M/S TATA TELESERVICES LIMITED, Jaipur V. ITO, Jaipur

ITA 309/JPR/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87573 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DHK
• Assessee Lawyers: TARUN GULATI SIDDHARTH RA NKA; SHASHI MATHEW
• Keywords: Business income; Additional evidence; Reasonable cause; Relationship of principal and agent
• Section: 201(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NOS. 309/JP/2012, 502, 503,504 & 505/JP/2011 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2005-06 TO 2009-10 M/S. TATA TELESERVICES LTD. GUMAN-1, AMARPALI CIRCLE, VAISHALI NAGAR, JAIPUR CUKE VS. THE ITO TDS -1 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACT 2438 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NOS. 536 TO 539/JP/2011 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 TO 2009-10 THE ITO TDS -1 JAIPUR CUKE VS. THE PRINCIPAL OFFICER M/S. TATA TELESERVICES LTD. GUMAN-1, AMARPALI CIRCLE, VAISHALI NAGAR, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACT 2438 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : S/SHRI TARUN GULATI, SIDDHARTH RA NKA & SHASHI MATHEW, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH, JCIT LQUOKBZ DH RKJH[K@ DATE OF HEARING : 16/01/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 13 /03/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM THE ABOVE MENTIONED APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE AGAINST TWO DIFFERENT ORDERS OF THE LD. CIT(A)-III, JAIPUR ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 2 DATED 20-12-2011 AND 11-03-2011 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 TO 2009-10. THESE APPEALS PERTAINS TO DECID ING THE ISSUE OF APPLICABILITY OF SECTION 194H AND ASSESSEE'S LIABIL ITY THEREUNDER U/S 201(1) AND 201(1A) OF THE I.T. ACT. 2.1 THE COMMON GROUNDS RAISED BY THE ASSESSEE IN IT S APPEALS ARE AS UNDER:- ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A)-III, JAIPUR, ERRED IN:- 1. CONFIRMING THE ACTION OF THE AO AND UPHOLDING TH E PROVISIONS OF SECTION 194H OF THE ACT ARE APPLICABL E ON THE DISCOUNT ON SALE OF RECHARGE VOUCHERS (RCVS) AND TH E STARTER KITS BY THE APPELLANT TO ITS CHANNEL PARTNERS (DIST RIBUTORS/ DEALERS); 2. NOT APPRECIATING THAT THE PROVISIONS OF SECTION 194H OF THE ACT WOULD APPLY ONLY AT THE TIME OF PAYMENT/ CREDIT TO PAYEES ACCOUNT. 3. NOT APPRECIATING THE TRUE SPIRIT OF SECTION 194H WHEREIN THE DISCOUNT ALLOWED HAS TO QUALIFY AS INCO ME CHARGEABLE TO TAX UNDER THE ACT; 4. NOT APPRECIATING THE TRUE SPIRIT OF SECTION 194H AS ENVISAGED IN CHAPTER XVII-B (DEDUCTION AT SOURCE) O F THE ACT, IRRESPECTIVE OF THE RELATIONSHIP BETWEEN THE D EDUCTOR AND THE DEDUCTEE. 5. HOLDING THAT PRINCIPAL AGENT RELATIONSHIP EXISTE D BETWEEN THE APPELLANT AND ITS CHANNEL PARTNERS WITH OUT APPRECIATING THE FACT THAT THE SAID RELATIONSHIP IS ON PRINCIPAL TO PRINCIPAL BASIS INASMUCH AS STARTER KITS/ RCVS W ERE SOLD ON A PRINCIPAL TO PRINCIPAL BASIS AND SALES TAX AND SERVICE TAX AS APPLICABLE WERE LEVIED AND PAID IN THE COURS E OF THE ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 3 SAID TRANSACTIONS OF SALE AND THAT OWNERSHIP/PROPER TY IN THE SAID STARTER KITS/RCVS PASSED ON FROM THE APPELLANT TO ITS CHANNEL PARTNERS; 6. HOLDING THAT PRINCIPAL-AGENT RELATIONSHIP EXISTE D BETWEEN THE APPELLANT AND ITS CHANNEL PARTNERS WITH OUT APPRECIATING THAT VARIOUS CLAUSES OF THE AGREEMENT EXECUTED BETWEEN THE APPELLANT WITH ITS CHANNEL PARTNERS UNEQUIVOCALLY DEMONSTRATE THAT THE RELATIONSHIP BET WEEN THE APPELLANT AND THE CHANNEL PARTNERS IS IN FACT ON PR INCIPAL TO PRINCIPAL BASIS. 7. NOT APPRECIATING THE RECOGNITION OF THE PRINCIPA L OF TRADING IN SERVICES AND THE CONCEPT OF DISCOUNT UND ER SERVICE TAX LAW ADMINISTERED BY CENTRAL BOARD OF EXCISE AND CUSTOMS, THE OTHER WING OF THE MINISTRY OF FINANCE; 8. WITHOUT PREJUDICE TO ABOVE, HOLDING THAT THE INT EREST U/S 201(1A) OF THE ACT WOULD BE APPLICABLE FOR THE PERIOD STARTING FROM THE END OF THE MONTH IN WHICH THE TDS WAS TO BE PAID TILL THE DATE OF FILING OF THE RETURN OF IN COME BY THE DISTRIBUTOR/ CHANNEL PARTNER. 2.2 THE COMMON GROUNDS RAISED BY THE REVENUE IN IT S APPEALS ARE AS UNDER:- 1. THE ASSESSEE COMPANY DID NOT PROVIDE THE DETAILS OF DEDUCTEE REGARDING FILING OF I.T. RETURNS BEFORE TH E AO (TDS) DURING THE PROCEEDINGS. 2. THE DETAILS PROVIDED BEFORE THE LD. CIT(A) DID N OT REFLECT THE CORRECT FIGURE OF COMMISSION SHOWN BY T HE DEDUCTEE IN THEIR I.T. RETURNS AS THE LD. CIT(A) DI RECTED THE AO TO VERIFY THE FIGURES. 3. MANY OF THE DEDUCTEES DID NOT HAVE PAN AND THEREFORE, THE CLAIM OF FILING OF I.T. RETURN BY TH EM COULD NOT HAVE BEEN CONSIDERED.. ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 4 4. INCOMPLETE AND UNVERIFIED INFORMATION COULD NOT HAVE BEEN CONSIDERED AS ADDITIONAL EVIDENCE UNDER RULE 3 6A OF INCOME TAX RULES. 2.3 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A TELECOMMUNICATION SERVICE PROVIDER, IT SELLS ITS PRODUCTS TO DISTRIBU TORS IN BULK AGAINST PRIOR PAYMENTS SUCH AS STARTER KITS AND THE RECHARGE COUP ON VOUCHERS (RCV). STARTER KITS ARE THE NEW CONNECTIONS CONTAIN ING A REMOVABLE USER IDENTITY MODULE (FOR SHORT RUIM CARDS/ SIM C ARDS). ACCORDING TO THE ASSESSEE, THE STARTER KITS AND THE RECHARGE COU PON VOUCHERS ARE SOLD TO ITS VARIOUS DISTRIBUTORS AS PER THE TERMS OF BUS INESS AGREEMENTS ON PRINCIPAL TO PRINCIPAL BASIS AGAINST PRIOR PAYMENT ON A DISCOUNTED PRICE THAN MRP. AS A BUSINESS POLICY THERE ARE DIFFERENT DISTRIBUTORS FOR ITS PRE- PAID AND POST-PAID PRODUCTS. STARTER KITS AND RCVS ARE SOLD FOR PRE-PAID CONNECTIONS TO DISTRIBUTORS IN BULK. THEY ARE SOLD TO THE DISTRIBUTORS AGAINST ON A DISCOUNT ON THE M.R.P. PRINTED MRP ON THESE PRODUCTS. IN OTHER WORDS, THESE PRODUCTS ARE SOLD TO DISTRIBUTOR S AT A DISCOUNTED PRICE AGAINST PRIOR CASH PAYMENT AS PER TERMS OF BUSINES S AGREEMENT, APART FROM OTHER CLAUSES THEY STIPULATE NOT BE SOLD MORE THAN THE PRINTED M.R.P. ACCORDING TO THE AO, THE DISCOUNT I.E. THE DIFFER ENCE BETWEEN THE MRP AND THE SELLING PRICE TO THE DISTRIBUTOR AMOUNTED T O PAYMENT OF COMMISSION TO DISTRIBUTORS WHICH WAS LIABLE TDS U/S 194H OF THE ACT. ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 5 SINCE THE ASSESSEE COMPANY HAD NOT DEDUCTED THE TAX , SHOW CAUSE NOTICE WAS ISSUED IN THIS BEHALF. 2.4 IN REPLY, THE ASSESSEE CONTENDED THAT THE REAL NATURE OF THESE TRANSACTIONS BEING OF SALE TO DISTRIBUTORS ON PRINC IPAL TO PRINCIPAL BASIS, THE DISCOUNT AMOUNTED TO SIMPLY A BUSINESS DISCOUNT AGAINST PRIOR PAYMENT. THE TRANSACTIONS WERE PURELY OF SALE AND N OT OF PRINCIPAL AND AGENT AND THE DISCOUNT WAS NOT COMMISSION IN NATURE . THEREFORE, IT WAS NOT LIABLE FOR TDS U/S 194H OF THE ACT. 2.5 THE AO HOWEVER, REJECTED THE ASSESSEE'S EXPLANA TION AND HELD THAT RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUT OR WAS THAT OF PRINCIPAL AND AGENT; DISCOUNT WAS HELD AS COMMISSION IN NATUR E WHICH WAS LIABLE FOR TDS. ASSESSEE WAS CONSEQUENTLY HELD TO BE IN DE FAULT U/S 201(1) AND INTEREST THEREON U/S 201(1A) WAS ALSO LEVIED. 2.6 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL WHERE THE LD. CIT(A) FOLLOWED HIS ORDERS FOR ASSESSMENT YEAR 2005-06 TO 209-10. BESIDES, THE LD. CIT(A) RELIED ON CLAUSE 7(I) OF THE AGREEMENT A ND FOLLOWED THE FOLLOWING JUDGMENTS: I. CIT VS. IDEA CELLULAR LTD. , 230 CTR 43 (DELHI) II. VODAFONE ESSAR, CELLULAR LTD. VS. ACIT (2010) 235 CTR 393(KERALA) ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 6 2.7 LD. CIT(A) THUS UPHELD THE ACTION OF THE AO HO LDING THAT THE ASSESSEE IS LIABLE FOR DEDUCTION OF TAX U/S 194H AN D THEREBY THE ASSESSEE IS IN DEFAULT U/S 201(1) AND INTEREST LIABILITY U/S 20 1(1A) OF THE ACT. 2.8 HOWEVER, THE LD. CIT(A) ACCEPTED THE ALTERNATIV E PLEA OF THE ASSESSEE BY ADMITTING THE ADDITIONAL EVIDENCES RELY ING ON HON'BLE SUPREME COURT DECISION IN THE CASE OF M/S. HINDUST AN COCA COLA BEVERAGES (P) LTD. AND DIRECTED THE AO TO VERIFY WH ETHER THE DISTRIBUTOR HAD PAID TAX ON THEIR INCOME QUA THE SALE OF ASSESS EE'S PRODUCTS. IT WAS FURTHER DIRECTED THAT CHARGEABILITY OF INTEREST SHO ULD BE SUITABLY REDUCED AS PER DIRECTION GIVEN. THE RELEVANT OBSERVATIONS O F THE LD. CIT(A) ARE AS UNDER:- 2.3.1 AS FAR AS THE ALTERNATIVE GROUNDS I.E. GROU NDS NO. 3 RD AND 4 TH ARE CONCERNED, WHEREIN THE BENEFIT OF THE DECISION OF HON'BLE SUPREME COURT GIVEN IN THE CASE OF M/S. HI NDUSTAN COCA COLA BEVERAGE (P) LTD. IS SOUGHT FOR, IN RESPECT OF THE DEMAND RAISED U/S 201(1) OF THE ACT IS CONCERNED, THE SAME HAS ALSO BEEN FOUND AS DECIDED BY MY PREDECESSOR WHILE DISPOSING THE ABOVE REFERRED APPEAL OF THE APPELLANT. THE FINDINGS GIVE N IN THIS REGARD ARE BEING REPRODUCED AS UNDER:- 2.3.2 HOWEVER AS FAR AS THE ALTERNATIVE GROUNDS I.E. GROUNDS NO. 2,3, & 4, TAKEN BY THE APP ELLANT ARE CONCERNED, I FIND MERIT IN THE CONTENTION OF TH E LD. AR THAT WHEN THE CONCERNED DISTRIBUTOR / CHANNEL PARTN ER OF THE APPELLANT HAD FILED ITS RETURN OF INCOME FOR THE RE LEVANT ASSESSMENT YEAR AND HAD ALSO CERTIFIED THAT THE TOT AL INCOME DECLARED THEREIN BY IT WAS INCLUDING THE BUSINESS I NCOME FROM THE PURCHASE AND SALE OF THE PRODUCTS OF THE A PPELLANT (STARTER KITS AND RECHARGE COUPON VOUCHERS OF TTSL) , THEN THE LIABILITY U/S 201(1) OF THE I.T. ACT SHOULD NOT BE CREATED IN ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 7 THE APPELLANTS CASE, IN RESPECT OF PAYMENTS MADE TO SUCH DISTRIBUTOR/ CHANNEL PARTNER. THE ABOVE CONTENTON O F THE LD. AR WAS FOUND ACCEPTABLE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS. CIT 239 ITR 226 (SC). THEREF ORE, THE AO IS DIRECTED TO DELETE THE APPELLANTS LIABILITY CREATED U/S 201(1) OF THE I.T. ACT IN RESPECT OF SUCH DISTRIBU TORS/ CHANNEL PARTNERS WHO HAVE CERTIFIED THAT THEY HAVE FILED TH EIR RETURN OF INCOME FOR THE CONCERNED ASSESSMENT YEAR AND THE IR TOTAL INCOME DECLARED THEREIN WAS INCLUDING THE BUSINESS INCOME FROM THE PURCHASE AND SALE OF PREPAID PRODUCTS OF T HE APPELLANT COMPANY (STARTER KITS AND RECHARGE COUPON VOUCHERS OF TTSL). IN THIS REGARD, THE LD. AR HAS F ILED A CHART GIVING YEARWISE DETAILS OF SUCH DISTRIBUTORS/ CHANNEL PARTNERS ALONGWITH THE RELEVANT SUPPORTING DOCUMENT ARY EVIDENCES, WHICH WERE ALSO SENT TO THE LD. AO DURIN G THE REMAND PROCEEDINGS, AND WHICH HAVE BEEN ADMITTED AS ADDITIONAL EVIDENCES UNDER RULE 46A OF THE I.T. RUL ES, AS DISCUSSED IN PARA 2.22. ABOVE. THEREFORE, THE AO IS DIRECTED TO FACTUALLY VERIFY THE CORRECTNESS/ TOTALING ETC. OF THE SAID CLAIM, AFTER GIVING AN OPPORTUNITY OF HEARING TO TH E APPELLANT AND TO ALLOW RELIEF ACCORDING TO THE DECISION GIVEN ABOVE IN THIS PARA. IN THE PRESENT APPELLATE PROCEEDING, THE APPELLANT SUBMITTED THAT DURING THE PERIOD UNDER CONSIDERATION THE DISC OUNT OF RS. 4000/- ONLY WAS PAID TO M/S. VIGIL NETWORK AND THEY ARE ASSESSED TO TAX. ACCORDINGLY, IN VIEW OF THE ABOVE DECISION OF HON'BLE SUPREME COURT, THE DEMAND RAISED U/S 201(1), I.R.O. SUCH DISCOUNT PAYMENT NEED TO BE DELETED. IN THE LIGHT OF THE ABO VE, I ALSO TEND TO AGREE WITH THE ALTERNATIVE PLEA OF THE APPELLANT AN D THE AO IS HEREBY DIRECTED TO GIVE THE RELIEF I.R.O. LIABILITY OF RS. 3396/- RAISED U/S 201(1), AFTER MAKING THE NECESSARY VERIFICATION OF THE CLAIM MADE BY THE APPELLANT IN THIS REGARD . 2.3.2. REGARDING THE OTHER ALTERNATIVE PLEA, AS RAI SED IN 5 TH GROUND OF APPEAL, TOWARDS THE QUANTUM OF DEFAULT PE RIOD TO LEVYING THE INTEREST U/S 201(1A) IS CONCERNED, THE THEN CIT (A) HAS ALSO ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 8 GIVEN HIS FINDING, IN THIS REGARD, IN THE AFORESAID EARLIER APPELLATE ORDER, AS UNDER:- 2.3.3. AS FAR AS THE ALTERNATIVE GROUND I.E. GROUND NO. 5 IS CONCERNED, I FIND MERIT IN THE CONT ENTION OF LD. AR THAT THE LD. AO HAD ERRED IN LEVYING CONSEQU ENTIAL INTEREST U/S 201(1A) OF THE I.T. ACT FOR THE PERIOD FROM THE DUE DATE OF PAYMENT OF TAX TO BE WITHHELD TILL THE DATE OF ISSUANCE OF THE ASSESSMENT ORDER UNDER CONSIDERATIO N AND THAT INSTEAD THE AO SHOULD HAVE TAKEN THE PERIOD FR OM THE DUE DATE OF FILING OF TAX RETURN BY THE PAYEE. IN T HIS REGARD, ON PERUSAL OF THE DECISION GIVEN BY THE HON'BLE IT AT BANGALORE BENCH IN THE CASE OF ITO VS. M/S. INTEL T ECH INDIA (P) LTD. 2009-TIOL -355-ITAT-BANG., IT IS SEEN THAT THE HON'BLE ITAT HAS HELD IN THAT CASE THAT IN THE I NSTANT CASE, THE DEDUCTOR WAS REQUIRED TO DEDUCT THE TAX AT SOUR CE AND THEREFORE, THE DEDUCTOR WAS AN ASSESSEE IN DEFAULT SINCE A DEDUCTEE HAS FILED THE RETURN AND HAS DISCLOSED THE TRANSACTION IN THE RETURN OF INCOME AND THAT SHOWS NO TAX WAS PAYABLE ON SUCH TRANSACTION. THEREFORE, THE DEF AULT WILL END ON THE DATE WHEN THE DEDUCTEE HAS FILED THE RET URN. HENCE, THE DEDUCTOR WILL BE LIABLE TO INTEREST U/S 201(1A) ONLY UPTO THE DATE OF FILING OF RETURN BY THE DEDUC TEE. THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION OF HON'BLE TRIBUNAL , IT IS HELD THAT THE APPELLANT IS LIABLE TO PAY INTEREST U/S 201(1A) OF THE I.T. ACT FOR THE PERIOD STARTING FROM THE END OF THE MONTH IN WHICH THE APPELLANT WAS SUPPOSE D TO MAKE TDS IN THE CASE OF A DISTRIBUTOR/ CHANNEL PART NER TILL THE DATE OF FILING OF THE RETURN OF INCOME FOR THE CONCERNED A.Y. BY THAT DISTRIBUTOR/ CHANNEL PARTNER. WHILE FOLLOWING THE SAME ANALOGY, THE AO IS HEREBY DIRECTED TO CHARGE THE INTEREST U/S 201(1A) FOR THE PERIOD S TATED FROM THE END OF THE MONTH IN WHICH THE TDS RETURN WAS REQUIR ED TO BE FILED BY THE APPELLANT AND TO THE DATE OF FILING OF RETUR N OF INCOME BY THE DISTRIBUTOR/ CHANNEL PARTNER OF THE APPELLANT. ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 9 2.9 AGGRIEVED, BOTH THE PARTIES ARE BEFORE US. THE ASSESSEE IS AGAINST REJECTION OF ITS CLAIM ABOUT ITS IMPUGNED TRANSACTI ONS WITH DISTRIBUTORS BEING SALE AS PRINCIPAL TO PRINCIPAL AND HOLDING TH E SAME TO BE COMMISSION ON RELATIONSHIP OF PRINCIPAL AND AGENT AND LIABILITY U/S 194H. THE REVENUE IS AGAINST ADMISSION OF ADDITIONAL EVID ENCE AND GRANT OF RELIEF FOLLOWING HINDUSTAN COCA COLA JUDGMENT WITHO UT PROPER VERIFICATION OF DISTRIBUTORS INCOME TAX RECORDS. T HE RESPECTIVE GROUNDS RAISED BY BOTH THE PARTIES ARE MENTIONED ABOVE. 2.10 THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E FACTS AND CIRCUMSTANCES OF THE CASE AND CONTENDS THAT THE COM PANY SELLS THE SUKS BOTH POSTPAID AND PREPAID, AND THE RCVS TO THE RESP ECTIVE DISTRIBUTORS IN BULK. THE DISTRIBUTORS BEING THE BULK PURCHASERS, T HE COMPANY ALLOWS THEM A CASH DISCOUNT FOR BUYING THE PRODUCTS IN BUL K I.E. THE MARGIN BETWEEN THE MAXIMUM RETAIL PRICE AND THE PRICE AT W HICH THE PRODUCTS ARE SOLD IN BULK. THE MARGIN IS IN THE NATURE OF A CASH DISCOUNT AS THE DISTRIBUTORS PAY THE AGREED PURCHASE PRICE BEFORE T HE DELIVERY OF THE PRODUCTS. THE DISTRIBUTORS ARE FREE TO SELL THE PRO DUCTS AT ANY PRICE. HOWEVER, IN NO EVENT, IT SHALL BE MORE THAN THE MAX IMUM RETAIL PRICE. THE DISTRIBUTORS MAIN THE STOCKS OF THE PRODUCTS AND RE PLENISHES THE STOCK AS PER THEIR BUSINESS REQUIREMENTS. IN CASE OF RCVS AL SO, THE COMPANY SELLS ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 10 AT A PRICE WHICH IS LESS THAN A MAXIMUM RETAIL PRIC E. COMPANY ALSO GIVES CASH DISCOUNT ON THESE BULK SALES. ALMOST EVERY STA TE HAS DECLARED THESE SIM CARDS AS ITEM OF GOODS AND IS SHOWN AS DECLARED GOODS IN THE SCHEDULES TO THE RESPECTIVE STATE VALUE ADDED TAX ( FOR SHORT VAT) LEVIABLE ON SALES. THE STATES LEVY THE VAT ON THE S ALE OF THESE PRODUCTS, WHICH PRE-SUPPOSES ELEMENT OF SALE IN THE TRANSACTI ON AND LEVY OF STATUTORY VAT THEREON. BOTH CONSTITUTIONAL VALIDITY OF VAT AND ITS APPLICABILITY IN SUKS AND RCVS HAS BEEN UPHELD BY T HE SUPERIOR COURTS. THUS THE COURTS IN THE BACK DROP OF SCOPE OF VAT LE VY, HAVE RULED THAT THESE PRODUCTS ARE LIABLE FOR VAT AS THE NATURE OF TRANSACTION BETWEEN THE ASSESSEE AND ITS DISTRIBUTOR WAS SALE OF SIMPLICITO R BY WAY OF TRANSFER OF PROPERTY IN GOODS IN ACCORDANCE WITH SALE OF GOODS. VAT IS CHARGEABLE ON THE DISCOUNTED SALE PRICE, KEEPING IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SELF CONTRADICTORY AND BEYOND COMPREHENSION THAT SAME TRANSACTION FOR STATES OF S ALE IN NATURE AND FOR CENTRAL GOVT. IT IS NOT SO AND TREATED AS PRINCIPAL AGENT TRANSACTION AGAINST PAYMENT OF COMMISSION. MORE SO, WHEN THE COMMISSION IS NOT EVEN PAID BY ASSESSEE AS ITS DISCOUNTED SALE PRICE AGAINST TH E PRIOR PAYMENT THEN THIS APPROACH LEADS TO A DIRECT CONTRADICTION ON THE INT ERPRETATION OF SAME TRANSACTION BY THE COMPETENT COURTS AND DISTORTS T HE LEGAL MEANING OF THE ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 11 TRANSACTIONS. SINCE THE PRODUCTS ARE SOLD THEY ARE LIABLE FOR VAT WHICH PAID BY THE ASSESSEE AND TAX COLLECTED BY STATE GOV T. AND DEPOSIT TO ITS RESPECTIVE TREASURY BY VALID STATUTORY ASSESSMENT. THEREFORE, THERE IS NO MERIT IN THE LOWER AUTHORITIES HOLDING THE TRANSACT ION BETWEEN THE ASSESSEE AND DISTRIBUTORS AMOUNTS TO RELATIONSHIP OF PRINCIP AL AND AGENT AND THE DISCOUNT AMOUNTED TO COMMISSION WHICH IS LIABLE FOR DEDUCTION OF TAX U/S 194H. 2.11 LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDS THAT THE VERY ISSUE I.E. THE NATURE OF RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS (CHANNEL PARTNERS) WAS IN RESPECT OF SALE OF SKUS A ND RCVS CAME UP BEFORE HON'BLE KARNATAKA HIGH COURT BY WAY OF BATC H OF APPEALS IN WHICH THE ASSESSEE WAS ONE OF THE PARTY (ITA NO. 15 8 OF 2013). BY A CONSOLIDATED ORDER DATED 2-12-2014 PUBLISHED IN 52 TAXMAN.COM31 WHEREIN HON'BLE KARNATAKA HIGH COURTS CONSIDERED A LL THE AVAILABLE JUDGEMENTS RENDERED BY VARIOUS JUDICIAL AUTHORITIES AND ARE REFERRED IN THE SAID ORDER, SOME OF WHICH ARE AS UNDER:- (I) BHARAT SANCHAR NIGAM LTD. AND ANOTHER VS. UNION OF INDIA, 282 ITR (SC). (II) CIT VS. QATAR AIRWAYS (2011) 322 ITR 253 (BOM.) (III) CIT VS. MOTHER DAIRY INDIA LTD. (2013) 358 ITR 218 (DEL.) ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 12 (IV) CIT VS. SINGAPORE AIRLINES LTD. AND OTHERS (2009) 2 24 CTR 168 (DEL.) (V) CIT VS. IDEA CELLULAR LTD. (2010) 325 ITR 148 (DEL. ) (VI) VODAFONE ESSAR CELLULAR LTD. VS. ACIT (2011) 332 ITR 255 (KER.) (VII) BHARTI CELLULAR LTD. VS. ACIT AND ANOTHER (2 013) 354 ITR 507 (CAL.) THUS HON'BLE KARNATAKA HIGH COURT CONSIDERED ALL T HESE JUDGMENTS ON THE SAME ISSUE. BESIDES ON OTHER PRINCIPLES OF LAW RELIED ON FOLLOWING JUDGMENTS. (I) BHAVANI COTTON MILLS LTD. VS. STATE OF PUNJAB AND ANOTHER, AIR 1967 SC 1616 (SC). (II) GE INDIA TECHNOLOGY CEN. (P) LTD. VS. CIT (2010) 32 7 ITR 456 (SC) (III) CIT VS. ELI LILLY AND COMPANY (INDIA) (P) LTD. 312 ITR 225 (S.C.) (IV) DURING. COMMISSIONER OF SALES TAX (LAW) BOARD OF REVENUE (TAXES), ERNAKULAM VS. ADVANI OORLIKON (P) LTD. (AIR 1980 SC 609) (V) BHOPAL SUGAR INDUSTRIES LTD. VS. SALES TAX OFFICER (1977) 6 CTR 284 (SC.) (VI) PADMA SUNDARA RAO (DEAD) AND OTHERS VS. STATE OF T.N. AND OHTERS (2002) 3 SCC 533) (VII) UNION OF INDIA VS. CHAJJU RAM (DEAD) BY LRS. AND OTHERS (203) 5 SCC 568) ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 13 2.12 REFERRING TO THE CASE DECIDED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. IDEA CELLULAR LTD. (2010) 325 ITR 148 (DEL.) AND BY KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR CE LLULAR LTD. VS. ACIT (2011) 332 ITR 255 (KER.), THE HON'BLE KARNATAKA H IGH COURT DEALT WITH THESE CASES WHILE DECIDING THE REAL NATURE OF THE I MPUGNED TRANSACTIONS. THE HON'BLE HIGH COURT ON THE ISSUE OF RELATIONSHIP OF TELECOMMUNICATION COMPANIES AND OTHER DISTRIBUTORS QUA THE SALE OF THESE PRODUCTS HELD AS UNDER:- 58. IN BOTH THE AFORESAID CASES, THE COURT PROCEE DED ON THE BASIS THAT SERVICE CANNOT BE SOLD. IT HAS TO BE REN DERED. BUT, THEY DID NOT GO INTO THE QUESTION WHETHER RIGHT TO SERVI CE CAN BE SOLD. 59. THE TELEPHONE SERVICE IS NOTHING BUT SERVICE. S IM CARDS, HAVE NO INTRINSIC SALE VALUE. IT IS SUPPLIED TO THE CUSTOMERS FOR PROVIDING MOBILE SERVICES TO THEM. THE SIM CARD IS IN THE NATURE OF A KEY TO THE CONSUMER TO HAVE ACCESS TO THE TELEPHO NE NETWORK ESTABLISHED AND OPERATED BY THE ASSESSEE-COMPANY ON ITS OWN BEHALF. SINCE THE SIM CARD IS ONLY A DEVICE TO HAVE ACCESS TO THE MOBILE PHONE NETWORK, THERE IS NO QUESTION OF PASSI NG OF ANY OWNERSHIP OR TITLE OF THE GOODS FROM THE ASSESSEE-C OMPANY TO THE DISTRIBUTOR OR FROM THE DISTRIBUTOR TO THE ULTIMATE CONSUMER. THEREFORE, THE SIM CARD, ON ITS OWN BUT WITHOUT SER VICE WOULD HARDLY HAVE ANY VALUE. A CUSTOMER, WHO WANTS TO HAV E ITS SERVICE INITIALLY, HAS TO PURCHASE A SIM-CARD. WHEN HE PAYS FOR THE SIM- CARD, HE GETS THE MOBILE SERVICE ACTIVATED. SERVICE CAN ONLY BE RENDERED AND CANNOT BE SOLD. HOWEVER, RIGHT TO SERV ICE CAN BE SOLD. WHAT IS SOLD BY THE SERVICE PROVIDER TO THE D ISTRIBUTOR IS THE RIGHT TO SERVICE. ONCE THE DISTRIBUTOR PAYS FOR THE SERVICE, AND THE SERVICE PROVIDER, DELIVERS THE SIM CARD OR RECHARGE COUPONS, THE DISTRIBUTOR ACQUIRES A RIGHT TO DEMAND SERVICE. ONC E 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 IT T O RETAILERS. IT IS A ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 14 WELL-SETTLED PROPOSITION THAT IF THE PROPERTY IN TH E GOODS IS TRANSFERRED AND GETS VESTED IN THE DISTRIBUTOR AT T HE TIME OF THE DELIVERY THEN HE IS THEREAFTER LIABLE FOR THE SAME AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIPAL A ND NOT AS AN AGENT. THE SELLER MAY HAVE FIXED THE MRP AND THE PR ICE AT WHICH THEY SELL THE PRODUCTS TO THE DISTRIBUTORS BUT THE PRODUCTS ARE SOLD AND OWNERSHIP VESTS AND IS TRANSFERRED TO THE DISTR IBUTORS. HOWEVER, WHO EVER ULTIMATELY SELLS THE SAID RIGHT T O CUSTOMERS IS NOT ENTITLED TO CHARGE MORE THAN THE MRP. THE INCOM E OF THESE MIDDLEMEN WOULD BE THE DIFFERENCE IN THE SALE PRICE AND THE MRP, WHICH THEY HAVE TO SHARE AS PER THE AGREEMENT BETWE EN THEM. THE SAID INCOME ACCRUES TO THEM ONLY WHEN THEY SELL THI S RIGHT TO SERVICE AND NOT WHEN THEY PURCHASE THIS RIGHT TO SE RVICE. THE ASSESSEE IS NOT CONCERNED WITH QUANTUM AND TIME OF ACCRUAL OF INCOME TO THE DISTRIBUTORS BY RESELLING THE PREPAID CARDS TO THE SUB- DISTRIBUTORS/RETAILERS. AS AT THE TIME OF SALE OF P REPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR, INCOME HAS NOT ACCRUED OR ARISEN TO THE DISTRIBUTOR, THERE IS NO PRIMARY LIABILITY TO TAX O N THE DISTRIBUTOR. IN THE ABSENCE OF PRIMARY LIABILITY ON THE DISTRIBU TOR AT SUCH POINT OF TIME, THERE IS NO LIABILITY ON THE ASSESSEE TO D EDUCT TAX AT SOURCE. THE DIFFERENCE BETWEEN THE SALE PRICE TO RETAILER A ND THE PRICE WHICH THE DISTRIBUTOR PAYS TO THE ASSESSEE IS HIS I NCOME FROM BUSINESS. IT CANNOT BE CATEGORIZED AS COMMISSION. T HE SALE IS SUBJECT TO CONDITIONS, AND STIPULATIONS. THIS BY IT SELF DOES NOT SHOW AND ESTABLISH PRINCIPAL AND AGENT RELATIONSHIP. 60. THE FOLLOWING ILLUSTRATION MAKES THE POINT CLEA R: ON DELIVERY OF THE PREPAID CARD, THE ASSESSEE RAISES I NVOICES AND UPDATES THE ACCOUNTS. IN THE FIRST INSTANCE, SALE I S ACCOUNTED FOR RS.100/-, WHICH IS THE FIRST ACCOUNT AND RS.80/- IS THE SECOND ACCOUNT AND 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 NET VALUE IS RS.80/-. THE ASSESSEE'S SALE IS ACCOUN TED AT THE GROSS VALUE OF RS.100/- AND THEREAFTER, THE COMMISSION PA ID AT RS.20/- IS ACCOUNTED. THEREFORE, IN THOSE CIRCUMSTANCES OF THE CASE, THE ESSENCE OF THE CONTRACT OF THE ASSESSEE AND DISTRIB UTOR IS THAT OF SERVICE AND THEREFORE, SECTION 194H OF THE ACT IS A TTRACTED. 61. HOWEVER, IN THE FIRST INSTANCE, IF THE ASSESSEE ACCOUNTED FOR ONLY RS.80/- AND ON PAYMENT OF RS.80/-, HE HAND S OVER THE ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 15 PREPAID CARD PRESCRIBING THE MRP AS RS.100/-, THEN AT THE TIME OF SALE, THE ASSESSEE IS NOT MAKING ANY PAYMENT. CONSE QUENTLY, THE DISTRIBUTOR IS NOT EARNING ANY INCOME. THIS DISCOUN T OF RS.20/- IF NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNTS, IN SUCH CIRCUMSTANCES, SECTION 194H OF THE ACT IS NOT ATTRA CTED. 62. IN THE APPEALS BEFORE US, THE ASSESSEES SELL PR EPAID 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, RATHER THAN EARNING INCOME, DISTRIBUTORS INCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. ONLY AFTER THE RESALE OF THOSE PREPA ID CARDS, DISTRIBUTORS WOULD DERIVE INCOME. AT THE TIME OF TH E ASSESSEE SELLING THESE PRE-PAID CARDS, HE IS NOT IN POSSESSI ON OF ANY INCOME BELONGING TO THE DISTRIBUTOR. THEREFORE, THE QUESTI ON 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 DOE S NOT ARISE. THE CONDITION PRECEDENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY THE ASSESSEE T O THE DISTRIBUTOR. IN OTHER WORDS THE INCOME ACCRUED OR B ELONGING TO THE DISTRIBUTOR SHOULD BE IN THE HANDS OF THE ASSESSEES . THEN OUT OF THAT INCOME, THE ASSESSEE HAS TO DEDUCT INCOME TAX THERE ON AT THE RATE OF 10% AND THEN PAY THE REMAINING PORTION OF THE IN COME TO THE DISTRIBUTOR. IN THIS CONTEXT IT IS PERTINENT TO MEN TION THAT THE ASSESSEE SELLS SIM CARDS TO THE DISTRIBUTOR AND ALL OWS A DISCOUNT OF RS.20/-, THAT RS.20/- DOES NOT REPRESENT THE INCOME AT THE HANDS OF THE DISTRIBUTOR BECAUSE THE DISTRIBUTOR IN TURN MAY SELL 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 CUSTOMER. THE PROFIT EARNED BY THE DISTRIBUTOR, SUB-DISTRIBUTOR AND THE RETAILER WOULD BE DEPENDANT ON THE AGREEMENT BETWEEN THEM AND ALL OF THEM HAVE TO SHARE RS.20/- WHICH IS ALLOWED AS DISCOUNT BY THE A SSESSEE TO THE DISTRIBUTOR. THERE IS NO RELATIONSHIP BETWEEN THE A SSESSEE AND THE SUB-DISTRIBUTOR AS WELL AS THE RETAILER. HOWEVER, U NDER THE TERMS OF THE AGREEMENT, SEVERAL OBLIGATIONS FLOW IN SO FAR A S THE SERVICES TO BE RENDERED BY THE ASSESSEE TO THE CUSTOMER IS CONC ERNED AND, THEREFORE, IT CANNOT BE SAID THAT THERE EXISTS A RE LATIONSHIP OF PRINCIPAL AND AGENT. IN THE FACTS OF THE CASE, WE A RE SATISFIED THAT, IT IS A SALE OF RIGHT TO SERVICE. THE RELATIONSHIP BET WEEN THE ASSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL TO PRINCIP AL AND, THEREFORE, ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 16 WHEN THE ASSESSEE SELLS THE SIM CARDS TO THE DISTRI BUTOR, HE IS NOT PAYING ANY COMMISSION; BY SUCH SALE NO INCOME ACCRU ES IN THE HANDS OF THE DISTRIBUTOR AND HE IS NOT UNDER ANY OB LIGATION TO PAY ANY TAX AS NO INCOME IS GENERATED IN HIS HANDS. THE DEDUCTION OF INCOME TAX AT SOURCE BEING A VICARIOUS RESPONSIBILI TY, WHEN THERE IS NO PRIMARY RESPONSIBILITY, THE ASSESSEE HAS NO OBLI GATION TO DEDUCT TDS. ONCE IT IS HELD THAT THE RIGHT TO SERVICE CAN BE SOLD THEN THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUT OR WOULD BE THAT OF PRINCIPAL AND PRINCIPAL AND NOT PRINCIPAL AND AG ENT. THE TERMS OF THE AGREEMENT SET OUT SUPRA IN UNMISTAKABLE TERM S DEMONSTRATE THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS NOT THAT OF PRINCIPAL AND AGENT BUT IT IS THAT OF PRINC IPAL TO PRINCIPAL. 2.13 IT IS FURTHER PLEADED THAT THE THE ISSUE OF AC COUNTING OF THE DISCOUNT IN TERMS OF PARA 60 OF HON'BLE KARNATAKA HIGH COUR T REPRODUCED ABOVE WAS NOT APPLICABLE TO ASSESSEE AND DID NOT ARISE IN ITS CASE. BESIDES, IT HAS NOT BEEN DISPUTED BY THE DEPARTMENT THAT THE ASSESS EE SOLD ITS PRODUCTS LIKE SKUS AND RCVS AGAINST ADVANCE PAYMENT AT A COR RESPONDING SALE PRICE OF DISCOUNTED VALUE. THUS IN ASSESSEE'S CASE WHAT IS SOLD IS ALREADY AT DISCOUNTED PRICE, THEREFORE, IT NEVER HELD ANY I NCOME OF DISTRIBUTORS IN ITS HAND. IT IS FURTHER EVIDENT FROM THE ASSESSEES WRITTEN SUBMISSION AT PAGE 33 OF THE ASSESSEE AS UNDER- IN THE FACTS OF THE PRESENT CASE, THE DISCOUNTS O FFERED BY TTSL ARE NEITHER RECORDED AS INCOME IN ITS BOOKS AN D NOR SHOWN AS RECEIVABLE IN THE BOOKS OF THE DISTRIBUTORS/ CHANNE L PARTNERS. IT IS ALSO RELEVANT TO NOTE THAT UNDER AS-9 ON REVENUE R ECOGNITION ISSUED BY ICAI, WHICH IS MANDATORILY REQUIRED TO BE FOLLOWED BY TTSL, ALSO STATES THAT TRADE DISCOUNTS AND VOLUME R EBATES RECEIVED ARE NOT ENCOMPASSED WITHIN THE DEFINITION OF REVENU E, SINCE THEY ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 17 REPRESENT A REDUCTION OF COST AND SHOULD BE DEDUCTE D IN DETERMINING REVENUE. ACCORDINGLY, TTSL HAS NOT CONS IDERED THE AMOUNT REPRESENTING THE DISCOUNT AS ITS REVENUE AND AS SUCH NO PAYMENT OF ANY INCOME FROM SUCH REVENUE CAN BE SAID TO BE MADE BY IT TO DISTRIBUTORS/ CHANNEL PARTNERS. IT IS THUS SUBMITTED THAT SINCE NO INCOME IS PAID BY TTSL TO DISTRIBUTORS/ CH ANNEL PARTNERS, SECT 194H IS NOT APPLICABLE AND THE ASSESSMENT ORDE R AND ORDER IN APPEAL ARE REQUIRED TO BE SET ASIDE. 2.14 IT IS FURTHER CONTENDED THAT THAT HONBLE KARN ATAKA HIGH COURT JUDGMENT IS IN DETAILS AND FULLY CONSIDERED THE IMP ORT OF CIT VS. IDEA CELLULAR LTD. (2010) 325 ITR 148 (DEL.) AND KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. VS. ACIT (201 1) 332 ITR 255 (KER.). THEREFORE, IT IS LATEST JUDGMENT ON THE ISS UE WHICH HOLDS THE FIELD ON MEANING AND SCOPE OF THE IMPUGNED TRANSACTIONS. ALTERNATIVELY EVEN IF IT IS ASSUMED THAT IF ANY DIVERGENCE OF OPINION AMO NG JUDICIAL PRONOUNCEMENTS EXIST; IN THAT CASE ALSO THE VIEW WH ICH IS FAVOURABLE TO ASSESSEE SHOULD BE APPLIED FOLLOWING HONBLE SUPREM E COURT JUDGMENTS IN THE CASES OF: I. CIT V VEGETABLE PRODUCTS LTD 88 ITR 192 (SC) II. CIT VS. VATIKA TOWN SHIP (P) LTD. 367 ITR 466 (SC) 2.15 THUS LOOKING FROM EVERY ANGLE THE NATURE OF TR ANSACTION BETWEEN ASSESSEE AND DISTRIBUTORS IS IN THE NATURE OF PRINC IPAL TO PRINCIPAL AND NOT OF PRINCIPAL AND AGENT. THE ALLEGED DISCOUNT IS NOT IN THE COMMISSION OF ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 18 COMMISSION BUT IN FACT IF DISCOUNTED SALE VALUE AGA INST PRIOR PAYMENT. THERE IS NO INCOME HELD BY THE ASSESSEE ON BEHALF O F DISTRIBUTORS; SINCE THERE IS NO WITHHOLDING OF INCOME THE IMPUGNED TRAN SACTION IS NOT COVERED IN THE AMBIT AND SCOPE OF SEC. 194C, AS RIG HTLY HELD BY HONBLE KARNATAKA HIGH COURT. THEREFORE, ASSESSEES CONTENT IONS MAY BE UPHELD AND ORDERS OF AUTHORITIES BELOW MAY BE REVERSED ON THIS ISSUE. 2.16 APROPOS REVENUE APPEAL IS VEHEMENTLY CONTENDED THAT IT IS ONLY AFTER LD. AOS ORDER ON HOLDING OF TRANSACTION AS PR INCIPAL TO AGENT ASSESSEE HAD TO RECOURSE TO ALTERNATE LEGAL REMEDY WHICH IS PERMISSIBLE UNDER THE LAW. TO PURSUE THIS ALTERNATE REMEDY ASSE SSEE HAD NO CHOICE BUT TO FILE ADDITIONAL EVIDENCE. SINCE IT WAS PREVENTED BY A REASONABLE CAUSE OF HOLDING THE BELIEF THAT IT TRANSACTIONS WERE OF SALE, LD. CIT(A) RIGHTFULLY EXERCISING POWERS U/R 46A ADMITTED THE SAME. REVENU E GROUNDS ARE FURTHER MISCONCEIVED IN AS MUCH AS LD. CIT(A) HAS N OT DECIDED THE ISSUE AND ASKED THE LD. AO TO DULY VERIFY THE EVIDENCE AN D ENSURE WHETHER THE RELEVANT INCOME TAX IS PAID BY THE DISTRIBUTOR ALON G WITH DIRECTION ABOUT CALCULATION OF INTEREST. CONSEQUENTLY THERE IS NO I NFIRMITY IN THE ORDER OF LD. CIT(A) QUA THE GROUNDS AGITATED BY THE REVENUE. 2.17 LD. DR ON THE OTHER HAND VEHEMENTLY ARGUES THA T HONBLE KARNATAKA HIGH COURT IN THE ABOVE CASE HAS RENDERED THE JUDGMENT ON THE ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 19 BASIS OF CONTRACTS OF THOSE UNITS WHICH ARE NOT SIM ILAR TO THE TERMS OF CONTRACTS IN THIS CASE. CONSEQUENTLY THE KARNATAKA HIGH COURT CANNOT BE SUMMARILY APPLIED TO ASSESSEES CASE. IT IS PLEADED THAT ASSESSEES CASE FALLS IN THE CATEGORY EXAMPLE SET OUT IN PARA 60 OF THE HIGH COURT ORDER WHICH HOLDS THAT IF ASSESSES SALE IS ACCOUNTED FOR RS.100/-, WHICH IS THE FIRST ACCOUNT AND RS.80/- IS THE SECOND ACCOUNT AND THE THIRD ACCOUNT IS RS.20/-. IT SHOWS THAT THE SALES IS FOR RS.100/-, C OMMISSION IS GIVEN AT RS.20/- TO THE DISTRIBUTORS AND NET VALUE IS RS.80/ -. THE ASSESSEE'S SALE IS ACCOUNTED AT THE GROSS VALUE OF RS.100/- AND THEREA FTER, THE COMMISSION PAID AT RS.20/- IS ACCOUNTED. THEREFORE, IN THOSE C IRCUMSTANCES OF THE CASE, THE ESSENCE OF THE CONTRACT OF THE ASSESSEE A ND DISTRIBUTOR IS THAT OF SERVICE AND THEREFORE, SECTION 194H OF THE ACT IS A TTRACTED. 2.18 THUS ASSESSEE IS LIABLE FOR TDS U/S 194 AND T HE DEMAND U/S 201 AND 201(1A) HAS BEEN RIGHTLY RAISED. BESIDES REVENU ES STAND IS ENDORSED BY HONBLE DELHI AND KERALA HIGH COURT IN THE CASE S OF IDEA CELLULAR AND VODAFONE ESSAR CELLULAR LTD. (SUPRA). CONSEQUEN TLY THERE ARE MORE JUDGMENTS IN FAVOR OF THE REVENUE THEN ASSSSEE. IT IS PLEADED THAT THE ORDER OF AUTHORITIES BELOW ON THIS ISSUE MAY BE UPHELD. 2.19 APROPOS REVENUE APPEALS IT IS PLEADED THAT IT WAS FOR THE ASSESSEE TO HAVE RAISED ALTERNATE CLAIM BEFORE AO ABOUT THE APP LICABILITY OF ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 20 HINDUSTAN COCA COLA JUDGMENT AND FILE NECESSARY EVI DENCE. THE ASSESSEE WAS THUS NOT PREVENTED BY SUFFICIENT CAUSE, THEREFO RE, THE ADMISSION OF ADDITIONAL EVIDENCE IS IN CONTRAVENTION OF THE RULE 46A. THEREFORE THE SAME SHOULD BE HELD TO BE INADMISSIBLE. 2.20 IN REJOINDER LD. COUNSEL FOR THE ASSESSEE CONT ENDS THAT IT HAS BEEN NOWHERE POINTED BY ANY AUTHORITY THAT ASSESSEE ACCO UNTED FOR THE DISCOUNT IN ITS BOOKS. IT CAN BE INFERRED FROM A SI MPLE LOGIC THAT THE GOODS ARE SOLD AGAINST ADVANCE PAYMENT OF GOODS I.E . MRP DISCOUNT. THIS HAS BEEN REITERATED TIMES AND AGAIN BEFORE LOW ER AUTHORITIES AND DEMONSTRATED FROM PAGE 33 OF ITS WRITTEN SUBMISSION S BEFORE ITAT, WHICH HAS NOT BEEN DISPUTED. THEREFORE THE ASSESSEE S CASE SQUARELY FALLS IN PARA 61OF THE HONBLE KARNATAKA HIGH COURT WHICH HOLDS THAT IF THE ASSESSEE ACCOUNTED FOR ONLY RS.80/- AND ON PAYMENT OF RS.80/-, HE HANDS OVER THE PREPAID CARD PRESCRIBING THE MRP AS RS.100 /-, THEN AT THE TIME OF SALE, THE ASSESSEE IS NOT MAKING ANY PAYMENT. CONSE QUENTLY, THE DISTRIBUTOR IS NOT EARNING ANY INCOME. THIS DISCOUN T OF RS.20/- IF NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNTS, IN SUC H CIRCUMSTANCES, SECTION 194H OF THE ACT IS NOT ATTRACTED. IN VIEW T HE COPIOUS MATERIAL ON RECORD SUPPORTING THE ASSESSEE STAND AND THERE BEIN G NO REBUTTAL THEREOF, THERE IS NO SUBSTANCE IN THE PLEA OF LD. DR THAT CA SE IS COVERED IN PARA 60 ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 21 OF KARNATAK HIGH COURT ORDER. IT FURTHER REFLECTS T HAT HONBLE KARNATAK HIGH COURT HAS CONSIDERED ALL THE RELEVANT ISSUES A ND EARLIER JUDGMENTS OF DELHI AND KERALA HIGH COURT WHICH TOOK A DIFFERENT VIEW. THUS KARNATAKA HIGH COURT HAS RENDERED AN UPTODATE JUDG MENT. 2.21 REJOINING THE REVENUE APPEAL IT IS PLEADED THA T WHILE ADMITTING ADDITIONAL EVIDENCE LD. CIT(A) FOLLOWED THE PAST HI STORY. HONBLE SUPREME COURT IN HINDUSTAN COCA COLA HAS REJECTED T HE IDEA OF DOUBLE TAXATION I.E. RECOVERING TDS AGAIN FROM THE PAYER W HEN THE RELEVANT INCOME TAX IS ALREADY PAID BY THE PAYEE. THE EXERCI SE OF POWERS U/R 46A BY LD. CIT(A) TO IMPLEMENT SUPREME COURT ORDER CANN OT BE CALLED IN QUESTION MORE SO WHEN THE AO HAS BEEN RESTORED WITH HIS POWER OF VERIFICATION. THERE IS NEITHER PREJUDICE NOR LOSS T O REVENUE BY THIS ORDER AND THE GROUNDS DEMONSTRATE ADVERSARIAL APPROACH OF THE DEPARTMENT. 2.22 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. FOLLOWING OBSERVATIONS EMERGE FROM THE RECORD:- I. ASSESSEE HAS CLAIMED THAT AS PER ITS BUSINESS AG REEMENT TERMS THE SALE PRICE IS COLLECTED IN ADVANCE FROM DISTRIBUTOR . THE SALE PRICE IS RECEIVED MINUS DISCOUNT, WHAT IS ACCOUNTED FOR IN I TS BOOKS IS NET SALE PRICE AND NOT THE COMMISSION. ASSESSEE HAS DEMONSTR ATED IT FROM ITS PLEADING BEFORE LOWER AUTHORITIES IN THIS BEHALF AN D ITS WRITTEN SUBMISSIONS FILED BEFORE US. THEY ARE NEITHER CONTR OVERTED BY THE ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 22 AUTHORITIES BELOW NOR BY THE LD. DR. CONSEQUENTLY T HE ASSESSEES CASE FALLS IN PARA 61 OF THE HONBLE KARNATAK HIGH COURT JUDGMENT AND NOT IN PARA 60 AS PROPOSED BY LD. DR. II. WHEN ASSESSEE IS NOT HOLDING ANY INCOME PAYABLE TO DISTRIBUTORS THE QUESTION OF DEDUCTING TDS U/S 194H DOES NOT ARI SE. THEREFORE THE FACTS, CIRCUMSTANCES, ACCOUNTING TREATMENT AND NATU RE OF RELATIONSHIP BETWEEN ASSESSEE AND ITS DISTRIBUTORS QUA THE IMPUG NED SALES FALL WITHIN THE AMBIT AND OBSERVATIONS AT PARA 61 OF THE ORDER. IN VIEW OF THE FOREGOINGS WE HAVE NO HESITATION TO HOLD THAT: III. WHAT IS SOLD BY THE ASSESSEE SERVICE PROVIDER TO THE DISTRIBUTOR IS THE RIGHT TO SERVICE. ONCE THE DISTRIBUTOR PAYS FOR THE SERVICE, AND THE SERVICE PROVIDER, DELIVERS THE SIM CARD OR RECHARGE COUPONS, THE DISTRIBUTOR ACQUIRES A RIGHT TO DEMAND SERVICE. ONC E SUCH A RIGHT IS ACQUIRED THE DISTRIBUTOR MAY USE IT BY HIMSELF. IV. DISTRIBUTOR MAY ALSO SELL THE RIGHT TO SUB-DIST RIBUTORS WHO IN TURN MAY SELL IT TO RETAILERS, THUS THE PROPERTY IN GOODS IS TRANSFERRED IN FAVOUR OF THE DISTRIBUTOR. 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 SAME AND WOULD BE DEALING WITH THEM IN HIS OWN RIGHT AS A PRINCIPAL AND NOT AS AN AGENT . V. THE ASSESSEER MAY HAVE FIXED THE MRP AND THE PRI CE AT WHICH THEY SELL THE PRODUCTS TO THE DISTRIBUTORS BUT THE PRODUCTS A RE SOLD AND OWNERSHIP VESTS AND IS TRANSFERRED TO THE DISTRIBUTORS. THE D ISCOUNTED INCOME ACCRUES ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 23 TO DISTRIBUTOR ONLY WHEN THEY SELL THIS RIGHT TO SE RVICE AND NOT WHEN THEY PURCHASE THIS RIGHT TO SERVICE FROM ASSESSEE. VI AS AT THE TIME OF SALE OF PREPAID CARD BY THE AS SESSEE TO THE DISTRIBUTOR, INCOME HAS NOT ACCRUED OR ARISEN TO THE DISTRIBUTOR , THERE IS NO PRIMARY LIABILITY TO TAX ON THE DISTRIBUTOR. IN THE ABSENCE OF PRIMARY LIABILITY ON THE DISTRIBUTOR AT SUCH POINT OF TIME, THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE. THE DIFFERENCE BETWEEN THE SA LE PRICE TO RETAILER AND THE PRICE WHICH THE DISTRIBUTOR PAYS TO THE ASSESSE E IS HIS INCOME FROM BUSINESS. IT CANNOT BE CATEGORIZED AS COMMISSION. M ERELY BECAUSE SALE IS SUBJECT TO AGREED CONDITIONS AND STIPULATIONS CANNO T CONVERT THE RELATIONSHIP OF PRINCIPAL TO PRINCIPAL INTO THAT OF PRINCIPAL AND AGENT RELATIONSHIP. 2.23. WE FIND MERIT IN THE CONTENTION OF LD. COUNSE L THAT THERE IS NO JURISDICTIONAL HIGH COURT JUDGMENT ON THIS ISSUE. H ONBLE KARNATAKA HIGH COURT JUDGMENT IS ELABORATE, DETAILED, CONSIDERS TH E PREVIOUS DELHI AND KERALA HIGH COURT JUDGMENT AGAINST THE ASSESSEE AND IS LATEST COMPREHENSIVE ADJUDICATION ON THE ISSUE. EVEN IF I T IS HELD THAT THERE EXIST DIVERGENCE OF JUDICIAL OPINION A VIEW FAVOURA BLE TO THE ASSESSEE IS TO BE ADOPTED AS HELD BY HONBLE SUPREME COURT IN VEGE TABLE PRODUCTS LTD. AND VATIKA TOWNSHIP CASE (SUPRA). FROM THIS ANGLE A LSO IN THESE FACTS AND ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 24 CIRCUMSTANCES HONBLE KARNATAKA HIGH COURT JUDGMENT IS APPLICABLE TO THE ASSESSEES CASE. RESPECTFULLY FOLLOWING THE SAM E WE HOLD THAT: A. THE RELATIONSHIP BETWEEN ASSESSEE AND ITS DISTR IBUTORS QUA THE SALE OF IMPUGNED PRODUCTS IS ON PRINCIPAL TO PRINCIPAL B ASIS; THE CONSIDERATION RECEIVED BY ASSESSEE IS SALE PRICE SIMPLICITER. B. THERE IS NO RELATIONSHIP OF PRINCIPAL AND AGENT BETWEEN ASSESSEE AND DISTRIBUTORS AS HELD BY AUTHORITIES BELOW THERE ORD ERS ARE REVERSED. C. LOOKING AT THE TRANSACTION BEING OF SALE/PURCHAS E AND RELATIONSHIP BEING OF PRINCIPAL TO PRINCIPAL THE DISCOUNT DOES N OT AMOUNT TO COMMISSION IN TERMS OF SEC. 194H, THE SAME IS NOT A PPLICABLE TO THESE TRANSACTIONS. THEREFORE, ASSESSEESSE CANNOT BE HELD IN DEFAULT; IMPUGNED DEMAND RAISED APPLYING SEC. 194H IS QUASHED. ASSESS EES GROUNDS ARE ALLOWED. 2.24 APROPOS THE REVENUE APPEAL SINCE WE HAVE HELD THAT SEC. 194H IS NOT APPLICABLE THERE REMAINS NO SUBSTANCE IN REVENU E APPEALS. IN ANY CASE THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN ADMITTING THE ADDITIONAL EVIDENCE IN THE LIGHT OF HONBLE SUPREME COURT JUDG MENT IN THE CASE OF HINDUSTAN COCA COLA (SUPRA) AND FOLLOWING HIS PAST ORDERS. REVENUE GROUNDS ARE DISMISSED. ITA NO.309/JP/2012 M/S. TATA TELESERVICES LTD. VS. ITO (TDS-1), JAIPUR , . . 25 3.0 IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THAT OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /0 3/2015. SD/- SD/- VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13 TH MARCH 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. TATA TELESERVICES LTD., JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, TDS -1, JAIPUR JAIPUR . 3. VK;DJ VK;QDRVIHY@ THE CIT(A). 4. VK;DJ VK;QDR@ CIT, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.309/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR