VODAFONE CELLULAR LTD,[ Formerly known as Vodafone Essar Cellular Ltd ], Pune V. Dy CIT, Pune

ITA 1578/PUN/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7464 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-10-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 13-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S BENU
• Assessee Lawyers: SALIL KAPOOR SHRI ROHIT VERMA
• Keywords: Principle of natural justice; Question of law
• Section: 201(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.817,818 1577, 1578, 1961 & 1962 /PUN/2013 #& & / ASSESSMENT YEARS : 2007-08 TO 2012-13 VODAFONE CELLULAR LIMITED, (FORMERLY KNOWN AS VODAFONE ESSAR CELLULAR LTD.), F.P.NO.27, S.NO.21, THE METROPOLITAN, OLD MUMBAI PUNE HIGHWAY, SHIVAJINAGAR, PUNE 411 -019 PAN : AAACB8614L . /APPELLANT V/S DY.CIT (TDS-1), PUNE . /RESPONDENT / APPELLANT BY : SHRI SALIL KAPOOR, SHRI ROHIT VERMA AND SHRI RAJAT SONI / RESPONDENT BY : SHRI D.S. BENUPANI, CIT / ORDER PER R.K.PANDA, AM : THE ABOVE BATCH OF APPEALS FILED BY THE ASSESSEE AR E DIRECTED AGAINST THE SEPARATE ORDERS OF THE CIT(A)-V, PUNE R ELATING TO ASSESSMENT YEARS 2007-08 TO 2012-13 RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS, THEREFORE , THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. / DATE OF HEARING :18.10.2016 / DATE OF PRONOUNCEMENT: 04.01.2017 2 VODAFONE CELLULAR GROUP ITA NOS. 817 & 818/PUN/2013 (A.Y. 2007-08 AND 2008- 09) : 2. FIRST WE TAKE UP ITA NO.817/PUN/2013 FOR A.Y. 20 07-08 AS THE LEAD CASE. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY, IS A SUBSIDIARY OF VODAFONE INDIA LTD. (FORMERLY KNOWN A S VODAFONE ESSAR CELLULAR LTD.) AND WAS INCORPORATED ON 30-03-1995 U NDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT COIMBATOR E AND ITS PRESENT CIRCLE OFFICE AT SHIVAJINAGAR, PUNE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBILE PHONE SERVICE S FOR MAHARASHTRA AND GOA CIRCLE EXCLUDING MUMBAI. THE COMPANY PROVIDES PREPAID AND POSTPAID SERVICES. THE PREPAID SERVICES ARE IN THE FORM OF RECHARGE COUPONS AND SIM CARDS. IN POSTPAID CONNECTION, THE SIM CARD IS GIVEN FREE OF COST AND ACTIVATED LATER ON AND THE BILL IS CHARGED AS PER USAGE OF THE CUSTOMER. THE PREPAID SERVICES ARE PROVIDED THR OUGH DISTRIBUTORS AND FRANCHISES. 3. A SURVEY ACTION U/S.133A OF THE I.T. ACT WAS CO NDUCTED ON 23-04- 2008 IN THE CASE OF THE ABOVE COMPANY FOR VERIFICAT ION OF THE COMPLIANCE OF THE TDS PROVISIONS. DURING THE COURSE OF THE SU RVEY, THE STATEMENT OF MR. R. NARAYANAN, MANAGER (ACCOUNTS) WAS RECORDED O N OATH AND SEVERAL OTHER DOCUMENTS WERE ALSO SUBMITTED BY THE ASSESSEE. DURING THE SAID SURVEY, IT WAS SUBMITTED THAT THE ASSESSEE COMPANY WAS PAYING COMMISSION TO ALL DEALERS EXCEPT DISTRIBUTORS. IT WAS EXPLAINED THAT THE SALE IS MADE TO THE DISTRIBUTORS AT MRP LESS TRADE MARGIN AND TARGET BASED INCENTIVES ARE GIVEN TO THEM IN THE FORM OF T OP-UP. THE TRADE MARGIN IN RESPECT OF PREPAID SIM CARDS AND COUPONS WAS 20%, RECHARGE COUPONS AND E-TOPUP AT 4%, PCO SIM CARDS AND COUP ONS AT 3% AND WCC AT 7%. THE TOTAL AMOUNT OF TRADE DISCOUNT GIVE N IN F.Y. 2006-07 WAS QUANTIFIED AT RS.12,15,77,927/- AND FOR F.Y. 20 07-08 THE SAME WAS 3 VODAFONE CELLULAR GROUP CALCULATED AT RS.26,11,89,668/-. IT WAS EXPLAINED THAT INVOICES RAISED ON DISTRIBUTORS AND FRANCHISES ARE AT MRP MINUS THE AP PLICABLE TRADE MARGIN AND INCLUSIVE OF THE APPLICABLE TAXES. THE ABOVE T RADE MARGIN IS NOT REFLECTED IN THE INVOICE AS THE BILLING WAS DONE ON THE NET AMOUNTS. 4. DURING THE COURSE OF TDS ASSESSMENT, THE DCIT (T DS) OBSERVED THAT THE SURVEY TEAM, AFTER GOING THROUGH THE DISTR IBUTORS AGREEMENTS AT THE TIME OF SURVEY HAD FOUND THAT THE RELATIONSHIP BETWEEN THE COMPANY AND DISTRIBUTORS WAS THAT OF A PRINCIPAL AND AN AGE NT. HE, THEREFORE, CONFRONTED THE ASSESSEE ON THIS ISSUE. IT WAS SUBM ITTED BY THE ASSESSEE THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS WAS PRINCIPAL TO PRINCIPAL BASIS. IT WAS ALSO SUBMITTE D THAT SERVICE TAX WAS RECOVERED FROM THE DISTRIBUTORS AND THAT THE TRADE DISCOUNT WAS NOT IN THE NATURE OF COMMISSION WHICH ATTRACTED TDS U/S.194H O F THE I.T. ACT. IT WAS ALSO EXPLAINED THAT THE PERCENTAGE OF THE TRADE MARGIN OF THE RETAILER WAS 2.5% OF THE TOTAL 4% TRADE MARGIN AND THE DECIS ION IS TAKEN BY THE TOP AUTHORITIES OF THE COMPANY. THE ASSESSEE SUBMI TTED THAT THE DISTRIBUTORS HAVE THE PERMISSION TO CHARGE ANY PRIC E FROM THE RETAILERS NOT EXCEEDING MRP AND IT WAS PURELY A PURCHASE AND SALE TRANSACTION IN WHICH NO SERVICES WAS RENDERED BY THE DISTRIBUTORS TO THE ASSESSEE COMPANY. REFERRING TO THE PROVISIONS OF INDIAN CON TRACT ACT, 1872 THE ASSESSEE TRIED TO EXPLAIN ITS POSITION FROM THE DEF INITION OF TERMS AGENT, COMMISSION AND DISCOUNT. THE ASSESSEE ALSO REL IED ON THE FOLLOWING DECISIONS: 1. GORDON WOODROFFE & CO. VS. M.A. MAJID REPORTED IN A IR 1967 SC 181 2. BHOPAL SUGAR INDUSTRIES VS. STO REPORTED IN 1977 AIR 1 275 3. AHMEDABAD STAMP VENDORS AGENCY VS. UOI REPORTED IN 25 7 ITR 202 (GUJ.) 4. FOSTERS INDIA PVT. LTD. VS. ITO REPORTED IN 117 TTJ 3 46 4 VODAFONE CELLULAR GROUP 4.1 ALTERNATIVELY, IT WAS SUBMITTED THAT THE ASSESS EE RECEIVES THE PURCHASE ORDER FROM DISTRIBUTORS AND THE DISTRIBUTO RS ARE LIABLE TO PAY THE ASSESSEE THE DISCOUNTED PRICE IMMEDIATELY IN ADVANC E UPON THE DELIVERY OF THE PRODUCTS TO THEM. THUS, THERE WAS NO CASE O F THE ASSESSEE EITHER PAYING OR GROUPING THE ACCOUNT OF DISTRIBUTORS. FUR THER, IT WAS NOT POSSIBLE TO QUANTIFY THE EXACT AMOUNT OF INCOME IN THE HANDS OF DISTRIBUTORS. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES PVT. LTD. REPORTED I N 293 ITR 226 IT WAS SUBMITTED THAT NO TAX U/S.201(1) CAN BE CHARGED WHE N THE TAX HAS BEEN PAID BY THE DISTRIBUTORS. 5. HOWEVER, THE DCIT (TDS-1), PUNE DID NOT ACCEPT T HE ARGUMENTS ADVANCED BY THE ASSESSEE. RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF IDEA CELLULAR LTD. VIDE O RDER DATED 19-02-2010 HE CAME TO THE CONCLUSION THAT SUPPLY AND DELIVERY OF SIM CARDS DID NOT CONSTITUTE SALE AND PURCHASE BUT PROVISION OF SERVI CES. HE ALSO RELIED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CA SE OF BPL MOBILE CELLULAR LTD. THE DCIT(TDS-1) ACCORDINGLY PASSED A COMBINED ORDER FOR A.YRS. 2007-08 AND 2008-09 BY RAISING THE FOLLOWING DEMAND : F.Y. TDS DEMAND U/S.201(1) INTEREST U/S.201(1A) TOTAL 2006 - 07 68,81,311/ - 41,28,787/ - 1,10,10,098/ - 2007 - 08 2,71,24,546/ - 1,30,19,782/ - 4,04,11,328/ - TOTAL 3,40,05,857/ - 1,71,48,569/ - 5,11,54,426/ - SIMILAR DEMANDS U/S.201(1) AND 201(1A) HAVE BEEN RA ISED BY THE TDS OFFICER FOR A.YRS. 2009-10 TO 2012-13. 6. BEFORE CIT(A) APART FROM MAKING SUBMISSIONS ON M ERIT, THE ASSESSEE RAISED AN ADDITIONAL GROUND STATING THAT T HE ORDER PASSED U/S.201(1) OF THE ACT ON 22-03-2011 IS BARRED BY LI MITATION AND THEREFORE THE SAME SHOULD BE QUASHED. THE ASSESSEE SUBMITTED THE FOLLOWING SEQUENCE OF EVENTS : 5 VODAFONE CELLULAR GROUP DATE PARTICULARS 23 - 04 - 2008 SURVEY CONDUCTED U/S.133A OF INCOME - TAX ACT. 24 - 04 - 2008 CALLING FOR INFORMATION IN PURSUANCE OF ACTI ON U/S.133A OF INCOME-TAX ACT IN RESPECT OF DETAILS OF DISCOUNT GIVEN FOR F.Y. 2006-07 & 2007-08, INTER ALIA OTHER DETAILS 30 - 04 - 2008 DETAILS FILED BY APPELLANT. DURING HEARING BEFORE TD S OFFICER PENDING DETAILS FOR F.Y. 2006-07 & 2007-08 WERE ASKED TO BE FILED 02 - 05 - 2008 PARTIAL DETAILS FILED 08 - 05 - 2008 BALANCE DETAILS FILED 7. THE ASSESSEE SUBMITTED THAT ALL DETAILS WERE AVA ILABLE BEFORE THE TDS OFFICER TO PASS THE REQUISITE ORDER IN MAY 2008 ITSELF. HOWEVER, IN THE FAG-END OF THE NEXT FINANCIAL YEAR, I.E. 2009-1 0, SHOW CAUSE NOTICE U/S.201(1) AND 201(1A) WERE ISSUED ON 21-01-2010 BY THE ADDL.CIT (TDS), PUNE FOR F.Y. 2007-08 FOR WHICH DETAILED REP LY WAS FILED ON 25-02- 2010. EVEN THEN NO ORDER WAS PASSED BY THE TDS OFF ICER BEFORE 31-3- 2010. REFERRING TO THE DECISION OF THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. DCIT REPOR TED IN 122 TTJ (M)(SB) 577 IT WAS ARGUED THAT THE PROCEEDINGS U/S. 201 OF THE ACT ARE REQUIRED TO BE COMPLETED WITHIN ONE YEAR FROM THE E ND OF THE FINANCIAL YEAR IN WHICH SUCH PROCEEDINGS ARE INITIATED. SIMI LAR SHOW CAUSE NOTICE WAS ALSO ISSUED ON 10-09-2010 FOR A.Y. 2008-09 TO W HICH SIMILAR REPLY WAS FILED AND THE ASSESSING OFFICER HAS PASSED A CO MBINED ORDER ON 22-03-2011. IT WAS ACCORDINGLY SUBMITTED THAT SINC E THE PROCEEDINGS WERE INITIATED IN F.Y. 2007-08 THE TDS OFFICER WAS SUPPOSED TO PASS THE ORDER U/S.201(1)/201(1A) BY 31-03-2010 IN VIEW OF T HE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHIND RA AND MAHINDRA LIMITED (SUPRA). SINCE, THE SAME HAS NOT BEEN PASSE D, THEREFORE, THE ORDER PASSED BY THE ADDL.CIT (TDS) BEING BARRED BY LIMITATION SHOULD BE QUASHED. 8. IT WAS ALSO SUBMITTED THAT PROVISO TO SECTION 20 1(3) OF THE I.T. ACT INTRODUCED THROUGH FINANCE ACT (NO.2) 2009 W.E.F. 0 1-04-2010 WILL NOT RESCUE THE SITUATION IN FAVOUR OF THE TDS OFFICER A S THE PROCEEDINGS GOT 6 VODAFONE CELLULAR GROUP BARRED BY LIMITATION OF TIME ON 31-03-2010 ITSELF A ND THE SAID PROVISO CANNOT EXTEND THE INHERENT TIME LIMIT OR REVALIDATE AN ACTION WHICH IS ALREADY BARRED BY LIMITATION. 9. IT WAS FURTHER ARGUED THAT SINCE THERE WAS NO SH OW CAUSE NOTICE ISSUED FOR F.Y. 2006-07, THEREFORE, THE ORDER PASSE D FOR F.Y. 2006-07 WAS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND THERE FORE VOID. IT WAS ACCORDINGLY ARGUED THAT SINCE THE PROCEEDINGS U/S.2 01 OF THE ACT WERE INITIATED ON 23-04-2008, I.E. THE DATE OF SURVEY AN D THE SUBMISSIONS WERE DULY FILED DURING F.Y. 2008-09, THEREFORE, THE ORD ER SHOULD HAVE BEEN PASSED WITHIN A REASONABLE TIME AND THE INSERTION O F SECTION 201(3) OF THE ACT, W.E.F., 01-04-2010 WILL NOT COME TO THE RESCUE OF THE DEPARTMENT. 10. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFIC ER. AFTER CONSIDERING SUCH REMAND REPORT AND THE SUBMISSION OF THE ASSESS EE TO SUCH REMAND REPORT HE DISMISSED THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BY OBSERVING AS UNDER : 14. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IT IS SEEN THAT THE CONCEPT OF TIME BARRING IN RESPECT OF TDS ORDER U/S.201(1) OF INCOME-TAX ACT WAS BROUGHT INTO THE STATUTE THROUGH FINANCE (NO.2) ACT, 2009 BY INSER TION OF SEC.201(3) OF THE ACT W.E.F., 01-04-2010. FOR THE SA KE OF CLARIFY SEC.201(3) IS REPRODUCED AS UNDER : 16[3) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) DEEMING A PERSON TO BE AN ASSESSEE IN DEFAULT FOR FAILURE TO DEDUCT THE WHOLE OR ANY PART OF THE TAX FROM A PERSON RESIDENT IN IN DIA, AT ANY TIME AFTER THE EXPIRY OF (I) TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHI CH THE STATEMENT IS FILED IN A CASE WHERE THE STATEMENT RE FERRED TO IN SECTION 200 HAS BEEN FILED : (II) 16A[SIX] YEARS FROM THE END OF THE FINANCIAL YEAR I N WHICH PAYMENT IS MADE OR CREDIT IS GIVEN, IN ANY OTHER CA SE PROVIDED THAT SUCH ORDER FOR A FINANCIAL YEAR COMME NCING ON OR BEFORE THE IST DAY OF APRIL, 2007 MAY BE PASSED AT ANY TIME ON OR BEFORE THE 31 ST DAY OF MARCH, 2011. --------------------------------------------------- --------------------------- 16. INSERTED BY THE FINANCE (NO.S) ACT, 2009, W.E.F . 01-04-2010 16A SUBMITTED FOR FOUR BY THE FINANCE ACT, 2012 W .E.F. 01-04-2010. 7 VODAFONE CELLULAR GROUP 15. BEFORE INSERTION OF SEC.201(3), THERE WAS NO TIME LIMIT FOR PASSING ORDER U/S.201(1) OF INCOME-TAX ACT, 1961 WHICH RESULTED INTO CONTROVERSIES ON THE ISSUE. THE ISSUE WAS ADDRESSED WAS AD DRESSED BY THE HONBLE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. REPORTED IN 122 TTJ (MUMBA I) SPECIAL BENCH) 577. IN THAT CASE, THE HONBLE SPECIAL BENC H IN ITS ORDER DATED 09-04-2009 HELD THAT PROCEEDINGS U/S.201(1) CAN BE IN ITIATED WITHIN A PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR IF THE INCOME CHARGEABLE TO TAX IN THE HANDS OF PAYEE B Y VIRTUE OF SUM PAID WITHIN TDS IS EQUAL TO OR MORE THAN RS.1 LAC, AN D FOUR YEARS IF SUCH AMOUNT IS LESS THAN RS.1 LAC AND ORDER U/S.201(1) H AS TO BE PASSED WITHIN ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH PROCEEDINGS U/S.201(1) ARE INITIATED. 16. IN THIS CASE, THE APPELLANT CLAIMS THAT DUE TO SURV EY ACTION IN APRIL, 2008, THE PROCEEDINGS WERE INITIATED IN F.Y. 2008-09 AND THEREFORE AS PER THE RATIO OF HONBLE SPECIAL BENCH DECISION IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA), THE TDS OF FICER WAS REQUIRED TO PASS ORDER U/S.201(1) OF INCOME-TAX ACT B Y 31-03-2010. THIS CONTENTION OF THE APPELLANT IS NOT CORRECT AS SUR VEY ACTION IS CARRIED OUT TO COLLECT THE INFORMATION RELEVANT FOR THE PURPOSE OF ASSESSMENT AND FOR OTHER PROCEEDINGS UNDER THE ACT. SUR VEY ACTION U/S.133A IS ITSELF A PROCEEDING WHICH GETS COMPLETED AF TER VERIFICATION IS COMPLETED AT THE PREMISES AND SURVEY TE AM LEAVES THE PREMISES. IN POST-SURVEY ENQUIRY ALSO, CERTAIN INFORMAT ION IS CALLED FOR WHICH THE APPELLANT IS NOT ABLE TO FURNISH DURING THE COURSE OF SURVEY ACTION. THIS INFORMATION IS ANALYSED AND BASED U PON THE ABOVE INFORMATION, THE TDS OFFICER PROCEEDS TO PASS OR DER U/S.201(1) OF INCOME-TAX ACT. BEFORE DOING SO, AS PER PRINCIPL ES OF NATURAL JUSTICE DUE OPPORTUNITY IS GIVEN TO THE APPELLANT FOR WHICH SHOW CAUSE NOTICE U/S.201(1) IS ISSUED TO THE APPELLANT. THI S SHOW CAUSE NOTICE UNLIKE NOTICE U/S.143(1) OF INCOME-TAX ACT IS NOT STATUTORY AND IT IS ISSUED TO THE APPELLANT ONLY FOR THE PURPOSE OF GIVING OPPORTUNITY TO EXPLAIN ITS POSITION. THEREFORE, PROCEEDINGS U/S.20 1(1) OF THE INCOME-TAX ACT STARTS WITH SHOW CAUSE NOTICE U/S.201(1)/ 201(1A) OF INCOME-TAX ACT WAS ISSUED FOR F.Y. 2007-08 FOR THE FI RST TIME ON 21- 01-2010. IT IS TRUE THAT IN THE SHOW CAUSE NOTICE TH ERE IS NO MENTION OF F.Y. 2006-07, BUT THIS WILL NOT MAKE MUCH DIFFERE NCE IN THE SENSE THAT THE APPELLANT WAS MADE AWARE OF THE DEFAULT FO R F.Y. 2006-07 AND ACCORDINGLY, DETAILS OF DISCOUNT WAS PROVIDED BY T HE APPELLANT FOR F.Y. 2006-07. THEREFORE, FOR A.Y. 2006-07, TOO, DU E OPPORTUNITY WAS PROVIDED BY THE TDS OFFICER BEFORE PASSING THE ORDER U/S.201(1) FOR F.Y. 2006-07 TOO. I ALSO FIND SUFFICIENT MERIT IN T HE ARGUMENT OF THE TDS OFFICER IN HIS REPORT DATED 20-07-2012 THAT LIAB ILITY TO PAY TDS U/S.201(1) ARISES OUT OF DEFAULT U/S.192 TO SEC.196D AND NOT BY ORDER U/S.201(1) OF INCOME-TAX ACT. IN THIS CASE, SINCE THE DEFAULT FOR BOTH THE FINANCIAL YEARS WERE EXAMINED BY TDS OFFICER BY VIRTUE OF SHOW CAUSE NOTICE U/S.201(1), IT CAN BE SAFELY CONCLUDED T HAT PROCEEDINGS FOR F.Y. 2006-07 WERE STARTED WITH SHOWCAUSE NOTICE D ATED 21-01- 2010 SIMULTANEOUSLY AND SINCE ORDER U/S.201(1) WAS PASSED ON 22- 03-2011, IT IS CLEAR THAT ORDER U/S.201(1) WAS PASSED WI THIN ONE YEAR AND THEREFORE, THERE IS NO MERIT IN THE CLAIM OF THE APPELLANT THAT ORDER PASSED U/S.201(1) IS BARRED BY LIMITATION. FURTH ER, THE ORDER PASSED U/S.201(1)/201(1A) IS ALSO IN CONFORMITY WITH SEC. 201(3) OF INCOME-TAX ACT. THEREFORE, I DONT FIND ANY SUBSTANC E IN THE 8 VODAFONE CELLULAR GROUP ARGUMENT OF THE APPELLANT IN THIS REGARD. THUS, ADDI TIONAL GROUND IS DISMISSED. 11. SO FAR AS THE ACTION OF THE TDS OFFICER IN TREA TING THE DISCOUNT OFFERED BY THE ASSESSEE TO THEIR DISTRIBUTORS AS CO MMISSION AND ACCORDINGLY TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S.201(1) R.W.S. 194H OF THE I.T. ACT IS CONCERNED IT WAS ARG UED THAT DISCOUNT ALLOWED TO THE DISTRIBUTORS BY THE ASSESSEE COMPANY IS ON ACCOUNT OF PRINCIPAL TO PRINCIPAL BASIS AND NOT THAT OF PRINCI PAL TO AGENT. IT WAS ARGUED THAT UNDER THIS ARRANGEMENT, THE TRANSACTION IN ALL SUBSTANTIAL RESPECTS IS AKIN TO SALE AND PURCHASE OF GOODS AS I T HAPPENS IN FMCG SECTOR. THE DISCOUNT EXTENDED REPRESENTS THE DIFFE RENCE BETWEEN THE MRP OF THE TALK TIME AND PREPAID CONNECTIONS AND TH E PRICE AT WHICH THESE ARE TRANSFERRED TO THE PREPAID DISTRIBUTORS. SINCE NO PAYMENT IS MADE BY THE ASSESSEE TO ITS PREPAID DISTRIBUTORS, T HE DISCOUNT EXTENDED TO THE PREPAID DISTRIBUTORS IS IN THE NATURE OF TRA DE MARGIN AND SUCH DISCOUNT CANNOT BE TERMED AS COMMISSION SO AS TO AT TRACT THE PROVISIONS OF SECTION 194H OF THE INCOME TAX ACT. IT WAS FURT HER ARGUED THAT THE MECHANISM OF TDS IS NOT WORKABLE ON THE FACTS AND T HE CIRCUMSTANCES OF THE CASE. RELYING ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF M.S. HAMEED AND OTHERS VS. DIRECTOR OF STAT E LOTTERIES AND OTHERS REPORTED IN 249 ITR 186 AND VARIOUS OTHER DE CISIONS IT WAS ARGUED THAT THE ASSESSEE COMPANY WAS NOT AN ASSESSEE IN DE FAULT AND DEMAND U/S.201(1) AND 201(1A) OF THE INCOME TAX ACT WAS NO T JUSTIFIED. 12. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH T HE EXPLANATION GIVEN BY THE ASSESSEE. REJECTING THE ARGUMENTS ADV ANCED BY THE ASSESSEE AND FOLLOWING THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. IDEA CELLULAR LTD. REPORTED IN 325 ITR 148 THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF VODAFONE E SSAR CELLULAR LTD. VS. ACIT REPORTED IN 332 ITR 255 AND THE DECISION OF HO NBLE KOLKATA HIGH 9 VODAFONE CELLULAR GROUP COURT IN THE CASE OF BHARTI CELLULAR LTD. REPORTED IN 244 CTR 185 WHERE IT HAS BEEN HELD THAT DISCOUNT ALLOWED BY THE ASSESSEE COMPANY TO THE DISTRIBUTORS FOR SELLING THE PREPAID SIM CARDS CONS TITUTED COMMISSION AND THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FOR SUCH PAYMENTS U/S.194H OF THE I.T. ACT HE UPHELD THE ACTION OF T HE ASSESSING OFFICER. 13. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - V, PUNE ('LEARNE D CIT (A)') HAS ERRED IN PASSING THE ORDER UNDER SECTION 250 OF THE IN COME TAX ACT, 1961 (' ACT '), CONFIRMING THE ALLEGATION OF THE DE PUTY COMMISSIONER OF INCOME TAX, TDS -1, PUNE ('LEARNED TDS OFFICER') THAT THE APPELLANT IS LIABLE TO DEDUCT TAX AT SOURCE ON DISCOUNT EXTENDED TO ITS DISTRIBUTORS OF PRE-PAID SIM CARDS/TALKTIME. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH M AY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. 1. GROUND NO.1 - 'ORDER PASSED UNDER SECTION 201(1) OF TH E ACT ON MARCH 22, 2011 IS BAD IN LAW. 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT HOLDING THAT THE ORD ER PASSED UNDER SECTION 201(1 )/20 1 (1 A) OF THE ACT FOR THE SUBJEC T ASSESSMENT YEAR IS BARRED BY LIMITATION AND HENCE, IS BAD IN LAW. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT HOLDING THAT THE ORD ER PASSED UNDER SECTION 201 (1 )/20 1 (1 A) OF THE ACT FOR THE SUBJE CT FINANCIAL YEAR IS VOID-AB-INITIO- AND BAD IN LAW SINCE NO SHOW CAUSE NOT ICE UNDER SECTION 201 OF THE ACT WAS ISSUED TO THE APPELLANT. GROUND NO.2 - WITHOUT PREJUDICE TO GROUND NO.1, THE AP PELLANT IS NOT LIABLE TO DEDUCT TAX ON DISCOUNT EXTENDED TO IT S PRE-PAID DISTRIBUTORS ON DISTRIBUTION OF PRE-PAID SIM CARDS/ TALKTIME. 2.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THE APPELLANT TO BE AN 'ASSESSEE IN DEFAULT' FOR NON DEDUCTION OF TAX AT SOURCE ON DISCOU NT EXTENDED BY THE APPELLANT TO THE DISTRIBUTORS OF ITS PRE-PAID SIM CARD S/ TALKTIME AND THUS, HOLDING THE APPELLANT TO BE LIABLE TO PAY TAX UNDER SECTION 201 (1) AND INTEREST UNDER SECTION 201(1A) OF THE ACT. 2.2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE RELATIO NSHIP BETWEEN THE APPELLANT AND THE DISTRIBUTORS OF PRE-PAID SIM CARDS/T ALK TIME IS NOT THAT OF 'PRINCIPAL TO PRINCIPAL' AND THE DISCOUNT AL LOWED TO THE DISTRIBUTORS IS IN NATURE OF COMMISSION LIABLE FOR DEDUC TION OF TAX AS ENVISAGED UNDER SECTION 194H OF THE ACT. 10 VODAFONE CELLULAR GROUP 2.3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 194H OF THE ACT WOULD BE APPLICABLE TO THE APPELLANT'S CASE W ITHOUT TAKING COGNIZANCE OF THE FACT THAT THE APPELLANT IS NOT RESP ONSIBLE TO MAKE ANY PAYMENT/ CREDIT TO THE PREPAID DISTRIBUTORS TOWAR DS THE DISCOUNT EXTENDED TO THEM AND RESPONSIBILITY/ OBLIGATION TO MA KE PAYMENT IS A CONDITION PRECEDENT FOR APPLICATION OF SECTION 194H OF THE ACT, WHICH IS ABSENT IN THE PRESENT CASE. 2.4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN NOT HOLDING THAT DISCOUNT ALLOWED BY THE APPELLANT IS NOT INCOME IN THE HANDS OF ITS DISTRIBUTOR S AND THAT INCOME, IF ANY, ARISES ONLY WHEN THE PRE-PAID SIM CA RDS/TALKTIME IS FURTHER DISTRIBUTED BY THE DISTRIBUTORS. 2.5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED TDS OFFICER HAS ERRED IN NOT APPRECIATING T HE FACT THAT THERE IS NO FLOW OF MONIES FROM THE APPELLANT TO THE DISTRIBUT OR OF PRE-PAID SIM CARD/ TALKTIME BUT RATHER FROM THE DISTRIBUTOR T O THE APPELLANT, AND HENCE, THE PROVISIONS OF SECTION 194H OF THE ACT FAIL TO APPLY. HEREINAFTER ALL THE GROUNDS ARE WITHOUT PREJUDICE T O GROUND NO.1 AND 2 ABOVE. 3. GROUND NO. 3 - APPELLANT HAS DISCHARGED ITS ONUS BY SUBMITTING SUFFICIENT INFORMATION TO ENABLE THE LEA RNED TDS OFFICER TO VERIFY WHETHER THE TAXES HAVE BEEN PAID BY THE PAYEE ON DISCOUNT 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT DIRECTING THE LEARNE D TDS OFFICER TO VERIFY WHETHER REQUISITE TAXES WERE PAID BY THE PRE- PAID DISTRIBUTORS. 4. GROUND NO.4 - NO INTEREST UNDER SECTION 201(IA) O F THE ACT CAN BE CHARGED 4.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED TDS OFFICER IN CHARGING INTEREST UNDER SECTION 201 (1A) O F THE ACT. THE APPELLANT CRAVES FOR LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE MATTER. 14. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). REFERRING TO PARA 7 OF THE ORDER OF LD . CIT(A) THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE SEQUENCE OF EVENTS ACCORDING TO WHICH THE SURVEY WA S CONDUCTED ON 23-04-2008. HE SUBMITTED THAT THE SURVEY WAS CONDU CTED FOR THE PURPOSE OF TDS PAYMENT. AT THAT TIME NO TIME LIMIT WAS PRESCRIBED FOR COMPLETION OF THE TDS ASSESSMENT. REFERRING TO THE DECISION OF THE 11 VODAFONE CELLULAR GROUP SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHIND RA AND MAHINDRA LTD. VS. DCIT REPORTED IN 122 ITD 216 (MUM.) (SB) H E SUBMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE SAID DECIS ION HAS HELD THAT THE MAXIMUM TIME LIMIT FOR PASSING THE ORDER U/S.201(1) OR 201(1A) IS THE SAME AS PRESCRIBED U/S.153(2) BEING ONE YEAR FROM T HE END OF THE FINANCIAL YEAR IN WHICH PROCEEDINGS U/S.201(1) ARE INITIATED. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (IT) VS. MAHINDRA AND MAHIND RA REPORTED IN 365 ITR 560 HE SUBMITTED THAT THE HONBLE HIGH COURT HA S UPHELD THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL AND DISMISSED THE APPEAL FILED BY THE REVENUE. THEREFORE, THE ORDERS PASSED BY THE T DS OFFICER FOR THE A.Y. 2007-08 IS BARRED BY LIMITATION. 15. REFERRING TO THE STATEMENT OF R. NARAYANAN, MAN AGER (ACCOUNTS) OF VODAFONE ESSAR CELLULAR LTD. RECORDED DURING THE COURSE OF SURVEY U/S.133A OF THE I.T. ACT. ON 23-04-2008, THE LD. CO UNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE ANS WER TO QUESTION NO.13 WHEREIN THE ASSESSEE REPLIED AS UNDER : Q.NO.13 ON GOING THROUGH THE AGREEMENT AND UNDERTA KING TAKEN FROM THE DISTRIBUTOR IT APPEARS THAT YOU ARE HA VING FULL CONTROL OVER THE DISTRIBUTOR REGARDING STOCK, TERMS OF SALE AN D TERMS OF PAYMENT MOREOVER YOU ARE ALSO PAYING SERVICE TAX ON BEHALF OF DISTRIBUTORS, SIMILAR IS THE SITUATION IN RESPECT OF TRA NSACTION WHATSOEVER MAY BE WITH THE FRANCHISE AS YOU HAVE STATED THAT NO SEPARATE AND DIFFERENT AGREEMENT IS MADE WITH THE FR ANCHISE WITH WHOM YOU ARE DEALING AS PER YOU SALE WITH TRADE MARGI N. CONSIDERING THE CIRCUMSTANCES DISTRIBUTOR IS GETTING NO THING FROM THIS ACTIVITIES EXCEPT TRADE MARGIN AND THEREFORE THE SAID DISTRIBUTORS OR THE FRANCHISE TO THE EXTENT OF RECHARGE COUPONS AR E YOUR AGENTS AND THEREFORE TRADE MARGIN IS NOTHING BUT A SORT OF C OMMISSION ELIGIBLE FOR DEDUCTION OF TAX UNDER SECTION 194H OF I.T. ACT, 1961. ACCORDINGLY THE TRADE MARGIN WHICH YOU HAVE STATED A MOUNT TO RS.26,11,89,668/- IS ELIGIBLE FOR DEDUCTION OF TAX FO R 07-08. PLEASE EXPLAIN YOUR SAY IN THIS BEHALF AND ALSO FOR F.Y.06-07 . ANS. THE AGREEMENT WITH DISTRIBUTORS IS ON PRINCIPAL TO PRINCIPAL BASIS, IT HAS BEEN CLEARLY SET OUT IN CLAUSE 2.1 IN THE AGREEMENT. SERVICE TAX AS APPLICABLE IS RECOVERED FROM THE ULTIM ATE SUBSCRIBERS WHO RECEIVE THE SERVICE OF THE COMPANY. THE SERVICE TAX COLLECTED FROM DISTRIBUTOR IS ULTIMATELY BORNE BY THE SUBSCRIBER . HENCE THE TRADE MARGIN IS NOT IN THE NATURE OF COMMISSION. DIST RIBUTORS ARE ENTITLED TO TARGET BASED INCENTIVE ON ACHIEVEMENT O F TARGETS AS DECIDE 12 VODAFONE CELLULAR GROUP BY THE COMPANY FROM TIME TO TIME. THE SAME APPLIES T O FRANCHISE AS WELL, WITH REGARD TO PREPAID PRODUCTS. 16. HE SUBMITTED THAT THE LD.CIT(A) WHILE DISMISSIN G THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE ISSUE OF LIMIT ATION HAS HELD THAT THE SURVEY WAS CONDUCTED FOR GATHERING INFORMATION AND THE PROCEEDINGS WERE INITIATED BY ISSUE OF SHOW CAUSE NOTICE. HOWE VER, FOR THE A.Y. 2007-08, NO SHOW CAUSE NOTICE WAS ISSUED BY THE ASS ESSING OFFICER. THE FIRST SHOW CAUSE NOTICE WAS ISSUED ON 21-01-201 0 FOR A.Y. 2008-09. HOWEVER, THE LD.CIT(A) STATES THAT THE SHOW CAUSE N OTICE ISSUED FOR A.Y. 2008-09 COVERS THE A.Y. 2007-08. HE SUBMITTED THAT WHEN THERE IS NO SHOW CAUSE NOTICE FOR A.Y. 2007-08, THEN THE ORDER PASSED U/S.201(1)/201(1A) IS VOID AB-INITIO. HE SUBMITTED THAT THE PROCEEDINGS WERE INITIATED DUE TO SURVEY FOR BOTH THE YEARS. T HE SURVEY WAS CONDUCTED FOR THE VERY SAME PURPOSE. SPECIFIC QUES TIONS WERE ASKED AND NOTICES U/S.131 WERE ISSUED. THE ASSESSEE FURN ISHED RELEVANT DETAILS BY MAY 2008. THEREFORE, WHEN NO SHOW CAUSE NOTICE WAS ISSUED FOR A.Y. 2007-08 AND THE ORDER WAS NOT PASSED WITHI N THE SPECIFIED TIME OF ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN W HICH THE PROCEEDING U/S.201(1) IS INITIATED, THEREFORE, THE ORDER SHOUL D BE HELD AS VOID AB- INITIO. 17. HE SUBMITTED THAT FOR APPLICABILITY OF SECTION 201(3) OF THE I.T. ACT AS INSERTED BY THE FINANCE ACT, 2009 W.E.F. 01-04-2 010, THE LAW AS ON DATE OF ISSUE OF NOTICE HAS TO BE APPLIED AND IN CA SE THE PROCEEDINGS HAVE BECOME BARRED BY LIMITATION BEFORE 01-04-2010 THEN THE PROVISO CANNOT COME TO THE RESCUE OF THE ASSESSING OFFICER TO SAVE SUCH LIMITATION. FOR THE ABOVE PROPOSITION THE LD. COUN SEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE DELHI BENCH OF THE TR IBUNAL IN THE CASE OF ACIT VS. M/S. CATHOLIC RELIEF SERVICES VIDE ITA NO. 2742 AND 2744/DEL/2011 ORDER DATED 13-01-2012. HE SUBMITTED THAT WHERE NO TIME 13 VODAFONE CELLULAR GROUP LIMIT IS PROVIDED FOR PASSING/COMPLETION OF THE ORD ER THEN SUCH ORDER SHOULD BE PASSED/COMPLETED WITHIN A REASONABLE TIME AND INCASE THE ORDER IS DELAYED BEYOND A REASONABLE TIME THEN SUCH ORDER IS LIABLE TO BE QUASHED. 18. REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF S.S. GADGIL VS. LAL AND COMPANY REPORTED IN 53 ITR 231 HE SUBMITTED THAT THE WORDS IN AN AMENDING ACT WHICH ENABLE THE DEPARTMENT TO MAKE AN ASSESSMENT OR REASSESSMENT IN RESPECT OF YEARS W HICH WERE OVER WHEN THE AMENDING ACT BEGAN, ARE NOT TO BE CONSTRUE D AS AUTHORIZING ACTION IN RESPECT OF THE YEAR FOR WHICH ACTION WAS ALREADY TIME-BARRED AT THE DATE WHEN THE AMENDING ACT CAME INTO FORCE. 19. HE SUBMITTED THAT THE TDS OFFICER HAS PASSED TH E ORDER U/S.201 OF THE ACT THEREBY RAISING SIGNIFICANT DEMAND AGAINST THE ASSESSEE WITHOUT GIVING ANY FINDING WHATSOEVER ON FAILURE OF THE REC IPIENT DISTRIBUTORS TO PAY TAXES ON THE INCOME EARNED BY THEM FROM DISTRIBUTIO N OF PREPAID TALK TIME/CONNECTIONS TRANSFERRED BY THE ASSESSEE. 20. REFERRING TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DCIT (TDS) VS. VS. JAGRAN PRAKASHAN LIMITE D REPORTED IN 251 ITR 65 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS NOT ONLY HELD THAT NO DEMAND U/S.201 OF THE ACT CAN BE RAISED WHERE THE RECIPIENT HAS PAID THE TAXES, BUT ALSO HAS HELD THA T THE DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAULT TILL IT IS FOUND THAT THE RECIPIENT HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. HE SUBMITTED THAT THE ABOVE PROPOSITION HAS BEEN FOLLOWED BY THE KOLKATA BENCH OF THE TRIBU NAL IN THE CASE OF RAMAKRISHNA VEDANTA MATH VS. ITO REPORTED IN 55 SOT 417. 21. SO FAR AS THE MERIT OF THE CASE IS CONCERNED HE SUBMITTED THAT NO PAYMENT OR CREDIT TO THE ACCOUNT OF THE DISTRIBUTOR S HAS BEEN MADE BY THE ASSESSEE TOWARDS DISCOUNT EXTENDED TO THEM. THEREFO RE, IN ABSENCE OF A 14 VODAFONE CELLULAR GROUP PAYMENT/CREDIT TOWARDS THE DISCOUNT EXTENDED BY THE ASSESSEE, PROVISIONS OF SECTION 194H OF THE ACT CANNOT BE APP LIED. SINCE THERE IS NEITHER PAYMENT NOR ANY CREDIT OF ANY COMMISSION BY THE ASSESSEE, THERE WAS NO OCCASION FOR THE ASSESSEE TO DEDUCT TAX AT S OURCE AND HENCE, THE ASSESSEE CANNOT BE HELD RESPONSIBLE FOR NON-DEDUCTI ON OF TAX AT SOURCE FROM THE DISCOUNT EXTENDED TO ITS PRE-PAID DISTRIBU TORS. HE SUBMITTED THAT THE DISTRIBUTORSHIP ARRANGEMENT ENTERED INTO BETWEE N THE ASSESSEE AND ITS PREPAID DISTRIBUTORS CLEARLY BRINGS OUT THE FAC T THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND DISTRIBUTORS OF ITS PREPAI D TALKTIME/ CONNECTIONS IS ON 'PRINCIPAL TO PRINCIPAL' BASIS. HENCE DISCOUNT EXTENDED TO THE PREPAID DISTRIBUTORS CONSTITUTES TRADE MARGI N AND NOT 'COMMISSION OR BROKERAGE' TO ATTRACT THE PROVISIONS OF SECTION 194H OF THE ACT. THE MARGIN IS EARNED BY THE DISTRIBUTORS IN THEIR INDEP ENDENT CAPACITY AND NOT FOR ACTING FOR AND ON BEHALF OF THE ASSESSEE. HE SU BMITTED THAT THE DISCOUNT A LLO WE D B Y TH E ASSESSEE IS NOT INCOME IN THE HANDS OF I T S DISTRIBUTORS AND THAT INCOME , IF AN Y, ARI S E S ONL Y WHEN THE PREPAID TALKTIME/ CONNECTIONS ARE FURTH E R DISTRIBUTED B Y THE DISTRIBUTORS. THEREFORE, PROVISIONS OF SECTION 194H OF THE ACT WHICH REQUIRE TAX DEDUCTION AT SOURCE FROM ANY INCOME B Y WAY OF C OMMISSI O N , C A NNOT B E HELD APPLICABL E TO THE FACTS OF THE CASE . 22. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE ENTIRE DISCOUNT ALLOWED BY THE ASSESSEE TO THE DISTRIBUTOR CANNOT BE CONSIDERED AS AN INCOME IN THE HANDS OF THE DISTRIBUTOR SINCE A PART OF DISCOUNT IS ALWAYS PASSED DOWN AT EACH LEVEL OF THE DISTRIBUTIO N CHAIN AND HENCE THE WHOLE OF THE DISCOUNT AMOUNT DOES NOT AUTOMATICALLY BECOME THE INCOME OF THE PREPAID DISTRIBUTORS. THEREFORE, TAX DEDUCT ION AT SOURCE ON THE ENTIRE DISCOUNT AMOUNT WOULD BE AGAINST THE PRINCIP LES OF LAW. 23. REFERRING TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE NAMELY V ODAFONE ESSAR SOUTH 15 VODAFONE CELLULAR GROUP LTD. VS. DCIT REPORTED IN 372 ITR 33 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT SALE OF SI M CARDS/RECHARGE COUPONS AT DISCOUNTED RATE OF DISTRIBUTORS IS NOT C OMMISSION AND THEREFORE NOT LIABLE TO TDS U/S.194H. HE SUBMITTED THAT THE TDS OFFICER AS WELL AS THE CIT(A) HAVE RELIED ON THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF IDEA CELLULAR LTD. (SUPRA) TH E DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR CEL LULAR LTD.(SUPRA) AND THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BHARTI CELLULAR LTD. VS. ACIT (SUPRA) AND HELD THAT THE SU PPLY AND DELIVERY OF PREPAID SIM CARDS/VOUCHERS DID NOT CONSTITUTE SALES BUT PROVISION OF SERVICES. HE SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT HAS DISTINGUISHED THE ABOVE JUDGMENTS AND HAS HELD THAT WHAT IS BEING SOLD BY THE TELECOM OPERATORS TO THE DISTRIBUTORS OF PRE PAID TALKTIME IS THE RIGHT TO SERVICE ON A PRINCIPAL TO PRINCIPAL BAS IS AND HENCE THE QUESTION OF APPLICABILITY OF SECTION 194H OF THE ACT DOES NO T ARISE. 24. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED TH AT EXPLANATION TO SECTION 191 OF THE ACT CLEARLY PROVIDES THAT AN ASS ESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT U/S.201(1) OF THE ACT WHERE ALTHOUGH TAXES WERE NOT DEDUCTED AT SOURCE AS REQUIRED BUT H AS BEEN PAID DIRECTLY BY THE RECIPIENT. FOR THE ABOVE PROPOSITION HE RELI ED ON THE CBDT INSTRUCTION NO.275/201/95IT(B) DATED 29-01-1997 AN D THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE PVT. LTD. REPORTED IN 293 ITR 226. 25. SO FAR AS THE LEVY OF INTEREST U/S.201(1A) OF T HE ACT IS CONCERNED HE SUBMITTED THAT IT IS SETTLED PROPOSITION OF LAW THAT INTEREST U/S.201(1A) IS COMPENSATORY IN NATURE AND HENCE CAN BE CHARGED FOR THE PERIOD FOR WHICH THE TAX DEPARTMENT WAS DEPRIVED OF SUCH TAX D UES. HE SUBMITTED THAT IN THE INSTANT CASE ALL THE DISTRIBUTORS HAVE BEEN DISCHARGING THEIR TAX LIABILITY BY WAY OF ADVANCE TAX, SELF ASSESSMENT TA XES AND OTHER PREPAID 16 VODAFONE CELLULAR GROUP TAXES. HE ACCORDINGLY SUBMITTED THAT THE PERIOD FO R WHICH INTEREST MAY BE LEVIED SHOULD BE COMPUTED FROM THE DUE DATE OF PAYM ENT OF WITHHOLDING TAX BY THE ASSESSEE TO THE DATE OF PAYMENT OF TAXES BY THE PAYEE/RECIPIENT OF SUCH DISCOUNT. 26. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A) BOTH ON THE ISSUE OF LIMITATION AS WELL AS ON MERIT. HE SUBMITTED THAT SURVEY IS A DIFFERENT PROCEEDING FROM ASSESSMENT PROCEEDING. ANY SURVEY U/S.133A IS TO CO LLECT EVIDENCE. THEREFORE, MERELY FILING OF THE DETAILS CANNOT BE C ONSIDERED AS FILING OF ALL THE DETAILS FOR ALL THE YEARS. HE SUBMITTED THAT T HE LD.CIT(A) HAS CATEGORICALLY OBSERVED THAT SHOW CAUSE NOTICE U/S.2 01(1) AND 201(1A) OF THE ACT WAS ISSUED FOR F.Y. 2007-08 FOR THE FIRST T IME ON 20-01-2010. ALTHOUGH IN THE SAID SHOW CAUSE NOTICE THERE IS NO MENTION OF F.Y. 2006- 07 BUT THIS WILL NOT MAKE MUCH DIFFERENCE IN THE SE NSE THAT THE ASSESSEE WAS MADE AWARE OF THE DEFAULT IN F.Y. 2006-07. THE REFORE, OPPORTUNITY WAS PROVIDED BY THE TDS OFFICER FOR A.Y. 2006-07 BE FORE PASSING THE ORDER FOR A.Y. 2007-08. 27. SO FAR AS THE MERIT OF THE ISSUE IS CONCERNED T HE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE C IT(A). 28. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTA NT CASE IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBILE PHONE SER VICES FOR MAHARASHTRA AND GOA CIRCLE EXCLUDING MUMBAI. THE ASSESSEE COMP ANY PROVIDES PREPAID AND POSTPAID SERVICES. THE PREPAID SERVICE S ARE IN THE FORM OF RECHARGE COUPONS AND SIM CARDS. SINCE THE ASSESSEE HAS NOT DEDUCTED TDS FROM THE DISCOUNT OFFERED BY THE ASSESSEE TO TH EIR DISTRIBUTORS THE 17 VODAFONE CELLULAR GROUP ASSESSING OFFICER TREATED SUCH DISCOUNT OFFERED BY THE ASSESSEE TO THEIR DISTRIBUTORS AS COMMISSION AND TREATED THE ASSESS EE AS AN ASSESSEE IN DEFAULT U/S.201(1) R.W.S. 194H OF THE I.T. ACT. WHI LE DOING SO, THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE AS SESSEE THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUT ORS WAS PRINCIPLE TO PRINCIPAL AND NOT THAT OF PRINCIPAL TO AGENT. WE F IND BEFORE THE CIT(A) THE ASSESSEE APART FROM ARGUING THE CASE ON MERIT FOR A LL THE YEARS ALSO TOOK AN ADDITIONAL GROUND FOR A.Y. 2007-08 THAT THE ORD ER PASSED BY THE TDS OFFICER IS BARRED BY LIMITATION. WE FIND THE LD.CI T(A) DISMISSED THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE GRO UND THAT THE ORDER U/S.201(1) WAS PASSED ON 22-03-2011 IS WITHIN ONE YEAR SINCE THE SHOW CAUSE NOTICE WAS ISSUED ON 21-01-2010. 29. SO FAR AS THE MERIT OF THE CASE IS CONCERNED TH E LD.CIT(A) FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH C OURT IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. REPORTED IN 332 ITR 25 5 THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. IDE A CELLULAR LTD. REPORTED IN 325 ITR 148 AND THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF BHARTI CELLULAR LTD. VS. ACIT REPOR TED IN 354 ITR 507 DECIDED THE ISSUE AGAINST THE ASSESSEE BY UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE ASSESSEE TO BE AN ASSESSEE IN DEFAULT. 30. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT FOR THE A.Y. 2007-08 NO SHOW CAUSE NOTICE HAS BEEN ISSU ED AND THE ORDER HAS BEEN PASSED BEYOND THE STIPULATED PERIOD OF ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH PROCEEDINGS U/S.201 ARE INITIATED. IT IS ALSO HIS ARGUMENT ON MERIT THAT THE HONBLE KARNATAKA HI GH COURT IN THE CASE OF BHARTI AIRTEL LTD. VS. DCIT REPORTED IN 372 ITR 33 HAS DISTINGUISHED THE 3 DECISIONS RELIED ON BY THE CIT(A) AND HELD TH AT SALE OF SIM CARDS/RECHARGE COUPONS AT DISCOUNTED RATES TO DISTR IBUTORS IS NOT 18 VODAFONE CELLULAR GROUP COMMISSION AND THEREFORE NOT LIABLE TO TDS U/S.194H OF THE ACT, THEREFORE, THE SAME SHOULD BE FOLLOWED. 31. WE FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE. SO FAR AS A.Y. 2007-08 IS CONCERNED, WE FIND IT IS AN UNDISPUTED F ACT THAT SHOW CAUSE NOTICE HAS NOT BEEN ISSUED TO THE ASSESSEE FOR THE F.Y. 2006-07 RELEVANT TO A.Y. 2007-08. THE FINDING GIVEN BY THE LD.CIT(A ) AT PAGE 14 OF THE ORDER ITSELF CLARIFIES THE SAME. THE RELEVANT OBSE RVATION OF THE CIT(A) READS AS UNDER : 16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IN THIS CASE, IT IS SEEN THAT SHOW CAUSE NOTICE U/S.201(1 )/201(1A) OF INCOME-TAX ACT WAS ISSUED FOR F.Y. 2007-08 FOR THE FI RST TIME ON 21-01-2010. IT IS TRUE THAT IN THE SHOW CAUSE NOTICE THERE IS NO MENTION OF F.Y. 2006-07, BUT THIS WILL NOT MAKE MUC H DIFFERENCE IN THE SENSE THAT THE APPELLANT WAS MADE AWARE OF THE DEF AULT FOR F.Y. 2006-07 AND ACCORDINGLY, DETAILS OF DISCOUNT WAS PROVI DED BY THE APPELLANT FOR F.Y. 2006-07. . . . . . . . . . . 32. MERELY BECAUSE THE ASSESSEE HAS FILED CERTAIN D ETAILS FOR A.Y. 2006-07 IT CANNOT BE SAID THAT NON ISSUE OF SUCH NO TICE WILL NOT MAKE ANY DIFFERENCE. ISSUE OF A NOTICE IS MANDATORY BEFORE CHARGING ANY ASSESSEE FOR ITS LIABILITY. THEREFORE, IN ABSENCE OF ISSUE OF ANY NOTICE, THE ORDER PASSED U/S.201(1) AND 201(1A) FOR A.Y. 2007-08 HAS TO BE HELD AS VOID AND ILLEGAL. 32.1 FURTHER, AS PER THE CHRONOLOGY OF EVENTS REPRO DUCED AT PAGE 7 OF THE ORDER OF THE CIT(A) WHICH HAS ALREADY BEEN REPR ODUCED AT PARA 6 OF THIS ORDER, WE FIND THE ASSESSEE HAS FILED ALL THE REQUISITE DETAILS ON 08- 05-2008. WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA AND MAHINDRA LTD. (SUPRA) HAS HELD THAT TH E MAXIMUM TIME LIMIT FOR PASSING THE ORDER U/S.201(1) OR 201(1A) I S THE SAME AS PRESCRIBED U/S.153(2), I.E. ONE YEAR FROM THE END O F THE FINANCIAL YEAR IN WHICH PROCEEDINGS U/S.201(1) ARE INITIATED. THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBL E HIGH COURT 19 VODAFONE CELLULAR GROUP REPORTED IN 365 ITR 560. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER FOR A.Y. 2007-08 HAS GOT BARRED BY L IMITATION. THEREFORE, DUE TO NON ISSUE OF STATUTORY NOTICE FOR PASSING TH E ORDER U/S.201(1) AND 201(1A) AND DUE TO BAR BY LIMITATION, THE ORDER PAS SED BY THE ASSESSING OFFICER FOR A.Y. 2007-08 HAS BECOME ILLEGAL AND VOI D. WE HOLD ACCORDINGLY. 33. NOW COMING TO THE MERIT OF THE CASE, WE FIND TH E HONBLE KARNATAKA HIGH COURT IN THE CASE OF BHARTI AIRTEL L TD. VS. DCIT REPORTED IN 372 ITR 33 HAS HELD THAT SALE OF SIM CARDS/RECHA RGE COUPONS AT DISCOUNTED RATE TO DISTRIBUTORS IS NOT COMMISSION A ND THEREFORE NOT LIABLE TO TDS U/S.194H. WHILE HOLDING SO, THE HONBLE HIGH COURT HAS DISTINGUISHED THE DECISION OF THE HONBLE KERALA HI GH COURT IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. (SUPRA), THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF IDEA CELLULAR LTD.(SUPRA) AND THE DECISION OF HONBLE KOLKATA HIGH COURT IN THE CASE OF BHARTI CELLULAR L TD. (SUPRA). THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READ S AS UNDER : 56. IN THE IDEA CELLULAR LTD. CASE (SUPRA), THE DEL HI HIGH COURT PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS PROVIDING THE MOBILE PHONE SERVICE. IT IS THE ULTIMATE OWNER OF THE SERVIC E SYSTEM. THE SERVICE IS MEANT FOR PUBLIC AT LARGE. THEY HAD APPOIN TED DISTRIBUTORS TO MAKE AVAILABLE THE PRE-PAID PRODUCTS TO THE PUBLI C AND LOOK AFTER THE DOCUMENTATION AND OTHER STATUTORY REQUIREMENTS RE GARDING THE MOBILE PHONE CONNECTION AND, THEREFORE, THE ESSENCE O F SERVICE RENDERED BY THE DISTRIBUTOR IS NOT THE SALE OF ANY PRO DUCT OR GOODS AND, THEREFORE, IT WAS HELD THAT ALL THE DISTRIBUTORS ARE ALWAYS ACTING FOR AND ON BEHALF OF THE ASSESSEE COMPANY. 57. SIMILAR IS THE VIEW EXPRESSED BY THE KERALA HIGH C OURT IN THE VODAFONE ESSAR CELLULAR LTDS CASE (SUPRA), WHERE IT WA S HELD THAT, THE DISTRIBUTOR IS ONLY RENDERING SERVICES TO THE ASSESSEE AND THE DISTRIBUTOR COMMITS THE ASSESSEE TO THE SUBSCRIBERS TO WHOM ASSESSEE IS ACCOUNTABLE UNDER THE SERVICE CONTRACT WHICH IS THE SUBSCRIBER CONNECTION ARRANGED BY THE DISTRIBUTOR FOR THE ASSESSEE. IN THAT CONTEXT IT WAS HELD 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 AGAINST ADVANCE PAYMENT MADE BY THE DISTRIBUTOR. 58. IN BOTH THE AFORESAID CASES, THE COURT PROCEEDED ON THE BASIS THAT SERVICE CANNOT BE SOLD. IT HAS TO BE RENDERED. BUT, THEY DID NOT GO INTO THE QUESTION WHETHER RIGHT TO SERVICE CAN BE SOLD. 20 VODAFONE CELLULAR GROUP 59. THE TELEPHONE SERVICE IS NOTHING BUT SERVICE. SIM CARDS, HAVE NO INTRINSIC SALE VALUE: IT IS SUPPLIED TO THE CUSTOMERS. FO R PROVIDING MOBILE SERVICES TO THEM. THE SIM CARD IS IN THE NATURE OF A KEY TO THE CONSUMER TO HAVE ACCESS TO THE TELEPHONE NETWORK ESTABL ISHED AND OPERATED BY THE ASSESSEE-COMPANY ON ITS OWN BEHALF. SINC E THE SIM CARD IS ONLY A DEVICE TO HAVE ACCESS TO THE MOBILE PHO NE NETWORK, THERE IS NO QUESTION OF PASSING OF ANY OWNERSHIP OR TITL E OF THE GOODS FROM THE ASSESSEE-COMPANY TO. THE DISTRIBUTOR OR FROM TH E DISTRIBUTOR TO THE ULTIMATE CONSUMER. THEREFORE, THE SIM CARD, ON ITS OWN BUT WITHOUT SERVICE WOULD HARDLY HAVE ANY VALUE. A CUSTOMER, WHO WANTS TO HAVE ITS SERVICE INITIALLY, HAS TO PURCHASE A SIM-CARD. WHEN HE PAYS FOR THE SIM-CARD, HE GETS THE MOBILE SERVI CE ACTIVATED. SERVICE CAN ONLY BE RENDERED AND CANNOT BE SOLD. HOW EVER, RIGHT TO SERVICE CAN BE SOLD. WHAT IS SOLD BY THE SERVICE PROVID ER TO THE DISTRIBUTOR IS THE RIGHT TO SERVICE. ONCE THE DISTRIBU TOR PAYS FOR THE SERVICE, AND THE SERVICE PROVIDER, DELIVERS THE SIM CA RD OR RECHARGE COUPONS, THE DISTRIBUTOR ACQUIRES A RIGHT TO DEMAND SER VICE. ONCE SUCH A RIGHT IS ACQUIRED THE DISTRIBUTOR MAY USE IT BY HIMSELF. HE MAY ALSO SELL THE RIGHT TO SUB-DISTRIBUTORS WHO IN TURN MAY SELL INTO RETAILERS. IT IS A WELL-SETTLED PROPOSITION THAT IF THE PROPERTY IN THE GOODS IS TRANSFERRED AND GETS VESTED IN THE DISTRIBUTOR A T THE TIME OF THE DELIVERY THEN HE IS THEREAFTER LIABLE FOR THE SAM E AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIPAL AND NOT AS AN AGENT. THE SELLER MAY HAVE FIXED THE MRP AND THE PRICE AT W HICH THEY SELL THE PRODUCTS TO THE DISTRIBUTORS BUT THE PRODUCTS ARE SO LD AND OWNERSHIP VESTS AND IS TRANSFERRED TO THE DISTRIBUTORS. HO WEVER, WHO EVER ULTIMATELY SELLS THE SAID RIGHT TO CUSTOMERS IS NOT ENTITLED TO CHARGE MORE THAN THE MRP: THE INCOME OF THESE MID DLEMEN WOULD BE THE DIFFERENCE IN THE SALE PRICE AND THE MR P, WHICH THEY HAVE TO SHARE AS PER THE AGREEMENT BETWEEN THEM. THE SAID INCOME ACCRUES TO THEM ONLY WHEN THEY SELL THIS RIGHT TO SERVI CE AND NOT WHEN THEY PURCHASE THIS RIGHT TO SERVICE. THE ASSESSEE IS N OT CONCERNED WITH QUANTUM AND TIME OF ACCRUAL OF INCOM E TO THE DISTRIBUTORS BY RESELLING THE PREPAID CARDS TO THE SUB- DISTRIBUTORS/RETAILERS. AS AT THE TIME OF SALE OF PREPAI D CARD BY THE ASSESSEE TO THE DISTRIBUTOR, INCOME HAS NOT ACCRUED OR AR ISEN TO THE DISTRIBUTOR, THERE IS NO. PRIMARY LIABILITY TO TAX ON THE DISTRIBUTOR. IN THE ABSENCE OF PRIMARY LIABILITY ON THE DISTRIBUTOR A T SUCH POINT OF TIME, THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TA X AT SOURCE. THE DIFFERENCE BETWEEN THE SALE PRICE TO RETAILER AND TH E PRICE WHICH THE DISTRIBUTOR PAYS TO THE ASSESSEE IS HIS INCOME FROM BUSINESS. IT CANNOT BE CATEGORIZED AS COMMISSION. THE SALE IS SUBJECT TO CONDITIONS, AND STIPULATIONS. THIS BY ITSELF DOES NOT SH OW AND ESTABLISH PRINCIPAL AND AGENT RELATIONSHIP. 60. THE FOLLOWING ILLUSTRATION MAKES THE POINT CLEAR: ON DELIVERY OF THE PREPAID CARD, THE ASSESSEE RAISES INVOICES AND UPDATES THE ACCOUNTS. IN THE FIRST INSTANCE, SALE IS ACCOUNTED FOR R S.100/-, WHICH IS THE FIRST ACCOUNT AND RS.80/- IS THE SECOND ACCOUNT A ND THE THIRD ACCOUNT IS RS.20/-. IT SHOWS THAT THE SALES IS FOR RS.100/- , COMMISSION IS GIVEN AT RS.20/- TO THE DISTRIBUTORS AND NE T VALUE IS RS.80/-. THE ASSESSEE'S SALE IS ACCOUNTED AT THE GROSS VALUE OF RS.100/- AND THEREAFTER, THE COMMISSION PAID AT RS.20/- IS ACCOUNTED. THEREFORE, IN THOSE CIRCUMSTANCES OF THE CA SE, THE ESSENCE OF THE CONTRACT OF THE ASSESSEE AND DISTRIBUTOR IS THAT OF SERVICE AND THEREFORE, SECTION 194H OF THE ACT IS ATT RACTED. 21 VODAFONE CELLULAR GROUP 61. HOWEVER, IN THE FIRST INSTANCE, IF THE ASSESSEE ACCOUNT ED FOR ONLY RS.80/- AND ON PAYMENT OF RS.80/-, HE HANDS OVER THE P REPAID CARD PRESCRIBING THE MRP AS RS.100/-, THEN AT THE TIME OF SA LE, THE ASSESSEE IS NOT MAKING ANY PAYMENT. CONSEQUENTLY, THE DIST RIBUTOR IS NOT EARNING ANY INCOME. THIS DISCOUNT OF RS.20/- IF NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNTS, IN SUCH CIRCUMSTANC ES, SECTION 194H OF THE ACT IS NOT ATTRACTED. 62. IN THE APPEALS BEFORE US, THE ASSESSEES SELL PREPAID CARDS/VOUCHERS TO THE DISTRIBUTORS. AT THE TIME OF THE ASSESSEE SELLING THESE PRE-PAID CARDS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE DISTRIBUTOR DOES NOT EARN ANY INCOME. IN FACT, RA THER THAN EARNING INCOME, DISTRIBUTORS: INCUR EXPENDITURE FOR T HE PURCHASE OF PREPAID CARDS. ONLY AFTER THE RESALE OF THOSE PREPAID CARDS, DISTRIBUTORS WOULD DERIVE INCOME. AT THE TIME OF THE ASSESSEE SELLING THESE PRE-PAID CARDS, HE IS NOT IN POSSESSION OF ANY INCO ME BELONGING TO THE DISTRIBUTOR. THEREFORE, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT THE POINT O F TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. THE CONDITION PRECEDENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY THE ASSESSEE TO THE DISTRIBUTOR. IN OTHER WORDS THE INCOME ACCRUED OR BEL ONGING TO THE DISTRIBUTOR SHOULD BE IN THE HANDS OF THE ASSESSEES. THEN O UT OF THAT INCOME, THE ASSESSEE HAS TO DEDUCT INCOME TAX THEREON AT THE RATE OF 10% AND THEN PAY THE REMAINING PORTION OF THE INCOM E TO THE DISTRIBUTOR. IN THIS CONTEXT IT IS PERTINENT TO MENTIO N THAT THE ASSESSEE SELLS SIM CARDS TO THE DISTRIBUTOR AND ALLOWS A DISC OUNT OF RS.20/-, THAT RS.20/- DOES NOT REPRESENT THE INCOME AT THE HANDS OF THE DISTRIBUTOR BECAUSE THE DISTRIBUTOR IN TURN MAY SEL L THE SIM CARDS TO A SUB DISTRIBUTOR WHO IN TURN MAY SELL THE SIM CARDS TO THE RETAILER AND IT IS THE RETAILER WHO SELLS IT TO THE CU STOMER. THE PROFIT EARNED BY THE DISTRIBUTOR, SUB-DISTRIBUTOR AND THE RET AILER WOULD BE DEPENDANT ON THE AGREEMENT BETWEEN THEM AND ALL OF THEM HAVE TO SHARE RS.20/- WHICH IS ALLOWED AS DISCOUNT BY THE ASSESSEE TO THE DISTRIBUTOR. THERE IS NO RELATIONSHIP BETWEEN THE ASSESSEE AND THE SUB-DISTRIBUTOR AS WELL AS THE RETAILER. HOWEVER, UNDER THE TERMS OF THE AGREEMENT, SEVERAL OBLIGATIONS FLOW IN SO FAR AS TH E SERVICES TO BE RENDERED BY THE ASSESSEE TO THE CUSTOMER IS CONCERNED AND , THEREFORE, IT CANNOT BE SAID THAT THERE EXISTS A RELA TIONSHIP OF PRINCIPAL AND AGENT. IN THE FACTS OF THE CASE, WE ARE SATISFIED THAT, IT IS A SALE OF RIGHT TO SERVICE. THE RELATIONSHIP BETWEEN T HE ASSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL TO PRINCIPAL AND , THEREFORE, WHEN THE ASSESSEE SELLS THE SIM CARDS TO THE DISTRIBUTOR, HE IS N OT PAYING ANY COMMISSION; BY SUCH SALE NO INCOME ACCRUES IN THE HA NDS OF THE DISTRIBUTOR AND HE IS NOT UNDER ANY OBLIGATION TO PAY ANY TAX AS NO INCOME IS GENERATED IN HIS HANDS. THE DEDUCTION OF INC OME TAX AT SOURCE BEING A VICARIOUS RESPONSIBILITY, WHEN THERE IS N O PRIMARY RESPONSIBILITY, THE ASSESSEE HAS NO OBLIGATION TO DEDUCT T DS. ONCE IT IS HELD THAT THE RIGHT TO SERVICE CAN BE SOLD THEN THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR WOULD BE THAT OF PRINCIPAL AND PRINCIPAL AND NOT PRINCIPAL AND AGENT. THE TERM S OF THE AGREEMENT SET OUT SUPRA IN UNMISTAKABLE TERMS DEMONSTRAT E THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTO R IS NOT THAT OF PRINCIPAL AND AGENT BUT IT IS THAT OF PRINCIPAL T O PRINCIPAL. 63. IT WAS CONTENDED BY THE REVENUE THAT; IN THE EVE NT OF THE ASSESSEE DEDUCTING THE AMOUNT AND PAYING INTO THE DEPAR TMENT, ULTIMATELY IF THE 'DEALER IS NOT LIABLE TO TAX IT IS ALWAYS OPEN TO HIM TO SEEK FOR REFUND OF THE TAX AND, THEREFORE, IT CAN NOT BE SAID THAT 22 VODAFONE CELLULAR GROUP SECTION 194H IS NOT ATTRACTED TO THE CASE ON HAND. AS STATED EARLIER, ON A PROPER CONSTRUCTION OF SECTION 194H AND KEEPING IN MIND THE OBJECT WITH WHICH CHAPTER XVII IS INTRODUCED, THE PE RSON PAYING SHOULD BE IN POSSESSION OF AN INCOME WHICH IS CHARGEABLE TO TAX UNDER THE ACT AND WHICH BELONGS TO THE PAYEE. A STATU TORY OBLIGATION IS CAST ON THE PAYER TO DEDUCT THE TAX AT SOURCE AND REMIT THE SAME TO THE DEPARTMENT. IF THE PAYEE IS NOT IN PO SSESSION OF THE NET INCOME WHICH IS CHARGEABLE TO TAX, THE QUESTION O F PAYER DEDUCTING ANY TAX DOES NOT ARISE. AS HELD BY THE APEX COURT IN BHAVANI COTTON MILLS LIMITED'S CASE, IF A PERSON IS NOT LIABLE FOR PAYMENT OF TAX AT ALL, AT ANY TIME, THE COLLECTION OF TAX FROM HIM, WITH A POSSIBLE CONTINGENCY OF REFUND AT A LATER STAGE WILL NOT MAKE THE ORIGINAL LEVY VALID. 64. IN THE CASE OF VODAFONE ESSAR CELLUAR LTD., (SUPRA) IT IS NECESSARY TO LOOK INTO THE ACCOUNTS BEFORE GRANTING ANY RELIEF TO THEM AS SET OUT ABOVE. THEY HAVE ACCOUNTED THE ENTIRE PRICE OF THE PREPAID CARD AT RS.100/- IN THEIR BOOKS OF ACCOUNTS AND SHOWING THE DISCOUNT OF RS.20/- TO THE DEALER. ONLY IF THEY ARE SHOWING RS.80/ - AS THE SALE PRICE AND NOT REFLECTING IN THEIR ACCOUNTS A CREDIT OF RS.20/- TO THE DISTRIBUTOR, THEN THERE IS NO LIABILITY TO DEDUCT TAX UNDER SECTION 194H OF THE ACT. THIS EXERCISE HAS TO BE DONE BY THE A SSESSING AUTHORITY BEFORE GRANTING ANY RELIEF. THE SAME EXERC ISE CAN BE DONE EVEN IN RESPECT OF OTHER ASSESSEES ALSO. ' 65. IN THE LIGHT OF THE AFORESAID DISCUSSIONS, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE AUTHORITIES HOLDING THAT SECTI ON 194H OF THE ACT IS ATTRACTED TO THE FACTS OF THE CASE IS UNSUSTAINABL E. THEREFORE, THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE' ASSESSEE AND AGAINST THE REVENUE. HENCE, WE PASS THE FOLLO WING ORDER: ORDER 1. APPEALS ARE ALLOWED. 2. THE IMPUGNED ORDERS PASSED BY THE AUTHORITIES ARE HEREB Y SET ASIDE. 3. THE MATTER IS REMITTED BACK TO THE ASSESSING AUTHORITY O NLY TO FIND OUT HOW THE BOOKS ARE MAINTAINED AND HOW THE SA LE PRICE AND THE SALE DISCOUNT IS TREATED AND WHETHER THE SALE DISCOUNT IS REFLECTED IN THEIR BOOKS. IF THE ACCOUNTS ARE NOT R EFLECTED AS SET OUT ABOVE, IN PARA 60, SECTION 194H OF THE ACT I S NOT ATTRACTED. ORDERED ACCORDINGLY. 34. NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE WAS BROUGHT TO OUR NOTICE. SINCE THE FACTS OF THE INST ANT CASE ARE IDENTICAL TO THE CASE BEFORE HONBLE KARNATAKA HIGH COURT, THERE FORE, RESPECTFULLY, FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH CO URT WE HOLD THAT SALE OF SIM CARDS/RECHARGE COUPONS AT DISCOUNTED RATE TO DISTRIBUTORS IS NOT 23 VODAFONE CELLULAR GROUP COMMISSION AND THEREFORE NOT LIABLE TO TDS U/S.194H OF THE I.T. ACT. HOWEVER, THE HONBLE HIGH COURT WHILE HOLDING SO HA S REMITTED THE MATTER BACK TO THE ASSESSING AUTHORITY ONLY TO FIND OUT HOW THE BOOKS ARE MAINTAINED AND HOW THE SALE PRICE AND THE SALE DISC OUNT IS TREATED AND WHETHER THE SALE DISCOUNT IS REFLECTED IN THEIR BOO KS. IF THE ACCOUNTS ARE NOT REFLECTED AS SET OUT ABOVE IN PARA 60 OF THE OR DER, SECTION `194H IS NOT ATTRACTED. THEREFORE, IN LINE OF THE ABOVE OBS ERVATION OF THE HONBLE HIGH COURT WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 35. IDENTICAL GROUNDS HAVE BEEN RAISED BY THE ASSES SEE FOR THE REMAINING YEARS WHEREIN THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OF FICER IN TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT FOR NON DEDUCTIO N OF TAX AT SOURCE ON DISCOUNT EXTENDED BY THE ASSESSEE TO THE DISTRIBUTO RS AND ITS PREPAID SIM CARDS/TALKTIME AND THEREFORE LIABLE TO PAY TAX U/S.201(1) AND INTEREST U/S.201(1A) OF THE I.T. ACT. 36. IN VIEW OF OUR DISCUSSION IN THE PRECEDING PARA GRAPHS WE HOLD THAT THE SALE OF SIM CARDS/RECHARGE COUPONS AT DISCOUNTE D RATE TO DISTRIBUTORS IS NOT COMMISSION AND THEREFORE NOT LIABLE TO TDS U /S.194H OF THE I.T. ACT. HOWEVER, WE HAVE RESTORED THE ISSUE TO THE FIL E OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION IN THE LIGHT OF THE DECISION OF HONBLE KARNATAKA HIGH COURT (SUPRA). THEREFORE, THE GROUN DS FOR THE OTHER YEARS ON THE ISSUE OF LIABILITY U/S.194H ARE ALLOWE D FOR STATISTICAL PURPOSES. WE HOLD AND DIRECT ACCORDINGLY. 37. SO FAR AS THE GROUND RELATING TO VALIDITY OF TH E ORDERS FOR OTHER YEARS, THE LD. COUNSEL FOR THE ASSESSEE COULD NOT S UBSTANTIATE AS TO HOW THE ORDERS FOR OTHER YEARS ARE BAD IN LAW OR VOID O R BARRED BY LIMITATION. 24 VODAFONE CELLULAR GROUP THEREFORE, THE GROUND RELATING TO VALIDITY OF THE A SSESSMENT BEING BARRED BY LIMITATION OR VOID FOR THE REMAINING YEARS ARE DISMISSED. 38. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2007-08 IS ALLOWED AND THE APPEALS FOR THE REMAINING ASSESSMEN T YEARS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 04-01-2017. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACC OUNTANT MEMBER PUNE; DATED : 04 TH JANUARY, 2017. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // # % / TRUE C// // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - V , PUNE 4. CIT (TDS), PUNE 5. # %%* , * , B BENCH / DR, ITAT, B BENCH PUNE; 6. 2 / GUARD FILE.