ITO, CHENNAI V. Gayathri Ramani, CHENNAI

ITA 2944/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96128 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 15-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-12-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: N DEVANATHAN
• Keywords: Reopening of assessment; Recovery proceedings; Reason to believe; Reassessment proceedings
• Section: 147; 148; 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' ! # . $% , & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 2944/MDS/2014 / ASSESSMENT YEAR 2007-08 AND C.O.NO.9/MDS/2015 (IN ITA NO.2944/MDS/2014) THE INCOME-TAX OFFICER, NON-CORPORATE WARD 15(2), CHENNAI 34. APPELLANT) V. SMT. GAYATHRI RAMANI, NO.18/3, 2 ND MAIN ROAD, NEHRU NAGAR, ADYAR, CHENNAI 600 020. PAN AABPR6439B RESPONDENT-CROSS-OBJECTOR) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI N. DEVANATHAN, ADVOCATE ! / DATE OF HEARING : 15.09.2015 '# ! / DATE OF PRONOUNCEMENT: 30.09.2015 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS - - ITA 2944/14 & CO 9/15 2 OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) DATED 11.8.2014. 2. THE FIRST GROUND RAISED BY THE REVENUE IN ITS AP PEALS IS WITH REGARD TO REOPENING OF ASSESSMENT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSE WAS HAVING A PROPRIETARY CONCERN IN THE NAME OF M/S. TRAVEL SE RVICES WHICH WAS ENGAGED IN THE BUSINESS OF AIR TRAVEL TIC KET BOOKING AND SELLING OF AIR TICKETS OF VARIOUS AIRLINES TO CUSTOMERS. THE ASSESSEE FILED HER RETUR N OF INCOME FOR THE AY 2007-08 ON 31 . 10 . 2007 ADMITTING A TOTAL TAXABLE INCOME OF ` 5,38,190/- . THE ASSESSING OFFICER PROCESSED THE RETURN UNDER SECTION 143(1) OF THE INCOME TAX ACT O N 20 . 02 . 2009 AND COMPLETED THE ASSESSMENT . ON 23 . 02 . 2012 THE ASSESSING OFFICER ISSUED NOTICE U/S 148 OF THE IT ACT FOR THE AY 2007-08 . IN RESPONSE TO THE NOTICE U/S 148 THE ASSESSEE VIDE HER LETTER DATED 02 . 04.2012 SUBMITTED ON 12 . 04 . 2012 HAS REQUESTED TO CONSIDER THE ORIGINAL RETURN FILED ON 31 . 10 . 2007 AS THE RETURN IN RESPONSE TO THE NOTICE - - ITA 2944/14 & CO 9/15 3 U/S 148 OF THE ACT AND REQUESTED FOR THE REASON FOR ISSUING NOTICE U/S 148 OF THE ACT . THE AO VIDE THEIR LETTER DATED 5.9.2012 FURNISHED THE REASON FOR REOPENING THE ASS ESSMENT FOR THE AY 2007-08 BY ISSUING NOTICE U/S 148 OF THE IT ACT . THE ASSESSEEE VIDE HER LETTER SUBMITTED ON 13 . 09 . 2012 THROUGH ASK NO.001130912105493 HAS SUBMITTED THE OBJECTION FOR THE ISSUE OF NOTICE U/S 148 OF THE IT ACT . THE ASSESSING OFFICER IN HIS LETTER DATED 28 . 09.2012 HAS ASKED FOR DETAILS OF THE PARTIES/CUSTOMERS TO W HOM DISCOUNT WAS GIVEN WITH LEDGER COPY, DETAILS OF COM MISSION RECEIVED ALONG WITH LEDGER COPY AND DETAILS OF BANK ACCOUNT FOR THE PERIOD FROM 01 . 04.2006 TO 31 . 03 . 2007. INSTEAD OF FURNISHING THE ABOVE DETAILS CALLED FOR , THE ASSESSEE FILED A PETITION DATED 14.12.2012 BEFORE THE JCIT , BUSINESS RANGE ILL, CHENNAI U/S 144A OF THE IT ACT REQUESTING TO I SSUE DIRECTIONS TO THE AO TO DROP THE REOPENING PROCEEDI NGS AS THERE WAS NO NEED FOR THE ASSESSEE TO DEDUCT TDS ON THE AMOUNT DEBITED UNDER THE HEAD 'DISCOUNT' IN P&L ACC OUNT . ON 22 . 02 . 2013, THE PETITION FILED BY THE ASSESSE U/S144A OF THE IT ACT BEFORE THE JOINT/ADDL . CIT WAS DISPOSED OFF - - ITA 2944/14 & CO 9/15 4 DIRECTING THE AO TO REPLY TO THE ASSESSEE'S OBJECTI ONS ON REASONS FOR REOPENING THE ASSESSMENT AND TO TAKE APPROPRIATE ACTION AS PER LAW . AS PER THE DIRECTIONS FROM THE JCIT, THE ASSESSING OFFICER HAS GIVEN THE REPLY TO THE ASSESSE ON 04 . 3.2013 REGARDING HER OBJECTIONS ON REASON FOR REOPENING THE ASSESSMENT AND ALSO TO CO- OPERATE IN FURTHER SCRUTINY PROCEEDINGS. THE OBJECTIONS RA ISED BY THE ASSESSEE FOR REOPENING THE ASSESSMENT U/S.147 WAS N OT ACCEPTED BY THE AO AND COMPLETED THE ASSESSMENT U/S.143(3) RWS 147 OF THE IT ACT AND DETERMINED THE TOTAL INCOME AT ` 57,05,460/- BY MAKING THE ADDITION OF DISCOUNT CLAIMED ` 52,03,410/- U/S 40(A)(IA) OF THE ACT FOR NOT DEDUCTING TDS U/S.194H OF THE ACT. AGAINST THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(APPEALS) . 4. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW IN VIEW OF TH E JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . KELVINATOR OF INDIA LTD.(320 ITR 561), AS THERE IS NO TANGIBLE FRESH MATERIAL TO REOPEN THE ASSESSMENT. A GAINST - - ITA 2944/14 & CO 9/15 5 THIS, THE REVENUE IS IN APPEAL BEFORE US. THE CROS S OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF TH E ORDER OF THE CIT(APPEALS). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSES SMENT YEAR INVOLVED IS 2007-08. THE ASSESSEE FILED HER R ETURN OF INCOME ON 31.10.2007. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ON 22.2.2009. THE ASSESSMENT WAS REOPENED ON THE REASON THAT THE ASSESSEE HAS CLAIME D DISCOUNT OF ` 52,03,410/-, THOUGH THE ASSESSEE HAS RECEIVED COMMISSION OF ` 73,20,532/- ONLY. SINCE THE ASSESSEE HAS NOT DEDUCTED TDS ON DISCOUNT PAYMENTS OF `5 2,03,410/-, THE ASSESSMENT WAS REOPENED TO CONSIDER THE SAME BY ISSUING A NOTICE U/S.148 ON 23.3.2012. THE ASSESSMENT WAS REOPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE AO RECORDED T HE REASON FOR REOPENING AS FOLLOWS: IT WAS NOTICED THAT THE ASSESSEE HAD DEBITED DISCOUNT OF ` 52,03,410/- AND HAS MENTIONED IN FORM 3CD AT COLUMN 27 AS NOT APPLICABLE. AS THERE IS NO DETAIL OF DISCOUNT RECIPIENTS IN THE FI LE, - - ITA 2944/14 & CO 9/15 6 WHICH CORRESPOND TO THE INCOME UNDER THE HEAD COMMISSION, THE TDS APPLICABILITY NEEDS TO BE EXAMINED. BEING SO, THERE IS A REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND IT IS NOT NECESSARY TO ESTAB LISH THE FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE U/S.148, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED THE OPINION THAT INCOME HAD ESCAPED ASSESSME NT. WHETHER MATERIAL WOULD CONCLUSIVELY PROVE ESCAPEMEN T OF INCOME IS NOT THE CONCERN AT THAT STAGE. THIS IS S O BECAUSE THE FORMATION OF THE BELIEF IS WITHIN THE REALM OF THE SUBJECTIVE SATISFACTION OF THE ASSESSING OFFICER. FURTHER, THE INTIMATION SENT BY THE DEPARTMENT U/S.143(1) OF THE ACT, CANNOT BE TREATED TO BE AN ASSESSMENT ORDER AND HE IS WITHIN POWER CONFERRED U/S.147 TO ISSUE NOTICE U/S. 148 OF THE ACT. FURTHER, FAILURE TO TAKE STEPS U/S.143(3) WILL NOT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS U/S.147 R.W.SEC.148 OF THE ACT, THOUGH THE INTIMATION WAS SENT U/S.143(1) OF THE ACT. IN OUR OPINION, THE AO IS JUSTIFIED IN REOPENING THE ASSESSMENT IN THIS CASE. - - ITA 2944/14 & CO 9/15 7 THIS ISSUE IS ALSO SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF ACIT V. RAJESH JHAVERI STOCK BROKER PVT. LTD. (291 ITR 500). ACCORDINGLY, THE G ROUND RELATING TO REOPENING OF ASSESSMENT IS DECIDED IN F AVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 6. EVEN ON MERITS, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 52,03,410/- ON ACCOUNT OF NON-DEDUCTION OF TDS ON THE DISCOUNT ALLOWED U/S 40(A)(IA) APPLYING THE PROVISIONS OF SEC.194H. IN HIS SUBMISSIONS, THE AS SESSEE STATED THAT THE DISCOUNT ALLOWED TO THE CUSTOMERS, NO TDS IS REQUIRED TO BE DEDUCTED U/S.40(A)(IA) AS THE PRO VISIONS OF SEC.194H ARE NOT APPLICABLE TO THE SMALL DISCOUNT A MOUNTS ALLOWED TO THE CUSTOMERS. THE TDS PROVISION IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE EXPENDITURE FALLS W ITHIN THE PROVISIONS OF SECTION 28 OF THE ACT AS WELL AS THE DISCOUNT ALLOWED TO CUSTOMERS IS NOT IN THE FORM OF COMMISSI ON , IT IS A REBATE IN THE INVOICE RAISED TO THE CUSTOMER . ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER HAS IGNORED THE DETAILS OF DISCOUNT ALLOWED AND MADE THE ADDITION FOR NON-DEDU CTION OF - - ITA 2944/14 & CO 9/15 8 TDS . THE ASSESSING OFFICER HAS ALSO I GNORED THE RATIO DOWN BY THE SUPREME COURT IN THE CASE OF AHMEDABAD STAMP VE NDOR ASSOCIATION DATED 06 . 09 . 2012, WHEREIN IT WAS HELD THAT THE SUPREME COURT , THE DISCOUNT ALLOWED IS NOT COMMISSION AND HENCE, SEC. 194H OF THE IT ACT IS NOT APPLICABLE . 6 .1 BEFORE THE CIT(APPEALS), THE ASSESSEE HAS ALSO R ELIED ON THE ORDER IN THE CASE OF M/S CHETAK TRAVELS P LTD . , FOR THE AY 2004-05 WHEREIN THE CIT (APPEALS) XI , CHENNAI IN ITA NO . 463/06-07 DATED 28 . 02 . 2007 ALLOWED IN FAVOUR OF THE ASSESSEE ON SIMILAR ISSUE WHEREIN THE ASSESSEE AN L ATA APPROVED AGENT SELLS TICKETS FOR AIR TRAVEL ON BEHA LF OF SEVERAL AIRLINES . THE LATA APPROVALS OF COMMISSION BETWEEN 7% AND 9% OF THE PUBLISHED FARE . THE PUBLISHED FA R E IS THE FARE BEYOND WHICH THE TICKET CANNOT BE SOLD . THE AIR LINE FIXES THE MINIMUM FARE WHICH IS REFERRED TO AS NET FARE WHICH IT GETS FROM THE TRAVEL AGENT IN RESPECT OF THE TICKET . IT IS LEFT TO THE TRAVEL AGENT TO SELL THE TICKET FOR ANY PRICE , OVER AND ABOVE THE NET FARE STIPULATED BY THE AIRLINE . THE EXCESS SO RECEIVED BY THE TRAVEL AGENT WOULD BE RETAINED BY HIM AND NOT PASSED TO THE AIR LINE. THI S AMOUNT IS ACCOUNTED FOR BY THE AIRLINE IN ITS ACCOUNT AS - - ITA 2944/14 & CO 9/15 9 DISCOUNT/COMMISSION TO THE AGENT AND IS ALSO TAKEN INTO ACCOUNT FOR THE PURPOSES OF TDS. THE AGENT , SUCH AS THE ASSESSEE IS FREE TO PASS THE SAME ON TO THE CLIENT/CUSTOMERS IN TURN. IN THE CASE OF AHMADABAD STAMP VENDOR ASSOCIATION ON THE I SSUE OF DISCOUNT ALLOWED TO STAMP VENDORS I T WAS HELD BY THE GUJARAT HIGH COURT THAT THE LICENSED STAMP VENDORS PURCHASE D THE STAMP PAPERS FROM THE GOVERNMENT AND THE PURCHASE W OULD TAKE PLACE ON THE PAYMENT OF PRICE LESS DISCOUNT ON THE PRINCIPAL TO PRINCIPAL BAS I S . THIS WAS DONE WITHOUT ANY CONTRACT OF AN AGENCY . THE DISCOUNT CANNOT BE INCLUDED WITHIN THE TERM ' COMMISSION ' OR ' BROKERAGE ' AND HENCE PROVISIONS OF SEC. 194H WERE NOT APPLICAB L E. KEEPING IN VIEW OF THE RELIANCE PLACED ON THE CASE LAWS MENTIONED SUPRA , THE PROVISION OF SECTION 40(A)(IA) AS WELL AS SEC.194H ARE NOT APPLICABLE TO THE DISCO UNT ALLOWED BY THE ASSESSEE TO THE CUSTOMERS. THEREFORE, THE C IT(APPEALS) DIRECTED THE AO TO DELETE THE ADDITION MADE FOR NON -DEDUCTION OF TDS U/S.40(A)(IA) OF THE ACT AND MODIFY THE CHARGIN G OF INTEREST U/S.234B & 234C OF THE ACT . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. DR RELIED ON THE ORDER OF THE TRIBUNAL I N ITA - - ITA 2944/14 & CO 9/15 10 NOS.1415 & 1416/MDS/2009 DATED 1.4.2011 IN THE CASE OF M/S. VODAFONE ESSAR CELLULAR LTD., WHEREIN IT WAS H ELD THAT: 8. THE LD. DR IN ORDER TO COUNTER THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT E VEN IN THE ABSENCE OF ANY PAYMENT HAVING BEEN MADE TO THE DISTRIBUTORS AND ONLY DISCOUNTS HAVING BEEN ALLOWED , WHICH IS PAYMENT AND RELIANCE WAS PLACED ON 240 ITR 740 ( MAD), HONBLE SUPREME COURTS DECISION IN THE CASE OF 223 ITR 271 (SC) AND 189 TAXMAN 315. IT WAS ALSO SUBMITTED THAT THE HONBLE DELHI HIGH COURT DESPITE HAVING REFERRE D TO M.S. HAMEEDS CASE AND THE COCHIN BENCH OF THE TRIBUNAL S DECISION IN THE CASE OF THE ASSESSEE, HAS TAKEN AN INDEPENDENT VIEW BY CONSIDERING THE ENTIRE TRANSACT ION. FURTHER RELIANCE WAS PLACED ON 103 ITR 66 (SC) AND HONBLE DELHI HIGH COURT AND SO FAR AS NOT TREATING AN ACCOUNTING ENTRIES AS RECORDED IN THE BOOKS OF ACCO UNTS, RELIANCE WAS PLACED ON 116 ITR 1 (SC). SINCE IT IS A COMMISSION AS ITAT COCHIN BENCH HAS HELD, WHICH VIE W HAS BEEN UPHELD BY THE HONBLE KERALA HIGH COURT AN D SO FAR AS QUTAR AIRWAYS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, THE SAME IS IN RELATION TO DIFFERENT ISSU E AS NATURE OF TRANSACTION IS NOT THE SAME AS IN THE CASE OF TH E ASSESSEE, WHETHER, IT IS DISCOUNT OR COMMISSION, IT HAS CLEARLY BEEN HELD TO BE LIABLE TO TDS BY THE HONBL E KERALA AND DELHI HIGH COURTS AND AS PER KANEL OIL & EXPORT INDS. LTD.S CASE, IN THE THIRD MEMBERS CASE, IT HAS CLE ARLY BEEN HELD THAT IF TWO VIEWS ARE THERE, ONE OF SPECIAL OR SAME BENCH AND OTHER OF NON JURISDICTIONAL HIGH COURT, T HE HIGH COURTS DECISION TO BE FOLLOWED AND HONBLE BOMBAY HIGH COURT HAS HELD THAT COORDINATE BENCH LATER DECISIO N IS TO BE FOLLOWED AND FURTHER RELIANCE HAS BEEN PLACED ON 23 8 ITR 113 (DELHI), 113 ITR 598 (BOM) AND 53 ITD 1 (AHD). 8.1 SO FAR AS DISMISSAL OF THE SLP IS CONCERNED, TH E LD. DR SUBMITTED THAT THE HONBLE SUPREME COURT HAS HEL D IN THE CASE OF 231 ITR 50 AND 222ITR523 (ALL) THAT SUC H DISMISSAL OF SLP DOES NOT LAY DOWN LAW AND SO FAR A S DARUVALA BROS. (P) LTD.S CASE IS CONCERNED, THE SA ME IS IN - - ITA 2944/14 & CO 9/15 11 RELATION TO THE SALARY PAYMENT, WHICH IS ONE WAY PA YMENT AND IT IS ALTOGETHER IN RELATION TO A DIFFERENT ISS UE. IT WAS, THUS PLEADED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 9. THE LD. COUNSEL FOR THE ASSESSEE TRIED TO DISTI NGUISH ALL THE DECISIONS CITED BY THE LD. DR AND HAS ALSO ARGUED AND PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 10. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MATERIAL ON RECORD, RELEVANT PROVISIONS OF LAW AS W ELL AS PRECEDENTS RELIED UPON BY RIVAL SIDES AND FIND THAT THE ASSESSEE HAS PROVIDED SIM CARDS AND PRE-PAID CARDS TO VARIOUS DISTRIBUTORS BELOW THE MRP PRESCRIBED FOR S UCH CARDS AND THE ASSESSING OFFICER AFTER OBTAINING NEC ESSARY DETAILS FROM THE ASSESSEE HAS CONCLUDED TO HOLD THA T THE AMOUNT BELOW MRP ALLOWED BY THE ASSESSEE TO VARIOUS DISTRIBUTOR IS DISCOUNT/COMMISSION AND AS THE ASSES SEE HAS FAILED TO DEDUCT ANY TAX AT SOURCE ON SUCH LESS AMO UNT, SO HE WORKED OUT THE TDS AS PAYABLE BY THE ASSESSEE UN DER SECTION 194H AND RAISED DEMAND UNDER SECTION 201(1) AND 201(1A) AS DETAILED IN PARA 2 ABOVE. THE ASSESSEE F ILED APPEAL AND SAME WAS ALLOWED BY THE FIRST APPELLATE AUTHORITY, AGAINST WHICH THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US AND IT IS THE MAIN ARGUMENT OF THE LD. DR THAT SINCE AMOUNT HAS BEEN ALLOWED AS DISCOUNT/ COMMISSION TO THE DISTRIBUTORS AS THE ASSESSEE HAS CHARGED THE AMOUNT LESS THAN THE MRP, THEREFORE, IT AMOUNTS TO COMMISSION/BROKERAGE AND TAX IS LIABLE TO BE DEDUCT ED AT SOURCE IN TERMS OF SECTION 194H, WHICH WAS NOT DEDU CTED, SO THE DEMAND CREATED BY A O IS PROPER AND JUSTIFIE D. WHEREAS, THE LD. AR HAS MAINLY CONTENDED THAT THE ASSESSEE HAS NOT PAID ANY COMMISSION TO THE DISTRIB UTORS, SO THERE IS NO QUESTION OF MAKING DEDUCTION OF TAX AT SOURCE. THEREFORE, THE DEMAND RAISED BY THE ASSESSING OFFIC ER IS NOT SUSTAINABLE WHICH HAS CORRECTLY BEEN DELETED BY THE LD.CIT(A). RIVAL SIDES HAVE REFERRED TO VARIOUS CLA USES OF AGREEMENT WITH THE DISTRIBUTORS AND DIFFERENT CASE LAW ALSO, DETAILS OF WHICH HAS BEEN GIVEN IN EARLIER PARAGRAP HS TO SUPPORT THEIR RESPECTIVE ARGUMENTS AND LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY PLEADED THAT SINCE THE HONBL E KERALA - - ITA 2944/14 & CO 9/15 12 HIGH COURTS DECISION IN ASSESSEES OWN CASE, MAIN PLEA ABOUT NOT CONSIDERING THE FACT THAT THERE IS NO PAY MENT OR CREDIT OF THE AMOUNT BY THE ASSESSEE, THEREFORE, IT CANNOT BE HELD TO BE PRECEDENT TO DECIDE THE ISSUE AGAINST TH E ASSESSEE AND THE HONBLE DELHI HIGH COURT HAS ALSO NOT CONSIDERED THIS VITAL ASPECT, WHILE REFERRING TO IT AT COCHIN BENCHS DECISION IN THE CASE OF THE ASSESSEE. THERE FORE, BOTH THESE DECISIONS OF BEING NON-JURISDICTIONAL HI GH COURTS ARE NOT APPLICABLE WHEN OTHER EARLIER DECISIONS ONE OF HONBLE KERALA HIGH COURT AND OTHER THAT OF BOMBAY HIGH COURT FAVOURABLE TO THE ASSESSEE ARE TO BE CONSIDER ED AND APPLIED IN VIEW OF VARIOUS PRECEDENTS, THEREFORE, T HE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 10.1 AFTER CONSIDERING THE RELEVANT MATERIAL IN TH E LIGHT OF PROVISIONS OF LAW AND PRECEDENTS, WE FIND THAT THE MAIN QUESTION TO BE CONSIDERED IS WHETHER SECTION 194H I S APPLICABLE FOR THE 'DISCOUNT' GIVEN BY THE ASSESSEE TO THE DISTRIBUTORS IN THE COURSE OF SELLING SIM CARDS AND RECHARGE COUPONS UNDER PREPAID SCHEME AGAINST ADVANCE PAYMEN T RECEIVED FROM THE DISTRIBUTORS. WE HAVE TO NECESSAR ILY EXAMINE THIS CONTENTION WITH REFERENCE TO THE STATU TORY PROVISIONS NAMELY, SECTION 194H WHICH IS EXTRACTED HEREUNDER FOR EASY REFERENCE: 'S.194H. ANY PERSON, NOT BEING AN INDIVIDUAL OR A H INDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) OR BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATE OF TEN PER CENT: ........ EXPLANATION:- FOR THE PURPOSES OF THIS SECTION,-- (I) 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PRO FESSIONAL - - ITA 2944/14 & CO 9/15 13 SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYI NG OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING T O ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; ........' WHAT APPEARS FROM EXPLANATION (I) OF THE DEFINITION CLAUSE ABOVE IS THAT COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECT LY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE S ERVICES RENDERED. WE HAVE ALREADY TAKEN NOTE OF OUR FINDING IN BPL CELLULAR'S CASE ABOVE REFERRED THAT A CUSTOMER CAN HAVE ACCESS TO MOBILE PHONE SERVICE ONLY BY INSERTING SI M CARD IN HIS HAND SET (MOBILE PHONE) AND ON ASSESSEE ACTI VATING IT. BESIDES GETTING CONNECTION TO THE MOBILE NETWORK, T HE SIM CARD HAS NO VALUE OR USE FOR THE SUBSCRIBER. IN OTH ER WORDS, SIM CARD IS WHAT LINKS THE MOBILE SUBSCRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SUPPLY OF SIM CARD, WHETHER IT IS TREATED AS SALE BY THE ASSESSEE OR NOT, IS ON LY FOR THE PURPOSE OF RENDERING CONTINUED SERVICES BY THE ASSE SSEE TO THE SUBSCRIBER OF THE MOBILE PHONE. BESIDES THE PUR POSE OF RETAINING A MOBILE PHONE CONNECTION WITH A SERVICE PROVIDER, THE SUBSCRIBER HAS NO USE OR VALUE FOR THE SIM CARD PURCHASED BY HIM FROM ASSESSEE'S DISTRIBUTOR. THE P OSITION IS SAME SO FAR AS RECHARGE COUPONS OR E TOPUPS ARE CONCERNED WHICH ARE ONLY AIR TIME CHARGES COLLECTED FROM THE SUBSCRIBERS IN ADVANCE. WE HAVE TO NECESSARILY HOLD THAT OUR FINDINGS BASED ON THE OBSERVATIONS OF THE SUPREME COURT IN BSNL'S CASE IN THE CONTEXT OF SALES TAX IN THE CASE OF BPL CELLULAR LTD. SQUARELY APPLY TO THE ASSESSEE WHICH IS NOTHING BUT THE SUCCESSOR COMPANY WHICH HAS TAKEN O VER THE BUSINESS OF BPL CELLULAR LTD. IN KERALA. SO MUC H SO, THERE IS NO SALE OF ANY GOODS INVOLVED AS CLAIMED B Y THE ASSESSEE AND THE ENTIRE CHARGES COLLECTED BY THE AS SESSEE AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE CO UPONS IS ONLY FOR RENDERING SERVICES TO ULTIMATE SUBSCRIBERS AND THE DISTRIBUTOR IS ONLY THE MIDDLEMAN ARRANGING CUSTOME RS OR SUBSCRIBERS FOR THE ASSESSEE. THE TERMS OF DISTRIBU TION AGREEMENT CLEARLY INDICATE THAT IT IS FOR THE DISTR IBUTOR TO - - ITA 2944/14 & CO 9/15 14 ENROLL THE SUBSCRIBERS WITH PROPER IDENTIFICATION A ND DOCUMENTATION WHICH RESPONSIBILITY IS ENTRUSTED BY THE ASSESSEE ON THE DISTRIBUTORS UNDER THE AGREEMENT. I T IS PERTINENT TO NOTE THAT BESIDES THE DISCOUNT GIVEN A T THE TIME OF SUPPLY OF SIM CARDS AND RECHARGE COUPONS, THE ASSESSEE IS NOT PAYING ANY AMOUNT TO THE DISTRIBUTO RS FOR THE SERVICES RENDERED BY THEM LIKE GETTING THE SUBSCRIB ERS IDENTIFIED, DOING THE DOCUMENTATION WORK AND ENROLL ING THEM AS MOBILE SUBSCRIBERS TO THE SERVICE PROVIDER NAMEL Y, THE ASSESSEE. EVEN THOUGH THE ASSESSEE HAS CONTENDED TH AT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTR IBUTORS IS PRINCIPAL TO PRINCIPAL BASIS, WE ARE UNABLE TO ACCE PT THIS CONTENTION BECAUSE THE ROLE OF THE DISTRIBUTORS AS EXPLAINED ABOVE IS THAT OF A MIDDLEMAN BETWEEN THE SERVICE PR OVIDER NAMELY, THE ASSESSEE, AND THE CONSUMERS. THE ESSENC E OF A CONTRACT OF AGENCY IS THE AGENT'S AUTHORITY TO CO MMIT THE PRINCIPAL. IN THIS CASE THE DISTRIBUTORS ACTUALLY C ANVASS BUSINESS FOR THE ASSESSEE AND ONLY THROUGH DISTRIBU TORS AND RETAILERS APPOINTED BY THEM ASSESSEE GETS SUBSCRIBE RS FOR THE MOBILE SERVICE. ASSESSEE RENDERS SERVICES TO TH E SUBSCRIBERS BASED ON CONTRACTS ENTERED INTO BETWEEN DISTRIBUTORS AND SUBSCRIBERS. WE HAVE ALREADY NOTIC ED THAT THE DISTRIBUTOR IS ONLY RENDERING SERVICES TO THE A SSESSEE AND THE DISTRIBUTOR COMMITS THE ASSESSEE TO THE SUB SCRIBERS TO WHOM ASSESSEE IS ACCOUNTABLE UNDER THE SERVICE C ONTRACT WHICH IS THE SUBSCRIBER CONNECTION ARRANGED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE TERMINOLOGY USED BY THE ASSESSEE FOR THE PAYMENT TO THE DISTRIBUTORS, IN OU R VIEW, IS IMMATERIAL AND IN SUBSTANCE THE DISCOUNT GIVEN AT T HE TIME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY THE ASS ESSEE TO THE DISTRIBUTORS IS A PAYMENT RECEIVED OR RECEIV ABLE BY THE DISTRIBUTOR FOR THE SERVICES TO BE RENDERED TO THE ASSESSEE AND SO MUCH SO, IT FALLS WITHIN THE DEFINITION OF C OMMISSION OR BROKERAGE UNDER EXPLANATION (I) OF SECTION 194H OF THE ACT. THE TEST TO BE APPLIED TO FIND OUT WHETHER EXPLANAT ION (I) OF SECTION 194H IS APPLICABLE OR NOT IS TO SEE WHETHER ASSESSEE HAS MADE ANY PAYMENT AND IF SO, WHETHER IT IS FOR SERVICES RENDERED BY THE PAYEE TO THE ASSESSEE. IN THIS CASE THERE CAN BE NO DISPUTE THAT DISCOUNT IS NOTHI NG BUT A - - ITA 2944/14 & CO 9/15 15 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. THE DISTRI BUTOR UNDOUBTEDLY CHARGES OVER AND ABOVE WHAT IS PAID TO THE ASSESSEE AND THE ONLY LIMITATION IS THAT THE DISTRI BUTOR CANNOT CHARGE ANYTHING MORE THAN THE MRP SHOWN IN THE PROD UCT NAMELY, SIM CARD OR RECHARGE COUPON. DISTRIBUTOR DI RECTLY OR INDIRECTLY GETS CUSTOMERS FOR THE ASSESSEE AND S IM CARDS ARE ONLY USED FOR GIVING CONNECTION TO THE CUSTOMER S PROCURED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE A SSESSEE IS ACCOUNTABLE TO THE SUBSCRIBERS FOR FAILURE TO RE NDER PROMPT SERVICES PURSUANT TO CONNECTIONS GIVEN BY THE DISTR IBUTOR FOR THE ASSESSEE. THEREFORE, THE DISTRIBUTOR ACTS ON BE HALF OF THE ASSESSEE FOR PROCURING AND RETAINING CUSTOMERS AND, THEREFORE, THE DISCOUNT GIVEN IS NOTHING BUT COMMIS SION WITHIN THE MEANING OF EXPLANATION (I) ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 194H OF THE ACT. THE CONTE NTION OF THE ASSESSEE THAT DISCOUNT IS NOT PAID BY THE ASSES SEE TO THE DISTRIBUTOR BUT IS REDUCED FROM THE PRICE AND S O MUCH SO, DEDUCTION UNDER SECTION 194H IS NOT POSSIBLE ALSO D OES NOT APPLY BECAUSE IT WAS THE DUTY OF THE ASSESSEE TO DE DUCT TAX AT SOURCE AT THE TIME OF PASSING ON THE DISCOUNT BE NEFIT TO THE DISTRIBUTORS AND THE ASSESSEE COULD HAVE GIVEN DISCOUNT NET OF THE TAX AMOUNT OR GIVEN FULL DISCOUNT AND RE COVERED TAX AMOUNT THEREON FROM THE DISTRIBUTORS TO REMIT T HE SAME IN TERMS OF SECTION 194H OF THE ACT. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF THE SUPREME COURT CITE D BY STANDING COUNSEL FOR THE RESPONDENT IN J.B.BODA AND CO. PVT. LTD. V. CENTRAL BOARD OF DIRECT TAXES REPORTED IN (1997) 223 ITR 271 WHEREIN THE SUPREME COURT HAS HELD AS FOLLOWS. 'A TWO-WAY TRAFFIC IS UNNECESS ARY. TO INSIST ON A FORMAL REMITTANCE FIRST AND THEREAFTER TO RECEIVE THE COMMISSION FROM THE FOREIGN REINSURER, WILL BE AN EMPTY FORMALITY AND A MEANINGLESS RITUAL, ON THE FACTS OF THIS CASE.' WE, THEREFORE, DO NOT FIND ANY MERIT IN THE CONTENT ION OF THE ASSESSEE THAT RECOVERY OF TAX IS NOT PERMISSIBLE AT THE TIME OF GIVING DISCOUNT ON THE DELIVERY OF PRODUCTS TO T HE DISTRIBUTORS. - - ITA 2944/14 & CO 9/15 16 10.2 SO FAR AS OTHER CASE LAW WITH RESPECT TO DEDUC TION OF TAX AT SOURCE ON THE AMOUNT OF DISCOUNT/COMMISSI ON IS CONCERNED, WE FIND THAT THE HONBLE KERALA HIGH COU RT WHILE DEALING WITH THIS ISSUE IN THE CASE OF THE ASSESSEE IN ITA NO. 1742 OF 2009 DATED 17.08.2010, AFTER INCORPORAT ING THE RELEVANT FINDINGS OF THE TRIBUNAL ON ACCOUNTING ENT RIES IN PARA 3 AND REPRODUCING SECTION 194H IN FIRST PART O F PARA 4 HAS CONCLUDED TO DECIDE THE ISSUE IN FAVOUR OF THE REVENUE AND RELEVANT PORTION OF PARA 3, AND PARA 6 OF THE JUDGMENT ARE GIVEN AS UNDER: 3. .. 'THE ASSESSEE COMPANY IS CREDITING THE SALES ACCOUN T BY THE GROSS AMOUNT AND NOT BY NET PROCEEDS. FOR EXAMPLE, THE MR P OF A PRE-PAID CARD IS `100/-; MARGIN AVAILED BY THE DISTRIBUTOR I S `.20/-. THE NET PROCEEDS AVAILABLE TO THE ASSESSEE IS `.80/-. LET U S SEE HOW THE ASSESSEE IS ACCOUNTING FOR THE ABOVE. WHEN THE SIM CARD IS G IVEN TO THE DISTRIBUTOR, THE ASSESSEE COMPANY IS CREDITING THE SALES ACCOUNT FOR AN AMOUNT OF `.100/-. ASSESSEE IS DEBITING THE CASH A CCOUNT WITH `.80/- BEING THE CASH PAID BY THE DISTRIBUTOR. ASSESSEE CO MPANY IS DEBITING THE COMMISSION ACCOUNT FOR `.20/-.THIS IS THE MARGIN EN JOYED BY THE DISTRIBUTOR. AS FAR AS THE ASSESSEE COMPANY IS CONC ERNED, IT HAS GIVEN A COMMISSION OF `20/-. ON DELIVERY OF A PRE-PAID CARD OF `.100/-, ASSESSEE IS ADJUSTING THE PAYMENT OF COMMISSION THROUGH ACCO UNTS AND INVOICE. IN THE FIRST INSTANCE SALE IS ACCOUNTED FOR `. 100/ -; THE SECOND CASH IS ACCOUNTED FOR `.80/-; AND THE THIRD COMMISSION IS A CCOUNTED FOR `.20/-. IT SHOWS THAT AS FAR AS THE SALE IS CONCERNED, IT I S `.100/- AND THE ASSESSEE HAS GIVEN A COMMISSION OF `.20/- TO THE DI STRIBUTOR AND THE NET CASH PROCEEDS IS `.80/-. INSTEAD OF TREATING THE SA LE AT THE NET VALUE OF `.80/-, THE ASSESSEE IS ACCOUNTING THE SALES AT THE GROSS VALUE OF `.100/- AND THEREAFTER DEBITING AN EXPENSES ACCOUNT FOR COM MISSION PAID OF `.20/-. THEREFORE, IN THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN THE LIGHT OF THE FINDING OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.BPL MOBILE CELLULAR LTD. (WRIT PETITION NO.2 9202 OF 2005) THAT THE ESSENCE OF THE CONTRACT BETWEEN THE ASSESSEE AN D THE DISTRIBUTOR IS THAT OF SERVICE, WE FIND THAT THE DISTRIBUTORS ARE ACTING AS AGENTS OF THE ASSESSEE COMPANY AND THE MARGIN ENJOYED BY THE DIST RIBUTORS ARE THE COMMISSION/BROKERAGE ALLOWED BY THE ASSESSEE COMPAN Y. - - ITA 2944/14 & CO 9/15 17 COUNSEL FOR THE ASSESSEE SOUGHT TO SUBSTANTIATE THE POSITION CONTRARY TO THE ABOVE FINDING OF THE TRIBUNAL BY REFERENCE TO T HE DISTRIBUTION AGREEMENT WHICH ASSESSEE HAS WITH THE DISTRIBUTORS. IT IS STATED IN THE AGREEMENT THAT DISTRIBUTORS ARE FREE TO CHARGE ANY AMOUNT FROM THE SUBSCRIBERS OR RETAILERS BELOW THE MRP. IN OTHER WO RDS, DISTRIBUTORS ARE NOT BOUND TO SELL THE GOODS NAMELY, SIM CARDS O R RECHARGE COUPONS AT THE MRP TO TREAT THE DISCOUNT AS CHARGES OR COMMISSION RECEIVED OR RECEIVABLE BY THE DISTRIBUTORS. RELYING ON THIS CLAUSE IN THE AGREEMENT, THE CONTENTION OF THE SENIOR COUNSEL IS THAT EVEN IF TAX IS RECOVERED AT SOURCE ON THE DISCOUNT AMOUNT, IT MAY BE ON AN AMOUNT THAT MAY NOT ULTIMATELY BE REALISED BY THE DISTRIBU TOR AT THE TIME OF THEIR SALES TO CONSUMERS OR TO RETAILERS WHEREIN THEY ARE FREE TO PASS ON PART OF THE DISCOUNT RECEIVED BY THEM I.E. BY SELLING TH E PRODUCTS AT BELOW THE MRP. IN THIS CONTEXT STANDING COUNSEL FOR THE DEPAR TMENT REFERRED TO SECTION 197 OF THE ACT WHERE UNDER THE PAYEE IS ENT ITLED TO APPLY TO THE DEPARTMENT FOR OBTAINING PAYMENT WITHOUT DEDUCTION OF TAX OR WITH DEDUCTION AT RATES LOWER THAN WHAT IS PROVIDED IN T HE STATUTE. WE ARE IN FULL AGREEMENT WITH THIS CONTENTION OF THE DEPARTME NT BECAUSE IF IT IS COMMISSION ON WHICH TDS IS PAYABLE UNDER SECTION 19 4H, THE DISTRIBUTORS CAN APPROACH THE DEPARTMENT AND GET CE RTIFICATES TO RECEIVE DISCOUNT OR COMMISSION WITHOUT DEDUCTION OR WITH DE DUCTION AT LOWER RATES. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTE NTION OF THE SENIOR COUNSEL THAT THE POSSIBILITY OF DISTRIBUTORS SELLIN G THE PRODUCTS AT BELOW MRP LEADING TO HIGHER RECOVERY OF TAX WILL STAND IN THE WAY OF ASSESSEE RECOVERING TAX AT SOURCE OR COLLECTING TAX FROM THE DISTRIBUTORS ON THE DISCOUNT PASSED ON TO THEM AT THE TIME OF SALE OF T HE PRODUCTS, IF THE TRANSACTION IS SUBJECT TO DEDUCTION AT SOURCE UNDER SECTION 194H OF THE ACT. FURTHER, IT IS COMMON KNOWLEDGE THAT RECOVERY OF TAX AT SOURCE IS NOT THE ACTUAL TAX PAYABLE BY THE RECIPIENT WHO IS FREE TO CLAIM REFUND OF TDS AMOUNT WITH INTEREST, IF EXCESS TAX IS RECOV ERED UNDER TDS SCHEME. 6. SENIOR COUNSEL APPEARING FOR THE ASSESSEE HAS RELIED ON SEVERAL JUDGMENTS, PARTICULARLY TWO DECISIONS OF TH IS COURT IN M.S.HAMEED V. DIRECTOR OF STATE LOTTERIES REPORTED IN (2001) 114 TAXMAN 394 (KER.) AND KERALA STATE STAMP VENDORS ASSOCIATION V. OFFICE OF THE ACCOUNTANT GENERAL REPORTED IN (2006) 150 TAXMAN 30(KER.), THE DECISION OF THE GUJARAT HIGH COURT IN AHMEDABAD STAMP VENDOR S ASSOCIATION V. UNION OF INDIA REPORTED IN (2002) 12 4 TAXMAN 628 (GUJ.), AND THE DECISION OF THE BOMBAY H IGH COURT IN COMMISSIONER OF INCOME TAX V. QUTAR AIRWAYS IN I.T. A. - - ITA 2944/14 & CO 9/15 18 NO.99 OF 2009 DATED 26.3.2009. THE FIRST DECISION O F THIS COURT PERTAINS TO SALE OF LOTTERY TICKETS WHEREIN THIS CO URT HELD THAT THE COMMISSION GIVEN BY WAY OF DISCOUNT AT THE TIME OF SALE OF LOTTERY TICKETS IS NOT A COMMISSION ON WHICH TAX IS DEDUCTI BLE UNDER SECTION 194G OF THE ACT. THE SECOND DECISION OF THIS COURT PERTAINS TO SALE OF STAMP PAPER BY THE LICENSED STAMP VENDORS WHEREIN A LSO THE FINDING OF THIS COURT FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT IN AHMEDABAD STAMP VENDORS' CASE IS THAT THE TRANSACTI ON IS SALE OF GOODS AND SO MUCH SO, NO DEDUCTION OF TAX I S CALLED FOR UNDER SECTION 194G OF THE ACT. SO FAR AS THE LOTTERY TICK ET IS CONCERNED, THE TRANSACTION IS DIFFERENT AND THE SUPREME COURT HAS HELD THAT THE TRANSACTION IS SALE OF GOODS AND SO MUCH SO, THE DE CISION RENDERED BY THIS COURT HAS NO APPLICATION IN REGARD TO COMMI SSION PAID BY THE ASSESSEE TO THE DISTRIBUTORS IN THE FORM OF DISCOUN T WHICH WE HAVE FOUND TO BE IN ESSENCE AND SUBSTANCE FOR RENDERING SERVICES. THE NEXT JUDGMENT RELIED ON BY THE PETITIONER WHICH IS IN KE RALA STAMP VENDORS ASSOCIATION CASE RENDERED BY ONE OF US (C.N.RAMACHANDRAN NAIR, J.), RELATES TO SALE OF STA MP PAPER BY THE LICENSED VENDORS. HERE AGAIN, THIS COURT BY RELYING ON DECISION OF THE GUJARAT HIGH COURT IN AHMEDABAD STAMP VENDORS CASE HELD THAT THE TRANSACTION IS A SALE. ON A RECONSIDERATIO N OF THIS JUDGMENT, WE FEEL THIS COURT'S JUDGMENT MAY REQUIRE RECONSIDE RATION BECAUSE CONSIDERATION RECEIVED BY THE STAMP VENDORS FOR THE STAMP PAPER DOES NOT REALLY REPRESENT IT'S VALUE BUT IS NOTHING BUT STAMP DUTY. VALUE OF EACH STAMP PAPER MAY BE FIFTY PAISE OR EVE N A RUPEE, WHATEVER BE IT'S QUALITY, BUT WHAT IS COLLECTED DEP ENDS ON THE AMOUNT STAMPED THEREON WHICH IS NOTHING BUT STAMP DUTY REC OVERED BY THE STATE FROM THE ULTIMATE USER IN TERMS OF THE STAMP ACT. RIGHTLY OR WRONGLY THIS COURT HELD THAT THE TRANSACTION IS SAL E BECAUSE LOSS OF STAMP PAPER IS TO THE ACCOUNT OF THE STAMP VENDORS, IF IT IS LOST IN THEIR CUSTODY. THE GOVERNMENT ALSO TREATS THE TRANS ACTION AS SALE OF GOODS AND SPECIFIC EXEMPTION IS GRANTED FROM PAYMEN T OF SALES TAX IN TERMS OF PROVISIONS OF THE SALES TAX ACT. THEREFORE , THE FINDING THAT SECTION 194H IS NOT APPLICABLE IS ON THE SPECIFIC F INDING IN THAT CASE THAT THE TRANSACTION IS SALE OF GOODS, WHEREAS IN T HIS CASE FOLLOWING THE DIVISION BENCH JUDGMENT OF THIS COURT WE HAVE F OUND THAT THE DISTRIBUTOR IS PAID COMMISSION IN THE FORM OF DISCO UNT FOR SERVICES RENDERED TO THE ASSESSEE. THEREFORE, NONE OF THESE DECISIONS RELIED ON BY THE ASSESSEE APPLIES TO THE FACTS OF THIS CASE W HICH IS PAYMENT OF COMMISSION BY WAY OF DISCOUNT FOR SERVICES RENDERED BY THE DISTRIBUTOR. SENIOR COUNSEL FOR THE ASSESSEE HAS IN SUPPORT OF HIS CONTENTIONS RELIED ON THE FOLLOWING DECISIONS OF TH E SUPREME COURT - - ITA 2944/14 & CO 9/15 19 ALSO, ADDITIONAL COMMISSIOENR OF INCOME TAX V. SURA T ART SILK CLOTH MANUFACTURERS ASSOCIATION REPORTED I N (1980) 121 ITR 1, KEDARNATH JUTE MANUFACTURING CO. V. COMMISSIONER OF INCOME TAX REPORTED IN 82 ITR 363, COMMISSIONER OF INCOME TAX V. MOTORS 7 GENERAL STORES (P) LTD. (1967) 66 ITR 692, COMMISSIONER OF INCOME TAX V. AJAX PRODUCTS LTD. (1965) 55 ITR 741, COMMISSIONER OF INCOME TAX V. B.C.SRINIVASA SETTY (1981) 128 ITR 294, TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. COMMISSIONER OF INCOME TAX (199 7) 227 ITR 172 AND DECISIONS OF HOUSE OF LORDS IN INLA ND REVNUE COMMISSIONERS V. WESLEYAN GENERAL ASSURANCE SOCIETY REPORTED IN (1948) 16 ITR 101 AND ANOTHER D ECISION IN REVENUE COMMISSIONERS V. DUKE OF WESTMINSTER REPORTED IN (1936) A.C. 1.HOWEVER, ON GOING THROUGH THESE JUDGMENTS WE DO NOT FIND ANY OF THE JUDGMENT HAS AN Y DIRECT APPLICATION TO THE FACTS OF THIS CASE. THE VERY SCH EME OF DEDUCTION OF TAX AT SOURCE UNDER THE INCOME TAX ACT IS TO TRACE RECIPIENTS OF INCOME AND THEIR ACCOUNTABILITY TO THE DEPARTMENT F OR PAYMENT OF TAX ON VARIOUS TRANSACTIONS. IN FACT, MAJOR PORTION OF THE INCOME TAX COLLECTION IS THROUGH RECOVERY OF TAX AT SOURCE AND BUT FOR THE MECHANISM, THERE WOULD HAVE BEEN MASSIVE EVASION OF TAX BY THE RECIPIENTS OF VARIOUS KINDS OF INCOME. THE TREND IN LEGISLATION IS TO INCREASE COVERAGE FOR RECOVERY OF TAX AT SOURCE AND ON A STEADY BASIS VARIOUS SERVICES ARE BROUGHT UNDER THE TDS SCHEME S O THAT TAX EVASION IS AVOIDED. WE HAVE ALREADY TAKEN NOTE OF T HE PROVISION UNDER SECTION 197 OF THE ACT WHICH MITIGATES AGAINS T HARDSHIP IF ANY IN RECOVERY OF TAX IN AS MUCH AS A PAYEE IS ENTITLE D TO APPROACH THE DEPARTMENT AND APPLY FOR CERTIFICATE TO RECEIVE ANY AMOUNT WHICH WOULD BE OTHERWISE SUBJECT TO DEDUCTION OF TAX AT S OURCE WITHOUT RECOVERY OF ANY TAX OR ON RECOVERY AT LESSER RATES. WE ARE OF THE VIEW THAT THE GRIEVANCE IF ANY AGAINST RECOVERY OF TAX B Y THE ASSESSEE IS ON THE DISTRIBUTORS, AND THEY ARE ALREADY ON THE ROLES OF THE DEPARTMENT BECAUSE ASSESSEE IS MAKING DEDUCTION OF TAX AT SOUR CE FOR PAYMENT OF COMMISSION MADE UNDER THE POST PAID SCHEME. AS ALRE ADY POINTED OUT, IF DISTRIBUTORS HAVE ANY GRIEVANCE AGAINST ASS ESSEE RECOVERING TAX FOR THE COMMISSION PAID IN THE FORM OF DISCOUNT IN RESPECT OF PREPAID SERVICES, ANY SUCH DISTRIBUTOR IS FREE TO A PPROACH THE DEPARTMENT FOR GETTING HIS GRIEVANCE REDRESSED BY F ILING AN APPLICATION UNDER SECTION 197 OF THE INCOME TAX ACT . HOWEVER, WE MAKE IT CLEAR THAT THIS IS NOT THE GROUND ON WHICH WE HAVE HELD THE ASSESSEE LIABLE FOR RECOVERY OF TAX AT SOURCE UNDER SECTION 194H - - ITA 2944/14 & CO 9/15 20 WHICH IS ONLY BECAUSE WE HAVE CLEARLY FOUND THAT TH E DISCOUNT PAID TO THE DISTRIBUTORS IS FOR SERVICE RENDERED BY THEM AN D THE SAME AMOUNTS TO 'COMMISSION' WITHIN THE MEANING OF THAT TERM CONTAINED UNDER EXPLANATION (I) TO SECTION 194H OF THE ACT. T HE IMPUGNED ORDERS ISSUED UNDER SECTION 201(1) AND 201(1A) OF T HE ACT ARE ONLY CONSEQUENTIAL ORDERS PASSED ON ACCOUNT OF DEFAULT C OMMITTED BY THE ASSESSEE UNDER SECTION 194H AND, THEREFORE, THOSE O RDERS WERE RIGHTLY UPHELD BY THE TRIBUNAL. WE, THEREFORE, DISM ISS ALL THE APPEALS FILED BY THE ASSESSEE. 10.3. SIMILARLY, THE HONBLE DELHI HIGH COURT IN T HE CASE OF CIT V. IDEA CELLULAR LTD. (SUPRA), SAME ISSUE HA S BEEN DECIDED IN FAVOUR OF THE REVENUE WITH RESPECT TO AP PEALS FOR THE ASSESSMENT YEARS 2003-04 AND 04-05 AND RELEVANT HELD PORTION OF THE SAID JUDGMENT IS REPRODUCED AS UNDER : TDS - UNDER S. 194HCOMMISSION OR DISCOUNT TO DIST RIBUTORS OF SIM CARDS/RECHARGE COUPONSASSESSEE, A CELLULAR OPERATO R, PROVIDES PREPAID CONNECTIONS TO THE SUBSCRIBERS THROUGH DIST RIBUTORS CALLED PREPAID MARKET ASSOCIATES (PMAS) APPOINTED BY ITIT OFFERS DISCOUNT FOR PREPAID CALLING SERVICES TO ITS DISTRIBUTORSLE GAL RELATIONSHIP IS ESTABLISHED BETWEEN THE ASSESSEE AND THE ULTIMATE C ONSUMER/SUBSCRIBER, WHO IS SOLD THE SIM CARD BY THE AGENTS FURTHER APPO INTED BY THE PMA5 WITH THE CONSENT OF THE ASSESSEEFACT THAT THE PMA IS SUPPOSED TO MAKE THE PAYMENT IN ADVANCE AS PER THE AGREEMENT DO ES NOT MAKE ANY DIFFERENCE TO THE NATURE OF THE TRANSACTION IN VIEW OF THE OTHER TERMS OF THE AGREEMENTEVEN THOUGH ADVANCE PAYMENT IS MADE B Y THE PMA QUA SIM CARDS, IT DOES NOT AMOUNT TO SALE OF GOOD S IN AS MUCH AS UNSOLD SIM CARDS ARE TO BE RETURNED TO THE ASSESSEE AND IT IS REQUIRED TO MAKE PAYMENT AGAINST THEMTHIS IS AN ANTITHESIS OF SALE THEREFORE, THE DISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTORS ON PAYMENTS MADE BY THE LATTER FOR THE SIM CARDS/RECHA RGE COUPONS WHICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTE D PRICE IS COMMISSION AND IT IS SUBJECT TO TDS UNDER S. 194HCONTENTION O F THE ASSESSEE THAT 5. 194H IS NOT APPLICABLE AS THERE IS NO PAYMENT O R CREDIT BY THE ASSESSEE TO THE DISTRIBUTOR CANNOT BE ACCEPTED. HELD THE ARGUMENT OF THE COUNSEL THAT S. 194H IS NOT APP LICABLE, AS THERE IS NO PAYMENT OR CREDIT BY THE ASSESSEE TO ITS DISTR IBUTOR IS TO BE - - ITA 2944/14 & CO 9/15 21 REJECTED. LIKEWISE, THE ARGUMENT THAT THE AMOUNT MU ST BE SHOWN TO BE THE INCOME OF THE RESPONDENT ALSO DOES NOT HOLD GOO D. THE LEGAL RELATIONSHIP IS ESTABLISHED BETWEEN THE ASSESSEE AN D THE ULTIMATE CONSUMER/SUBSCRIBER, WHO IS SOLD THE SIM CARD BY TH E AGENTS FURTHER APPOINTED BY THE PMAS WITH THE CONSENT OF THE ASSES SEE. IT IS CREATED BY : (A) ACTIVATION OF THE SAID SIM CARD BY THE ASSESS EE IN THE NAME OF THE CONSUMER/SUBSCRIBER. (B) SERVICE PROVIDED BY THE AS SESSEE TO THE SUBSCRIBER. FURTHER, DEALINGS BETWEEN THE SUBSCRIBE RS AND THE ASSESSEE IN RELATION TO THE SAID SIM CARD INCLUDING ANY COMP LAINT, ETC. FOR IMPROPER SERVICE/DEFECT IN SERVICE. (C) ENTERING IN TO THE ULTIMATE AGREEMENT BETWEEN THE SUBSCRIBER AND THE ASSESSEE. IT IS TO BE BORNE IN MIND THAT THE NATURE OF SERVICE PROVIDED BY THE ASS ESSEE TO THE ULTIMATE CONSUMERS/SUBSCRIBERS, WHETHER IT IS PREPAID OR POS T-PAID SIM CARD REMAINS THE SAME. IN THE INSTANT CASE, THE SIM CARD S ARE PREPAID, WHICH ARE SOLD BY THE ASSESSEE TO THE CONSUMERS THROUGH T HE MEDIUM OF PMAS. IN THE CASE OF POST-PAID, SIM CARD TRANSACTION IS E NTERED INTO DIRECTLY BETWEEN THE ASSESSEE AND THE SUBSCRIBER AND THE SUB SCRIBER IS SENT BILL PERIODICALLY DEPENDING UPON THE USER OF THE SIM CAR D FOR THE PERIOD IN QUESTION. IN BOTH, THE CASES, LEGAL RELATIONSHIP IS CREATED BETWEEN THE SUBSCRIBER AND THE ASSESSEE THAT TOO BY ENTERING IN TO SPECIFIC AGREEMENT BETWEEN THESE TWO PARTIES. IN CONTRAST, THE LEGAL P OSITION WHEN THE GOODS ARE SOLD BY PRINCIPAL TO ITS DISTRIBUTORS CRE ATING PRINCIPAL AND PRINCIPAL RELATIONSHIP WOULD BE ENTIRELY DIFFERENT . ON THE SALE OF GOODS, THE OWNERSHIP PASSES BETWEEN THE MANUFACTURE R AND THE DISTRIBUTORS. IT IS THE RESPONSIBILITY OF THE DISTR IBUTOR THEREAFTER TO SELL THOSE GOODS FURTHER TO THE CONSUMERSTHE ULTIMATE U SERS. THE PRINCIPAL/MANUFACTURER DOES NOT COME IN PICTURE AT ALL. OF COURSE, HE MAY BE LIABLE FOR SOME ACTION BY THE CONSUMER BECAU SE OF DEFECTIVE GOODS, ETC., WHICH IS THE RESULT OF OTHER ENACTMENT S CONFERRING CERTAIN RIGHTS ON THE CONSUMER OR COMMON LAW RIGHTS IN HIS FAVOUR AS AGAINST THE MANUFACTURER. NO DOUBT, AS PER CL. 6(A) OF THE AGREEMENT, PMA IS SUPPOSED TO MAKE THE PAYMENT IN ADVANCE. THAT WOULD NOT MAKE ANY DIFFERENCE TO THE NATURE OF TRANSACTION IN VIEW OF CI. 25(D) OF THE AGREEMENT. THUS, EVEN IF ADVANCE PAYMENT IS MADE BY THE PMA ON RECEIPT OF THE SIM CARDS, QUA THOSE SIM CARDS, IT D OES NOT AMOUNT TO SALE OF GOODS. THE PURPOSE IS TO ENSURE THAT THE PAYMENT IS RECEIVED IN RESPECT OF THOSE SIM CARDS, WHICH ARE ULTIMATELY SOLD TO THE SUBSCRIBERS IN AS MUCH AS UNSOLD SIM CARDS ARE TO B E RETURNED TO THE ASSESSEE AND THE ASSESSEE IS REQUIRED TO MAKE PAYME NT AGAINST THEM. THIS IS AN ANTITHESIS OF SALE. THERE CANNOT BE AN Y SUCH OBLIGATION TO RECEIVE BACK THE UNSOLD STOCKS. FURTHER, CL. 25(F) LAYS DOWN THAT ON TERMINATION OF AGREEMENT, PMA OR ITS AUTHORIZED RET AILER APPOINTED BY - - ITA 2944/14 & CO 9/15 22 IT, IS NOT ENTITLED TO ANY COMPENSATION FOR COST OR EXPENSES INCURRED BY IT IN EITHER SETTING UP OR PROMOTION OF ITS BUSINES S, ETC. NO SUCH CLAUSE WAS REQUIRED IN CASE OF SALE. THUS, THE TRIBUNAL E RRED IN HOLDING THAT THE PAYMENTS PAID BY THE ASSESSEE ARE NOT COMMISSIO N AS ENVISAGED UNDER S. 194H.CIT VS. SINGAPORE AIRLINES LTD. & OR S. (2009) 224 CTR (DEL) 168 : (2009) 22 DTR (DEL) 129 : 2009-ITOL -183-HC-DEL- IT FOLLOWED; BHARAT SANCHAR NIGAM LTD. & ANR. VS. U NION OF INDIA & ORS. (2006) 201 CTR (SC) 346 : AIR 2006 SC 1383 REL IED ON; VODAFONE ESSAR CELLULAR LTD. VS. ASSTT. CIT (2010) 35 DTR (COCH)(TRIB) 393 AND ASSTT. CIT VS. BHARTI CELLULAR LTD. (2007) 108 TT] (KOL) 38 APPROVED; VIJAY TRADERS VS. BAJAJ AUTO LTD. (1995) 6 SCC 566, AHMEDABAD STAMP VENDORS ASSOCIATION VS. UNION OF INDIA (2002) 176 CTR (GUJ) 193 : (2002) 257 ITR 202 (GUJ) AND BH OPAL SUGAR INDUSTRIES LTD. VS. STO 1977 CTR (SC) 284 : (1977) 40 STC 42 DISTINGUISHED; IDEA CELLULAR LTD. VS. DY. CIT (2009 ) 18 DTR (DEL)(TRIB) 475 : (2009) 121 TI] (DEL) 352 SET ASID E. (PARAS 22 TO 26) CONCLUSION TRANSACTION BETWEEN THE ASSESSEE, A CELLULAR OPERAT OR, AND THE PREPAID MARKET ASSOCIATES (PMAS) APPOINTED BY IT WHEREBY SI M CARDS/RECHARGE COUPONS ARE ULTIMATELY SOLD TO THE SUBSCRIBERS THRO UGH THE LATTER DOES NOT AMOUNT TO SALE OF GOODS AND, THEREFORE, THE D ISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTORS ON PAYMENTS MADE BY TH E LATTER FOR THE SIM CARDS/RECHARGE COUPONS WHICH ARE EVENTUALLY SOLD TO THE SUBSCRIBERS AT THE LISTED PRICE IS COMMISSION AND IT IS SUBJECT TO TDS UNDER S. 194H. 11. SO FAR AS THE PLEA OF THE LD. COUNSEL NOT TO F OLLOW KERALA HIGH COURTS AND DELHI HIGH COURTS DECISION IN THE CASE OF THE ASSESSEE AND IN THE CASE OF CIT V. IDEA CELLULAR LTD. RESPECTIVELY IS CONCERNED, WE, AFTER CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS AND PRECEDENTS, FIND THAT THESE TWO DECISIONS ARE DIRECT ON THE POINT RELATAB LE TO INTERPRETATION OF SECTION 194H IN RELATION TO COMMI SSION / DISCOUNT ALLOWED TO THE DISTRIBUTORS ON SIM CARDS A ND RECHARGE COUPONS AND NO SIMILAR DECISION WITH REGAR D TO INTERPRETATION OF SAME PROVISION HAS BEEN CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, CONSIDERING T HESE DECISIONS AND FACTS OF THE CASE, WE HOLD THAT THE PLEA OF THE ASSESSEE IN THIS REGARD IS NOT TENABLE AND AS SUCH CANNOT BE ACCEPTED. - - ITA 2944/14 & CO 9/15 23 12. CONSIDERING THE ENTIRETY OF FACTS, CIRCUMSTANC ES AND MATERIAL ON RECORD IN THE LIGHT OF RELEVANT PROVISI ONS, PRECEDENTS AND DISCUSSION HELD ABOVE, WE HOLD THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE A MOUNT OF COMMISSION/DISCOUNT ALLOWED TO THE DISTRIBUTORS UND ER SECTION 194H FOR BOTH THE YEARS UNDER CONSIDERATION AND SINCE IT HAS FAILED TO DO SO, THEREFORE, THE ASSESS ING OFFICER HAS CORRECTLY CREATED DEMANDS UNDER SECTIONS 201(1) AND 201(1A) OF THE INCOME TAX ACT AND THE LD. CIT(A) IS NOT JUSTIFIED AT ALL TO DELETE SUCH DEMANDS. AS SUCH, W HILE ACCEPTING THE APPEALS OF THE REVENUE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASS ESSING OFFICER IN THIS REGARD. 8. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDE R OF THE CIT(APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE DISCOUNT O FFERED TO THE PARTIES LIABLE TO BE DEDUCTED TDS U/S.194H OF T HE ACT AS HELD BY THE TRIBUNAL IN THE CASE OF M/S. VODAFON E ESSAR CELLULAR LTD. (SUPRA). HOWEVER, IN VIEW OF THE ORD ER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERYLI N SHIPPING & TRANSPORT VS. ADDL. CIT (2012) 16 ITR (T RIB) 1 (SB), IF THE DISCOUNT IS ALREADY OFFERED TO THE PA RTIES AND IT IS NOT AN OUTSTANDING ENTRY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THEN THE CLAIM OF THE ASSESSEE CANNOT BE - - ITA 2944/14 & CO 9/15 24 DISALLOWED ON ACCOUNT OF NON-DEDUCTION OF TDS. ACCORDINGLY, ON MERIT, WE REMIT THIS ISSUE TO THE F ILE OF THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF THE ABOV E ORDER OF THE SPECIAL BENCH. 10. SINCE, WE HAVE DECIDED THE ISSUE OF REOPENING AGAINST THE ASSESSEE AND REMITTED THE ISSUE ON MERI TS TO THE AO FOR FRESH CONSIDERATION, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND DISMISSED ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED AND THE CROSS-OBJECTION OF THE ASSESSEE IS DISMISSE D AS INFRUCTUOUS. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF SEPT., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 30.09.2015. MPO* - - ITA 2944/14 & CO 9/15 25 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.