Vodafone Essar South Limited, Bangalore V. DCIT, Bangalore

ITA 248/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57542 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Keywords: Opportunity of being heard; Non-deduction of tax
• Section: 201(1)

Judgement Text

PAGE 1 OF 19 ITA NOS.241 TO 248/ BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.241 TO 248/BANG/2011 (ASST. YEARS 2005-06 TO 2008-09) VODAFONE ESSAR SOUTH LTD., MARUTHI INFOTECH CENTRE, #11/1 & 12/1, KORAMANGALA INTERMEDIATE RING ROAD, AMAR JYOTI LAYOUT, BENGALURU-71. PA NO.AABCB5847L VS THE DEPUTY COMMISSIONER OF INCOME TAX, TDS, RANGE-18, BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 15.03.2012 DATE OF PRONOUNCEMENT : 27.03.2012 APPELLANT BY : SHRI SALIL KAPOOR, ADVOCATE RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT O R D E R PER BENCH : THESE EIGHT APPEALS ARE DIRECTED AGAINST THE CONS OLIDATED ORDER OF THE LD. CIT(A)-V, BANGALORE DATED 31.12.2010. T HE RELEVANT ASSESSMENT YEARS ARE 2005-06 TO 2008-09. THE ORDER OF THE CIT( A) ARISE OUT OF ASSESSING OFFICERS ORDER PASSED UNDER SECTION 201( 1) AND 201(1A) OF THE ACT. 2. THE GROUNDS RAISED IN ITA NO.241, 243, 245 AND 247/BANG/2011 ARE IDENTICAL AND THEY READ AS FOLLOWS :- PAGE 2 OF 19 ITA NOS.241 TO 248/ BANG/2011 2 GROUND I: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSI NG OFFICER IN TREATING DISCOUNT OFFERED BY THE APPELLAN T TO THE PREPAID DISTRIBUTORS (DISTRIBUTOR) IN THE NATURE OF COMMISSION WITHIN THE MEANING OF SECTION 194H OF THE ACT AND ACCORDINGLY, ERRED IN HOLDING THE APPELLANT AS A N ASSESSEE IN DEFAULT FOR ALLEGED NON DEDUCTION OF TAX AT SOURCE UNDER SECTION 201 RWS 194H OF THE ACT. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT : A) IN ABSENCE OF ANY PAYMENT OR CREDIT TO THE ACCOUNT O F THE DISTRIBUTOR OF THE DIFFERENCE BETWEEN THE MAXIMUM RETAIL PRICE (MRP) AND THE DISTRIBUTOR PRIC E, THE PROVISION OF SECTION 194H DOES NOT APPLY. B) IN ABSENCE OF THE DETERMINATION OF THE AMOUNT ON WHICH TAX IS DEDUCTIBLE, THE PROVISION OF SECTION 1 94H DOES NOT APPLY; C) THE FACT THAT THE APPELLANT IS RENDERING SERVICES A ND NOT SELLING GOODS WOULD NOT AUTOMATICALLY MEAN THAT THE RELATIONSHIP WITH THE DISTRIBUTOR IS ON AGENCY BASIS AND THAT APPELLANT SHOULD HAVE DEDUCTED TAX A T SOURCE UNDER SECTION 194H. 3. THE APPELLANT THEREFORE PRAYS THAT THE DISCOUNT O FFERED TO THE DISTRIBUTORS CANNOT BE REGARDED AS COMMISSION AS ENVISAGED UNDER SECTION 194H OF THE ACT AND ACCORDI NGLY THE ORDER PASSED UNDER SECTION 201 RWS 194H OF THE ACT OUGHT TOBE QUASHED. WITHOUT PREJUDICE TO GROUND I GROUND II: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN EXCEEDING HIS JURISDICTION BY SE TTING ASIDE THE ISSUE AS TO WHETHER TAX IS DEDUCTIBLE UND ER SECTION 194H ON THE ROAMING CHARGES PAID BY THE APPELLANT TO OTHER PAGE 3 OF 19 ITA NOS.241 TO 248/ BANG/2011 3 TELECOM COMPANIES TO THE ASSESSING OFFICER IN LIGHT TO THE DECISION OF THE APEX COURT IN BHARTI CELLULAR LIMIT ED. 2. THE APPELLANT PRAYS THAT IT BE HELD THAT THE CIT(A) HAD NO POWER TO SET ASIDE THE ISSUE AND ACCORDINGLY, THE CI T(A) BE DIRECTED TO HIMSELF ADJUDICATE THE ABOVE ISSUE. WITHOUT PREJUDICE TO GROUNDS I & II GROUND III: 1. THE CIT(A) ERRED IN HOLDING THAT IF ON EXAMINATION BY THE TECHNICAL EXPERT IT IS HELD THAT HUMAN INTERVENTION IS INVOLVED IN THE PROCESS OF ROAMING FACILITY, TDS UND ER SECTION 194J WOULD BE APPLICABLE. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT : A) WITHOUT PREJUDICE TO THE HUMAN INTERVENTION BEING THERE OR NOT IN THE PROCESS OF ROAMING, PAYMENT MADE FOR USE OF STANDARD FACILITY CANNOT AMOUNT TO FEES FOR TECHNICAL SERVICES AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. B) WITHOUT PREJUDICE, ROAMING CHARGES ARE NOTHING BUT REVENUE SHARING, ON WHICH NO TAX IS DEDUCTIBLE UNDE R SECTION 194J OF THE ACT. 3. THE APPELLANT PRAYS IT BE HELD THAT NO TAX IS DE DUCTIBLE UNDER SECTION 194J ON THE ROAMING CHARGES PAID TO O THER TELECOM OPERATORS. WITHOUT PREJUDICE TO GROUNDS I TO III GROUND IV: 1. THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING GROUND NO.4 RAISED BEFORE HIM, WHEREIN IT WAS CONTENDED BY THE A PPELLANT THAT IF THE RECIPIENT HAS PAID TAXES ON INCOME WHIC H IS ALLEGED TO BE THE SUBJECT MATTER OF TDS UNDER SECTI ON 194H/194J, THE SAME CANNOT ONCE AGAIN BE RECOVERED FROM THE APPELLANT. 2. THE APPELLANT PRAYS THAT IT BE HELD THAT IF THE RECI PIENT HAS PAID TAXES ON THE INCOME WHICH IS ALLEGED TO BE SUB JECT PAGE 4 OF 19 ITA NOS.241 TO 248/ BANG/2011 4 MATTER OF TDS UNDER SECTION 194H/194J, THE SAME CAN NOT BE ONCE AGAIN BE RECOVERED FROM THE APPELLANT AND ACCORDINGLY, THE ASSESSING OFFICER BE DIRECTED TO RE COMPUTE THE DEMAND UNDER SECTION 201 AFTER CONSIDERING THE TAXES PAID BY THE RECIPIENTS. 2.1 THE GROUNDS RAISED IN ITA NO.242, 244, 246 AND 248/BANG/2011 ARE IDENTICAL AND THEY READ AS FOLLOWS :- GROUND I: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER IN HOLDING THE APPELLANT AS AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT AND CONSEQUENTLY LEVYING INTEREST UNDER SECTION 201(1A) OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ASSESSING OFFICER BE DI RECTED TO RECOMPUTE THE INTEREST UNDER SECTION 201(1A) AFT ER CONSIDERING THE TAXES PAID BY THE DISTRIBUTORS/FINAL TAX LIABILITIES, IF ANY OF THE RECIPIENT DISTRIBUTORS. ITA NOS.241,243,245 & 247/BANG/2011 3. THE APPELLANT IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF TELECOM OPERATIONS, IN THE STATE OF KARNATAKA UNDER THE NAME AND STYLE VODAFONE. A SURVEY WAS CONDUCTED IN THE APPELLANTS PREMISES ON 27.2.2008, TO VERIFY THE COMPLIANCE UNDER THE TDS P ROVISIONS. ACCORDING TO THE REVENUE, THE APPELLANT DID NOT COMPLY WITH CERTA IN TDS PROVISIONS, NAMELY, (I) THE APPELLANT COMPANY DID NOT DEDUCT TAX AT SOU RCE IN RESPECT OF COMMISSION PAID TO ITS DISTRIBUTORS OF P RE-PAID CONNECTIONS AS PRESCRIBED UNDER SECTION 194H OF THE I T ACT; PAGE 5 OF 19 ITA NOS.241 TO 248/ BANG/2011 5 (II) THE APPELLANT COMPANY DID NOT DEDUCT TAX AT SOU RCE IN RESPECT OF ROAMING CHARGES PAID TO OTHER TELECOM OPERATORS. ACCORDING TO THE ASSESSING OFFICER, THE SE WERE PAYMENTS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND TAX IS DEDUCTIBLE AT SOURCE UNDER SECT ION 194J OF THE ACT. THE ASSESSING OFFICER PASSED ORDER UNDER SECTION 201(1) AND 201(1A) VIDE ORDER DATED 30/9/2008 FOR THE ASSESSME NT YEARS 2005-06 TO 2008-09 RAISING A DEMAND OF RS.65,70,303/-, RS.77,1 3,900/-, RS. 1,09,71,735/- AND RS.3,04,84,131/- RESPECTIVELY. 4. GROUND 1 : NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 194H OF THE ACT IN RESPECT OF PAYMENTS MADE TO THE DISTRIBUTORS FACTS IN RELATION TO ABOVE GROUND ARE AS FOLLOWS :- THE APPELLANT COMPANY WAS PROVIDING POST-PAID AND PRE-PAID SERVICES. IN RESPECT OF POST-PAID SERVICES, THE CO MPANY WAS TREATING THE DISTRIBUTORS AS AGENTS AND WAS DEDUCTING TAX AT SOU RCE ON THE COMMISSION PAID TO THEM UNDER SECTION 194H OF THE I T ACT. IN RESPECT OF PRE-PAID SERVICES, THE APPELLANT COMPANY DID NOT DEDUCT TAX A T SOURCES ON THE PAYMENTS MADE TO THE DISTRIBUTORS. THE CLAIM OF THE COMPANY WAS THAT THESE WERE NOT COMMISSIONS BUT DISCOUNTS AND THE TR ANSACTIONS BETWEEN THE APPELLANT COMPANY AND THE DISTRIBUTORS WERE THAT OF THE PRINCIPAL TO PRINCIPAL. THE ASSESSING OFFICER HOWEVER REJECTED THE CONTENTION OF THE APPELLANT COMPANY AND HELD THAT THE APPELLANT COMPA NY OUGHT TO HAVE DEDUCTED TAX IN RESPECT OF PAYMENTS MADE TO THE DIST RIBUTORS AS THE SAME COME UNDER THE PURVIEW OF COMMISSION UNDER SECTION 194H OF THE ACT. THE PAGE 6 OF 19 ITA NOS.241 TO 248/ BANG/2011 6 ASSESSING OFFICER TOOK SUPPORT OF THE TRIBUNAL ORDE R IN THE CASE OF ACIT V BHARTI CELLULAR LTD. 294 ITR (AT) 283. 4.1 ON FURTHER APPEAL, THE VIEW OF THE ASSESSING O FFICER IN TREADING THE APPELLANT AS ASSESSEE IN DEFAULT UND ER SECTION 201(1) AND LEVYING INTEREST UNDER SECTION 201(1A) OF THE ACT WA S UPHELD BY OBSERVING THUS:- I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE APPELLANT COMPANY AND THAT OF THE ASSESSING OFFICER. THE SAME ISSUE WAS DISCUSSED IN DETAIL BY HONBLE IT AT COCHIN BENCH IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. V ACIT 317 ITR 234 WHEREIN IT WAS HELD THAT THE SUP PLY AND DELIVERY OF SIM CARDS AND OTHER RECHARGE COUPONS WAS NOT SALE AND PURCHASE OF GOODS, BUT ONLY PROVISION O F SERVICES. THE ESSENCE OF CONTRACT BETWEEN THE ASSE SSEE COMPANY AND THE DISTRIBUTOR WAS THAT OF SERVICE. SE RVICE CAN ONLY BE RENDERED AND CANNOT BE SOLD. THE DISTRIBUTORS ACTED AS AGENTS OF THE ASSESSEE AND TH E MARGIN ENJOYED BY THE DISTRIBUTORS WAS THE COMMISSION/BROKERAGE ALLOWED BY THE ASSESSEE. THE DISTRIBUTORS PROVIDED ESSENTIAL SERVICES TO THE ASS ESSEE IN RUNNING A HUGE OPERATIONAL SYSTEM. THE DISTRIBUT ORS WERE LINKING AGENTS IN THE CHAIN OF DELIVERY OF SER VICES TO THE CONSUMERS. THEREFORE THE RELATIONSHIP WAS NOT OF A PRINCIPAL TO PRINCIPAL BASIS. AS I AM IN COMPLETE AGREEMENT WITH THE OBSERVATIONS OF THE HONBLE ITAT COCHIN BENCH I AM OF THE OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY APPLIED THE PROVISIONS OF SECTIO N 194H IN THESE CASES. IN VIEW OF THIS THE ORDER OF THE ASSESSING OFFICER UNDER SECTION 201(1) AND 201(1A) ARE CONFIRMED. 4.2 AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE U S. PAGE 7 OF 19 ITA NOS.241 TO 248/ BANG/2011 7 4.3 THE LEARNED AR FAIRLY SUBMITTED THAT THE ISSUE IS SQUARELY COVERED AGAINST THE APPELLANT BY THE FOLLOWING JUDGE MENTS OF HIGH COURTS :- VODAFONE ESSAR CELLULAR LTD. V ACIT 332 ITR 255 (KE RALA) CIT V IDEA CELLULAR LTD. 325 ITR 148 (DEL.) BHARTI CELLULAR LTD. V ACIT 244 CTR 185 (KOLKATA) HE SUBMITTED A BRIEF NOTE ON THE SUBMISSIONS WITH R EGARD TO THE ISSUE AND REQUESTED THE SAME MAY BE INCORPORATED IN THE ORDER SO THAT THE MATTER CAN BE TAKEN IN FURTHER APPEAL. THE NOTES PREPARED BY T HE AR READS AS FOLLOWS:- TO FOIST THE LIABILITY ON A COMPANY (THE APPELLANT IN THE PRESENT CASE) TO DEDUCT TAX AT SOURCE UNDER SECTION 194H, THE FOLLOWING MANDATORY PRECONDITIONS MUST BE FULFILLED BEFORE THE COMPANY CAN BE HELD TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE I T AC T, 1961 (ACT). A. NO PAYMENT OR CREDIT OF COMMISSION IS MADE THE FOLLOWING PRE-CONDITIONS NEED TO BE SATISFIED IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 194H OF THE ACT TO THE DISCOUNT ALLOWED BY THE APPELLANT TO ITS PREPAID DISTRIBUTORS: THE APPELLANT SHOULD BE RESPONSIBLE FOR PAYING AN INCOME TO THE DISTRIBUTOR BY WAY OF COMMISSION; THERE SHOULD BE A PAYMENT OR CREDIT OF SUCH INCOME TO THE DISTRIBUTOR; AND TAX IS TO BE DEDUCTED AT THE TIME OF PAYMENT OR CREDIT THEREOF. IT IS RESPECTFULLY SUBMITTED THAT NONE OF THE CONDITIONS MENTIONED ABOVE IS SATISFIED IN RESPECT OF DISCOUNT EXTENDED TO PREPAID DISTRIBUTORS. PAGE 8 OF 19 ITA NOS.241 TO 248/ BANG/2011 8 THE APPELLANT IS NOT LIABLE IN LAW TO MAKE ANY PAYMENT TO THE DISTRIBUTOR NOR DOES THE APPELLANT CREDITS THE ACCOUNT OF THE DISTRIBUTOR FOR SUCH DISCOUNTS FOR DISTRIBUTION OF TALKTIME/SIM CARDS. THE CLAUSE 7.1 OF THE AGREEMENT (REFER PAGE 5 OF THE PAPER BOOK VOL.1) MAKES IT CLEAR THAT THE APPELLANT PROVIDES TALKTIME/SIM CARDS TO THE DISTRIBUTORS AGAINST THE ADVANCE PAYMENT RECEIVED FOR THE SAME FROM THE DISTRIBUTORS. IN VIEW OF THE ABOVE, THE CONDITION FOR ACTIVATING SECTION 194H OF THE ACT IS NOT FULFILLED. RESPONSIBILITY FOR PAYMENT MUST BE FOUND IN THE CONTRACT WITH THE DISTRIBUTOR AND NOT IN ANY ACCOUNTING ENTRY THAT THE APPELLANT MAY PASS. ACTUALLY, EVEN THE ENTRY PASSED BY THE APPELLANT DOES NOT SHOW THAT ANY PAYMENT HAS BEEN MADE TO THE DISTRIBUTOR OR THAT THE APPELLANT IS RESPONSIBLE FOR MAKING ANY PAYMENT OR CREDIT TO THE ACCOUNT OF THE DISTRIBUTORS. EVEN ASSUMING THE RELATIONSHIP BETWEEN THE APPELLANT AND THE DISTRIBUTOR IS OF PRINCIPAL AND AGENT, NEVERTHELESS AS NOTHING IS EVER PAYABLE BY THE APPELLANT TO THE DISTRIBUTOR IN RESPECT OF THE TALKTIME/SIM CARDS, THE MECHANISM FOR DEDUCTING TAX UNDER SECTION 194H FAILS AND THEREFORE THE APPELLANT CANNOT BE TREATED AS ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT. B. DISTRIBUTOR DOES NOT ACT AS AN AGENT OF THE APPELLANT THE APPELLANT TRANSFER PREPAID TALK TIME TO THE DISTRIBUTORS FOR A CONSIDERATION AND THE DISTRIBUTORS IN TURN TRANSFER THE SAME TO THE RETAILERS. THE RETAILERS WOULD THEREAFTER TRANSFER THE SAME TO THE ULTIMATE CONSUMER. PAGE 9 OF 19 ITA NOS.241 TO 248/ BANG/2011 9 AT EACH LEVEL OF THE DISTRIBUTION, THE PARTY DISTRIBUTING THE TALK TIME RETAINS A MARGIN FOR ITS EFFORTS AND THE RISKS ASSUMED. THE TRANSFER OF TALK TIME BY THE APPELLANT TO THE DISTRIBUTOR IS AT A DISCOUNT, A PART OF WHICH IS, IN TURN, PASSED ON BY THE DISTRIBUTOR TO THE RETAILER FOR ULTIMATE TRANSFER TO THE SUBSCRIBER. A SIMILAR MECHANISM IS FOLLOWED FOR DISTRIBUTION OF PREPAID CONNECTIONS (SIM CARDS) USING THE SAME DISTRIBUTION NETWORK. UNDER A PREPAID MODEL, THE SUBSCRIBER IS REQUIRED TO PAY FOR THE TALKTIME IN ADVANCE, WHICH IS AVAILABLE IN THE FORM OF RECHARGE VOUCHERS/E-TOP UP, THROUGH INTERNET OR ANY OTHER MODES, EITHER PHYSICAL OR ELECTRONIC. THE TALK TIME IS MADE AVAILABLE IN DIFFERENT DENOMINATIONS AND UNDER DIFFERENT SCHEMES, WHICH CAN BE AVAILED BY A PREPAID SUBSCRIBER AS PER HIS REQUIREMENTS. FOR MAKING AVAILABLE THE PREPAID TALKTIME TO ITS SUBSCRIBERS, APPELLANT HAS ENTERED INTO AGREEMENT WITH ITS PREPAID DISTRIBUTORS WHO ACQUIRE THE PREPAID TALKTIME FOR A PRICE, FROM THE APPELLANT FOR ONWARD DISTRIBUTION TO THE SUBSCRIBERS. FURTHER, THE SIM CARD, WHICH REPRESENTS THE NETWORK CONNECTION, IS ALSO GIVEN TO THE PREPAID DISTRIBUTOR FOR ONWARD DISTRIBUTION ON THE SAME BASIS. KEY TERMS OF THE AGREEMENT - CLAUSE 17.2 SPECIFICALLY PROVIDES THAT THE RELATIONSHIP CREATED BY THE AGREEMENT IS THAT OF A BUYER AND SELLER AND THAT THE AGREEMENT IS ON A PRINCIPAL TO PRINCIPAL BASIS AND NEITHER PARTY IS, NOR SHALL BE DEEMED TO BE, AN AGENT/PARTNER OF THE OTHER. NOTHING IN THE AGREEMENT SHALL BE PAGE 10 OF 19 ITA NOS.241 TO 248 /BANG/2011 10 CONSTRUED TO RENDER THE DISTRIBUTOR A PARTNER OR AGENT OF THE APPELLANT. - THE PREPAID TALKTIME IS PROVIDED TO THE DISTRIBUTOR AT A PRICE WHICH IS AT A DISCOUNT TO THE MRP. FURTHER , THE DISTRIBUTOR IS ENTITLED TO TRANSFER THE RECHARG E VOUCHERS/E-TOP UP ETC. (REPRESENTING THE ENTITLEMEN T TO TALKTIME) TO A RETAILER/SUBSCRIBER AT ANY PRICE U PTO THE MRP PRESCRIBED BY THE APPELLANT (CLAUSE 7 OF THE AGREEMENT). - THE PREPAID TALKTIME IS DISTRIBUTED TO THE DISTRIBUTORS ON THE BASIS OF PURCHASE ORDER ISSUED BY THE DISTRIBUTORS (CLAUSE (A) OF ANNEXURE I TO THE AGREEMENT). - THE APPELLANT IS NOT LIABLE FOR ANY LOSS, PILFERAGE OR DAMAGE POST DELIVERY OF THE RECHARGE VOUCHERS/SERVICE TICKETS POST DELIVERY OF THE SAME T O THE DISTRIBUTORS. FURTHER, THE APPELLANT IS NOT LI ABLE TO COMPENSATE THE DISTRIBUTORS FOR ANY UNSOLD STOCK (CLAUSE (IV) OF ANNEXURE II TO THE AGREEMENT). - DISTRIBUTORS ARE NOT ENTITLED TO ANY COMPENSATION OR INDEMNITY (WHETHER FOR LOSS OF DISTRIBUTION RIGHTS, GOODWILL OR OTHERWISE) AS A RESULT OF THE TERMINATI ON OF THIS AGREEMENT (CLAUSE 10.2 OF THE AGREEMENT). - DISTRIBUTORS DOES NOT HAVE AN AUTHORITY TO ASSUME OR CREATE ANY OBLIGATIONS ON THE APPELLANTS BEHALF OR INCUR ANY LIABILITY ON BEHALF OF THE APPELLANT OR ACC EPT ANY CONTRACT BINDING UPON THE APPELLANT (CLAUSE 17.1 OF THE AGREEMENT). - THE DISTRIBUTOR ENTERS INTO AN INDEPENDENT ARRANGEMENT WITH RETAILERS/SUBSCRIBERS FOR TRANSFER OF PREPAID TALKTIME. THE RETAILER DISTRIBUTES THE PREPAID TALKTIME TO THE SUBSCRIBER AT ANY PRICE UPT O THE MRP PRESCRIBED BY THE VODAFONE GROUP (CLAUSE (V) OF ANNEXURE-II TO THE AGREEMENT). PAGE 11 OF 19 ITA NOS.241 TO 248 /BANG/2011 11 4.4 THE LEARNED DR STATED THAT THE ISSUE IN QUESTI ON IS SQUARELY COVERED BY THE JUDGEMENTS OF THE HONBLE KERALA HIGH COURT, HONBLE DELHI HIGH COURT AND HONBLE KOLKATA HIGH COURT (CITED SU PRA). 4.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE HONBLE KERALA HIGH COURT HELD THAT SERVICES RENDERED BY THE DISTRIBUTORS IN THE POST PAID SERVICES AND THE PRE PAID SCHEME ARE LIABLE FOR TAX DEDUCTION AT SOURCE AND SINCE THE ASSESSEE COMMITTED DEFAULT IN DEDUCTING TAX AT SOURCE ON THE COMMISSION PAID UNDE R THE PRE-PAID SCHEME TO THE DISTRIBUTORS, THE ASSESSING OFFICER WAS JUST IFIED IN TREATING THE APPELLANT AS AN ASSESSE IN DEFAULT AND DEMANDING TAX IN TERMS OF SECTION 201(1) OF THE ACT. THE RELEVANT FINDING OF THE HON BLE KERALA HIGH COURT IN THE CASE CITED SUPRA READS AS FOLLOWS:- THE SIM CARD WAS WHAT LINKED THE MOBILE SUBSCRIBER TO THE ASSESSEES NETWORK. THEREFORE, SUPPLY OF SIM C ARD WAS ONLY FOR THE PURPOSE OF RENDERING CONTINUED SERV ICES BY THE ASSESSEE TO THE SUBSCRIBER OF THE MOBILE PHON E. THE POSITION WAS THE SAME SO FAR AS RECHARGE COUPON S OR E-TOPUPS WERE CONCERNED WHICH WAS ONLY AIR TIME CHAR GES COLLECTED FROM THE SUBSCRIBERS IN ADVANCE. THERE W AS NO SALE OF ANY GOODS INVOLVED AS CLAIMED BY THE ASSESSEE AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS WERE O NLY FOR RENDERING SERVICES TO ULTIMATE SUBSCRIBERS AND THE DISTRIBUTOR WAS ONLY THE MIDDLEMAN ARRANGING CUSTOME RS OR SUBSCRIBERS FOR THE ASSESSEE. THE TERMS OF THE DISTRIBUTION AGREEMENT CLEARLY INDICATED THAT IT WAS FOR THE DISTRIBUTOR TO ENROLL THE SUBSCRIBERS WITH PROP ER IDENTIFICATION AND DOCUMENTATION WHICH RESPONSIBILI TY WAS ENTRUSTED BY THE ASSESSEE TO THE DISTRIBUTORS UNDER THE AGREEMENT. THE DISTRIBUTOR DIRECTLY OR INDIRECTLY GO T PAGE 12 OF 19 ITA NOS.241 TO 248 /BANG/2011 12 CUSTOMERS FOR THE ASSESSEE AND SIM CARDS WERE ONLY USED FOR GIVING CONNECTION TO THE CUSTOMERS PROCURE D BY THE DISTRIBUTOR FOR THE ASSESSEE. THE ASSESSEE WAS ACCOUNTABLE TO THE SUBSCRIBERS FOR FAILURE TO RENDE R PROMPT SERVICES PURSUANT TO CONNECTIONS GIVEN BY THE DISTRIBUTOR FOR THE ASSESSEE. THEREFORE, THE DISTR IBUTOR ACTED ON BEHALF OF THE ASSESSEE FOR PROCURING AND RETAINING CUSTOMERS AND, THEREFORE, THE DISCOUNT GI VEN WAS COMMISSION WITHIN THE MEANING OF EXPLANATION (I ) ON WHICH TAX WAS DEDUCTIBLE UNDER SECTION 194H. 4.6 THE HONBLE DELHI HIGH COURT IN THE CASE OF CI T V IDEA CELLULAR LTD. (325 ITR 148) HELD THAT DISCOUNT ALLOWED BY THE ASSESSEE TO THE DISTRIBUTORS FOR SELLING PREPAID SIM CARDS CONSTITU TED COMMISSION AND THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS UNDER SECTION 194H OF THE ACT. THE RELEVANT FINDING OF THE HONB LE DELHI HIGH COURT READS AS FOLLOWS:- THE LEGAL RELATIONSHIP WAS ESTABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMER/SUBSCRIBER, WHO WAS SOLD THE SIM CARDS BY THE AGENTS FURTHER APPOINTED B Y THE PMAS WITH THE CONSENT OF THE ASSESSEE. IT WAS CREATED BY : (A) ACTIVATION OF THE SIM CARD BY THE ASSESSEE IN THE NAME OF THE CONSUMER/SUBSCRIBER; (B ) SERVICE PROVIDED BY THE ASSESSEE TO THE SUBSCRIBER. FURTHER, DEALINGS BETWEEN THE SUBSCRIBERS AND THE ASSESSEE IN RELATION TO THE SIM CARD INCLUDING ANY COMPLAINT, ETC., FOR IMPROPER SERVICE/DEFECT IN SER VICE; AND (C) ENTERING INTO THE ULTIMATE AGREEMENT BETWEE N THE SUBSCRIBER AND THE ASSESSEE. THE NATURE OF SERVICE PROVIDED BY THE ASSESSEE TO THE ULTIMATE CONSUMERS/SUBSCRIBERS, WHETHER IT WAS PRE-PAID OR P OST- PAID SIM CARD REMAINED THE SAME. THE SIM CARDS WER E PREPAID WHICH WERE SOLD BY THE ASSESSEE TO THE CONSUMERS THROUGH THE MEDIUM OF PMAS. IN THE CASE OF PAGE 13 OF 19 ITA NOS.241 TO 248 /BANG/2011 13 POSTPAID SIM CARDS, THE TRANSACTION IS ENTERED INTO DIRECTLY BETWEEN THE ASSESSEE AND THE SUBSCRIBER AND THE SUBSCRIBER WAS SENT A BILL PERIODICALLY DEPENDI NG UPON THE USER OF THE SIM CARD FOR THE PERIOD IN QUESTION . IN BOTH THE CASES, THE LEGAL RELATIONSHIP WAS CREATED BETWEEN THE SUBSCRIBER AND THE ASSESSEE THAT TOO BY ENTERING INTO SPECIFIC AGREEMENT BETWEEN THESE TWO PARTIES. EVEN IF ADVANCE PAYMENT WAS MADE BY THE PMA S ON RECEIPT OF THE SIM CARDS, QUA THOSE SIM CARDS IT DID NOT AMOUNT TO SALE OF GOODS. THE PURPOSE WAS TO ENSURE THAT THE PAYMENT WAS RECEIVED IN RESPECT OF THOSE SI M CARDS, WHICH WERE ULTIMATELY SOLD TO THE SUBSCRIBER INASMUCH AS UNSOLD SIM CARDS ARE TO BE RETURNED TO THE ASSESSEE AND THE ASSESSEE WAS REQUIRED TO MAKE PAYME NT AGAINST THEM. THIS WAS AN ANTITHESIS OF SALE. T HERE COULD NOT BE ANY SUCH OBLIGATION TO RECEIVE BACK THE UNSOLD STOCKS. FURTHER, CLAUSE 25(F) LAID DOWN THA T ON TERMINATION OF THE AGREEMENT, THE PMA OR ITS AUTHOR IZED RETAILER APPOINTED BY IT, WAS NOT ENTITLED TO ANY COMPENSATION FOR COST OR EXPENSES INCURRED BY IT IN EITHER SETTING UP OR PROMOTION OF ITS BUSINESS ETC. NO SUCH CLAUSE WAS REQUIRED IN CASE OF SALE. THE PA YMENT BY THE ASSESSEE CONSTITUTED COMMISSION AND TAX HAD T O BE DEDUCTED AT SOURCE ON SUCH PAYMENT. 4.7 IN VIEW OF THE ABOVE JUDGEMENTS OF THE HONBLE KERALA HIGH COURT, HONBLE DELHI HIGH COURT AND THE HONBLE KOL KATA HIGH COURT, WE HOLD THAT THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THE PAYMENTS MADE TO THE DISTRIBUTORS IN RESPECT OF PRE-PAID CONNECTION IS A LSO COMING WITH THE TERM COMMISSION AS PER EXPLANATION 1 TO SECTION 194H O F THE ACT. HENCE, THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THE APPE LLANT AS AS ASSESSEE IN DEFAULT AND DEMANDING TAX UNDER SECTION 201(1) OF THE ACT. IN LIGHT OF THE ABOVE REASONING, GROUND NO.1 IS DISMISSED. PAGE 14 OF 19 ITA NOS.241 TO 248 /BANG/2011 14 5. GROUND NO.2 : NON DEDUCTION OF TAX AT SOURCE UND ER SECTION 194J OF THE ACT ON ROAMING CHARGES PAID TO OTHER TE LECOM OPERATORS. 5.1 THE APPELLANT HAD ENTERED INTO AGREEMENT WITH OTHER SERVICE PROVIDERS WHEREBY, IF THE APPELLANTS CUSTOMER IS TR AVELLING OR ROAMING OUTSIDE THE HOME NETWORK, HE WOULD STILL BE ABLE TO USE HIS MOBILE BY SELECTING A PARTNERED NETWORK. THUS, DEPENDING UPO N THE ACTUAL USAGE BY THE APPELLANTS CUSTOMER IN OUTSIDE NETWORK, THE OTHER TELECOM SERVICE PROVIDERS WOULD RAISE AN INVOICE FOR THE SAME. THESE PAYMENTS MADE TO OTHER SERVICE PROVIDERS WERE KNOWN AS ROAMING CHARGES THE ASSES SING OFFICER PASSED ORDERS UNDER SECTION 201(1) AND 201(1A) OF THE ACT AS HE FELT THAT THE ROAMING CHARGES ARE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOWS:- I AM OF THE OPINION THAT THE NATIONAL ROAMING SERV ICES WOULD NOT HAVE BEEN PROVIDED IF THE INFRASTRUCTURE WOULD NOT HAD EXISTED. SINCE THE INFRASTRUCTURE IS IN TH E NATURE OF EQUIPMENT AND IS A PART OF FIXED ASSET IN BALANCE SHEET, THE USE OF THIS EQUIPMENT IS CONSTRA INED AS SUMS DERIVED FOR USAGE OF EQUIPMENTS. HENCE, TH ESE PAYMENTS ATTRACT THE PROVISIONS OF SECTION 194I OF T HE ACT, 1961. THIS PROVISION IS INTRODUCED IN THE ACT FROM 01.06.2007. PRIOR TO THIS PERIOD THE ISSUE IS COVE RED UNDER SECTION 194J OF THE ACT, 1961. 5.2 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5.3 IT WAS CONTENDED THAT THE ASSESSING OFFICER ER RED IN TREATING THE PAYMENT MADE BY THE APPELLANT TO OTHER TELECOM O PERATORS FOR ROAMING PAGE 15 OF 19 ITA NOS.241 TO 248 /BANG/2011 15 CHARGES AS FEES FOR TECHNICAL SERVICES AND THEREB Y TREATING THE APPELLANT AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) RWS 1 94J OF THE ACT. IT WAS SUBMITTED THAT MERE USE OF STANDARD FACILITY/INFRA S TRUCTURE WOULD NOT AMOUNT TO RENDERING OF ANY TECHNICAL SERVICES AS E NVISAGED UNDER SECTION 194J OF THE ACT. IT WAS ARGUED THAT THE SERVICES R ENDERED BY OTHER TELECOM OPERATORS DO NOT FALL WITHIN THE DEFINITION OF PROFESSIONAL OR TECHNICAL SERVICES AS ENVISAGED UNDER SECTION 194 J OF THE ACT. 5.4 THE FIRST APPELLATE AUTHORITY REMITTED THE ISSU E BACK TO THE ASSESSING OFFICER FOR DENOVO CONSIDERATION IN THE L IGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V BHAR TI AIRTEL LTD. DELIVERED ON 12.8.2010. THE RELEVANT OBSERVATION OF THE CIT( A) READS AS FOLLOWS:- 11. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF TH E ASSESSING OFFICER AND THE APPELLANT. IN THE CASE O F CIT V BHARTI AIRTEL LTD. (IN WHICH THE APPELLANT COMPAN Y WAS ONE OF THE PARTIES) IN ITA NO.1120/2007 DATED 31.10.2008 THE HONBLE DELHI HIGH COURT HELD THAT INTERCONNECTIVITY CHARGES ARE NOT IN THE NATURE OF F EE FOR TECHNICAL SERVICES AND THE EXPRESSION TECHNICAL SER VICE WOULD HAVE REFERENCE TO ONLY TECHNICAL SERVICE RENDE RED BY A HUMAN, IT WOULD NOT INCLUDE ANY SERVICE PROVIDED BY MACHINES OR ROBOTS. ON APPEAL BY THE REVENUE, THE HONBLE SUPREME COURT OF INDIA DELIVERED JUDGEMENT ON 12.8.2010. THE SUMMARY OF THE JUDGEMENT IS AS UNDER :- THERE IS NO EXPERT EVIDENCE FROM THE SIDE OF THE DEPARTMENT TO SHOW HOW HUMAN INTERVENTION TAKES PLACE, PARTICULARLY, DURING THE PROCESS WHEN CALLS TAKE PLACE. DURING THE TRAFFIC OF SUCH CALLS WHETHER THERE IS ANY MANUAL INTERVENTION, IS ONE OF THE POINTS WHICH REQUIRES EXPERT EVIDENCE. SIMILARLY, PAGE 16 OF 19 ITA NOS.241 TO 248 /BANG/2011 16 ON WHAT BASIS IS THE CAPACITY OF SERVICE PROVIDER FIXED WHEN INTERCONNECT AGREEMENTS ARE ARRIVED AT? ON WHAT BASIS SUCH CAPACITY IS ALLOTTED AND WHAT HAPPENS IF A SITUATION ARISES WHERE A SERVICE PROVIDERS ALLOTTED CAPACITY GETS EXHAUSTED AND IT WANTS, ON AN URGENT BASIS ADDITIONAL CAPACITY? WHETHER AT THAT STAGE ANY HUMAN INTERVENTION IS INVOLVED IS REQUIRED TO BE EXAMINED, WHICH AGAIN NEEDS TECHNICAL DATA. WITH THESE OBSERVATIONS, THE HONBLE SUPREME COURT REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GET THESE ISSUES EXAMIN ED BY A TECHNICAL EXPERT. THE HONBLE SUPREME COURT ALSO HELD THAT AS THE MATTER HAS NOT REACHED FINALITY, THE LEV Y OF INTEREST UNDER SECTION 201(1A) IS NOT WARRANTED AT THIS STAGE. 12. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE SUPREME COURT, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE MATTER IN THE LIGHT OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT AS MENTIO NED ABOVE AND RE-COMPUTE THE TAX UNDER SECTION 194J OF THE I T ACT, 1961. IN VIEW OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT, THE INTEREST CHARGED BY THE ASSESSING OFFICER UNDER SECTION 201(1A) OF THE I T ACT, 1961 AS MENTIONED BELOW IS HEREBY DELETED. ASSESSMENT YEAR 2005-06 RS. 15,43,827/- ASSESSMENT YEAR 2006-07 RS. 16,32,360/- ASSESSMENT YEAR 2007-08 RS. 16,74,702/- ASSESSMENT YEAR 2008-09 RS. 23,52,177/-. 5.5 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . PAGE 17 OF 19 ITA NOS.241 TO 248 /BANG/2011 17 5.6 THE LEARNED COUNSEL FOR THE APPELLANT SUBMITTE D THAT THE CIT(A) HAS ERRED IN REMITTING THE ISSUE TO THE ASSE SSING OFFICER. IT WAS SUBMITTED THAT THE POWER OF REMISSION BY THE CIT(A) TO THE ASSESSING OFFICER HAS BEEN OMITTED BY THE FINANCE ACT W.E.F. 1 /6/2001. 5.7 THE LEARNED DR PRESENT WAS DULY HEARD. 5.8 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. AS RIGHTLY POINTED OUT BY THE LEARNED AR, THE CIT(A) HAS EXCEEDED HIS JURISDICTION IN REMITTING THE ISSUE TO THE ASSESSING OFFICER. THE POWER OF REMAND BY THE CIT(A) TO THE ASSESSING O FFICER HAS SINCE BEEN OMITTED BY THE FINANCE ACT, 2001 W.E.F. 1/6/2001. T HEREFORE, THE CIT(A) IS NOT JUSTIFIED IN REMANDING THE MATTER TO THE ASSESS ING OFFICER. IF NEED BE, THE CIT(A) SHALL CALL FOR REMAND REPORT FROM THE AS SESSING OFFICER AND SHALL DECIDE THE ISSUE ON MERIT, AFTER AFFORDING THE ASSE SSEE A REASONABLE OPPORTUNITY OF BEING HEARD. IT IS ORDERED ACCORDING LY. HENCE GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 3 & 4 6. GROUND NOS. 3 AND 4 IN ITA NOS.241, 243, 245 AN D 247 ARE SEEN NOT ADJUDICATED BY THE FIRST APPELLATE AUTHORITY, TH OUGH GROUND NO.4 WAS SPECIFICALLY RAISED BEFORE HIM. HENCE, THESE ISSUES ARE ALSO REMITTED TO THE FILES OF CIT(A) FOR CONSIDERATION. IT IS ORDERED A CCORDINGLY. PAGE 18 OF 19 ITA NOS.241 TO 248 /BANG/2011 18 GROUND NO.5 7. GROUND NO. 5 IN ITA NOS.241, 243, 245 AND 247 I S GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR; HENCE, THE SAME IS DISMISSED. ITA NOS.242, 244, 246 AND 248/BANG/2011 8. GROUND NO.1 IN ITA NOS.242, 244, 246 AND 248 AR E ONLY CONSEQUENTIAL TO THE DEMANDS RAISED UNDER SECTION 2 01(1) OF THE ACT; HENCE, THIS GROUND IS DISMISSED. 9. GROUND NO. 2 IN ITA NOS.242, 244, 246 AND 248 I S GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR; HENCE, THIS GROUND IS DISMISSED. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN RESPECT OF ITA NOS. 241, 243, 245 AND 247 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES AS INDICATED ABOVE WHEREAS, APPEALS FILED BY THE ASS ESSEE IN ITA NOS.242, 244, 246 AND 248 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF MARCH, 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER PAGE 19 OF 19 ITA NOS.241 TO 248 /BANG/2011 19 COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.