ACIT (TDS) 1(1), MUMBAI V. BHARTI AIRTEL LTD ( MOBILITY DIVISION ), MUMBAI

ITA 3878/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3651 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-03-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAVIN VARMA
• Keywords: Recovery proceedings
• Section: 80HHC; 133A; 201(1)

Judgement Text

ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 1 OF 24 IN THE INCOME TAX APPELLATE TRIBUNAL 'B ' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO.3681, 3682/MUM/2011 ASSESSMENT YEAR - 2010-2011 M/S. BHARTI AIRTEL LIMITED ASSTT. COMMISSIONER OF INCOME TAX, INTERFACE-7, 7 TH FLOOR, (TDS), CIRCLE 1 (1) LINK ROAD, MALAD (W) VS. MUMBAI. MUMBAI. PAN: AAACB2894G APPELLANT RESPONDENT ITA NO. 3877, 3878/MUM/2011 ASSESSMENT YEAR 2009-2010 ASSTT. COMMISSIONER OF INCOME TAX M/S. BHARTI AIRT EL LIMITED (TDS), CIRCLE 1 (1) INTERFACE-7, 7 TH FLOOR, MUMBAI. LINK ROAD, MALAD (W) MUMBAI. PAN: AAACB2894G APPELLANT RESPONDENT ASSESSEE BY: SHRI ANIL BHALLA RESPONDENT BY: SHRI PRAVIN VARMA DATE OF HEARING: 28/3/2013 DATE OF PRONOUNCEMENT: 19/4/2013 O R D E R PER RAJENDRA SINGH A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST DIFFERENCT ORDRES BOTH DATED 17.2.2011 OF CIT (A) FOR ASSESSMENT YEARS 200 9-10 AND 2010-11. THE DISPUTE RAISED IN THESE APPEALS RELATE TO APPLI CATION OF TDS PROVISONS TO THE TRANSACTION OF THE ASSESSEE WITH T HE DISTRIBUTORS IN RELATION TO ROAMING CHARGES AND INTER-CONNECT USAG E CHARGES, AND IN ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 2 OF 24 RELATION TO EXPENSES INCURRED ON ACCOUNT OF OUTSOU RCING OF MANPOWER SUPPLY. AS THE DISPUTES RAISED IN BOTH THE APPEALS ARE MOSTLY COMMON, THESE CROSS APPEALS ARE BEING DISPOSED OF BY A SING LE CONSOLIDATED ORDER FOR THE SAKE OF CCONVENIENCE. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO APPLICABIL ITY OF PROVISIONS OF SECTION 194H FOR DEDUCTING TAX AT SOURCE ON TRAN SACTIONS OF THE ASSESSEE WITH THE DISTRIBUTORS IN RELATION TO THE P REPAID SIM CARDS AND E-RECHARGE VOUCHERS. THE ASSESSEE IS A CELLULAR OPE RATOR. A SURVEY U/S 133A HAD BEEN CONDUCTED IN CASE OF THE ASSESSEE ON 14.1.2010 AND 15.1.2010 DURING THE COURSE OF WHICH IT WAS NOTICED THAT THE ASSESSEE WAS NOT DEDUCTING TAX AT SOURCE IN RELATION TO THE MARGIN MONEY GIVEN TO THE DISTRIBUTORS. IN TRANSACTIONS RELATING TO PREPA ID SIM CARDS AND E- RECHARGE VOUCHERS, WHICH WAS OF THE NATURE OF COMMI SSION. THE ASSESSEE EXPLAINED THAT THE MARGIN ALLOWED WAS ONLY DISCOUNT AND NOT OF THE NATURE OF COMMISSION AND, THEREFORE, NO TAX WAS BEING DEDUCTED. IT WAS ALSO SUBMITTED THAT COMMISSION WAS BEING PAID O NLY IN RELATION TO POST PAID CONNECTIONS ON WHICH TAX WAS BEING DEDUCT ED. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION GIVEN BY TH E ASSESSEE. IT WAS OBSERVED BY HIM THAT WHETHER IT WAS PREPAID SIM CAR DS OR E-RECHARGE VOUCHERS RELATING TO PRE PAID CONNECTIONS THERE WAS A CONTRACT BETWEEN THE MOBILE COMPANY AND THE CONSUMERS FOR PROVIDING SERVICES AND IN CASE OF ANY DEFECT IN THE SERVICE, THE CONSUMER COU LD CLAIM DIRECTLY FROM THE MOBILE COMPANY. THE SIM CARD WAS THE PROPERTY O F THE MOBILE COMPANY AND THE ROLE OF DISTRIBUTORS/RETAILER WAS T O SUPPLY SIM CARDS OR E-RECHARGE VOUCHERS ON BEHALF OF THE MOBILE COMPANY . THE DISTRIBUTOR ONLY COLLECTED THE AMOUNT ON BEHALF OF THE MOBILE C OMPANY AND PAID THE SAME TO IT AFTER RETAINING THE MARGIN. THE ULTIMATE AGREEMENT WAS BETWEEN THE MOBILE COMPANY AND SUBSCRIBER AND, THER EFORE, THE ROLE OF DISTRIBUTOR/RETAILER WAS ONLY THAT OF A MIDDLEMAN F OR PROVIDING CERTAIN SERVICES TO MOBILE COMPANY. HE REFERRED TO THE DEFI NITION OF COMMISSION OR BROKERAGE GIVEN IN THE SECTION 194 H READ AS UND ER:- ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 3 OF 24 COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED ( NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE C OURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TR ANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING NO T BEING SECURITIES. 2.1 THE AO OBSERVED THAT NO DOUBT AS PER THE AGREEM ENT THE DISTRIBUTOR WAS SUPPOSED TO MAKE ALL PAYMENTS IN AD VANCE BUT THAT DID NOT CHANGE THE NATURE OF TRANSACTION WHICH WAS BETW EEN A PRINCIPAL AND AN AGENT. THE AO ALSO OBSERVED THAT NATURE OF SERVI CES PROVIDED BY THE ASSESSEE REMAINED THE SAME WHETHER IT WAS A CASE OF PREPAID CONNECTION OR POST PAID CONNECTION, THE ONLY DIFFER ENCE BEING THAT IN CASE OF POST PAID SIM CARD, TRANSACTION WAS ENTERED INTO DIRECTLY BETWEEN ASSESSEE AND THE SUBSCRIBERS AND THE BILL W AS SENT PERIODICALLY BY THE ASSESSEE TO THE SUBSCRIBER. IN CASE OF PREPA ID CONNECTIONS, THE SIM CARDS ARE SOLD TO THE CONSUMERS THROUGH THE MED IUM OF DISTRIBUTOR/RETAILERS. THE AO ALSO NOTED THAT IN CA SE THE SIM CARDS WERE NOT SOLD THE SAME WERE REQUIRED TO BE RETURNED TO T HE ASSESSEE WHO IS REQUIRED TO MAKE PAYMENT AGAINST THE SIM CARDS SO R ETURNED. THEREFORE THE TRANSACTION WAS NOT THAT OF SALE BUT ONLY FOR P ROVIDING SERVICES IN CONNECTION WITH THE PRE PAID CONNECTION FOR WHICH T HE DISTRIBUTORS WERE GIVEN COMMISSION. THE AO ALSO REFERRED TO THE JUDGM ENT OF HONBLE HIGH COURT OF DELHI DATED 19.2.2010 IN INCOME TAX APPEAL NO. 143 AND 784 OF 2009 IN CASE OF IDEA CELLULAR LTD. IN WHICH IT W AS HELD THAT THE RELATION BETWEEN ASSESSEE AND THE DISTRIBUTOR WAS T HAT OF PRINCIPAL AND AGENT AND THE PAYMENT MADE BY THE ASSESSEE WAS OF T HE NATURE OF COMMISSION, WHICH WAS COVERED UNDER THE PROVISIONS OF SECTION 194H. THE AO, THEREFORE, HELD THAT THE MARGIN MONEY PROVI DED TO THE DISTRIBUTOR WAS OF THE NATURE OF THE COMMISSION ON WHICH TAX WAS REQUIRED TO BE DEDUCTED BY THE ASSESSEE U/S 194H. T HE TOTAL TAX WHICH WAS REQUIRED TO BE DEDUCTED WAS RS. 171025401 IN AS SESSMENT YEAR ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 4 OF 24 2009-10 AND RS. 102029884 IN ASSESSMENT YEAR 2010-1 1 WHICH THE ASSESSEE HAD FAILED TO DEDUCT. THE AO, THEREFORE, TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT IN RESPECT OF THE ABOVE AM OUNTS U/S 201 (1) OF THE IT ACT, WHICH THE ASSESSEE WAS MADE LIABLE TO P AY. 2.2 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D SUBMITTED BEFORE CIT (A) THAT THE PROVISIONS OF SECTION 194H COULD BE APPLIED ONLY IF THE ASSESSEE HAD PAID ANY AMOUNT BY WAY OF COMMI SSION AND ONLY IN SUCH CASES, TAX WAS REQUIRED TO BE DEDUCTED AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT WHICHEVER WAS EARLIER. SUCH PAYMENT IS REQUIRED TO BE MADE FO R SOME SERVICES RENDERED. IN THE PRESENT CASE IT WAS SUBMITTED THAT THE DISTRIBUTOR HAD NOT RENDERED ANY SERVICE IN THE COURSE OF BUYING OR SELLING OF CARDS ON BEHALF OF THE ASSESSEE. THE DISTRIBUTOR HAD PURCHAS ED THE PREPAID CARDS FROM THE ASSESSEE ON PAYMENT AND SOLD THE SAME TO T HE RETAILER. IT WAS ALSO SUBMITTED THAT THE DISTRIBUTOR WAS NOT ACTING ON BEHALF OF THE ASSESSEE AND THAT NO PAYMENT HAD BEEN MADE TO THE D ISTRIBUTOR OR CREDITED TO HIS ACCOUNT ON ACCOUNT OF MARGIN MONEY NOR THE ASSESSEE HAD HAD SHOWN ANY COMMISSION IN THE BOOKS OF ACCOUN TS. THEREFORE IT WAS ARGUED THAT THE MARGIN ALLOWED BY THE ASSESSEE TO THE DISTRIBUTOR WAS ONLY DISCOUNT IN RELATION TO THE SALE OF SIM CA RDS TO THE DISTRIBUTORS AND NOT COMMISSION AND THEREFORE THE PROVISIONS OF SECTION 194H WERE NOT APPLICABLE. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE ISSUE RAISED WAS COVERED BY THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN C ASE OF CIT VS. IDEA CELLULAR LTD (325ITR148) AND BY THE JUDGMENT OF HON BLE HIGH COURT OF KERALA IN CASE OF VODAFONE ESSAR CELLULAR LTD. (332 CTR 3255). IN THESE JUDGMENTS, THE HONBLE HIGH COURTS NOTED THAT THERE WAS NO SALE OF GOODS INVOLVED AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIME OF DELIVERY OF SIM CARDS OR E-RECHARGE VOUCHER S WERE ONLY FOR RENDERING SERVICES TO THE ASSESSEE COMPANY AND THE DISTRIBUTOR WAS ONLY ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 5 OF 24 A MIDDLEMAN, ARRANGING CUSTOMERS OR SUBSCRIBERS FOR THE ASSESSEE. THE DISTRIBUTOR AS PER THE AGREEMENT ENROLLED THE SUBSC RIBERS WITH PROPER VERIFICATION AND DOCUMENTATION ON BEHALF OF THE ASS ESSEE. THE ASSESSEE WAS NOT PAYING ANY AMOUNT TO THE DISTRIBUTORS FOR T HE SERVICES RENDERED BY THEM LIKE GETTING THE SUBSCRIBERS IDENTIFIED OR DOING THE DOCUMENTATION AND ENROLLING THEM AS MOBILE SUBSCRIB ERS TO THE ASSESSEE. IT WAS THE ASSESSEE WHO WAS ACCOUNTABLE T O THE SUBSCRIBERS FOR RENDERING PROMPT SERVICES. THE UNSOLD SIM CARDS WERE REQUIRED TO BE RETURNED TO THE ASSESSEE AGAINST WHICH THE ASSESSEE WAS REQUIRED TO MAKE PAYMENT, WHICH WAS ANTITHESIS OF SALE AS NOTED BY HONBLE HIGH COURT OF DELHI IN CASE OF IDEA CELLULAR LTD. (SUPRA). THE HONBLE HIGH COURT ALSO OBSERVED THE FACT THAT THE DISTRIBUTOR W AS SUPPOSED TO MAKE PAYMENT IN ADVANCE DID NOT MAKE ANY DIFFERENCE TO T HE NATURE OF TRANSACTIONS, IN VIEW OF OTHER TERMS OF AGREEMENT. IT WAS THUS, HELD IN THESE CASES THAT THE MARGIN MONEY GIVEN BY THE ASSE SSEE TO THE DISTRIBUTOR AT THE TIME OF DELIVERY OF SIM CARD AND RECHARGE COUPONS WAS NOTHING BUT COMMISSION FOR THE SERVICES RENDERED AS DISTRIBUTOR WAS ONLY ACTING AS MIDDLEMAN, RENDERING SERVICES ON BEH ALF OF THE ASSESSEE. IT WAS ACCORDINGLY HELD BY THE HIGH COURTS THAT PRO VISIONS OF SECTION 194 H WAS APPLICABLE. 2.3 CONSIDERING THE ABOVE JUDGMENTS, CIT (A) CONFIR MED THE DECISION OF AO TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT U/S 201 (1) OF THE IT ACT. THE ASSESSEE HAD ALSO RAISED AN ALTERNATE ARG UMENT THAT IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF HI NDUSTAN COCACOLA BEVERAGES PVT. LTD. (293 ITR 226), IN WHICH IT WAS HELD THAT IN CASE IT WAS ESTABLISHED THAT THE TAX HAD BEEN PAID BY THE D EDUCTEE, THE SAME COULD NOT BE COLLECTED ONCE AGAIN FROM THE DEDUCTOR , NO TAX SHOULD BE COLLECTED FROM THE ASSESSEE AS THE DEDUCTEE HAD PAI D TAX. CIT (A) CONSIDERED THE PLEA AND HELD THAT WHEREVER THE ASSESSEE PROVED THAT TAX HAD BEEN PAID BY THE DEDUCTEE, RECOVERY OF TAX COUL D NOT BE ENFORCED ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 6 OF 24 AGAINST THE ASSESSEE. CIT (A) FURTHER, HELD THAT IN CASE THE ASSESSEE COMPANY FAILED TO PRDUCE CERTIFICATE FROM THE AUDIT ORS OF THE DEDUCTEE COMPANY CERTIFYING THAT THE TAX AND INTEREST DUE FR OM THE DEDUCTEE HAD BEEN PAID, THE AO WILL BE ENTITLED TO RECOVER TAX U/S 201 FROM THE ASSESSEE. AGGRIEVED BY THE DECISION OF CIT (A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL IN BOTH THE YEARS . 3. BEFORE US, THE LEARNED AR FOR THE ASSESSEE ARGUED T HAT CASE OF THE ASSESSEE WAS SIMILAR TO THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION (SUPRA) IN WHICH THE HONBLE HIGH COURT OF GUJARAT HAD HELD THAT MARGIN ALLOWED TO LICENSED VENDORS BY THE GOVE RNMENT WAS OF THE NATURE OF DISCOUNT AND NOT COMMISSION. IT WAS POINT ED OUT THAT THE CASE OF THE ASSESSEE WAS SIMILAR TO THE CASE OF STAMP VE NDORS. THE ASSESSEE IN THIS CASE WAS TRANSFERRING THE RIGHT TO USE THE AIR TIME TO THE DISTRIBUTOR AND THE AIR TIME VALUE WAS CAPTURED IN THE PRE PAID CARDS WHICH WAS SIMILAR TO THE CASE OF SALE OF STAMP PAPE RS IN WHICH THE VALUE OF STAMP WAS CAPTURED IN THE STAMP PAPER. IN BOTH T HE CASES, IT WAS THE DISTRIBUTOR WHO WAS RESPONSIBLE FOR LOSS, PILFERAGE OR DAMAGE TO THE STAMP PAPER/SIM CARDS. IT WAS ALSO SUBMITTED THAT T HE JUDGMENT OF HONBLE HIGH COURT OF GUJARAT HAS NOW BEEN UPHELD B Y THE HONBLE SUPREME COURT AS REPORTED IN 2012.TOIL-68-SC.-IT. T HE LEARNED AR ADMITTED THAT THE JUDGMENTS OF HONBLE HIGH COURT O F KERALA IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. (SUPRA) WAS AGAINST THE ASSESSEE IN WHICH IT HAS BEEN HELD THAT RELATIONSHIP BETWEEN TH E ASSESSEE AND THE DISTRIBUTOR WAS THAT OF A PRINCIPAL AND AN AGENT AN D THE MARGIN ALLOWED TO THE DISTRIBUTOR WAS COMMISSION AND NOT DISCOUNT AND THAT THERE WAS NO SALE OF GOODS INVOLVED. IT WAS ALSO ADMITTED BY THE LEARNED AR THAT THE JUDGMENT OF HONBLE HIGH COURT OF GUJARAT IN CA SE OF AHMEDABAD STAMP VENDORS ASSOCIATION (SUPRA) HAD BEEN CONSIDER ED BY THE HONBLE HIGH COURT OF KERALA IN THE CASE OF VODAFONE ESSAR CELLULAR LTD. (332 ITR 255), AND HONBLE HIGH COURT OF KOLKATA IN THE CASE OF BHARTI CELLULAR LTD (244 ITR 1J) AND AFTER CONSIDERING THE SE JUDGMENTS THE ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 7 OF 24 STAND OF REVENUE HAD BEEN UPHELD. HOWEVER, IT WAS A RGUED THAT AT THE TIME OF DELIVERING THE JUDGMENT BY THE HIGH COURTS, THE JUDGMENT OF SUPREME COURT IN CASE OF AHMEDABAD STAMP VENDORS AS SOCIATION (SUPRA) WAS NOT AVAILABLE. THEREFORE, IN VIEW OF TH E JUDGMENT OF HONBLE SUPREME COURT UPHOLDING THE JUDGMENT OF HONBLE HIG H COURT OF GUJARAT IN CASE OF AHMEDABAD STAMP VENDORS ASSOCIAT ION (SUPRA), THE POSITION HAS CHANGED AND THEREFORE FOLLOWING THE SU PREME COURT JUDGMENT IN CASE OF AHMEDABAD STAMP VENDORS ASSOCIA TION (SUPRA). IT HAS TO BE HELD THAT THE MARGIN ALLOWED TO THE DISTR IBUTORS WAS DISCOUNT AND NOT COMMISSION. 3.1 THE LEARNED AR ALSO REFERRED TO THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF QATAR AIRWAYS (332 ITR 2 53) IN WHICH THE AGENTS WERE AUTHORIZED TO SELL THE AIR TICKETS AT ANY RATE BETWEEN FIXED MINIMUM COMMERCIAL PRICE AND THE PUBLISHED PRICE, A ND THE DIFFERENCE HAD BEEN TREATED BY THE REVENUE AUTHORITIES AS COMM ISSION. HOWEVER, THE HIGH COURT HELD THAT IT WAS NEITHER COMMISSION NOR BROKERAGE AND THEREFORE NO TAX WAS REQUIRED TO BE DEDUCTED. THERE FORE IT WAS ARGUED THAT CASE OF THE ASSESSEE WAS ALSO COVERED BY THE A BOVE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF QATAR (AIRW AYS SUPRA). THE LEARNED AR FURTHER ARGUED THAT IN THE PRESENT DAY O F GLOBALIZATION THE DISTINCTION BETWEEN GOODS AND SERVICES WAS GETTING BLURRED AS HELD BY THE HONBLE SUPREME COURT IN CASE OF B. SURESH (313 ITR 149). IN THAT CASE THE MOVIES RECORDED ON CASSETTES HAD BEEN TRAN SFERRED TO THE FOREIGN CONCERNS AS TELECASTING RIGHTS AND THE ISSU E WAS WHETHER THIS AMOUNTED TO SALE OF GOODS OR MERCANDISE. THE HONBL E HIGH COURT HELD THAT TRANSFER OF TELECASTING RIGHTS WOULD FALL IN T HE CATEGORY OF ARTICLES OF TRADE AND COMMERCE, AND HENCE, IT WAS MERCANDISE, E LIGIBLE FOR DEDUCTION U/S 80 HHC. IN THE PRESENT CASE, IT WAS POINTED OUT THAT THERE WAS TRANSFER OF RIGHT TO USE AIR TIME FROM TH E SERVICE PROVIDER TO THE DISTRIBUTOR AND FROM DISTRIBUTOR TO THE RETAILE R FROM WHOM THE RIGHT ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 8 OF 24 WAS ULTIMATELY TRANSFERRED TO THE CUSTOMERS. THIS A MOUNTED TO SALE OF ARTICLES OF TRADE IN VIEW OF THE JUDGMENT OF HONBL E SUPREME COURT IN CASE OF B. SURESH (SUPRA), AND, THEREFORE, THE RELA TIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS WAS ON PRINCIPAL TO P RINCIPAL BASIS. IT WAS ALSO SUBMITTED THAT THE FACT THAT NO SALE TAX OR VA T WAS LEVIABLE WAS NOT FATAL TO THE CHARACTER OF MERCANDISE. THE LEARN ED AR ALSO POINTED OUT THAT THE JUDGMENT OF HONBLE HIGH COURT OF DELH I IN CASE OF IDEA CELLULAR LTD. (SUPRA) HAD BEEN BASED ON THE PRINCIP LE THAT THE SERVICES COULD NOT BE SOLD, WHICH WAS CONTRARY TO THE JUDGME NT OF HONBLE SUPREME COURT IN CASE OF B. SURESH (SUPRA) IN WHICH IT HAS BEEN HELD THAT THERE WAS THEN DIFFERENCE BETWEEN GOODS AND SE RVICES AND THAT THE SERVICES COULD ALSO BE TRANSFERRED. IT WAS THUS, AR GUED THAT THE MARGIN ALLOWED BY CELLULAR OPERATORS TO THE DISTRIBUTORS H AD TO BE CONSIDERED AS ONLY DISCOUNT AND NOT COMMISSION AND THEREFORE NO T AX WAS REQUIRED TO BE DEDUCTED AND ACCORDINGLY THE ASSESSEE COULD NOT BE TREATED AS DEFAULT U/S 201 (1). 4. THE LEARNED DR APPEARING FOR THE REVENUE ON THE OTH ER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. IT WAS SUBMITTED THAT THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION (SU PRA) WAS DISTINGUISHABLE AS IN THAT CASE THE PROPERTY IN THE GOODS PASSED ON TO THE VENDORS WHO WERE HAVING CUSTODY AND TITLE OVER THE GOODS AND THEREFORE THE TRANSACTION WAS PRINCIPAL TO PRINCIPA L BASIS. THE TRANSACTION IN THAT CASE WAS ALSO LIABLE TO SALE TA X BUT THE SAME HAD BEEN EXEMPTED BY THE GOVERNMENT. IN THE PRESENT CA SE THERE WAS NO SALE TAX LEVIABLE AND TRANSACTIONS WERE ONLY SUBJEC T TO SERVICE TAX. IN THIS CONNECTION IT WAS POINTED THAT SIM CARDS STOCK ED BY THE DISTRIBUTOR WERE THE SOLE PROPERTY OF THE SERVICE PROVIDER I.E. THE ASSESSEE COMPANY. THE DISTRIBUTOR COULD NOT USE THE SIM CARDS AND THI S RIGHT WAS ONLY GIVEN TO THE ULTIMATE CONSUMER WHO ACTIVATED THE CO NNECTION BY USING THE SECRET NO. PROVIDED IN THE SIM CARDS. IT WAS ON LY THE ULTIMATE ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 9 OF 24 CONSUMER OR THE ASSESSEE COMPANY WHO HAD THE AUTHOR ITY TO UNCOVER THIS SECRET NO. AND BRING THE CARD INTO ACTIVATION. THEREFORE, IT COULD NOT BE SAID THAT ONCE THE DELIVERY OF SIM CARDS WERE GI VEN, IT BECOMES THE PROPERTY OF THE DISTRIBUTOR. IT WAS ALSO POINTED OU T THAT IN TERMS OF THE DISTRIBUTION AGREEMENT. IT WAS THE DISTRIBUTOR WHO ENROLLED THE SUBSCRIBER WITH PROPER VERIFICATION AND DOCUMENTATI ON. THE ASSESSEE WAS NOT PAYING ANY AMOUNT FOR THIS SERVICE OTHER TH AN THE DISCOUNT GIVEN AT THE TIME OF SUPPLY, IT WAS THEREFORE CLEAR THAT THE ROLE OF THE DISTRIBUTOR WAS THAT OF A MIDDLEMAN BETWEEN THE ASS ESSEE AND THE CONSUMERS AND THE DISCOUNT ALLOWED WAS FOR RENDERIN G VARIOUS SERVICES MENTIONED ABOVE. IT WAS ALSO POINTED OUT THAT THE U NSOLD SIM CARDS WERE REQUIRED TO BE RETURNED TO THE ASSESSEE WHICH COULD NOT HAPPEN IN CASE THE SIM CARDS HAD BEEN SOLD TO THE DISTRIBUTORS. IN CASE OF TERMINATION OF THE AGREEMENT, THE DISTRIBUTOR OR THE RETAILER WAS NOT ENTITLED TO ANY COMPENSATION FOR COST OR EXPENSE INCURRED BY IT EIT HER FOR SETTING UP OR FOR PROMOTION OF BUSINESS. IT WAS POINTED OUT THAT NO SUCH CLAUSE WAS NECESSARY IN CASE THE ASSESSEE HAD SOLD THE SIM CAR DS TO DISTRIBUTORS. 4.1 THE LEARNED DR POINTED OUT THAT ALL THESE FACTO RS HAD BEEN DULY NOTED BY HONBLE HIGH COURT OF KERALA IN CASE OF VO DAFONE ESSAR CELLULAR LTD. (SUPRA) AND HONBLE HIGH COURT OF DEL HI IN CASE OF IDEA CELLULAR LTD. (SUPRA) AND CONSIDERING ALL THESE FAC TORS THE HIGH COURTS HAD HELD THAT MARGIN ALLOWED WAS ONLY COMMISSION A ND NOT DISCOUNT. THE SAME VIEW HAD BEEN TAKEN BY THE HONBLE HIGH CO URT OF CALCUTTA IN CASE OF BHARATI CELLULAR LTD. (SUPRA) IT WAS ALSO P OINTED OUT THAT HONBLE HIGH COURT OF KOLKATA IN CASE OF BHARTI CELLULAR LT D. AND HONBLE HIGH COURT OF KERALA IN CASE OF VODAFONE ESSAR CELLULAR LTD. (SUPRA) HAD DULY CONSIDERED THE JUDGMENT OF HONBLE HIGH COURT OF GU JARAT IN CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION (SUPRA) AND HEL D THAT SAID JUDGMENT WAS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE IT WAS ARGUED THAT MERELY B ECAUSE THE JUDGMENT ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 10 OF 24 OF HONBLE HIGH COURT OF GUJARAT IN CASE OF AHMEDAB AD STAMP VENDORS ASSOCIATION (SUPRA) HAD BEEN UPHELD BY THE SUPREME COURT DID NOT MAKE ANY DIFFERENCE TO THE NON APPLICABILITY OF THE SAID JUDGMENT TO THE FACTS OF THE PRESENT CASE. THE LEARNED DR DISTINGU ISHED THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF QATAR AI RWAY (SUPRA) IN WHICH CASE IT WAS POINTED OUT THAT AGENT HAD BEEN P AID COMMISSION ON THE PUBLISHED PRICE WHICH WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE. THE AGENT HAD BEEN GIVEN THE LIBERTY TO SELL THE AIR TI CKETS AT ANY RATE BETWEEN THE PUBLISHED PRICE AND MINIMUM FIXED PRICE AND THEREFORE SELLING AT LOWER RATE, WHICH WAS PERMITTED, COULD N OT BE CONSIDERED AS COMMISSION. IT WAS ALSO SUBMITTED THAT JUDGMENT OF HONBLE SUPREME COURT IN CASE OF B. SURESH (SUPRA) WAS DISTINGUISHA BLE AS IN THAT CASE TELECAST RIGHTS WERE SOLD, WHEREAS IN THE PRESENT C ASE THERE WAS NO SALE OF RIGHT TO USE THE AIR TIME TO THE DISTRIBUTOR. TH EREFORE, IT WAS ARGUED THAT THE ABOVE JUDGMENT DID NOT SUPPORT THE CASE OF THE ASSESSEE. IT WAS ACCORDINGLY, URGED THAT ORDER OF CIT (A) SHOULD UPH ELD. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY O F PROVISIONS OF SECTION 194 H REGARDING DEDUCTION OF TAX AT SOURCE IN RELAT ION OF THE MARGIN MONEY ALLOWED BY THE ASSESSEE TO THE DISTRIBUTORS O N SUPPLY OF PRE PAID SIM CARDS AND RECHARGE COUPONS. THE ASSESSEE IS REN DERING MOBILE TELEPHONE SERVICES TO THE CUSTOMERS THROUGH APPOINT MENT OF DISTRIBUTORS. THE ASSESSEE HAD TWO DIFFERENT TYPES OF TRANSACTIONS. IN THE FIRST CATEGORY THE ASSESSEE GAVE CONNECTIONS TO CUS TOMERS AND CHARGED THEM ON MONTHLY BASIS BY RAISING BILLS. THIS IS CAL LED POST PAID SCHEME, IN THE OTHER CATEGORY FALLS THE PRE PAID SCHEME IN WHICH THE ASSESSEE COLLECTS THE MONEY IN ADVANCE FROM THE DISTRIBUTORS WHO SUPPLY THE PRE PAID SIM CARDS AND RECHARGE COUPONS TO THE CUSTOMER S THROUGH THE RETAIL CHAIN. IN BOTH THE CATEGORIES, HOWEVER, THE ULTIMATE USERS OF THE SIM CARDS ARE THE CUSTOMERS WHOSE HANDSETS ARE ACTI VATED THROUGH THE ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 11 OF 24 SIM CARDS ONLY BY THE ASSESSEE WHO GIVES CONNECTION TO THE CUSTOMERS THROUGH THE DISTRIBUTORS. IN BOTH THE CASES, THE AS SESSEE HAD DISTRIBUTION AGREEMENT WITH THE DISTRIBUTORS AS PER WHICH THE DISTRIBUTOR GETS THE CUSTOMERS FOR THE ASSESSEE. AS PER THE TEL ECOM REGULATION, CONNECTION COULD BE GIVEN TO CUSTOMER ONLY AFTER PR ODUCTION OF IDENTITY, PROOF OF ADDRESS ETC. AND THIS JOB HAS BEEN ENTRUST ED BY THE ASSESSEE TO THE DISTRIBUTORS. IN THE POST PAID SCHEME, THE ASSE SSEE PAYS CERTAIN CHARGES TO THE DISTRIBUTORS FOR ALL THESE SERVICES SUCH AS ENROLLMENT OF SUBSCRIBERS WITH PROPER VERIFICATION AND DOCUMENTAT ION ON BEHALF OF THE ASSESSEE. THE ASSESSEE TREATS SUCH PAYMENT MADE TO THE DISTRIBUTORS IN POST PAID SCHEME AS COMMISSION FOR SERVICES RENDERE D ON WHICH TAX HAS BEEN DEDUCTED AT SOURCE. HOWEVER, IN CASE OF PRE PA ID SCHEME, THE ASSESSEE ALLOWS CERTAIN MARGIN TO THE DISTRIBUTORS WHILE SUPPLYING THE SIM CARDS AND RECHARGE COUPONS AND THIS MARGIN IS T REATED BY ASSESSEE AS DISCOUNT ON WHICH NO TAX HAS BEEN DEDUCTED AT SO URCE. THE ASSESSEES CLAIM IS THAT IT WAS A CASE OF SALE OF S IM CARDS AND RECHARGE COUPONS TO THE DISTRIBUTORS AT DISCOUNT AND THEREFO RE THE PAYMENT WERE NOT FOR RENDERING ANY SERVICES AND THUS COULD NOT B E CONSIDERED AS COMMISSION. 5.2 WE FIND THAT THE SAME ISSUE HAD BEEN CONSIDERE D BY THE HONBLE HIGH COURT OF KERALA IN CASE OF VODAFONE ESSAR CELL ULAR LTD. (SUPRA). THE HONBLE HIGH COURT NOTED THAT BPL CELLULAR MOBI LE LTD. WHOSE BUSINESS WAS SUBSEQUENTLY TAKEN OVER BY THE ASSESSE E IN A SALE TAX CASE HAD CLAIMED THAT TRANSACTION OF THE ASSESSEE, WITH THE DISTRIBUTOR FOR SUPPLY OF SIM CARDS AND RECHARGE COUPONS UNDER THE PRE PAID SCHEME WAS NOT SALE AND THEREFORE THE ASSESSEE DID NOT HAV E ANY SALE TAX LIABILITY AS THE SAME DID NOT INVOLVE SALE OF GOODS BUT WAS ONLY PAYMENT FOR RENDERING SERVICES. THE HONBLE HIGH COURT AFTE R REFERRING TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN CASE OF BS NL AND ANOTHER VS. UNION OF INDIA REPORTED IN (2006) 145 STC 91 UPHELD THE CONTENTION OF ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 12 OF 24 THE ASSESSEE THAT THERE WAS NO SALE INVOLVED AND TH EREFORE TRANSACTION DID NOT ATTRACT SALE TAX LIABILITY AND THAT THE TRA NSACTIONS WERE ONLY FOR RENDERING MOBILE SERVICES. IN THE SAID JUDGMENT IN WP (C) NO. 29202/2005, THE HIGH COURT HELD THAT THE TRANSACTIO N WITH THE DISTRIBUTOR IN THE PRE PAID SCHEME WAS NOT SALE OF GOODS BUT FOR SERVICES RENDERED BECAUSE AS PER DISTRIBUTION AGREEMENT, THE ENROLLMENT OF SUBSCRIBERS WITH PROPER VERIFICATION AND DOCUMENTAT ION WAS THE RESPONSIBILITY OF THE DISTRIBUTOR AND THE ASSESSEE HAD NOT PAID ANY AMOUNT TO THE DISTRIBUTOR IN THE PRE PAID SCHEME OT HER THAN THE MARGIN ALLOWED TO THE DISTRIBUTORS. THEREFORE, THE MARGIN ALLOWED WAS NOTHING BUT FOR SERVICES RENDERED BY THE DISTRIBUTOR WHOSE ROLE WAS THAT OF A MIDDLEMAN BETWEEN THE SERVICE PROVIDER AND THE ASSE SSEE. THE DISTRIBUTOR ACTUALLY CANVASSED BUSINESS FOR THE ASS ESSEE AND ONLY THROUGH THE DISTRIBUTORS AND RETAILERS THE ASSESSEE GOT SUBSCRIBERS FOR THE MOBILE SERVICE. THUS THE ROLE OF DISTRIBUTOR WA S LIKE AN AGENT AND THE RELATIONSHIP BETWEEN ASSESSEE AND DISTRIBUTOR WAS N OT PRINCIPAL TO PRINCIPAL. THE ASSESSEE HAD ALSO ARGUED BEFORE TH E HIGH COURT OF KERALA THAT THE DISTRIBUTORS WERE FREE TO CHARGE AN Y AMOUNT FROM THE SUBSCRIBERS OR THE RETAILERS BELOW THE MRP AND THER EFORE THE DISTRIBUTORS COULD PASS PART OF THE MARGIN TO THE RETAILERS AN D SUBSCRIBERS. IT WAS THUS ARGUED THAT IN CASE TAX WAS DEDUCTED ON THE MA RGIN MONEY PART OF WHICH MAY NOT BE RECOVERED BY THE DISTRIBUTOR. THER EFORE, THE DEDUCTION OF TAX WAS NOT JUSTIFIED. THE HIGH COURT HOWEVER, D ID NOT ACCEPT THE ARGUMENT ADVANCED AND OBSERVED THAT THERE WAS SPECI FIC PROVISION U/S 197 OF IT ACT AS PER WHICH THE ASSESSEE COULD APPLY TO THE DEPARTMENT FOR GETTING CERTIFICATE TO RECEIVE DISCOUNT OR COMM ISSION WITHOUT DEDUCTION OF TAX AT SOURCE OR WITH DEDUCTION AT LOW ER RATE OF TAX. THE HIGH COURT ALSO OBSERVED THAT THERE WAS NO DIFFEREN CE IN THE SERVICE RENDERED BY THE DISTRIBUTOR UNDER THE POST PAID SCH EME AND THE PRE PAID SCHEME AND THEREFORE THERE WAS NO JUSTIFICATION FOR NON DEDUCTION OF TAX IN CASE OF PRE PAID SCHEME WHEN THE TAX WAS BEING D EDUCTED IN CASE OF POST PAID SCHEME. THE HIGH COURT ACCORDINGLY UPHEL D THE DECISION OF ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 13 OF 24 COCHIN BENCH OF TRIBUNAL HOLDING THAT MARGIN MONEY WAS NOTHING BUT COMMISSION FOR SERVICES RENDERED WHICH WAS LIABLE F OR DEDUCTION OF TAX AT SOURCE U/S 194 H OF THE IT ACT. 5.3 THE SAME VIEW HAS BEEN TAKEN BY THE HONBLE HIG H COURT OF DELHI IN CASE OF IDEA CELLULAR LTD.(SUPRA), WHO ALSO UPHO LD THE VIEW TAKEN BY THE COCHIN BENCH OF TRIBUNAL. THE HIGH COURT ALSO D EALT WITH THE ARGUMENT RAISED THAT DISTRIBUTORS WERE PAYING MONEY IN ADVANCE AND THEREFORE IT HAD TO BE CONSIDERED AS SALE OF GOODS AND HELD THAT PAYMENT OF MONEY IN ADVANCE WAS ONLY TO ENSURE THAT PAYMENT WAS ACTUALLY RECEIVED FROM THE CUSTOMERS WHO WERE THE ULTIMATE C ONSUMERS AND MERELY BECAUSE THE ASSESSEE RECEIVED MONEY IN ADVAN CE IT COULD NOT BE CONSIDERED SALE OF GOODS. THE HONBLE HIGH COURT OF DELHI ALSO NOTED THAT UNDER THE DISTRIBUTION AGREEMENT, UNSOLD PRE P AID CARDS WERE REQUIRED TO BE RETURNED TO THE ASSESSEE FOR WHICH T HE PAYMENT WAS REQUIRED TO BE MADE BY ASSESSEE WHICH COULD NOT BE THE SITUATION IN CASE IT WAS A SALE OF GOODS. THE HIGH COURT ALSO NO TED THAT UNDER THE DISTRIBUTION AGREEMENT, IN CASE THE AGREEMENT WAS T ERMINATED, THE DISTRIBUTOR OR ITS AUTHORIZED RETAILER WERE NOT ENT ITLED TO ANY COMPENSATION FOR COSTS OR EXPENSES INCURRED BY IT I N SETTING UP OR FOR PROMOTION OF ITS BUSINESS. THE HIGH COURT OBSERVED THAT NO SUCH CLAUSE WAS REQUIRED IN CASE IT WAS CONSIDERED AS SALE OF G OODS. THE HIGH COURT ALSO NOTED THAT SIM CARDS STOCKED BY THE DISTRIBUTO RS WERE SOLE PROPERTY OF THE SERVICE PROVIDER AND PERMISSION FOR RIGHT TO USE THE SIM CARDS WAS GIVEN ONLY TO THE ULTIMATE CUSTOMERS WHO ACTIVATED THE CONNECTION BY USING THE SECRET NUMBER PROVIDED IN THE SIM CARDS A ND IT WAS THE ULTIMATE CONSUMERS OR THE ASSESSEE COMPANY WHO HAD THE AUTHORITY TO UNCOVER THE SECRET NUMBER AND BRING THE CARD INTO A CTIVATION. THEREFORE MERE SUPPLY OF SIM CARDS TO THE DISTRIBUTORS COULD NOT BE CONSIDERED AS TRANSFER OF PROPERTY IN THE SIM CARDS TO THE DISTRI BUTORS. THE ASSESSE HAD ALSO ARGUED THAT IN CASE OF PRE PAID SCHEME THE ASSESSEE WAS NOT ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 14 OF 24 MAKING ACTUAL PAYMENT AND THEREFORE THE ASSESSEE HA D NO OCCASION TO DEDUCT TAX AT SOURCE. THE ASSESSEE WAS NEITHER PAYI NG AMOUNT NOR MAKING ANY CREDIT ENTRY IN THE ACCOUNTS OF DISTRIBU TOR FOR RENDERING SERVICES. THE HIGH COURT HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED AND OBSERVED THAT MARGIN MONEY WAS FIXED AND PAID T O THE ASSESSEE IN ADVANCE AND ASSESSEE THEREFORE COULD EASILY DEDUCT TAX AT SOURCE AND COLLECT THE NET PROCEEDS ALONG WITH TDS FROM THE DI STRIBUTORS WHILE DISTRIBUTING THE PRE PAID PRODUCTS TO THE DISTRIBUT ORS. THE HIGH COURT, THEREFORE, HELD THAT MARGIN MONEY WAS NOTHING BUT C OMMISSION FOR SERVICES RENDERED AND IT WAS NOT A CASE OF SALE OF GOODS AS IT WAS A CASE OF SERVICE WHICH COULD NOT BE SOLD OR PURCHASED BUT COULD ONLY BE RENDERED OR PROVIDED. THE HIGH COURT ACCORDINGLY, H ELD THAT MARGIN MONEY WAS COMMISSION ON WHICH TAX WAS REQUIRED TO B E DEDUCTED. 5.4 THE HONBLE HIGH COURT OF KOLKATA IN CASE OF BH ARTI CELLULAR LTD. VS. ACIT (SUPRA) HAVE ALSO TAKEN THE SAME VIEW IN T HE MATTER. THE HONBLE HIGH COURT WHILE EXAMINING THE ISSUE OBSERV ED THAT TRUE NATURE OF RELATIONSHIP BETWEEN ASSESSEE AND THE DISTRIBUTO R I.E. PRINCIPAL TO PRINCIPAL OR PRINCIPAL TO AGENT HAS TO BE GATHERED FROM THE NATURE OF CONTRACT AND THE TERMINOLOGY USED BY THE PARTIES WA S NOT CONCLUSIVE OF THE SAID RELATIONSHIP AS HELD BY HONBLE SUPREME CO URT IN CASE OF BHOPAL SUGER INDUSTRY LTD. (40 STC 42). THE HIGH CO URT FURTHER OBSERVED THAT IT WAS A SETTLED LEGAL POSITION THAT IN CASE OF SALE OF GOODS IT IS TO BE ESTABLISHED THAT PROPERTY IN THE GOODS PASSES ON TO THE VENDOR BUYER WITHOUT HAVING ANY CONTROL OR TITLE OF THE SE LLER AND ONLY THEN THE TRANSACTION COULD BE CONSIDERED AS PRINCIPAL TO PR INCIPAL. THE HIGH COURT OBSERVED THAT IN THE PRESENT CASE THOUGH NOME NCLATURE USED IN THE AGREEMENT WAS FRANCHISEE, THE AGREEMENT WAS ESS ENTIALLY BETWEEN PRINCIPAL AND AGENT. THE FRANCHISEE WAS ACTING ON B EHALF OF THE ASSESSEE FOR SELLING THE PRE PAID CARDS AND RECHARGE COUPONS TO THE CUSTOMERS. THE HIGH COURT ACCORDINGLY HELD THAT THE MARGIN ALL OWED TO THE ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 15 OF 24 DISTRIBUTORS WAS FOR SERVICES RENDERED AND HAD TO B E TREATED AS COMMISSION AND NOT DISCOUNT ON WHICH TAX WAS REQUIR ED TO BE DEDUCTED. 5.5 THE LEARNED AR FOR THE ASSESSEE HAS STRONGLY RE LIED ON THE JUDGMENT OF HONBLE HIGH COURT OF GUJARAT IN CASE O F AHMADABAD STAMP VENDORS ASSOCIATION (SUPRA) TO ARGUE THAT IT WAS A CASE OF SALE OF GOODS AND NOT SERVICE. IT WILL BE PERTINENT TO POINT OUT HERE THAT THE JUDGMENT OF HONBLE HIGH COURT OF GUJARAT IN CASE OF AHMADAB AD STAMP VENDORS ASSOCIATION (SUPRA) HAS ALREADY BEEN CONSIDERED BY THE HONBLE HIGH COURT OF KERALA IN CASE OF VODAFONE ESSAR CELLULAR LTD. (SUPRA) AND HONBLE HIGH COURT OF KOLKATA IN CASE OF BHARTI CEL LULAR LTD VS. ACIT (SUPRA) AND HAD BEEN DISTINGUISHED AS NOT APPLICABL E TO THE FACTS OF THE PRESENT CASE. THE LEARNED AR HAS ARGUED THAT SINCE THE JUDGMENT OF HONBLE SUPREME COURT UPHOLDING THE JUDGMENT OF GUJ ARAT HIGH COURT IN CASE OF AHMADABAD STAMP VENDORS ASSOCIATION (SUP RA) WAS NOT AVAILABLE AT THE TIME OF DELIVERY OF JUDGMENTS BY T HE HONBLE HIGH COURT OF KERALA AND HONBLE HIGH COURT OF KOLKATA IN THE CASES MENTIONED ABOVE, THE ISSUE REQUIRED FRESH CONSIDERATION. WE A RE HOWEVER UNABLE TO ACCEPT THE ARGUMENTS ADVANCED. ONLY ON THE GROUND T HAT JUDGMENT OF HONBLE HIGH COURT OF GUJARAT IN CASE OF AHMADABAD STAMP VENDORS ASSOCIATION (SUPRA) HAS BEEN UPHELD BY HONBLE SUPR EME COURT CANNOT BE THE BASIS FOR HOLDING THAT THE PRESENT CASE IS C OVERED BY THE SAID JUDGMENT IF THE FACTS ARE DISTINGUISHABLE. IN CASE OF SALE OF STAMPS THE PROPERTY IN THE STAMPS PASSES TO THE LICENSED VENDO R ON DELIVERY OF STAMP PAPERS TO THEM, WHICH IS NOT SO IN THIS CASE AS THE PROPERTY IN THE SIM CARDS IS NOT TRANSFERRED TO THE DISTRIBUTOR. IT HAS, HOWEVER, BEEN ARGUED BY THE LEARNED AR THAT THE ASSESSEE IN THIS CASE WAS SELLING THE RIGHT TO USE THE AIR TIME WHICH WAS CAPTURED IN SIM CARDS AND WHICH HAD BEEN TRANSFERRED TO DISTRIBUTOR WHICH WAS SIMIL AR TO THE VALUE OF STAMP CAPTURED IN STAMP PAPERS WHICH HAD BEEN TRANS FERRED TO THE LICENSED VENDORS AND THEREFORE TRANSFER OF RIGHT TO USE AIR TIME HAS TO BE ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 16 OF 24 CONSIDERED AS THE SALE OF GOODS. THE LEARNED AR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE B. SU RESH ( SUPRA) FOR THE SAID PROPOSITION. WE HAVE CAREFULLY PERUSED THE SAID JUDGMENT AND FIND THAT THE SAME IS DISTINGUISHABLE. IN THAT CASE THE MOVIES HAD BEEN RECORDED ON CASSETTES AND THEIR TELECASTING RIGHTS HAD BEEN SOLD BY THE ASSESSEE TO THE FOREIGN CONCERNS FOR A CERTAIN PERI OD AND THE ISSUE WAS WHETHER THIS AMOUNTED TO SALE OF GOODS OR MERCANDIS E AND WHETHER THE PROVISIONS OF SECTION 80HHC WERE APPLICABLE. THE SU PREME COURT HELD THAT TRANSFER OF TELECAST RIGHTS WOULD FALL IN THE CATEGORY OF ARTICLES OF TRADE AND COMMERCE AND HENCE MERCANDISE. BUT IN THA T CASE, THE FOREIGN CONCERNS HAD RIGHT TO TELECAST THE FILMS WHICH COUL D BE USED FOR A CERTAIN PERIOD. IT IS NOT SO IN THE PRESENT CASE AS THE RIGHT TO USE THE AIR TIME COULD NOT BE EXERCISED BY THE DISTRIBUTOR. SUC H RIGHT TO USE AIRTIME VESTED ONLY WITH THE ULTIMATE CUSTOMERS. SUCH RIGHT COULD BE TRANSFERRED TO THE CUSTOMER ONLY WITH THE PERMISSION OF THE ASS ESSEE I.E. CELLULAR OPERATOR. THEREFORE THE PRESENT SITUATION CANNOT BE CONSIDERED AS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF B. SURESH. (SUPRA). 5.6 THE LEARNED AR HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF QATAR AIRWA Y (SUPRA) BUT THE SAID CASE IS ALSO DISTINGUISHABLE. THE CASE RELATED TO SALE OF AIR TICKETS BY THE AGENTS WHO WERE PAID 9% COMMISSION ON THE PUBLI SHED PRICE. THE AGENTS WERE ALSO AUTHORIZED TO SELL THE TICKETS AT ANY RATE BETWEEN THE FIXED MINIMUM PRICE AND THE PUBLISHED PRICE. THE RE VENUE HAD TREATED THE DIFFERENCE BETWEEN THE PUBLISHED PRICE AND PRIC E ON WHICH THE TICKETS WERE SOLD AS COMMISSION. THE HIGH COURT NOT ED THAT THE AIR LINES HAD DISCRETION TO SELL THE TICKETS BELOW THE PUBLISHED PRICES AND THEREFORE THE PERMISSION GIVEN TO THE AGENTS TO SEL L THE TICKETS BELOW PUBLISHED PRICE COULD NEITHER BE CONSIDERED AS COMM ISSION NOR BROKERAGE. THE HIGH COURT ALSO OBSERVED THAT FOR DE DUCTION OF TAX AT ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 17 OF 24 SOURCE THE INCOME MUST BE ASCERTAINABLE. BUT IN THI S CASE THE AIRLINES HAD NO INFORMATION OF THE EXACT RATE AT WHICH THE A GENTS HAD SOLD THE TICKETS, AND THEREFORE IT WAS HELD THAT NO TAX WAS REQUIRED TO BE DEDUCTED. THE CASE OF THE ASSESSEE IS DIFFERENT. TH E ASSESSEE IN THIS CASE HAS ALLOWED FIXED MARGIN TO THE DISTRIBUTOR WHICH I S SIMILAR TO THE 9% COMMISSION ALLOWED TO THE AIR TICKETS AGENT ON WHIC H THE TAX HAD ALREADY BEEN DEDUCTED BY THE AIRLINES. THE FIXED MA RGIN WAS KNOWN IN ADVANCE TO THE ASSESSEE AND THERE WAS NO DIFFICULTY IN DEDUCTING THE TAX AT SOURCE. THE CASE OF QATAR AIR WAYS (SUPRA) THERE FORE IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 5.7 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE REASONS GIVEN EARLIER WE HOLD THAT MARGIN ALLOWED BY THE ASSESSEE TO THE DISTRIBUTORS WAS OF THE NATURE OF COMMISSION WHICH WAS LIABLE FO R DEDUCTION OF TAX AT SOURCE. ACCORDINGLY WE CONFIRM THE ORDER OF CIT (A) ON THIS ISSUE. 6. THE SECOND DISPUTE IS REGARDING APPLICABILITY OF PROVISIONS OF SECTION 194J RELATING TO DEDUCTION OF TAX AT SOURCE ON ROAMING CHARGES AND INTER-CONNECT USAGE CHARGES PAID BY THE ASSESSE E TO THIRD PARTY SERVICE PROVIDERS. THESE PAYMENTS HAD BEEN TREATED BY THE AO AS PAYMENT TOWARDS PROFESSIONAL AND TECHNICAL SERVICES ON WHICH TAX IS REQUIRED TO BE DEDUCTED U/S 194J. SINCE, THE ASSESS EE HAD NOT DEDUCTED TAX AT SOURCE, THE AO TREATED THE ASSESSEE AS ASS ESSEE IN DEFAULT IN RESPECT OF THE AMOUNTS NOT DEDUCTED AT SOURCE U/S 2 01 (1) OF THE IT ACT. THE ASSESSEE WAS THUS HELD IN DEFAULT FOR A SUM OF RS. 145870615 IN ASSESSMENT YEAR 2009-10 AND RS. 5351932 IN ASSESSME NT YEAR 2010-11 IN RELATION TO ROAMING CHARGES. SIMILARLY, THE AO T REATED THE ASSESSEE IN DEFAULT IN RESPECT OF TAX NOT DEDUCTED AT SOURCE AM OUNTING TO RS. 97904934 AND RS. 37983088 FOR ASSESSMENT YEAR 2009- 10 AND ASSESSMENT YEAR 2010-11 IN RELATION TO INTER-CONNEC TED USAGES CHARGES ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 18 OF 24 ON WHICH NO TAX HAD BEEN DEDUCTED BY THE ASSESSEE W HICH AS PER THE AO WAS COVERED UNDER THE PROVISIONS OF SECTION 194 J. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CI T (A) THAT PROVISIONS OF SECTION 194 J COULD BE APPLIED ONLY WHEN THERE W AS HUMAN INTERVENTION. IT WAS ARGUED THAT THERE WAS NO HUMAN INTERVENTION IN THE ROAMING SERVICES AND INTER-CONNECT SERVICES AND THE REFORE, THE PAYMENT COULD NOT BE COVERED TOWARDS PROFESSIONAL ANT TECHN ICAL SERVICES FOR WHICH SECTION 194 J WAS APPLICABLE. ACCORDINGLY, IT WAS URGED THAT THE ORDER OF AO TREATING THE ASSESSEE IN DEFAULT SHOULD BE SET ASIDE. 6.1 CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, OBSERVED THAT THE SAME ISSUE HAD BEEN CONSIDERED BY THE HONBLE SUPREME COURT IN CASE OF BHARTI CELLULAR LTD. ( 319 ITR 139). THE ISSUE WHICH AROSE FOR DETERMINATION BY THE HONBLE SUPREM E COURT WAS WHETHER HUMAN INTERVENTION WAS INVOLVED IN THE TECH NICAL OPERATIONS BY WHICH THE CELLULAR SERVICE PROVIDERS WERE PROVIDING THE FACILITY OF ROAMING SERVICES AND INTER-CONNECT SERVICES. THE HO NBLE SUPREME COURT HELD THAT IN ORDER TO FIND OUT WHETHER ANY TE CHNICAL SERVICES WERE RENDERED, IT WAS NECESSARY TO EXAMINE IF HUMAN INTE RVENTION WAS INVOLVED AT ANY STAGE INCLUDING THE STAGE WHERE THE EXISTING CAPACITY WAS EXHAUSTED AND ADDITIONAL CAPACITY WAS URGENTLY REQUIRED. THE SUPREME COURT ISSUED CERTAIN DIRECTIONS TO CBDT AND HELD THAT THE MATTER SHOULD RECEIVE FRESH CONSIDERATION AT THE HA NDS OF THE AO IN THE LIGHT OF THESE DIRECTIONS. THE RELEVANT PORTION OF THE JUDGMENT OF HONBLE SUPREME COURT IS REPRODUCED BELOW:- BEFORE CONCLUDING WE ARE DIRECTING CBDT TO ISSUE D IRECTIONS TO ALL ITS OFFICERS THAT IN SUCH CASES, THE DEPARTM ENT NEED NOT PROCEED ONLY BY THE CONTRACTS PLACED BEFORE THE OFF ICERS. WITH THE EMERGENCE OF OUR COUNTRY AS ONE OF THE BRIC COU NTRIES AND WITH THE TECHNOLOGICAL ADVANCEMENT MATTERS SUCH AS ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 19 OF 24 PRESENT ONE WILL KEEP ON RECURRING AND HENCE, TIME HAS COME WHEN DEPARTMENT SHOULD EXAMINE TECHNICAL EXPERTS SO THAT THE MATTERS COULD BE DISPOSED OF EXPEDITIOUSLY AND FURTHER IT WOULD ENABLE THE APPELLATE FORUMS, INCLUDING THIS C OURT TO DECIDE LEGAL ISSUES BASED ON THE FACTUAL FOUNDATION . WE DO NOT KNOW THE CONSTRAINTS OF THE DEPARTMENT BUT TIM E HAS COME WHEN THE DEPARTMENT SHOULD UNDERSTAND THAT WHE N THE CASE INVOLVES REVENUE RUNNING INTO CRORES, TEC HNICAL EVIDENCE WOULD HELP THE TRIBUNAL AND COURTS TO DECI DE MATTERS EXPEDITIOUSLY BASED ON FACTUAL FOUNDATION THE LEARNED ATTORNEY GENERAL WHO IS PRESENT IN COURT, HAS ASSURED US THAT OUR DIRECTIONS TO CBDT WOULD BE CAR RIED OUT AT THE EARLIEST. 6.2 CIT (A) THEREFORE HELD, THAT THE ISSUE REGARDIN G APPLICABILITY OF PROVISIONS OF SECTION 194 J TO ROAMING CHARGES AND INTER-CONNECT USAGE CHARGES WAS REQUIRED TO BE EXAMINED IN THE LIGHT OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS BHARTI CELL ULAR LTD. (SUPRA). CIT (A), ACCORDINGLY, SET ASIDE THE ORDER OF AO AND RESTORED THE MATTER BACK TO HIM FOR PASSING AFRESH ORDER AFTER NECESSAR Y EXAMINATION IN THE LIGHT OF THE OBSERVATION OF HONBLE SUPREME COURT I N CASE OF CIT VS BHARTI CELLULAR LTD. (SUPRA) AND IN ACCORDANCE WITH LAW. AGGRIEVED BY THE DECISION OF CIT (A) BOTH THE PARTIES ARE IN APP EAL. THE ASSESSEE HAS DISPUTED THE APPLICABILITY OF PROVISIONS OF SECTION 194 J AND ALSO HAS CHALLENGED THE DECISION OF CIT (A) TO RESTORE THE M ATTER TO THE FILE OF THE AO, WHEREAS THE DEPARTMENT IS AGGRIEVED BY THE DECI SION OF CIT (A) TO RESTORE THE MATTER TO AO ON THE GROUND THAT CIT (A) HAS NO POWER TO SET ASIDE THE ISSUES TO THE FILE OF THE AO. ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 20 OF 24 6.3 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING APPLICABILITY OF PROVISION OF SECTION 194J REGARDING DEDUCTION OF T AX AT SOURCE IN RELATION TO ROAMING CHARGES AND INTER-CONNECT USAGE CHARGES PAID BY THE ASSESSEE TO OTHER CELLULAR OPERATORS. THE AO HELD T HAT THESE PAYMENTS WERE FOR TECHNICAL SERVICES RENDERED AND THEREFORE PROVISIONS OF SECTION 194 J WERE ATTRACTED AS PER WHICH TAX WAS REQUIRED TO BE DEDUCTED, WHICH HAD NOT BEEN DONE BY THE ASSESSEE AND, ACCORD INGLY THE AO TREATED THE ASSESSEE IN DEFAULT U/S 201(1) OF THE I T ACT. WE FIND, THAT THE SAME ISSUE HAS ALREADY BEEN CONSIDERED BY THE HONB LE SUPREME COURT IN CASE OF BHARTI CELLULAR LTD. (SUPRA), IN WHICH I T WAS OPINED THAT FOR APPLICABILITY OF SECTION 194 J, IT WAS NECESSARY TO FIND OUT IF HUMAN INTERVENTION WAS INVOLVED AT ANY STAGE INCLUDING TH E STAGE WHERE THE EXISTING CAPACITY WAS EXHAUSTED AND ADDITIONAL CAPA CITY WAS REQUIRED. THE HONBLE SUPREME COURT DIRECTED THE CBDT TO ISSU E DIRECTIONS TO ALL ITS OFFICERS THAT IN SUCH CASES THE DEPARTMENT NEED NOT PROCEED ONLY BY THE CONTRACTS PLACED BEFORE THE OFFICERS AND THE MA TTER SHOULD BE EXAMINED WITH THE HELP OF TECHNICAL EXPERTS. ACCORD INGLY, IT WAS HELD THAT THE ISSUE SHOULD RECEIVE FRESH CONSIDERATION A T THE HANDS OF THE AO. FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT (SU PRA) THAT CIT (A) HAS RESTORED THE MATTER TO THE FILE OF AO FOR FRESH CONSIDERATION. 6.4 THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD NO GRIEVANCE AGAINST MATTER BEING RESTORED TO THE A O AS THE ISSUE HAD TO BE EXAMINED IN THE LIGHT OF JUDGMENT OF HONBLE SUP REME COURT (SUPRA). THE OBJECTION RAISED BY THE LEARNED DR WAS ONLY TEC HNICAL THAT CIT (A) HAD NO POWER TO SET ASIDE THE ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO. THE LEARNED DR FURTHER POINTED OUT THAT FRE SH ASSESSMENT AFTER THE ORDER OF CIT (A) HAS ALREADY BEEN FRAMED BY AO. IN SUCH A SITUATION WE DO NOT FOUND ANY USEFUL PURPOSE IN SETTING ASIDE THE ORDER OF CIT (A) ON THE GROUND THAT HE HAD NO POWER TO RESTORE THE M ATER TO AO AND ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 21 OF 24 RESTORING THE MATTER AGAIN TO THE FILE OF AO AT THI S LEVEL TWHN THE AO WILL HAVE NO OPTION THAN TO REPEAT THE ASSESSMENT WHICH HAS ALREADY BEEN MADE. THE ENTIRE EXERCISE OF SETTING ASIDE AT THIS LEVEL AND REPEATING SAME ASSESSMENT WILL BE AN ANFRACTUOUS EXERCISE. CO NSIDERING THE FACT THAT CIT (A) HAS SET ASIDE THE MATTER FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT AND ASSESSMENT HAS ALREADY BEEN FRAME D BY THE AO, WE DO NOT CONSIDER IT A FIT CASE TO INTERFERE WITH THE ORDER OF CIT (A) ON THIS ISSUE. ACCORDINGLY, THE GROUND RAISED BY BOTH THE P ARTIES ARE DISMISSED. 7 THE THIRD DISPUTE WHICH IS RELEVANT ONLY TO THE A PPEAL BY DEPARTMENT IN ASSESSMENT YEAR 2009-10 IS REGARDING APPLICABILITY OF PROVISIONS OF SECTION 194J TO THE PAYMENTS MADE BY THE ASSESSEE FOR OUTSOURCING MANPOWER SUPPLY. THE AO DURING THE ASSE SSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD MADE THE FO LLOWING PAYMENTS TOWARDS THE OUTSOURCING EXPENSES AS UNDER:- I. BASL SALARY AND WAGES AND CTC REIMBURSEMENT RS. 10 1486330 II. BASL NON CTC REIMBURSEMENT RS. 11219182 III. OUTSOURCED MANPOWER EXPENSES RS. RS. 4152473 TOTAL OF RS 116857985 7.1 THE AO NOTED THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE ON THE ABOVE PAYMENTS AT THE RATE OF 2% U/S 194 C (2). THE AO OBSERVED THAT THE PROVISIONS OF SECTION 194 C(2) WERE APPLICABLE ONLY TOWARDS PAYMENT FOR SUPPLY OF LABOUR. HOWEVER, IN THIS CASE THE PAY MENTS HAD BEEN MADE IN CONNECTION WITH DEPLOYMENTS OF EDUCATED/SKILLED MANPOWER TO EXECUTE CERTAIN SPECIFIC JOBS AND, THEREFORE, THESE PAYMENTS WERE NOTHING BUT FEES FOR TECHNICAL SERVICES, WHICH HAD BEEN DEFINED IN THE EXPLANATION TO SECTION 194 J AS ANY CONTRACT FOR RE NDERING ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES BUT D OES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDER TAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 22 OF 24 RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. THE A O THEREFORE, HELD THAT THE PROVISIONS OF SECTION 194 J WERE APPLICABL E AS PER WHICH TAX WAS REQUIRED TO BE DEDUCTED AT THE RATE OF 11.33%. HE THEREFORE, HELD THAT THE ASSESSEE HAD DEDUCTED TAX SHORT BY A SUM O F RS. 10599109 I.E. 9.07% OF 116857985. THE AO THEREFORE, TREATED THE A SSESSEE IN DEFAULT IN THE RESPECT OF THE ABOVE AMOUNT U/S 201(1) OF TH E IT ACT. 7.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT (A) THAT THE MANPOWER OUTSOURCED WAS AT THE LEV EL OF CLERICAL STAFF. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT WANT TO TAK E ON ITS ROLL THE EMPLOYEES TO RENDER CLERICAL SUPPORT SERVICES REQUI RED IN THE BACK OFFICE OF THE ASSESSEE COMPANY. THE ASSESSEE, THEREFORE, D ECIDED THAT BHARTI AIRTEL SERVICE LTD WOULD SUPPLY THE NON-TECHNICAL A ND NON-PROFESSIONAL PERSONNEL REQUIRED BY THE ASSESSEE COMPANY. THE TER M OF PAYMENT WAS ACTUAL REIMBURSEMENT OF EXPENSES INCURRED ON THE EM PLOYEES BY BHARTI AIRTEL SERVICE LTD, SUCH AS THE EXPENSES OF SALARY, CONTRIBUTION TO THE VARIOUS FUNDS, INSURANCE POLICIES ETC. IT WAS ALSO DECIDED THAT IN ADDITION TO REIMBURSEMENT OF EXPENSES BHARTI AIRTEL SERVICES LTD. WOULD CHARGE ADMINISTRATIVE EXPENSES OF RS. 350 PER EMPLO YEE PER MONTH IN RESPECT OF EMPLOYEES DEPUTED TO ASSESSEE COMPANY. T HE ASSESSEE PRODUCED THE NECESSARY INVOICES TO SUBSTANTIATE THE CLAIM. IT WAS ARGUED THAT REIMBURSEMENT OF EXPENSES DID NOT ATTRACT THE TDS PROVISIONS AND IN SO FAR AS THE PAYMENT OF RS. 350 PER EMPLOYEE WA S CONSIDERED, IT WAS FOR SUPPLY OF MANPOWER WHICH WAS NOT COVERED BY THE DEFINITION OF PROFESSIONAL OR TECHNICAL SERVICES. ALTERNATIVELY, IT WAS ALSO SUBMITTED THAT TAX HAD BEEN PAID BY THE PAYEE ON THE PAYMENTS MADE AND THEREFORE IN VIEW OF THE JUDGMENT OF HONBLE SUPREM E COURT IN THE CASE OF HINDUSTAN COCACOLA BEVERAGES LTD. (293 ITR 226) NO TAX WAS REQUIRED TO BE DEDUCTED IN CASE OF THE ASSESSEE. CIT (A) WAS SATISFIED WITH THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE MANPOWER SUPPLIED BY THE ASSESSEE WAS JUST GRADUATE AND UNDER GRADUAT E PERSONS AND ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 23 OF 24 WORK ASSIGNED TO THEM WAS OF CLERICAL LEVEL OR ROUT INE WORK. THEREFORE CIT (A) HELD THAT BY NO STRETCH OF IMAGINATION, THE WORK DONE BY THESE PERSONS COULD BE CLASSIFIED AS PROFESSIONAL SERVICE S OR TECHNICAL SERVICES OR MANAGERIAL SERVICES. THE PAYMENT WAS FOR SUPPLY OF MANPOWER HAVING NO PROFESSIONAL QUALIFICATION. CIT(A), THEREFORE, H ELD THAT THE PROVISIONS OF THE SECTION 194 J WERE NOT APPLICABLE. ACCORDING LY, HE SET ASIDE THE ORDER OF ASSESSING OFFICER, AGGRIEVED BY WHICH, REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7.3 BEFORE US, THE LEARNED AR FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES WHERE AS LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. 7.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISIONS OF SECTION 194 J TO THE PAYMENTS MADE BY THE ASSESSEE FOR OUTSOURCING OF MA NPOWER FROM THE SISTER CONCERN. THE AO TREATED THESE PAYMENTS FOR P ROFESSIONAL AND TECHNICAL SERVICES AND ACCORDINGLY APPLIED THE PROV ISIONS OF SECTION 194 J AS PER WHICH TAX WAS REQUIRED TO BE DEDUCTED AT T HE RATE OF 10% IN PLACE OF TAX DEDUCTED AT THE RATE OF 2% BY THE ASSE SSEE U/S 194 C OF THE IT ACT. WE FIND THAT THE CONCLUSION DRAWN BY AO THA T THE PAYMENTS WERE MADE IN CONNECTION WITH THE EDUCATED/SKILLED MANPOW ER IS NOT SUPPORTED BY ANY MATERIAL ON RECORD. THE CLAIM OF T HE ASSESSEE IS THAT IT DID NOT WANT TO KEEP ON ITS ROLL THE EMPLOYEES REND ERING CLERICAL SERVICES IN THE BACK OFFICE AND ACCORDINGLY SUCH STAFF WERE OUTSOURCED FROM THE SISTER CONCERNED. HOWEVER, THE PAYMENTS WERE MADE F OR REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE SISTER CONCERN P LUS A SUM OF RS. 350 PER EMPLOYEE PER MONTH. AS REGARDS THE PAYMENT FOR REIMBURSEMENT, THERE IS NO PROFIT ELEMENT INVOLVED AND THEREFORE T DS PROVISIONS COULD NOT BE APPLIED. IN SO FAR AS THE PAYMENT OF RS. 350 PER EMPLOYEE WAS ITA NO. 3681, 3682, 3877 & 3878 MUM/2011 M/S BHARTI AIRTEL LIMITED, MUMBAI PAGE 24 OF 24 CONCERNED THE SAME WAS FOR SUPPLY OF MANPOWER AND N OT FOR ANY PROFESSIONAL AND TECHNICAL SERVICES. CIT (A) HAS AL SO GIVEN A FINDING THAT THE PERSONS SUPPLIED BY THE SISTER CONCERN WERE JUS T GRADUATE AND UNDER GRADUATE AND HAD BEEN ASSIGNED THE WORK AT TH E CLERICAL LEVEL OR HAD BEEN GIVEN ROUTINE WORK. THERE IS NOTHING PRODU CED BEFORE US TO CONTROVERT THE FINDING OF CIT (A). THEREFORE, CONSI DERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE SEE NO INFIRMITY IN TH E ORDER OF CIT (A) HOLDING THAT THE PAYMENTS WERE NOT FOR ANY TECHNICA L SERVICES OR FOR ANY PROFESSIONAL OR MANAGERIAL SERVICES. THE ORDER OF C IT (A) HOLDING THAT THE PROVISIONS OF SECTION 194 J WERE NOT APPLICABLE IS THEREFORE UPHELD. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED WHEREAS THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2013 SD/ - SD/ - (VIVEK VARMA) (RAJENDRA SINGH) JDUDICIAL MEMBER ACCOUNTANT MEMBER. MUMBAI, DATED 19 TH APRIL, 2013. SUNIL KUMAR SR. P.S.