNED CIT(APPEALS) BY CONSIDERING VARIOUS DECISIONS OF THE HIGH COURTS AN D THE TRIBUNAL. THE LEARNED CIT(APPEALS) ACCORDINGLY CON FIRMED THE ORDER PASSED BY THE ASSESSING OFFICER. WE ARE NOT ABLE TO AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE AMOUNT PAID TO THE DEALERS FOR TH E RECHARGE COUPONS WAS NOT AMOUNTING TO COMMISSION BUT ONLY DI SCOUNT. IT WAS NOT EXPLAINED HOW THE SAME PAYMENT IN EARLIE R YEAR IS COMMISSION AND SUBSEQUENT YEAR IT IS DISCOUNT. FUR THER WE ARE UNABLE TO AGREE WITH THE SUBMISSION OF THE LEAR NED COUNSEL FOR THE ASSESSEE THAT NO INCOME HAS BEEN ACCRUED TO THE ASSESSEE AT THE TIME OF PURCHASE OF RECHARGE COUPON S. UNDER ITA NOS.1560 & 1561/MDS 2011 12 VERY SIMILAR SET OF FACTS THE HONBLE DELHI HIGH CO URT HAS CONSIDERED THE ISSUE IN THE CASE OF CIT V. IDEA CEL LULAR LTD. (325 ITR 148) AND HELD IN THE HEAD NOTE AS UNDER : TDS UNDER S./ 194H- COMMISSION OR DISCOUNT TO DISTRIBUTORS OF SIM CARDS/RECHARGE COUPONS ASSESS EE, A CELLULAR OPERATOR, PROVIDES PREPAID CONNECTIONS TO THE SUBSCRIBERS THROUGH DISTRIBUTORS CALLED PREPAID MAR KET ASSOCIATES (PMAS) APPOINTED BY IT IT OFFERS DISCO UNT FOR PREPAID CALLING SERVICES TO ITS DISTRIBUTORS LEGA L RELATIONSHIP IS ESTABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMER/SUBSCRIBER, WHO IS SOLD THE SIM CARD BY TH E AGENTS FURTHER APPOINTED BY THE PMAS WITH THE CONSENT OF T HE ASSESSEE FACT THAT THE PMA IS SUPPOSED TO MAKE TH E PAYMENT IN ADVANCE AS PER THE AGREEMENT DOES NOT MA KE ANY DIFFERENCE TO THE NATURE OF THE TRANSACTION IN VIEW OF THE OTHER TERMS OF THE AGREEMENT EVEN THOUGH ADVANCE PAYMEN T IS MADE BY THE PMA QUA SIM CARDS, IT DOES NOT AMOUNT T O SALE OF GOODS IN AS MUCH AS UNSOLD SIM CARDS ARE TO BE R ETURNED TO THE ASSESSEE AND IT IS REQUIRED TO MAKE PAYMENT AGA INST THEM THIS IS AN ANTITHESIS OF SALE THEREFORE, THE DISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTORS ON PAYM ENTS MADE BY THE LATTER FOR THE SIM CARDS/RECHARGE COUPONS WH ICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTED PR ICE IS COMMISSION AND IT IS SUBJECT TO TDS UNDER S. 194H CONTENTION OF THE ASSESSEE THAT S. 194H IS NOT APPL ICABLE AS THERE IS NO PAYMENT OR CREDIT BY THE ASSESSEE TO THE DISTRIBUTOR CANNOT BE ACCEPTED. ITA NOS.1560 & 1561/MDS 2011 13 7. IN VIEW OF THE ABOVE DECISION OF THE HONBLE DEL HI HIGH COURT AND CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE PRESENT CASE, WE FIND NO INFIRMITY IN THE ORDER PAS SED BY THE LEARNED CIT(APPEALS). THEREFORE, THIS GROUND OF AP PEAL RAISED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION IS DISMISSED. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 30 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (N. S. SAINI) ( V.DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 30 TH OCTOBER, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE