IDEA CELLULAR LTD, MUMBAI V. ITO (TDS) 1(2)(4), MUMBAI

ITA 3785/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3387 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Difference of opinion; Relationship of principal and agent; TDS; Set aside
• Section: 143(3); 133A; 201(1); 201; 191; 207; 192

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL F BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 3785/MUM/2016 FOR (ASSESSMENT YEAR 2012-13) M/S. VODAFONE IDEA LTD. (FORMERLY KNOWN AS IDEA CELLULAR LTD.), SKYLINE ICON, 1 ST FLOOR, 86/92 ANDHERI KURLA ROAD, MAROL NAKA, ANDHERI (E), MUMBAI-400059. PAN: AAACB2100P VS. ITO (TDS)- 1(2)(4), 803, K.G. MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD (W), MUMBAI-400002. APPELLANT RESPONDENT APPELLANT BY : SHRI RONAK DOSHI WITH SHRI C.D. JOSHI (AR) RESPONDENT BY : SHRI S. PADMAJA CIT-DR WITH SHRI V.K. AGARWAL ( SR DR) DATE OF HEARING : 30.08.2019 DATE OF PRONOUNCEMENT :13.11.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-59 [FOR SHORT THE LD. CIT(A)], MUMBAI DATED 22.03.2016 FOR ASSESSMENT YEAR 2012-13. THE ASSESSE E HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUND NO. I: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE TDS OFFICER OF TREATING THE APPELLANT AS AN 'ASSESSEE IN DEFAULT' U/S.201 R. W.S 194H OF THE AC T ON THE DISCOUNT ALLOWED BY THE APPELLANT TO THE PREPAID DISTRIBUTORS. ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 2 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT THE RELATIONSHIP BETWEEN THE APPELLANT AND THE PREPAID DISTRIBUTOR IS OF PRINCIP AL TO PRINCIPAL ('P2P') AND NOT PRINCIPAL TO AGENT ('P2A'). 3. THE APPELLANT, THEREFORE, PRAYS THAT IT BE HELD THAT SECTION 194H OF THE ACT IS NOT APPLICABLE AND CONSEQUENTIALLY, THE APPELLANT CANNO T BE TREATED AS AN 'ASSESSEE IN DEFAULT' U/S.201 R.W.S 194H OF THE ACT. 4. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PR AYS THAT IT BE HELD THAT SINCE THE APPELLANT IS NOT 'A PERSON RESPONSIBLE FOR PAYING' COMMISSION TO THE PREPAID DISTRIBUTOR, THE APPELLANT CANNOT BE TREATED AS AN 'ASSESSEE IN DEFAULT' U/S. 201 R.W.S. 194H OF THE ACT. 5. WITHOUT PREJUDICE TO THE ABOVE, IN THE ABSENCE O F ANY 'PAYMENT' OR 'CREDIT' BY THE APPELLANT IN FAVOUR OF THE PREPAID DISTRIBUTOR ON ACCOUNT OF THE ALLEGED COMMISSION, IT BE HELD THAT THE APPELLANT CANNOT BE TREATED AS AN 'ASSESSEE IN DEFAULT' U/S. 201 R.W.S 194H OF THE ACT. 6. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PR AYS THAT IF THE MECHANISM TO DEDUCT TAX AT SOURCE U/S. 194H FAILS, THE APPELLANT CANNOT BE TREATED AS AN 'ASSESSEE IN DEFAULT' U/S 201 R.W.S 194H OF THE ACT. 7. 'WITHOUT PREJUDICE TO THE ABOVE, IN THE ABSENCE OF ANY DECISION OF THE JURISDICTIONAL TRIBUNAL AND HON'BLE HIGH COURT, THE APPELLANT PRAYS THAT WHERE TWO VIEWS ARE POSSIBLE ON A PARTICULAR ISSUE AND THAT H IGH COURTS OF DIFFERENT JURISDICTIONS HAVE RENDERED DIVERGENT VIEWS, THEN T HE VIEW WHICH IS FAVORABLE TO THE APPELLANT SHOULD BE ADOPTED AND ACCORDINGLY THE ISS UE BE DECIDED IN FAVOUR OF THE APPELLANT. WITHOUT PREJUDICE TO ABOVE GROUNDS: GROUND NO. II: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER PASSED BY THE ITO(TDS) - 1(2)(4) ('TDS OFFICER') U/S 201/201(1A) OF THE ACT, TREATING THE APPELLANT AS A N 'ASSESSEE IN DEFAULT' FOR NON- DEDUCTION OF TAX AT SOURCE ON THE DISCOUNT ALLOWED TO THE PREPAID DISTRIBUTOR WITHOUT FIRST ASCERTAINING WHETHER THE RECIPIENT PR EPAID DISTRIBUTOR HAD DISCHARGED TAX ON THE INCOME, IF ANY, EARNED BY THEM WHILE DEA LING WITH THE APPELLANT. 2. THE APPELLANT PRAYS THAT IN VIEW OF SECTION 191 OF THE ACT AND FAILURE OF THE TDS OFFICER TO ASCERTAIN WHETHER THE RECIPIENT PREPAID DISTRIBUTOR HAVE PAID TAX ON THE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 3 INCOME, IF ANY, FROM THE APPELLANT, THE ORDER PASSE D BY THE TDS OFFICER BE QUASHED/SET ASIDE. WITHOUT PREJUDICE TO ABOVE GROUNDS: GROUND NO. III: LEVY OF INTEREST UNDER SECTION 201( 1A) OF THE ACT. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE TDS OFFICER IN HOLDING THE APPELLANT AS 'ASSESSEE IN DEFAULT' UNDER SECTION 201(1) OF THE A CT AND THEREBY LEVYING THE INTEREST UNDER SECTION 201(1A) OF THE ACT. 2. THE APPELLANT PRAYS THAT THE INTEREST LEVIED UND ER SECTION 201(1A) OF THE ACT BE DELETED OR BE APPROPRIATELY REDUCED. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT ASSESSEE IS A COMPANY ENGAGED IN PROVIDING CELLULAR TELEPHONE SERVICES FOR PREPAID A ND POST PAID TO ITS CUSTOMERS. A SURVEY UNDER SECTION 133A OF INCOME TAX ACT (ACT) WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 09-09- 2011 AT SANTARUZ (E), MUMBAI. DURING THE COURSE OF SURVEY, IT WAS FOUND THAT ASSESSEE; IN THE COURSE OF ITS BUSINESS THE ASSESSEE HAD APPOINTED DISTRIBU TORS FOR PREPAID CELLULAR CONNECTION AND RECHARGE COUPON. THE MARKET PRICE O F SAID PREPAID CARD OF CELLULAR CONNECTION AND RECHARGE FACILITIES WAS PRO VIDED BY THE ASSESSEE COMPANY AS PRINTED ON SUCH CARDS / COUPONS. BUT, A T THE TIME OF SELLING ITS PREPAID CELLULAR CONNECTIONS AND RECHARGE COUPONS T O THE DISTRIBUTOR IN THE FORM OF DISCOUNT / COMMISSION ON THE MARKET PRICE, THE P REPAID CARD AS WELL AS RECHARGE COUPON IN THE FORM OF PREDEFINED INFORMATI ON ENABLING THE ULTIMATE USER TO HAVE ACCESS TO THE SERVICE PROVIDED BY THE ASSESSEE COMPANY. ON THE BASIS OF THE MARKET PRICE AND THE COMMISSION ALLOWE D BY THE ASSESSEE TO ITS ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 4 DISTRIBUTOR, THE AO TOOK HIS VIEW THAT THE DISTRIBU TIONS ON BULK SALE OF SUCH PREPAID CARDS AND RECHARGE COUPONS WERE COMMISSION PAID TO THEM WHICH REQUIRED DEDUCTION AT SOURCE U/S 194H. SINCE THE A SSESSEE FAILED TO DEDUCT TAX AT SOURCE, THE ASSESSEE WAS TREATED AS AN ASSESSEE IN DEFAULT AND ACCORDINGLY A DEMAND WAS RAISED U/S 201(1) R.W.S. 201(1A). THE A O FURTHER NOTED THAT THE ASSESSEE HAS GIVEN DISCOUNT TO PREPAID DISTRIBUTOR OF RS.1284,57,00,000/- AND TAX OUGHT TO BE DEDUCTED UNDER SECTION 194H @10% A ND INTEREST U/S 201(1A) @1% ON THE SAME. 3. ON APPEAL BEFORE CIT(A), THE ACTION OF AO WAS CONFI RMED. HOWEVER, THE LD. CIT(A) DIRECTED THE AO TO RESTRICT THE ORDER FOR MU MBAI CIRCLE, FOR TREATING THE ASSESSEE IN DEFAULT IN RESPECT OF TAX REQUIRED TO BE DEDUCTED AT SOURCE ON THE PAYMENT OF DISCOUNT / COMMISSION. FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED PRESENT APPEAL BEFOR E US. 4. WE HAVE HEARD THE SUBMISSION OF LD.AR OF THE ASSESS EE AND LD. DR FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. THE LD.AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE IS A CELLULAR SE RVICE PROVIDER. THE ASSESSEE, IN THE COURSE OF ITS BUSINESS PROVIDES SIM CARDS AN D RECHARGE VOUCHER (RV) TO DISTRIBUTORS, WHO IN TURN SELL THEM TO SUB DEALERS/ RETAILERS, THERE IS NO PRINCIPAL AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE D ISTRIBUTORS ON A DISCOUNTED PRICE. SUCH SIM CARD AND RVS ARE THEN SOLD BY THE DISTRIBUTORS TO THE RETAILERS AT ANY PRICE, WHICH THE DISTRIBUTOR DEEMS FIT AT HI S / ITS DISCRETION. THE DISTRIBUTORS ARE LIABLE TO PAY THE ASSESSEE DISCOUN TED PRICE IN ADVANCE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 5 IRRESPECTIVE OF THE FACT THAT THEY ARE SOLD OR UNSO LD. THE DISTRIBUTOR IS THEN FREE TO SELL TO ANY RETAILERS WHICH ARE APPOINTED BY DIS TRIBUTORS AT THEIR OWN DISCRETION AND NO CONTROL IS EXERCISED BY THE ASSES SEE. THE TERMS AND CONDITIONS BETWEEN THE DISTRIBUTOR AND RETAILER ARE DECIDED BETWEEN THEM. THE DISTRIBUTION NETWORK IS NOT DIFFERENT FROM THE NORM AL TRADE PRACTICE WHERE THE MANUFACTURERS APPOINT DISTRIBUTOR OR WHOLESALER AND GIVES THEM AN ATTRACTIVE DISCOUNT ON MAXIMUM RETAIL PRICE. THE WHOLESALER W OULD THEN SELL GOODS TO THE RETAILER AND THE RETAILER TO THE CONSUMERS ACCORDIN GLY JUST LIKE DISCOUNT GIVEN BY MANUFACTURER IN THE COURSE OF THEIR BUSINESS AND UL TIMATELY THE SAME CANNOT BE CONSIDERED AS COMMISSION. SIMILARLY IN ASSESSEES CASE, THE DISCOUNT GIVEN TO DISTRIBUTOR WHICH IS ON THE SAME FOOTING CANNOT BE CONSIDERED AS COMMISSION. THE AGREEMENT ENTERED INTO BY ASSESSEE WITH DISTRIB UTOR, DOES NOT MAKE THE DISTRIBUTOR ITS EMPLOYEE, AGENT, ASSOCIATE OF THE A SSESSEE FOR ANY PURPOSE. THE LD.AR OF THE ASSESSEE SUBMITS THAT ON SIMILAR SET O F FACTS, VARIOUS TRIBUNALS AND HIGH COURTS HELD THAT WHERE ASSESSEE, IN THE BU SINESS OF PROVIDING MOBILE TELEPHONE SERVICES, SOLD PREPAID VOUCHERS TO ITS DI STRIBUTORS AT THE RATE LOWER THAN THE FACE VALUE, THE DIFFERENCE CANNOT BE REGAR DED AS COMMISSION REQUIRING DEDUCTION OF TAX AT SOURCE U/S 194H. 5. THE LD.AR FOR THE ASSESSEE SUBMITS THAT HONBLE KAR NATAKA HIGH COURT AND RAJASTHAN HIGH COURT IN BHARTI AIRTEL VS DCIT 373 I TR 33 (KAR) AND IN ASSESSEES OWN CASE BY RAJASTHAN HIGH COURT REPORTE D AT 402 ITR 539 (RAJ) HELD THAT SECTION 194H IS NOT APPLICABLE ON SALE OF PREPAID SIM CARDS TO ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 6 DISTRIBUTORS. THE LD. AR FURTHER SUBMITS THAT MUMB AI TRIBUNAL ALSO DECIDED SIMILAR ISSUE IN THE FOLLOWING CASES:- TATA TELE SERVICES VS ACIT ITA NO.2043/M/2014, ACIT VS RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD IN ITA 4677/MUM/2012 & 6726/MUM/2012, JCIT VS BHARAT BUSINESS CHANNELS LTD ( 170 ITD 628), JCIT VS TATA TELESERVICES (MAH.)LTD ITA NO.3857/MUM /2016 ORDER. DTD JUNE 8, 2018, TATA SKY LTD ITA NO.6923-6926/MUM/2012 ORDER DT OCT OBER 12, 2018 6. FURTHER, THE LD.AR FOR THE ASSESSEE FURTHER SUBMIT S THAT IN ASSESSEES OWN CASE, PUNE TRIBUNAL, JAIPUR TRIBUNAL, BANGALORE TRIBUNAL, DELHI TRIBUNAL AND CHENNAI TRIBUNAL, DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN FOLLOWING CASES:- ITA 807 & 808/PUN/2016 DATED MAY 07, 2018, ITAS 1041 OF 2013 ORDER DATED JAN 04,2017, ITA 798/JP/2015 ORDER. DATED MAY 13,2016, ITAS NO.356 TO 359/JP/2012 DATED MAY 22,2015, ITA NO.758-761/BANG/2014 DATED MAY 1, 2018, ITA NOS. 941 & 2382/DEL/2015 DATED MAY 1, 2018, ITA NO.1586/CHE/2015 DATED JULY 15, 2018 7. THE LD.AR FURTHER SUBMITS THAT IN CASE OF OTHER SIM ILAR SERVICE PROVIDER, AHMEDABAD TRIBUNAL , CHENNAI TRIBUNAL, DELHI TRIBUN AL, AND JAIPUR TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE FOLLOWING CASES:- DCIT VS VODAFONE WEST LIMITED IN ITA NO.1317/AHD/20 16 ORD DT APRIL 04, 2018, VODAFONE CELLULAR LTD VS DCIT (TDS),ITA NO.2804&16 44/MADS/2014 ORDER DT SEPTEMBER 21, 2017, VODAFONE CELLULAR LTD VS DCIT IN ITA NO.817/PN/ 201 3 ORDER DT JANUARY 04, 2017, BHARATI HEXACOM LTD VS ACIT- 68 TAXMANN.COM 357 (DE L), TATA TELESERVICES LTD VS ACIT IN ITA NO.309/JP/201 9, 502, 503, 504 &505/JP/2011 ORDER DT MARCH 13, 2015, VODAFONE ESSAR GUJARAT LTD VS ACIT- 60 TAXMANN.COM 214, BHARTI HEXACOM LTD VS ITO (TDS) IN ITA NO.656/JP/20 10 ORDER DT JUNE 12, 2015, ACIT VS BHARTI HEXACOM LTD IN ITAS NO.830 TO 833/J P/15, ORDER DT APRIL 18,2016 ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 7 8. THE LD.AR IN ALL FAIRNESS SUBMITTED THAT THE DELHI HIGH COURT IN CIT VS IDEA CELLULAR LTD 325 ITR 148 (DEL), KERALA HIGH COURT I N VODAFONE ESSAR CELLULAR LTD VS ACIT 232 ITR 255(KER) AND CALCUTTA HIGH COUR T IN BHARTI CELLULAR LTD VS ACIT DECIDED THE ISSUE AGAINST THE ASSESSEE. THE L D.AR SUBMITS THAT THERE IS NO DECISION OF JURISDICTIONAL HIGH COURT ON THE SIMILA R ISSUE. IT WAS FURTHER SUBMITTED THAT KARNATAKA AND RAJASTHAN HIGH COURTS, AFTER CON SIDERING THE DECISION, WHICH ARE AGAINST THE ASSESSEE HELD THE ISSUE IN FAVOUR O F THE ASSESSEE IN BHARTI AIRTEL 372 ITR 33 (KAR), IDEA CELLULAR 402 ITR 439 (RAJ). 9. THE LD.AR FINALLY SUBMITS THAT SINCE NO DECISION OF JURISDICTIONAL HIGH COURT IS AVAILABLE ON THE ISSUE SO FAR, THE DECISION FAVOURA BLE TO ASSESSEE MUST BE CONSIDERED AS PER THE DECISION OF HONBLE SUPREME C OURT IN CIT VS VEGETABLE PRODUCTS 88 ITR 192(SC). 10. ON THE OTHER, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FURTHER SUBMITS THAT THE LOWER AUTHORITI ES WERE RIGHT IN THEIR RESPECTIVE FIELD. THE LD. DR FURTHER SUBMITS THAT VARIOUS TRIB UNALS HAD NOT EXAMINED THE TERMS AND THE CONDITIONS OF THE DISTRIBUTOR AGREEMENT ENT ERED BETWEEN THE ASSESSEE AND THE DISTRIBUTORS. A BARE PERUSAL OF DISTRIBUTORS A GREEMENT MADE IT CLEAR THAT THERE IS CLEAR RELATIONSHIP OF PRINCIPAL AND AGENT. THE A SSESSEE HAS NOT EXPLAINED THE ACTIVITY OF DALE OF SIM CARDS. THE LD. DR FOR THE R EVENUE RELIED ON THE DECISION OF HYDERABAD TRIBUNAL IN IDEA CELLULAR VS ACIT (2014) 51TAXMANN.COM 50 HYD TRIB). THE PUNE TRIBUNAL HAS NOT EXAMINED THE FACTS IN QATAR AIRWAYS [332 ITR 253 (BOM.)]. THE LD. DR PRAYED FOR CONFIRMING THE O RDER OF THE LD. CIT(A). ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 8 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAW RELIED BY LD. AR / DR FOR THE PARTIES. THE ASSESSING OFFICER AFTER CONSIDERING THE REPORT OF SURVEY CONDUCTED AT THE P REMISES OF ASSESSEE ON 09.09.2011 TOOK HIS VIEW THAT THE MARGIN ALLOWED ON THE PREPAID COUPONS WAS COMMISSION PAID TO THE DISTRIBUTORS, WHICH SHOULD BE SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 194H. SINCE, THE ASSESSEE F AILED TO DEDUCT THE TAX AT SOURCES, THE ASSESSEE WAS TREATED AS AN ASSESSEE IN DEFAULT. FROM THE RECORD FILED BEFORE US WE FIND THAT THE ASSESSEE FILED WRIT PETI TION CHALLENGING THE JURISDICTION OF TDS JURISDICTION VIDE WP NO. 2183 OF 2014. THE W RIT PETITION WAS DECIDED VIDE ORDER DATED 29.09.2014, WITH THE DIRECTION TO RAISE ALL THE ISSUE BEFORE APPELLATE AUTHORITY. ACCORDINGLY THE ASSESSEE FILED APPEAL BEFORE LD CIT(A). THE LD CIT(A) AFFIRMED THE ACTION OF ASSESSING OFFICER. HOWEVER, ON THE ISSUE OF JURISDICTION THE LD CIT(A) DIRECTED THAT ASSESSING OFFICER TDS COULD EXERCISED HIS JURISDICTION IN RESPECT OF MUMBAI CIRCLE ONLY. 12. WE FIND THAT THE AHMEDABAD TRIBUNAL IN THE CASE O F VODAFONE ESSAR GUJARAT LTD VS ACIT, TDS CIRCLE, AHMEDABAD [2015] 60 TAXMANN.CO M 214 (AHMEDABAD- TRIB) HAS CONSIDERED AN ALMOST IDENTICAL ISSUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE HONBLE BENCH AFTER CONSIDERING JUDGMENTS OF VARIOUS COURTS INCLUDING THE DECISION OF HONBLE KARNATAKA HIGH CO URT IN BHARTI AIRTEL LTD V. DY.CIT (2015) 372 ITR 33 / 228 (KAR), HAS OBSERVED AS FOLLOWS:- ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 9 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 7. WE FIND THAT WHAT IS SOLD BY THE ASSESSEE IS AIR TIME, WHETHER THROUGH THE PHYSICAL VOUCHERS OR THROUGH THE ELECTRONIC TRANSFE R OF REFILL/RECHARGE VALUE, TO ITS DISTRIBUTORS. IT IS THIS TRANSACTION WHICH IS SUBJE CT-MATTER OF DIFFERENT PERCEPTIONS, SO FAR AS TAX WITHHOLDING OBLIGATIONS OF THE SELLER ARE CONCERNED, OF THE PARTIES BEFORE US. AS A MATTER OF FACT, THE ASSESSMENT ORDE R ITSELF STATES THAT THE ASSESSEE HAS SOLD THE 'PREPAID VOUCHERS, OF VARIOUS FACE VAL UE, TO ITS DISTRIBUTORS AT A RATE LOWER THAN ITS FACE VALUE', AND THAT 'THE DIFFERENC E (BETWEEN THE FACE VALUE AND THE PRICE AT WHICH IS SOLD) IS NOTHING BUT COMMISSI ON ON WHICH NO TAX HAS BEEN DEDUCTED'. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER THE PROVISIONS OF SECTION I94H WILL COME IN TO PLAY IN RESPECT OF THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE AIR TIME IS THUS SOLD TO THE DISTRIBUTORS AND ITS RECOMMENDED RETAIL PRICE TO THE END CONSUME RS. 8. THIS ISSUE IS NO LONGER RES INTEGRA. AS THE SAME BUSINESS MODEL, WITH NO OR PERIPHERAL VARIATIONS, HAS BEEN FOLLOWED BY ALMOST ALL THE OPERATORS IN THE MOBILE TELECOMMUNICATION INDUSTRY, THIS ISSUE HAS BEEN SUB JECT-MATTER BEFORE VARIOUS FORUMS, AND MORE IMPORTANTLY, BEFORE VARIOUS HON'BL E HIGH COURTS. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ABOVE ISSUE I N APPEAL IS SUBJECT-MATTER OF DIFFERENCE OF OPINION BY VARIOUS HON'BLE NON-JURISD ICTIONAL HIGH COURTS AND THAT WE DO NOT HAVE THE BENEFIT OF GUIDANCE BY HON'BLE J URISDICTIONAL HIGH COURT. 9. THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE , BY HON'BLE KARNATAKA HIGH COURT'S COMMON JUDGMENT IN THE CASES OF BHARTI AIRT EL LIMITED, TATA TELESERVICES LIMITED AND VOADFONE SOUTH LIMITED, RE PORTED AS BHARTI'AIRTELLID. V. DCIT[2015] 372 1TR 33/228 TAXMAN 219 (MAG)/[2014J 52 LAXMANN.COM 3 1 (KAR) WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: '62. IN THE APPEALS BEFORE US, THE ASSESSEES SELL P REPAID CARDS/VOUCHERS TO THE DISTRIBUTORS. AT THE TIME OF THE ASSESSEE SE LLING THESE PREPAID CARDS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE D ISTRIBUTOR DOES NOT EARN ANY INCOME. IN FACT, RATHER THAN EARNING INCOME, DI STRIBUTORS INCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. ONLY AFTER THE RESALE OF THOSE PREPAID CARDS, DISTRIBUTORS WOULD DERIVE INCO ME. AT THE TIME OF THE ASSESSEE SELLING THESE PREPAID CARDS, HE IS NOT IN POSSESSION OF ANY INCOME BELONGING TO THE DISTRIBUTOR. THEREFORE, THE QUESTION OF ANY ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 10 INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT TH E POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. THE CONDITION PRECEDENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY THE ASSESSEE TO THE DISTRIBUTOR. IN OTHER WORDS THE INCOME ACCRUED OR BELONGING TO THE DISTRI BUTOR SHOULD BE IN THE HANDS OF THE ASSESSEES. THEN OUT OF THAT INCOME , THE ASSESSEE HAS TO DEDUCT INCOME TAX THEREON AT THE RATE OF 10% AND TH EN PAY THE REMAINING PORTION OF THE INCOME TO THE DISTRIBUTOR. IN THIS CONTEXT IT IS PERTINENT TO MENTION THAT THE ASSESSEE SELLS SIM CA RDS TO THE DISTRIBUTOR AND ALLOWS 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 WH O SELLS IT TO THE CUSTOMER. THE PROFIT 86 EARNED BY THE DISTRIBUTOR, SUB-DISTRIBUTOR AND THE RETAILER WOULD BE DEPENDENT ON THE AGREEMENT BE TWEEN THEM AND ALL OF THEM HAVE TO SHARE RS.20/- WHICH IS ALLOWED AS D ISCOUNT BY THE ASSESSEE TO THE DISTRIBUTOR. THERE IS NO RELATIONSH IP BETWEEN THE ASSESSEE AND THE SUB-DISTRIBUTOR AS WELL AS THE RET AILER. HOWEVER, UNDER THE TERMS OF THE AGREEMENT, SEVERAL OBLIGATIONS FLO W INSOFAR AS THE SERVICES TO BE RENDERED BY THE ASSESSEE TO THE CUST OMER IS CONCERNED AND, THEREFORE, IT CANNOT BE SAID THAT THERE EXISTS A RELATIONSHIP 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 BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL TO PRINCIPAL AND, THEREFORE, WHEN THE ASSESSEE SELLS THE SIM CARDS TO THE DISTRIBUTOR, HE IS NOT PAYING ANY COMMISSION; BY SUCH SALE NO INCOME ACCRUES IN THE H ANDS OF THE DISTRIBUTOR AND HE IS NOT UNDER ANY OBLIGATION TO P AY ANY TAX AS NO INCOME IS GENERATED IN HIS HANDS. THE DEDUCTION OF INCOME TAX AT SOURCE BEING A VICARIOUS RESPONSIBILITY, WHEN THERE IS NO PRIMARY' RESPONSIBILITY, THE ASSESSEE HAS NO OBLIGATION TO D EDUCT TDS. ONCE IT IS HELD THAT THE RIGHT TO SERVICE CAN BE SOLD THEN THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR WOULD BE THAT OF P RINCIPAL AND PRINCIPAL AND NOT PRINCIPAL AND AGENT. THE TERMS OF THE AGREE MENT SET OUT SUPRA IN UNMISTAKABLE TERMS DEMONSTRATE THAT THE RELATIONSHI P BETWEEN THE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 11 ASSESSEE AND THE DISTRIBUTOR IS NOT THAT OF PRINCIP AL AND AGENT BUT IT IS THAT OF PRINCIPAL TO PRINCIPAL. 63. IT WAS CONTENDED BY THE REVENUE THAT, IN THE EV ENT OF THE ASSESSEE DEDUCTING THE AMOUNT PAYING INTO THE DEPARTMENT, UL TIMATELY IF THE DEALER IS NOT LIABLE TO TAX IT IS ALWAYS OPEN TO HI M TO FOR REFUND OF THE TAX AND, THEREFORE, IT CANNOT BE SAID THAT SECTION I94H IS NOT ATTRACTED TO THE CASE HAND. AS STATED EARLIER, ON A PROPER CONST RUCTION OF SECTION I94H AND KEEPING IN MIND THE OBJECT WI WHICH CHAPTE R XVII IS INTRODUCED, THE PERSON PAYING SHOULD BE IN POSSESSI ON OF AN INCOME WHICH IS CHARGEABLE TO LAX UNDER THE ACT AND WHICH BELONGS TO THE PAYEE. A STATUTORY OBLIGATION IS CAST ON THE PAYER TO DEDUCT THE TAX AT SOURCE AND REMIT THE SAME TO THE DEPARTMENT. IF THE PAYEE IS NOT IN POSSESSION OF THE NET INCOME WHICH IS CHARGEABLE TO TAX, THE QUESTION OF PAYER DEDUCTING ANY TAX DOES NOT ARISE. AS HELD BY THE APEX COURT IN BHAVANI COTTON MILLS LIMITED'S CASE, IF A PERSON IS NOT LIABLE FOR PAYMENT OF TAX AT ALL, AT ANY TIME, THE COLLECTION OF TAX FROM HIM, WITH A POSSIBLE CONTINGENCY OF REFUND AT A LATER STAGE WIL L NOT MAKE THE ORIGINAL LEVY VALID. 64. IN THE CASE OF VODAFONE, IT IS NECESSARY TO LOO K INTO THE ACCOUNTS BEFORE GRANTING ANY RELIEF TO THEM AS SET OUT ABOVE . THEY HAVE ACCOUNTED THE ENTIRE PRICE OF THE PREPAID CARD AT R S. 100/- IN THEIR BOOKS OF ACCOUNT AND SHOWING THE DISCOUNT OF RS. 20/- TO THE DEALER. ONLY IF THEY ARE SHOWING RS. 80/-AS THE SALE PRICE AND NOT REFLECTING IN THEIR ACCOUNTS A CREDIT OF RS. 207- TO THE DISTRIBUTOR, T HEN THERE IS NO LIABILITY TO DEDUCT TAX UNDER SECTION 194H OF THE ACT. THIS E XERCISE HAS TO BE DONE BY THE ASSESSING AUTHORITY BEFORE GRANTING ANY RELIEF. THE SAME EXERCISE CAN BE DONE EVEN IN RESPECT OF OTHER ASSES SEES ALSO. 65. IN THE LIGHT OF THE AFORESAID DISCUSSIONS, WE A RE OF THE VIEW THAT THE ORDER PASSED BY THE AUTHORITIES HOLDING THAT SECTIO N 194H OF THE ACT IS ATTRACTED TO THE FACTS OF THE CASE IS UNSUSTAINABLE .' 10. AS WE TAKE NOTE OF THE VIEWS SO EXPRESSED BY HO N'BLE KARNATAKA HIGH COURT, WE MAY ALSO NOTE THAT THIS ISSUE HAS BEEN DECIDED A GAINST THE ASSESSEE BY, AMONGST OTHERS, HON'BLE KERALA HIGH COURT, IN THE C ASE OF VODAFONE ESSAR CELLULAR LTD \. ASSTT- CIT [2010] 332 ITR 255/194 TAXMAN 518. THE SAME ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 12 APPROACH HAS BEEN ADOPTED BY SOME VARIOUS OTHER HON 'BLE NON-JURISDICTIONAL HIGH COURTS AS WELL, SUCH AS IN THE CASES OF BHARLI CELLULAR LTD. \. ASSTT. CIT [2013] 354 ITR 507/[2000] 200 TAXMAN 254/12 TAXMANN .COM 30 (CAL) AND CITV. IDEA CELLULAR LTD. [2010] 325 ITR 148/189 TAXMAN 118 (DELHI!. IN THE CASE OF VODAFONE ESSAR CELLULAR LTD (SUPRA) THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: '4. THE MAIN QUESTION TO BE CONSIDERED IS WHETHER S ECTION 194H IS APPLICABLE FOR THE 'DISCOUNT' GIVEN BY THE ASSESSEE TO THE DISTRIBUTORS IN THE COURSE OF SELLING SIM CARDS AND RECHARGE COUPON S UNDER PREPAID SCHEME AGAINST ADVANCE PAYMENT RECEIVED FROM THE DI STRIBUTORS. WE HAVE TO NECESSARILY EXAMINE THIS CONTENTION WITH RE FERENCE TO THE STATUTORY PROVISIONS NAMELY, SECTION 194H. . WHAT IS CLEAR FROM EXPLANATION (I) OF THE DEFINITIO N CLAUSE IS THAT COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIV ED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE SERVICES RENDERED. WE HAVE ALREADY TAKEN NOTE O F OUR FINDING IN BPL CELLULAR'S CASE (SUPRA) ABOVEREFERRED THAT A CU STOMER CAN HAVE ACCESS TO MOBILE PHONE SERVICE ONLY BY INSERTING SI M CARD IN HIS HANDSET (MOBILE PHONE) AND ON ASSESSEE ACTIVATING I T. BESIDES GETTING CONNECTION TO THE MOBILE NETWORK, THE SIM CARD HAS NO VALUE OR USE FOR THE SUBSCRIBER. IN OTHER WORDS, SIM CARD IS WHAT LI NKS THE MOBILE SUBSCRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SU PPLY OF SIM CARD, WHETHER IT IS TREATED AS SALE BY THE ASSESSEE OR NO T. IS ONLY FOR THE PURPOSE OF RENDERING CONTINUED SERVICES BY THE ASSE SSEE TO THE SUBSCRIBER OF THE MOBILE PHONE. BESIDES THE PURPOSE OF RETAINING A MOBILE PHONE CON NECTION WITH A SERVICE PROVIDER, THE SUBSCRIBER HAS NO USE OR VALU E FOR THE SIM CARD PURCHASED BY HIM FROM ASSESSEE'S DISTRIBUTOR. THE P OSITION IS SAME SO FAR AS RECHARGE COUPONS OR E-TOP UPS ARE CONCERNED WHICH ARE ONLY AIR TIME CHARGES COLLECTED FROM THE SUBSCRIBERS IN ADVA NCE. WE HAVE TO NECESSARILY HOLD THAT OUR FINDINGS BASED ON THE OBS ERVATIONS OF THE SUPREME COURT IN BS\L'S CASE (SUPRA) IN THE CONTEXT OF SALES TAX IN THE CASE OF BPL CELLULAR- LID. (SUPRA) SQUARELY APPLY TO THE ASSESSEE WHICH IS NOTHING BUT THE SUCCESSOR COMPANY WHICH HAS TAKE N OVER THE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 13 BUSINESS OF BPL CELLULAR LTD. IN KERALA. SO MUCH SO , THERE IS NO SALE OF ANY GOODS INVOLVED AS CLAIMED BY THE ASSESSEE AND T HE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIME OF DELIVERY O F SIM CARDS OR RECHARGE COUPONS IS ONLY FOR RENDERING SERVICES TO ULTIMATE SUBSCRIBERS AND THE DISTRIBUTOR IS ONLY THE MIDDLEMAN ARRANGING CUSTOMERS OR SUBSCRIBERS FOR THE ASSESSEE. THE TERMS OF DISTRIBU TION AGREEMENT CLEARLY INDICATE THAT IT IS FOR THE DISTRIBUTOR TO ENROLL THE SUBSCRIBERS WITH PROPER IDENTIFICATION AND DOCUMENTATION WHICH RESPO NSIBILITY IS ENTRUSTED BY THE ASSESSEE ON THE DISTRIBUTORS UNDER THE AGREEMENT. IT 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 DISTRIBUTORS FOR THE SERVICES RENDERE D BY THEM LIKE GETTING THE SUBSCRIBERS IDENTIFIED, DOING THE DOCUMENTATION WORK AND ENROLLING THEM AS MOBILE SUBSCRIBERS TO THE SERVICE PROVIDER NAMELY, THE ASSESSEE. EVEN THOUGH THE ASSESSEE HAS CONTENDED TH AT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS IS PRINCI PAL TO PRINCIPAL BASIS, WE ARE UNABLE TO ACCEPT THIS CONTENTION BECAUSE THE ROLE OF THE DISTRIBUTORS AS EXPLAINED ABOVE IS THAT OF A MIDDLE MAN BETWEEN THE SERVICE PROVIDER NAMELY, THE ASSESSEE, AND THE CONS UMERS. THE ESSENCE OF A CONTRACT OF AGENCY IS THE AGENT'S AUTHORITY TO COMMIT THE PRINCIPAL. IN THIS CASE THE DISTRIBUTORS ACTUALLY CANVASS BUSI NESS FOR THE ASSESSEE AND ONLY THROUGH DISTRIBUTORS AND RETAILERS APPOINT ED BY THEM ASSESSEE GETS SUBSCRIBERS FOR THE MOBILE SERVICE. ASSESSEE R ENDERS SERVICES TO THE SUBSCRIBERS BASED ON CONTRACTS ENTERED INTO BETWEEN DISTRIBUTORS AND SUBSCRIBERS. WE HAVE ALREADY NOTICED THAT THE DISTR IBUTOR IS ONLY RENDERING SERVICES TO THE ASSESSEE AND THE DISTRIBU TOR COMMITS THE ASSESSEE TO THE SUBSCRIBERS TO WHOM ASSESSEE IS ACC OUNTABLE UNDER THE SERVICE CONTRACT 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 OUR VIEW, IS IM MATERIAL AND IN SUBSTANCE THE DISCOUNT GIVEN AT THE TIME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY THE ASSESSEE TO THE DISTRIBUTOR S IS A PAYMENT RECEIVED OR RECEIVABLE BY THE DISTRIBUTOR FOR THE S ERVICES TO BE RENDERED TO THE ASSESSEE AND SO MUCH SO, IT FALLS WITHIN THE DEFINITION OF ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 14 COMMISSION OR BROKERAGE UNDER EXPLANATION (I) OF SE CTION I94H OF THE ACT. THE TEST TO BE APPLIED TO FIND OUT WHETHER EXP LANATION (I) OF SECTION I94H IS APPLICABLE OR NOT IS TO SEE WHETHER ASSESSEE HAS MADE ANY PAYMENT AND IF SO. WHETHER IT IS FOR SERVICES R ENDERED BY THE PAYEE TO THE ASSESSEE. IN THIS CASE THERE CAN BE NO DISPU TE THAT DISCOUNT IS NOTHING BUT A MARGIN GIVEN BY THE ASSESSEE TO THE D ISTRIBUTOR AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS AGAINS T ADVANCE PAYMENT MADE BY THE DISTRIBUTOR. THE DISTRIBUTOR UN DOUBTEDLY CHARGES OVER AND ABOVE WHAT IS PAID TO THE ASSESSEE AND THE ONLY LIMITATION IS THAT THE DISTRIBUTOR CANNOT CHARGE ANYTHING MORE TH AN THE MRP SHOWN IN THE PRODUCT NAMELY, SIM CARD OR RECHARGE COUPON. DISTRIBUTOR DIRECTLY OR INDIRECTLY GETS CUSTOMERS FOR THE ASSES SEE AND SIM CARDS ARE ONLY USED FOR GIVING CONNECTION TO THE CUSTOMERS PR OCURED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE ASSESSEE IS ACCOU NTABLE TO THE SUBSCRIBERS FOR FAILURE TO RENDER PROMPT SERVICES P URSUANT TO CONNECTIONS GIVEN BY THE DISTRIBUTOR FOR THE ASSESS EE. THEREFORE, THE DISTRIBUTOR ACTS ON BEHALF OF THE ASSESSEE FOR PROC URING AND RETAINING CUSTOMERS AND. THEREFORE, THE DISCOUNT GIVEN IS NOT HING BUT COMMISSION WITHIN THE MEANING OF EXPLANATION (I) ON WHICH TAX IS DEDUCTIBLE UNDER SECTION I94H OF THE ACT. THE CONTENTION OF THE ASSE SSEE THAT DISCOUNT IS NOT PAID BY THE ASSESSEE TO THE DISTRIBUTOR BUT IS REDUCED FROM THE PRICE AND SO MUCH SO, DEDUCTION UNDER SECTION 194H IS NOT POSSIBLE ALSO DOES NOT APPLY BECAUSE IT WAS THE DUTY OF THE ASSES SEE TO DEDUCT TAX AT SOURCE AT THE TIME OF PASSING ON THE DISCOUNT BENEF IT TO THE DISTRIBUTORS AND THE ASSESSEE COULD HAVE GIVEN DISCOUNT NET OF T HE TAX AMOUNT OR GIVEN FULL DISCOUNT AND RECOVERED TAX AMOUNT THEREO N FROM THE DISTRIBUTORS TO REMIT THE SAME IN TERMS OF SECTION I94H OF THE ACT.' 11. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE ABOUT THE FUNDAMENTAL LEGAL POSITION THAT IN THE HIERARCHICAL JUDICIAL SYSTEM, THAT WE HAVE IN OUR COUNTRY, LOWER TIERS OF JUDICIAL HIERARCHY HAS TO RESPECTFUL LY FOLLOW THE VIEWS EXPRESSED BY THE HIGHER TIERS OF JUDICIAL HIERARCHY. IN THE C ASE OF ASSISTANT COLLECTOR OF CENTRAL EXCISE V. DUNLOP INDIA LTD, ( 1985) 154 ITR 172 (SC), SUPREME COURT HAS OBSERVED, QUOTING THE HOUSE OF LORDS, AS FOLLOW S; ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 15 'WE DESIRE TO ADD AND AS WAS SAID IN CASSELL & CO. LTD. V. BROOME (1972) AC 1027 (HL), WE HOPE IT WILL NEVER BE NECES SARY FOR US TO SAY SO AGAIN THAT 'IN THE HIERARCHICAL SYSTEM OF COURTS ' WHICH EXISTS IN OUR COUNTRY, 'IT IS NECESSARY FOR LOWER TIER', INCLUDIN G THE HIGH COURT, 'TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS'. 'IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISI ONS OF THE SUPREME APPELLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMO US APPROVAL OF ALL MEMBERS OF THE JUDICIARY. . . . BUT THE JUDICIAL SY STEM ONLY WORKS IF SOMEONE IS ALLOWED TO HAVE THE LAST WORD AND THAT L AST WORD, ONCE SPOKEN, IS LOYALLY ACCEPTED' (SEE OBSERVATIONS OF L ORD HAILSHAM AND LORD DIPLOCK IN BROOME V. CASSELL). THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM.' 12. THE QUESTION WHETHER THE NON-JURISDICTIONAL HIGH CO URT BINDS THE TRIBUNAL BENCHES OR NOT CAME UP FOR CONSIDERATION BEFORE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CJT\. SMT. GODWARIDEVI SARAF [ 1 978] 113 ITR 589. THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEISIN OF THE QUESTION AS TO 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN VIEW OF DECISION IN THE CASE OF 'A.M. SALI MARICAR V. ITO [ 1973] 90 ITR 116 ( MAD) THE PENALTY IMPOSED ON THE ASSESSEE UNDER S. 140A(3) WAS LEGAL? THE SPECIFIC Q UESTION BEFORE THEIR LORDSHIPS THUS WAS WHETHER THE TRIBUNAL, WHILE SITT ING IN BOMBAY, WAS JUSTIFIED IN FOLLOWING THE MADRAS HIGH COURT DECISION. IT WAS IN THIS CONTEXT THAT HON'BLE BOMBAY HIGH CONCLUDED AS FOLLOWS: 'IT SHOULD NOT BE OVERLOOKED THAT IT ACT IS AN ALL INDIA STATUTE, AND IF A TRIBUNAL IN MADRAS HAS PROCEED ON THE FOOLING THAT S. 140A(3) WAS NON- EXISTENT, THE ORDER OF PENALTY UNDER THAT SECTION C ANNOT BE IMPOSED BY ANY AUTHORITY UNDER THE ACT. UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT, WHICH IS BINDING ON THE TRIBU NAL IN THE STATE OF BOMBAY (AS IT THEN WAS), IT HAS TO PROCEED ON THE F OOTING THAT THE LAW DECLARED BY THE HIGH COURT, THOUGH OF ANOTHER STATE , IS THE FINAL LAW OF THE LAND ...... AN AUTHORITY LIKE TRIBUNAL HAS TO RESPE CT THE IAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION ON THAT ISSUE BY ANY OTHER HIGH COURT .... ..' ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 16 13. IN THE CASE OF CITV. SHAH ELECTRICAL CORPN. [1994] 207 ITR 350 (GUI). VIDE JUDGMENT DATED 23RD JUNE 1993, THEIR LORDSHIPS HAD AN OCCASION TO CONSIDER THE AFORESAID VIEWS. IT WAS IN THIS CONTEXT THAT THEIR LORDSHIPS HAVE OBSERVED AS FOLLOWS: '3. WHAT IS CONTENDED BY THE LEARNED ADVOCATE FOR T HE REVENUE IS THAT THE TRIBUNAL DECIDED THE APPEAL ON 26TH OCT., 1976. BY THAT TIME, THE ANDHRA PRADESH HIGH COURT HAD UPHELD THE VALIDITY O F S. 140A(3). HE DREW OUR ATTENTION TO THE JUDGMENT OF THE ANDHRA PR ADESH HIGH COURT IN KASHIRATN V. ITO (1977) 107 ITR 825 (API. FROM THE REPORT, IT APPEARS THAT THE SAID JUDGMENT WAS DELIVERED ON 10T H DEC., 1975. THEREFORE, THE TRIBUNAL WAS NOT RIGHT IN PROCEEDING ON THE BASIS THAT ONLY THE MADRAS HIGH COURT JUDGMENT WAS IN THE FIEL D AND. THEREFORE, IT WAS OPEN TO IT TO PROCEED ON THE BASIS THAT S. 140A (3) WAS NON-EXISTENT. HE ALSO SUBMITTED THAT FOR THAT REASON, THE TRIBUNA L WAS NOT RIGHT IN FOLLOWING THE JUDGMENT OF THE BOMBAY HIGH COURT IN GODAVARIDEVI'S CASE (SUPRA). 4. IN OUR OPINION, THE LEGAL POSITION IS CORRECTLY STATED BY THE PUNJAB & HARYANA HIGH COURT IN CFT VS. VED PRAKASH (1989) 77 CTR (P&H) 116 : (1989) 178 ITR 332 (P&H) WHEN IT OBSERVED THAT 'UNLESS AND UNTIL THE SUPREME COURT OR THE HIGH COURT OF THE STATE IN QUE STION, UNDER ART. 226 OF THE CONSTITUTION, DECLARES A PROVISION OF TH E ACT TO BE ULTRA VIRES, IT MUST BE TAKEN TO BE CONSTITUTIONALLY VALID AND T REATED AS SUCH'. 5. IN OUR OPINION, THE TRIBUNAL OF ANOTHER STATE WO ULD BE JUSTIFIED IN PROCEEDING ON THE BASIS THAT THE PROVISION HAS CEAS ED TO EXIST BECAUSE IT HAS BEEN DECLARED AS ULTRA VIRES BY THE HIGH COURT ONLY WHEN THERE IS SOME MATERIAL TO SHOW THAT THE SAID DECISION HAS BE EN ACCEPTED BY THE DEPARTMENT........' (EMPHASIS SUPPLIED) 14. A LITTLE LATER, HOWEVER, WHILE DEALING WITH A M ATERIALLY SIMILAR SITUATION, IN THE CASE OF CIT V. MAGANLAL MOHANLAL PANCHAL (HUF) [1994] 210 ITR 580 (GUJ). VIDE JUDGMENT DATED 1ST SEPTEMBER, 1994, THEIR LOR DSHIPS HAVE HELD AS FOLLOWS: '........ AT THE TIME WHEN THE TRIBUNAL DECIDED THE APPEAL, THAT WAS THE ONLY DECISION IN THE FIELD AND, THEREFORE, IN VIEW OF WHAT THE BOMBAY ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 17 HIGH COURT HAS HELD IN CIT V. SMT. GODAVARIDEVI SARAF (19781 113 ITR 589 MOM) AND CIT V. SMT. NIRMALABAI K. DAREKAR (1990) 186 ITR 242 (BOMX THE TRIBUNAL WAS BOUND TO FOLLOW THE SAID JUD GMENT OF THE MADRAS HIGH COURT. IT, THEREFORE, CANNOT BE SAID TH AT THE TRIBUNAL COMMITTED AN ERROR IN FOLLOWING THE SAID JUDGMENT O F THE MADRAS HIGH COURT. IN VIEW OF THE SAID DECISION OF THE MADRAS H IGH COURT, THE ONLY COURSE WHICH THE TRIBUNAL COULD HAVE FOLLOWED WAS T O DIRECT THE ITO TO CONSIDER THE PARTIAL PARTITION ON THE MERITS AND PA SS AN ORDER UNDER S. 171 FIRST AND THEN UNDER S. 143(3) OF THE ACT.' 15. IT IS CLEAR THAT, EXCEPT ON THE ISSUE OF LEGALITY O F THE STATUTORY PROVISION ITSELF, THE DECISIONS OF EVEN THE NON-JURISDICTIONAL HIGH C OURTS ARE BINDING ON THE LOWER TIERS OF JUDICIAL HIERARCHY SUCH AS THIS TRIBUNAL. AS WE HOLD SO, WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT NON-JURISDICTIONAL HIGH COURTS ARE NOT BINDING ON THE SUBORDINATE COURTS AND TRIBUNALS, AS ARTICULATED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. VED PARKASH [1989J 178 ITR 332 44 TAXMAN 365 BUT THEN THAT WAS A CASE IN THE CONTEXT OF VALIDIT Y OF A STATUTORY PROVISION, I.E. I40A(3), COVERED BY THE RIDER TO THE GENERAL P ROPOSITION. THIS EXCEPTION DOES NOT COME INTO PLAY IN THE PRESENT CASE AS WE ARE NO T, AND WE CANNOT BE, DEALING WITH THE CONSTITUTIONAL VALIDITY OF A PROVISION. CL EARLY, THEREFORE, THE VIEWS EXPRESSED BY HON'BLE NON-JURISDICTIONAL HIGH COURT, IN THE ABSENCE OF A DIRECT DECISION ON THAT ISSUE BY THE HON'BLE JURISDICTIONA L HIGH COURT, DESERVE UTMOST RESPECT AND DEFERENCE. 16. THE DIFFICULTY, HOWEVER, ARISES IN THE CASE IN WHICH HON'BLE NON- JURISDICTIONAL HIGH COURTS HAVE XPRESSED CONFLICTIN G VIEWS AND THE SUBORDINATE COURTS AND TRIBUNALS DO NOT HAVE THE BENEFIT OF GUI DANCE ROM HON'BLE JURISDICTIONAL HIGH COURT. 17. IN OUR HUMBLE UNDERSTANDING OF THE LEGAL POSITI ON AND OF THE PROPRIETY, IT WILL BE WHOLLY INAPPROPRIATE FOR US TO CHOOSE VIEWS OF O NE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESP ECTIVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMEN T OVER THE VIEWS OF THE HON'BLE HIGH COURTS- SOMETHING DIAMETRICALLY OPPOSE D TO THE VERY BASIC PRINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. OF COUR SE, WHEN THE MATTER TRAVELS TO HON'BLE JURISDICTIONAL HIGH COURT, THEIR LORDSHIPS, BEING UNFETTERED BY THE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 18 VIEWS OF A NON-JURISDICTIONAL HIGH COURT, CAN TAKE SUCH A CALL ON MERITS. THAT EXERCISE, AS WE UNDERSTAND, SHOULD NOT BE CARRIED O UT BY US. 18. THE CHOICE OF WHICH OF HON'BLE HIGH COURT TO FO LLOW MUST, THEREFORE, BE MADE ON SOME OBJECTIVE CRITERION. WE HAVE TO, WITH OUR HIGHEST RESPECT OF ALL THE HON'BLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION F OR DECIDING AS TO WHICH OF THE HON'BLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIN D GUIDANCE FROM THE JUDGMENT OF SUPREME COURT IN THE MATTER OF CIT V. VEGETABLE PRODUCTS LID. [1973] 88 1TR 192. SUPREME COURT HAS LAID DOWN A PRINCIPLE THAT 'IF T WO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED' ALTHOUG H THIS PRINCIPLE SO LAID DOWN WAS IN THE CONTEXT OF PENALTY, AND THEIR LORDS HIPS SPECIFICALLY STATED SO IN SO MANY WORDS, IT HAS BEEN CONSISTENTLY FOLLOWED FO R THE INTERPRETATION ABOUT THE STATUTORY PROVISIONS AS WELL. IN ANOTHER SUPREME CO URT JUDGMENT, PETRON ENGG. CONSTRUCTION (P.) LTD V. CFFPR[1989] 175 ITR 523/[L988] 41 TAX MAN 294 TH E ABOVE PRINCIPLE OF LAW HAS BEEN REITERATED BY OBSER VING AS FOLLOWS: '........ COUNSEL SUBMITS THAT WHEN TWO INTERPRETAT IONS ARE POSSIBLE TO BE MADE, THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED. IN SUPPORT OF THAT CONTENTION, LEARNED COU NSEL HAS PLACED RELIANCE UPON A FEW DECISIONS OF THIS COURT IN CJTV. MADHO PRASADJATIA (1976) 105 ITR 1 79 (SC): C1T\. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SO AND C/T VS KULU VALLEY TRANSPORT CO. P. LTD (1970) 77 ITR 518 (SC) :........ THE ABOVE PRINCIPLE OF LAW IS WELL-ESTAB LISHED AND THERE IS NO DOUBT ABOUT THAT.,.....' 19. HAVING NOTED THE LEGAL POSITION AS ABOVE, IT IS APPROPRIATE, FOR THE SAKE OF COMPLETENESS, TO NOTE THE EXCEPTION TO THIS GENERAL RULE AS WELL. SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS G ENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONST RUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RES OLVING AMBIGUITIES IN FAVOUR OF TAXPAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS A ND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPT ION, LAID DOWN IN LITTMAN V. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD V. DY. COMMISSIONER OF COMMERCIAL TAXES [1992] SUPPL. (I) SCC 21 AND NOVOPAN INDIA LID. V. CCE& C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF A MBIGUITY, A TAXING STATUTE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 19 SHOULD BE CONSTRUED IN FAVOUR OF A TAXPAYER DOES NO T APPLY TO A PROVISION GIVING TAXPAYER RELIEF IN CERTAIN CASES FROM A SECTION CLE ARLY IMPOSING LIABILITY'. THIS EXCEPTION HAS BEEN ALSO REITERATED BY SUPREME COURT IN THE CASE OF OIL & NATURAL GAS COMMISSION V. C!T [2015] 59 (AXMANN.COM 5. HOWEVER, IN THE PRESENT CASE, THIS EXCEPTION HAS NO APPLICATION. TH E RULE OF RESOLVING AMBIGUITY IN FAVOUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAVOUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTI TUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. V. DADABHOY'S NEW CHIRMIRY PONRI HILL COLLIERY CO. LID . AIR 1972 SC 614. THAT IS WHAT HON'BLE JURISDICTIONAL HI GH COURT HAS ALSO HELD IN THE CASE OF SHAH ELECTRICAL CORPORATION (SUPRA). NONE OF THESE EXCEPTIONS, HOWEVER, ADMITTEDLY APPLY TO THE SITUATION THAT WE ARE DEALI NG WITH AT PRESENT. 20. THERE CAN BE NO DISPUTE ON THE PROPOSITION THAT IRRESPECTIVE OF WHETHER OR NOT THE JUDGMENTS OF HON'BLE NON-JURISDICTIONAL HIGH CO URTS ARE BINDING ON US. THESE JUDGMENTS DESERVE UTMOST RESPECT WHICH IMPLIES THAT , AT THE MINIMUM, THESE JUDGMENTS ARE TO BE CONSIDERED REASONABLE INTERPRET ATIONS OF THE RELATED LEGAL AND FACTUAL SITUATION. VIEWED THUS, WHEN THERE IS A REA SONABLE INTERPRETATION OF A LEGAL AND FACTUAL SITUATION, WHICH IS FAVOURABLE TO THE ASSESSEE, SUCH AN INTERPRETATION IS TO BE ADOPTED BY US. IN OTHER WOR DS, HON'BLE NON-JURISDICTIONAL HIGH COURT'S JUDGMENT IN FAVOUR OF THE ASSESSEE. IN THE LIGHT OF THIS LEGAL PRINCIPLE LAID DOWN BY SUPREME COURT, IS TO BE PREF ERRED OVER THE HON'BLE NON- JURISDICTIONAL HIGH COURT NOT FAVOURABLE TO THE ASS ESSEE. IN OUR HUMBLE UNDERSTANDING, IT IS ONLY ON THIS BASIS, WITHOUT SI TTING IN VALUE JUDGMENT ON THE VIEWS EXPRESSED BY A HIGHER TIER OF JUDICIAL HIERAR CHY, THAT THE CONFLICTING VIEWS OF HON'BLE NON-JURISDICTIONAL HIGH COURTS CAN BE RE SOLVED BY US IN A TRANSPARENT, OBJECTIVE AND PREDICTABLE MANNER. 21. IT IS VERY TEMPTING TO BELIEVE, OR PRETEND TO B ELIEVE, THAT, IN THE ABSENCE OF DIRECT DECISION ON THE ISSUE, BY THE HON'BLE JURISD ICTIONAL HIGH COURT, WE HAVE UNFETTERED DISCRETIONS IN EXERCISE OF OUR JUDICIAL POWERS BUT THEN SUCH AN APPROACH WILL NOT ONLY BE CONTRARY TO SETTLED LEGAL POSITION, AS SET OUT ABOVE, BUT ALSO, IN A WAY, AN EXERCISE IN IMPROPRIETY. 22. WE MAY ALSO MENTION THAT A SINGLE MEMBER BENCH OF THIS TRIBUNAL, IN THE CASE OF JTO V. BHARAT SANCHAR NIGAM LTD. (ITA NO 170/HYD/2010 AND CO NO10/HYD/10; ORDER, DATED 5TH JUNE, 2015) HAS REACH ED THE SAME CONCLUSION BUT THE REASONING ADOPTED, FOR FOLLOWING HON'BLE KARNAT AKA HIGH COURT'S JUDGMENT ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 20 IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), WAS STATED TO BE THAT 'SINCE NO JURISDICTIONAL HIGH COURT DECISION IS AVAILABLE AS ON DATE, THE LATEST DECISION OF KARNATAKA HIGH COURT, WHICH HAS CONSIDERED AND DIST INGUISHED EARLIER RULINGS OF OTHER HIGH COURTS, DESERVES TO BE FOLLOWED'. OUR CO NCLUSION IS THE SAME BUT OUR DECISION TO FOLLOW HON'BLE KARNATAKA HIGH COURT'S J UDGMENT IS SIMPLY THIS JUDGMENT IS TO BE PREFERRED OVER, IN THE LIGHT OF S ETTLED LEGAL PRINCIPLES SET OUT ABOVE, OTHER HON'BLE HIGH COURT JUDGMENTS, BECAUSE IT IS FAVOURABLE TO THE ASSESSEE. WITH UTMOST RESPECT AND REVERENCE TO ALL THE HON'BLE COURTS, IT IS NOT FOR US TO CHOOSE WHICH DECISION IS TO BE FOLLOWED B ECAUSE OF ITS MERITS BECAUSE OF WHAT IT HAS DISCUSSED OR BECAUSE OF HOW IT HAS DIST INGUISHED OTHER HON'BLE HIGH COURTS OR BECAUSE OF ITS LIMING I.E. OF ITS BEING L ATEST. EVEN WHEN A NON- JURISDICTIONAL HIGH COURT DISTINGUISHES ALL OTHER D ECISIONS OF HON'BLE HIGH COURTS BUT HOLDS A VIEW UNFAVOURABLE TO THE ASSESSE E, THAT DECISION CANNOT NORMALLY BE PREFERRED OVER A DECISION FROM ANOTHER HON'BLE NON-JURISDICTIONAL HIGH COURT DECISION, OF EQUAL STATURE, IN FAVOUR OF THE ASSESSEE. THAT IS, AS WE UNDERSTAND, CORRECT APPROACH TO THE MATTER AND THAT IS THE REASON WHY WE COME TO THE SAME CONCLUSION AS THE SMC DID BUT FOR ALTOGETH ER DIFFERENT REASONS. 23. WE HAVE ALSO NOTED THAT MATERIAL FACTS OF THE C ASE AND THE TERMS OF AGREEMENTS WITH THE DISTRIBUTORS ARE THE SAME AS WE RE BEFORE HON'BLE KARNATAKA HIGH COURT IN THE ABOVE CASE. A COMPARATIVE CHART O F THESE CLAUSES IS AS FOLLOWS: SR.NO. DISCLOSURE IN THE AGREEMENT AS HIGHLIGHTED IN THE HONBLE KARNATAKA HIGH COURTS JUDGEMENT RELEVANT EXTRACTS CORRESPONDING CLAUSE IN THE AGREEMENT OF THE ASSESSEE WITH ITS PREPAID DISTRIBUTORS 1 THE AGREEMENT STIPULATES THAT THE DISTRIBUTORS HAVE TO REPRESENT TO THE CUSTOMERS THAT THE DISTRIBUTORS AGREEMENT WITH THE CUSTOMERS / ITS DEALERS IS ON PRINCIPAL TO PRINCIPAL BASIS AND ASSESSEE IS NO WAY CONCERNED OR LIABLE TO THE CUSTOMERS / DEALERS OF THE CLAUSE 17.2 SPECIFICALLY PROVIDES THAT THE RELATIONSHIP CREATED BY THE AGREEMENT IS THAT OF A BUYER AND SELLER AND THAT THE AGREEMENT IS ON A PRINCIPAL TO PRINCIPAL BASIS AND NEITHER PARTY IS, NOR SHALL BE DEEMED TO BE, AN AGENT / PARTNER OF THE OTHER. IT IS ALSO PROVIDED THAT NOTHING IN THE AGREEMENT SHALL BE CONSTRUED TO ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 21 DISTRIBUTOR PAGE 68. RENDER THE DISTRIBUTOR A PARTNER OR AGENT OF THE ASSESSEE. 2 DISTRIBUTOR SHALL NOT MAKE ANY PROMISE, REPRESENTATION OR TO GIVE ANY WARRANTY OR GUARANTEE WITH RESPECT TO SERVICES AND PRODUCTS, WHO ARE NOT AUTHORISED BY THE ASSESSEE- PAGE 69. CLAUSE 1E OF ANNEXURE III TO THE AGREEMENT PROVIDES THAT THE DISTRIBUTOR SHALL NOT MAKE ANY PROMISES OR REPRESENTATION OR GIVE ANY WARRANTIES OR GUARANTEES IN RESPECT OF THE SERVICE TICKETS EXCEPT SUCH AS ARE CONSISTENT WITH THOSE WHICH ACCOMPANY THE SERVICE TICKET OR AS EXPRESSLY AUTHORISED BY THE ASSESSEE IN WRITING. 3 THAT THE INSURANCE LIABILITY FOR THE ENTIRE STOCK IN TRADE IN THE PREMISES AT THE ADDRESS UNDER REFERENCE WILL BE OF THE DISTRIBUTOR AND THE LIABILITY FOR ANY LOSS OR DAM AGE DUE TO ANY FIRE, BURGLARY, THEFT, ETC., WILL BE OF THE DISTRIBUTOR.- PAGE 69. AS PER CLAUSE (IV) OF ANNEXURE II TO THE AGREEMENT, THE ASSESSEE IS NOT LIABLE FOR ANY LOSS, PILFERAGE OR DAMAGE TO THE RECHARGE VOUCHERS / SERVICE TICKETS POST-DELIVERY OF THE SAME TO THE DISTRIBUTORS. THE ASSESSEE DOES NOT COMPENSATE THE DISTRIBUTORS FOR ANY UNSOLD STOCK. 4 THE DISTRIBUTOR HAS NO EXPRESS OR IMPLIED RIGHT OR AUTHORITY TO ASSUME OR UNDERTAKE ANY OBLIGATION IN RESPECT OF OR ON IN THE NAME OF THE ASSESSEE. PAGE 70. DISTRIBUTOR DOES NOT HAVE AN AUTHORITY TO ASSUME OR CREATE ANY OBLIGATIONS VWLS BEHALF OR INCUR ANY LIABILITY ON BEHALF OF VWL OR ACCEPT ANY CONTRACT BINDING UPON VWL (CLAUSE 17.1 OF THE AGREEMENT). 5 HANNEL PARTNER BE LIABLE TO PAY ALL THE TAX ES SUCH AS SALES TAX, SERV ICE TAX APPLICABLE AND PAYABLE IN RESPECT OF THE SUBJECT- MATTER OF THIS AGREEMENT AND STATUTORY THE DISTRIBUTOR SHALL PAY ALL LICENSES, FEE, TAXES, DUTIES, SALES-TAX, SERVICE TAX AND ANY OTHER CHARGES, ASSESSMENTS PENALTIES WHETHER STATUTORY OR OTHERWISE LEVIED BY ANY AUTHORITY IN CONNECTION WITH THE OPERATION OF ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 22 INCREASE IN RESPECT THEREOF- PAGE 72. DISTRIBUTORS OFFICER (CLAUSE III(B) OF ANNEXURE III TO AGREEMENT). 6. AFTER SALE OF PRODUCTS DISTRIBUTOR / CHANNEL PARTNER CANNOT RETURN GOODS TO THE ASSESSEE FOR WHATEVER REASON- PAGE 74. THE ASSESSEE SHALL NOT BE RESPONSIBLE FOR ANY POST DELIVERY DEFECT IN THE SERVICE TICKETS. NO REQUEST OF REFUND OF ANY MONEY SHALL BE ENTERTAINED BY THE ASSESSEE IN ANY CIRCUMSTANCES (CLAUSE E-ANNEXURE I). 7 DISTRIBUTORS ARE EVEN PREVENTED FROM MAKING ANY REPRESENTATION TO THE RETAILERS UNLESS AUTHORIZED BY THE ASSESSEE. THE DISTRIBUTOR SHALL NOT MAKE ANY PROMISES OR REPRESENTATIONS OR GIVE ANY WARRANTIES OR GUARANTEES IN RESPECT OF THE PRODUCTS (I.E. SIM CARD AND PREPAID VOUCHERS)(CLAUSE 1 I.E. ANNEXURE III). 24. IN THE LIGHT OF THE ABOVE DISCUSSIONS, AND PART ICULARLY AS THERE IS NO DISPUTE THAT THE FACTUAL MATRIX OF ALL THE CASES BEFORE THE HON'BLE NON JURISDICTIONAL HIGH COURTS WERE MATERIALLY THE SAME AS IN THIS CASE, IN CONFORMITY WITH THE ESTEEMED VIEWS OF HON'BLE KARNATAKA HIGH COURT IN BHARTI AIRTEL'S CASE (SUPRA), AND HOLD AS FOLLOWS: (A) ON THE FACTS OF THE CASE, AND AS IS EVIDENT FROM A READING OF THE AGREEMENTS BEFORE US, THE ASSESSEE HAS SOLD, BY WAY OF PREPAID VOUCHERS, E-TOP UPS AND PREPAID SIM CARDS, THE 'RIGHT TO SERVICE' ON PRINCI PAL TO PRINCIPAL BASIS TO ITS DISTRIBUTORS. AS EVIDENT FROM THE TERMS AND CONDITI ONS FOR SALE, PLACED AT PAGE 136 OF THE PAPER BOOK, NOT ONLY THAT THE SALE WAS F INAL AND THE ASSESSEE WAS NOT RESPONSIBLE FOR ANY POST-DELIVER}' DEFECTS IN THE S ERVICES, IT WAS SPECIFICALLY AGREED THAT 'NO REQUEST OF REFUND OF ANY MONEY SHAL L BE ENTERTAINED BY VEGL (I.E. THE ASSESSEE) UNDER ANY CIRCUMSTANCES'. (B) THE FACT THAT THERE ARE CERTAIN CONDITIONS AND STIP ULATIONS ATTACHED TO THE SALE OF THIS RIGHT OF SERVICE BY THE ASSESSEE TO HI S DISTRIBUTORS DOES NOT AFFECT THE CHARACTER OF SALE ON PRINCIPAL TO PRINCIPAL BASIS. (C) SECTION 194 H COMES INTO PLAY ONLY IN A SITUATION I N WHICH 'ANY PERSON, ..... RESPONSIBLE FOR PAYING ...... TO A RESIDENT, ANY IN COME BY WAY OF COMMISSION' PAYS OR CREDITS SUCH 'INCOME BY WAY OF COMMISSION' . HOWEVER, SINCE AT THE TIME OF THE ASSESSEE SELLING THESE RIGHTS FOR A CON SIDERATION TO THE DISTRIBUTOR, THE ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 23 DISTRIBUTOR DOES NOT EARN ANY INCOME, THE PROVISION S OF SECTION I94H DO NOT COME INTO PLAY ON THE TRANSACTION OF SALE OF THE RI GHT TO SERVICE BY THE ASSESSEE TO HIS DISTRIBUTORS. THE CONDITION PRECEDENT FOR AT TRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY TH E ASSESSEE TO THE DISTRIBUTOR (D) SO FAR AS THE TRANSACTION OF SALE OF 'RIGHT TO SERV ICE 1 BY THE ASSESSEE TO HIS DISTRIBUTOR IS CONCERNED, WHILE IT HAS INCOME POTEN TIAL AT A FUTURE POINTS OF TIME (I.E. WHEN THIS RIGHT TO SERVICE IS SOLD AT A PROFI T BY THE DISTRIBUTOR), RATHER THAN EARNING INCOME, DISTRIBUTORS INCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. THEREFORE, AT THE TIME OF THE ASSESSEE SELLI NG THESE PREPAID CARDS, HE IS NOT IN POSSESSION OF ANY INCOME BELONGING TO THE DISTRI BUTOR. ACCORDINGLY, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE D ISTRIBUTOR AT THE POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DIST RIBUTOR DOES NOT ARISE. (E) IN A SITUATION IN WHICH THE ASSESSEE HAS CREDITED T HE SALE PROCEEDS AT THE TRANSACTION VALUE (IN CONTRAST WITH THE TRANSACTION BEING SHOWN AT FACE VALUE AND THE DIFFERENCE BETWEEN FACE VALUE AND THE TRANSACTI ON VALUE CREDITED TO THE DISTRIBUTOR), THE TAX DEDUCTION LIABILITY UNDER SEC TION I94H DOES NOT ARISE. WHILE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE SALE 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 ACCOUNT ED FOR AT THE FACE VALUE, TO THAT EXTENT, THE TAX WITHHOLDING LIABILITY IS TO BE SUSTAINED, 25. GROUND NO. 1 IS THUS ALLOWED IN THE TERMS INDIC ATED ABOVE. 13.IN VIEW OF THE AFORESAID DISCUSSIONS, WE FIND TH AT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE PARI MATERIA WITH THE CASE DECIDED BY THE AHMEDABAD TRIBUNAL. THEREFORE, RESPECTFULLY WE HAVE NO HESITATION IN FOLLOWING THE DECISION OF THE AHMEDABAD BENCH OF TH E TRIBUNAL IN VODAFONE ESSAR GUJARAT LTD VS ACIT, TDS CIRCLE, AHM EDABAD (SUPRA). WE HAVE ALSO NOTED THAT THE COORDINATE BENCH OF AHMEDA BAD TRIBUNAL HAS CONSIDERED THE DISTRIBUTOR AGREEMENT EXECUTED BETWE EN THE ASSESSEE AND ITS ITA NO. 3785 MUM 2016-M/S. VODAFONE IDEA LTD. 24 DISTRIBUTORS. WE HAVE FURTHER NOTED THAT THERE IS NO DECISION OF JURISDICTIONAL HIGH COURT AVAILABLE ON THE ISSUE, NOR IT IS BROUGH T TO OUR NOTICE BY LD. DR FOR THE REVENUE, THEREFORE, AS PER LAW LAID DOWN BY HON BLE SUPREME COURT IN CIT VS VEGETABLE PRODUCTS 88 ITR 192(SC), THAT IN VIEW OF CONFLICTING DECISION OF NON-JURISDICTIONAL HIGH COURT, THE VIEW FAVOURABLE TO THE ASSESSEE BE UPHELD . THEREFORE, CONSIDERING THE DECISION OF AHMEDABAD TR IBUNAL IN VODAFONE ESSAR GUJARAT LTD VS ACIT, TDS (SUPRA), VARIOUS DEC ISION OF TRIBUNAL AS REFERRED IN PARA 6 & 7 AND THE DECISIONS OF HON BLE RAJASTHAN AND KARNATAKA HIGH COURT AS MENTIONED IN PARA 5 ABOVE, THE GROUNDS OF THE APPEAL IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/11/2019. SD/- SD/- RAJESH KUMAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 13.11.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR F BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI