GM CMTS Cellular DN, Ahmedabad V. The Dy. CIT(TDS), Ahmedabad

ITA 2541/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0254 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 16-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: SHALEEN PATNI
• Keywords: TDS

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ I.T.A. NO. 2541/AHD/2017 ( / ASSESSMENT YEAR : 2009-10) GM CMTS CELLULAR, DN, BSNL 3 RD FLOOR, T. E. BUILDING, HC MATHUR LANE, BIMANAGAR, AHMEDABAD- 380015 / VS. DCIT(TDS) AHMEDABAD. ./ ./ PAN/GIR NO. : AAB CB5 576 G ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SHALEEN PATNI, A.R. / RESPONDENT BY : SHRI S. K. DEV, SR. DR / DATE OF HEARING 25/06/2019 !'# / DATE OF PRONOUNCEMENT 28/06/2019 $%/ O R D E R PER SUDHANSHU SRIVASTAVA - JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER DATED 11.09.2017 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 8, AHMEDABAD (HEREINAFTER CALLED CIT(A )) FOR ASSESSMENT YEAR 2009-10. ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 2 - 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY BHARAT SANCHAR NIGAM LIMITED (BSNL) IS IN THE BUSIN ESS OF TELECOM OPERATIVES AND PROVIDING TELECOM SERVICES. THE ASS ESSEE COMPANY PROVIDES ITS SERVICES THROUGH THE DISTRIBUTORS BY S ELLING THEM STARTER PACKS AND RECHARGEABLE COUPONS COMMONLY KNOWN AS SU BSCRIBER IDENTIFICATION MOBILE CARDS (SIM CARD AND PREPAID C ARD). THESE SIM CARDS AND RECHARGEABLE COUPONS WERE PURCHASED B Y DISTRIBUTORS/FRANCHISEES APPOINTED BY THE ASSESSEE AT A RATE BELOW THE MARKET PRICE AND THEY WERE SOLD TO THE RETAILER S WHO ULTIMATELY SOLD THEM TO THE CUSTOMERS. THE ASSESSING OFFICER (AO), WHILE GOING THROUGH THE RECORDS, CAME TO THE CONCLUSION T HAT THE ASSESSEE HAD PAID COMMISSION ON STARTER PACKS AND RECHARGEAB LE COUPONS TO THE FRANCHISEES AND HAD DEDUCTED TAX AT SOURCE IN E ARLIER YEARS, BUT AFTER 2008 SUCH DEDUCTION OF TAX AT SOURCE WAS DISC ONTINUED BY THE ASSESSEE BY TREATING SUCH DIFFERENTIAL AMOUNT AS DI SCOUNT. THE AO WAS OF THE VIEW THAT THE FRANCHISEE AND THE ASSESSE E MAINTAINED PRINCIPAL - AGENT RELATIONSHIP AND, THEREFORE, ANY PAYMENTS MADE TO SUCH FRANCHISEES WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SEC. 194H OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLE D THE ACT;). THE AO PROCEEDED TO TREAT THE ASSESSEE AS A DEFAULT ER AND COMPUTED THE QUANTUM OF SUCH UN-DEDUCTED TAX UNDER SEC. 201( 1) OF THE ACT AND INTEREST CHARGEABLE THEREON UNDER SEC. 201(1A) OF THE ACT TO THE ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 3 - TUNE OF RS. 3,88,177/- AND RS. 3,72,650/- RESPECTIV ELY THEREBY CREATING A TOTAL DEMAND OF RS. 7,60,826/-. 2.1. AGGRIEVED, THE ASSESSEE APPROACH THE LD. CIT ( A) WHO UPHELD THE FINDINGS OF THE AO BY HOLDING THAT THE PROVISIO NS OF SEC. 194H OF THE ACT WERE CLEARLY APPLICABLE IN THE CASE OF T HE ASSESSEE. 2.2 NOW, THE ASSESSEE IS BEFORE THIS TRIBUNAL (ITAT ) AND HAS CHALLENGED THE ORDER OF THE LD. CIT (A) BY RAISING THE FOLLOWING GROUND OF APPEAL:- 1. THE LD. AO HAS ERRED IN LAW AND FACTS BY STATIN G THAT THE DISCOUNT GIVEN BY THE APPELLANT COMPANY TO IT DISTR IBUTORS IS IN NATURE OF COMMISSION LIABLE TO TDS U/S. 194H OF THE ACT. 2. THE LD. CIT(A)-8, AHMEDABAD, HAD ERRED IN LAW BY NOT FULLY CONSIDERING, AND NOT GIVING BENEFIT OF, THE SUBMISS IONS BY THE APPELLANTS AR AND, ALSO, PASSED ITS ORDER WITHOUT DISCUSSING THE VARIOUS CASE LAWS SUBMITTED BEFORE THE LD. CIT(A) I N ITS ORDER. MORE SPECIFICALLY, THE LD. CIT(A) FAILED TO CONSIDER, DI SCUSS AND REJECT THE FOLLOWING CASE LAWS WHILE RULING AGAINST THE ASSESS EE: HONBLE KARNATAKA HIGH COURTS COMMON JUDGMENT IN T HE CASE OF BHARTI AIRTEL LIMITED, TATA TELESERVICES LIMITED AND VODAFONE SOUTH LIMITED, REPORTED AS BHARTI AIRTEL L IMITED VS. DCIT [(2015) 372 ITR 33 (KAR)] CIT VS. VEGETABLE PRODUCTS LTD. [(1972) 88 ITR 192 (SC)] VODAFONE ESSAR GUJARAT LIMITED VS. ACIT, TDS CIRCLE , AHMEDABAD- ITA NO.386/AHD/11 HINDUSTAN COCA COLA BEVERAGES (P.) LTD. (2007) 211 CTR (SC) 545: (2007) 293 ITR 226 (SC) JAGRAN PRAKASHAN LTD. VS. DY. CIT (2012) 73 DTR (AL L) 233: (2012) 251 CTR (ALL) 65 3. THE APPELLANT PRAYS THAT THE DEMAND RAISED BY TH E DCIT (TDS), AHMEDABAD, AMOUNTING TO RS. 7,97,946/- (TDS U/S. 194H: RS. 4,07,115.30 + INTEREST U/S. 201(1A) FROM 01.04.2008 TO 31.03.2016: RS. 390,830.68] BE QUASHED BY THE HONBLE ITAT. ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 4 - 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTE D THAT ITAT AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJAR AT LTD. VS. ACIT IN ITA NO. 386/AHD/2011 VIDE ORDER DATED 07.07 .2015 FOR ASSESSMENT YEAR 2008-09 HAD ADJUDICATED AN IDENTICA L ISSUE AND HAD DECIDED IN FAVOUR OF THE TELECOM OPERATOR BY HOLDIN G THAT WHEN THE ASSESSEE HAD CREDITED THE SALE PROCEEDS AT THE TRAN SACTION VALUE, THE TAX DEDUCTION LIABILITY UNDER SEC. 194H OF THE ACT WOULD NOT ARISE. A COPY OF THE SAID ORDER WAS PLACED ON RECORD AND T HE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE RELEVANT PARAGRAPHS TO SUBSTANTIATE HIS ARGUMENTS. IT WAS A LSO SUBMITTED THAT THE LD. CIT (APPEALS) OF AMRELI, JUNAGADH AND RAJKO T, ON IDENTICAL ISSUE, HAD ALLOWED RELIEF TO THE ASSESSEES BEFORE T HEM. OUR ATTENTION WAS DRAWN TO THE COPIES OF THE SAID FIRST APPELLATE ORDERS PLACED IN THE PAPER FILED BY THE ASSESSEE. 4.0 IN RESPONSE, THE LD. SENIOR DEPARTMENTAL REPRES ENTATIVE (SR. DR) SUBMITTED THAT ALTHOUGH THE ASSESSEE MIGHT HAVE USED THE TERM DISCOUNT FOR THE PAYMENT TO THE DISTRIBUTORS, THE SAME WAS IMMATERIAL INASMUCH AS IN SUBSTANCE THE SAID DISCOU NT GIVEN AT THE TIME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY TH E ASSESSEE TO THE DISTRIBUTORS WAS A PAYMENT RECEIVED OR RECEIVABLE B Y THE DISTRIBUTOR FOR THE SERVICES TO BE RENDERED TO THE ASSESSEE AND THE SAME FELL ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 5 - WITHIN THE DEFINITION OF COMMISSION OR BROKERAGE UN DER EXPLANATION (I) TO SEC. 194H OF THE ACT. IT WAS SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT THE RELATIONSHIP BETWEEN THE ASSE SSEE AND THE DISTRIBUTORS WAS ON PRINCIPAL TO PRINCIPAL BASIS WA S INCORRECT AND IN FACT THERE WAS A PRINCIPAL TO AGENT RELATIONSHIP AS HAD BEEN HELD BY THE HONBLE HIGH COURT OF DELHI IN CIT VS. IDEA CEL LULAR LTD. REPORTED IN 325 ITR 148 AND THE HONBLE HIGH COURT OF KERALA IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. VS. ACIT R EPORTED IN 332 ITR 255. IT WAS CONTENDED BY THE LD. SR. DEPARTMEN TAL REPRESENTATIVE THAT THE DEMAND HAD RIGHTLY CREATED BY THE AO IN THIS CASE. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE CONT ENTION OF THE LD. AUTHORISED REPRESENTATIVE THAT AN IDENTICAL ISSUE W AS DECIDED IN FAVOUR OF THE ASSESSEE BY ITAT AHMEDABAD BENCH IN T HE CASE OF VODAFONE ESSAR GUJARAT LTD. VS. ACIT (SUPRA) IS COR RECT. IN THE SAID ORDER THE ITAT AHMEDABAD BENCH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF BHARTI AIRTEL L TD., TATA TELE SERVICES LTD. AND VODAFONE SOUTH LTD. WHICH HAS BEE N REPORTED AS BHARTI AIRTEL LTD. VS. DCIT (2015) 372 ITR 33 (KARN ATAKA). THE ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 6 - AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJAR AT LTD. VS. ACIT (SUPRA) HAS ALSO NOTED THAT THIS ISSUE HAD BEE N DECIDED AGAINST THE ASSESSEES BY HONBLE KERALA HIGH COURT AS WELL AS BY THE HONBLE DELHI HIGH COURT AND THAT IN CASES WHERE NO N-JURISDICTIONAL HIGH COURTS HAVE GIVEN CONTRADICTING JUDGMENTS ON A PARTICULAR ISSUE, GUIDANCE HAS TO BE TAKEN FROM THE JUDGMENT O F THE HONBLE APEX COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCT S LTD. REPORTED IN (1972) ITR 192 (SC) WHEREIN THE HONBLE APEX COU RT HAD LAID DOWN THE PRINCIPAL THAT IF TWO INTERPRETATIONS OF A TAXING PROVISION ARE POSSIBLE, THE INTERPRETATION FAVOURING THE ASSE SSEE MUST BE ADOPTED. THEREAFTER, DISCUSSING THE ISSUE AT LENGT H, THE AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJARAT LTD. VS . ACIT (SUPRA) HELD AS FOLLOWS:- 4. IN THE LIGHT OF THE ABOVE DISCUSSIONS, AND PARTICULARLY AS THERE IS NO DISPUTE THAT THE FACTUAL MATRIX OF ALL THE CASES BEFORE THE HON'BLE NON JURISDICTIONAL HIGH COURTS WERE MATERIA LLY THE SAME AS IN THIS CASE, IN CONFORMITY WITH THE ESTEEMED VIEWS OF HON'BLE KARNATAKA HIGH COURT IN BHARTI AIRTLEL'S CASE (SUPR A), AND HOLD AS FOLLOWS: (A) ON THE FACTS OF THE CASE, AND AS IS EVIDENT FRO M A READING OF THE AGREEMENTS BEFORE US, THE ASSESSEE HAS SOLD, BY WAY OF PREPAID VOUCHERS, E-TOP UPS AND PREPAID SIM CARDS., THE RI GHT TO SERVICE ON PRINCIPAL TO PRINCIPAL BASIS TO ITS DISTRIBUTORS. A S EVIDENT FROM THE TERMS AND CONDITIONS FOR SALE, PLACED AT PAGE 136 O F THE PAPER-BOOK, NOT ONLY THAT THE SALE WAS FINAL AND THE ASSESSEE W AS NOT RESPONSIBLE FOR ANY POST-DELIVERY DEFECTS IN THE SERVICES, IT W AS SPECIFICALLY AGREED THAT NO REQUEST OF REFUND OF ANY MONEY SHAL L BE ENTERTAINED BY VEGL (I.E. THE ASSESSEE) UNDER ANY CIRCUMSTANCES . ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 7 - B) THE FACT THAT THERE ARE CERTAIN CONDITIONS AND S TIPULATIONS ATTACHED TO THE SALE OF THIS RIGHT OF SERVICE BY TH E ASSESSEE TO HIS DISTRIBUTORS DOES NOT AFFECT THE CHARACTER OF SALE ON PRINCIPAL TO PRINCIPAL BASIS. (C) SECTION 194 H COMES INTO PLAY ONLY IN A SITUATI ON IN WHICH ANY PERSON, ........RESPONSIBLE FOR PAYING..... TO A RE SIDENT, ANY INCOME BY WAY OF COMMISSION PAYS OR CREDITS SUCH INCOME BY WAY OF COMMISSION. HOWEVER, SINCE AT THE TIME OF THE ASSE SSEE SELLING THESE RIGHTS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE DISTRIBUTOR DOES NOT EARN ANY INCOME, THE PROVISIONS OF SECTION 194 H DO NOT COME INTO PLAY ON THE TRANSACTION OF SALE OF THE RIGHT TO SER VICE BY THE ASSESSEE TO HIS DISTRIBUTORS. THE CONDITION PRECEDENT FOR AT TRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME P AYABLE BY THE ASSESSEE TO THE DISTRIBUTOR. (D) SO FAR AS THE TRANSACTION OF SALE OF RIGHT TO SERVICE BY THE ASSESSEE TO HIS DISTRIBUTOR IS CONCERNED, WHILE IT HAS INCOME POTENTIAL AT A FUTURE POINTS OF TIME (I.E. WHEN THI S RIGHT TO SERVICE IS SOLD AT A PROFIT BY THE DISTRIBUTOR), RATHER THAN E ARNING INCOME, DISTRIBUTORS INCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. THEREFORE, AT THE TIME OF THE ASSESSEE SELLING THES E PRE-PAID CARDS, HE IS NOT IN POSSESSION OF ANY INCOME BELONGING TO THE DISTRIBUTOR. ACCORDINGLY, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT THE POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. (E) IN A SITUATION IN WHICH THE ASSESSEE HAS CREDIT ED THE SALE PROCEEDS AT THE TRANSACTION VALUE (IN CONTRAST WITH THE TRANSACTION BEING SHOWN AT FACE VALUE AND THE DIFFERENCE BETWEE N FACE VALUE AND THE TRANSACTION VALUE CREDITED TO THE DISTRIBUTOR), THE TAX DEDUCTION LIABILITY UNDER SECTION 194H DOES NOT ARISE. WHILE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE SAL E PROCEEDS ARE CREDITED AT THE TRANSACTION VALUE, THIS ASPECT OF T HE MATTER IS TO BE VERIFIED BY THE ASSESSING OFFICER, AND IN CASE THE SALES IS ACCOUNTED FOR AT THE FACE VALUE, TO THAT EXTENT, THE TAX WITH HOLDING LIABILITY IS TO BE SUSTAINED. 5.1 ACCORDINGLY, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJAR AT LTD. VS. ACIT (SUPRA) ON IDENTICAL SET OF FACTS AND THERE BE ING NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT ON THE ISSUE AS YE T, WE ALLOW THE ITA NO.2541/AHD/2017 [GM CMTS BSNL VS. DCIT] A.Y. 2009-10 - 8 - ASSESSEES APPEAL BY HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER THE PROVISION OF SEC. 19 4H OF THE ACT. 6.0 IN THE FINAL RESULT, APPEAL OF THE ASSESSEE I S STANDS ALLOWED. SD/- SD/- (AMARJIT SINGH) (SUDHANSHU SRIVA STAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 28/06/2019 TANMAY TRUE COPY !' #' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE 3. ) *+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, 56$)$ / DR, ITAT, AHMEDABAD 6. 289 : / GUARD FILE. BY ORDER / $% , ;/5 *+#, 56$)$ < 1.DATE OF DICTATION ON 25.06.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 26.06.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 28.06.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 28.06.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S 28.06.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.06.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 2 8/06/2019