DY. CIT (TDS)-2 (3), MUMBAI V. M/S VODAFONE IDEA LTD., MUMBAI

ITA 6242/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0473 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 02-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Non-deduction of tax; TDS; Set aside
• Section: 154; 194C; 201(1); 194J; 72

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “F” Bench, Mumbai Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM) I.T.A. No. 6242/Mum/2019 (Assessment Year 2009-10) I.T.A. No. 6243/Mum/2019 (Assessment Year 2010-11) I.T.A. No. 6246/Mum/2019 (Assessment Year 2011-12) I.T.A. No. 6244/Mum/2019 (Assessment Year 2012-13) DCIT(TDS)-2(3) Room No. 718 7 th Floor, Smt. K.G. Mittal Ayurvedic Hospital Building Charni Road Mumbai-400 002. Vs. M/s. Vodafone Idea Ltd. (formerly known as Vodafone India Ltd.) 9 th Floor, Birla Centurion Century Mills Compound Pandurang Budhkar Marg Worli, Mumbai-400 030. (Appellant) (Respondent) I.T.A. No. 6295/Mum/2019 (Assessment Year 2009-10) I.T.A. No. 6293/Mum/2019 (Assessment Year 2010-11) I.T.A. No. 6294/Mum/2019 (Assessment Year 2011-12) I.T.A. No. 6369/Mum/2019 (Assessment Year 2012-13) M/s. Vodafone Idea Ltd. (formerly known as Vodafone India Ltd.) 9 th Floor, Birla Centurion Century Mills Compound Pandurang Budhkar Marg Worli, Mumbai-400 030. Vs. DCIT(TDS)-2(3) Room No. 718 7 th Floor, Smt. K.G. Mittal Ayurvedic Hospital Building Charni Road Mumbai-400 002. (Appellant) (Respondent) PAN : AAACH5332B Assessee by Shri Ketan Ved Department by Shri Achal Sharma Date of Hearing 15.11.2021 Date of Pronouncement 06 .01.2022 O R D E R Per Shamim Yahya (AM) : 2 These are cross appeals by the Revenue and assessee against respective orders of learned CIT(A). Since the issues are common and connected and appeals were heard together, these are being disposed of by this common order 2. For the sake of reference we are referring to the grounds and facts and figures for A.Y. 2009-10. 3. Grounds of appeal in Revenue’s appeal read as under :- (1) Whether on the facts and in the circumstances of the case and in law, the Ld, CIT(A) was justified in holding that interconnection usages charges (IUC) is not in the nature of Fees for Technical Services (FTS) and hence not liable for TDS under section 194J of the Income Tax Act, 1961. (2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the factual and legal matrix brought out by the AO in the order passed u/s. 201(1)/201(1A) of the Act, wherein the AO has relied on the examination of technical expert wherein it was confirmed that interconnectivity/roaming charges are in the nature of technical service as there exists human intervention. (3) The Appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and the order of the Assessing Officer be restored. 4. Grounds of appeal in assessee’s appeal read as under :- 1. Ground No. 1 - The Appellant is not liable to deduct tax on discount extended to its prepaid distributors 1.1. On the facts and circumstances of the case and in law, the learned CIT( A) has erred in concluding that discount extended to the prepaid distributors is in the nature of commission liable for deduction of tax at source under section 194H of the Act. 1.2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that the relationship between the appellant and prepaid distributors is that of 'Principal to Principal' and thereby provisions of section 194H of the Act are not applicable. 1.3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that there is no payment/credit to the account of distributors by the Appellant towards discount extended to them and therefore, provisions of section 194H of the Act do not apply to such discount. 1.4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that discount allowed by the Appellant is 3 not income in the hands of its distributors and that income, if any, arises only when the pre-paid SIM cards/talktime is further distributed by the distributors. 1.5. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in relying on the TDS officer's observation that the Appellant had failed to explain the accounting as books were not available without taking cognizance of the fact that the Appellant had duly furnished the accounting entries for the subject AY before the CIT(A) which clearly reflected that no discount has been recorded in its books of accounts. 1.6. On the facts and circumstances of the case and in law, the learned CIT(A) ignored that the accounting entries passed during the subject AY were similar to those passed for AY 2012-13 for which appeal was allowed in favour of the Appellant basis the finding by the TDS officer that discount has not been recorded in the books of accounts and prepaid revenue has been recorded on a net basis. It is respectfully submitted that since the accounting entries for subject AY were similar to AY 2012-13, the observation of the TDS officer will equally apply to the subject AY. 1.7. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not taking cognizance of the report submitted by the Special Auditor engaged by the Department of Telecommunications in the Appellant's own case in earlier years wherein it has been clearly stated that w.e.f. January 2007, the Appellant has been recording the revenue earned on sale of 'right to prepaid services' net off the discount. It is respectfully submitted that in absence of any change in the accounting policy or any disclosure in the financial statement/tax audit report, there was no reason to assume that the accounting treatment adopted by the Appellant during the subject AY was different then that followed in past AYs. 1.8. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not following the judicial precedents in the Appellant's own case and in the case of its erstwhile Group/sister concerns wherein it has been held that the discount extended to prepaid distributors is not in the nature of commission and hence, not liable to deduction of tax at source under section 194Hofthe Act. The Appellant prays that the learned CIT(A) be directed not to treat the discount extended by the Appellant to pre-paid distributors as 'commission or brokerage' to attract the provisions of section 194H of the Act. 2. Ground No. 2 - No tax under section 201(1) of the Act can be recovered from the Appellant (payer) when the tax due has already been paid by the payee 2.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in ignoring the submissions filed by the Appellant contending that TDS demand could not be recovered from the Appellant when taxes have already been paid by the pre-paid distributors on the income arising to them on transfer of pre-paid talk time, thus, resulting in 4 double recovery of taxes on the same stream of income, which is against taxation principles. 2.2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in ignoring Circular no.275/201/95-IP (B) dated 29.5.1997 issued by the Central Board of Direct Taxes ('CBDT') which specifically confirms that in situations where the payee discharges the liability no further liability would devolve on the payer, and thus, the impugned order is illegal and arbitrary. 2.3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not accepting the binding nature of the CBDT circular, the Judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. (293 ITR 226) and the judgment of the jurisdictional Mumbai Tribunal (reported in 135 TTJ 385) in the Appellant's own case. 2.4. On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in ignoring the specific request of the Appellant to bring on record evidence that is critical and vital to the appreciation of the issue as well as the adjudication of the same and hence, liable to be quashed. 3. Ground No. 3 - No interest under section 201(1 A) of the Act can be charged when the tax due has already been paid by the payee 3.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the levy of interest under section 201(1 A) of the Act when the tax due would have already been paid by the payee/recipient of discount on distribution of pre-paid SIM Cards/ talk time and roaming charges. 3.2. On the facts and circumstances of the case and in law, consequential interest under section 201(1 A) of the Act should be computed from the date on which tax was deducible by the Appellant to the date of payment of taxes by the payee/recipient of such income. All the above grounds are without prejudice to each other. The Appellant craves for leave to add, amend, vary, omit or substitute or withdraw any of the aforesaid grounds at any time before or at the time of hearing of the matter with the Income Tax Appellate Tribunal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case. 5. Brief facts of the case are as under :- The assessee is an Indian company registered under the Companies Act, 1956 and is engaged in the business of providing Cellular Mobile Telephony Services ('CMTS') in the Mumbai telecom circle. On 3rd August 2011 a survey 5 under Section ' 33A of the Act was conducted at the premises of the Appellant to verify compliance with provisions relating to taxes deducted at source (TDS'). Pursuant to the survey, the TDS Officer had passed an order wherein a demand of Rs 8,77,60,001 was raised on the Appellant under Section 201(1)7 201(1A) of the Act. In the said order, the TDS officer has held that the Appellant has made default on account of non-deduction of tax at source in respect of following payments made during AY 2009-10: a) Discount extended to its pre-paid distributors on distributions of pre-paid talk time b) Roaming charges 6. Interest under section 201(1A) of the Act has also been levied on account of the above. Pursuant to the above, a rectification application dated 19 March 2012 was filed before the learned TDS Officer against the impugned 201(1)/201(1A) order, requesting the learned TDS officer to grant credit in respect of declarations furnished by VIL from such roaming partners and to compute interest under Section 201(1A) of the Act from the date on which taxes were deductible to the date of payment of the said taxes by the payees/deductees. Basis the details and clarifications provided by the Appellant, the learned TDS officer passed an order under Section 154 of the Act revising the demand to Rs 12,90,28,277 under Section 201(1)/ 201(1A) of the Act. 7. Against the above order assessee appealed before learned CIT(A). As regards the issue of taxability of roaming charges the AO had opined that same was subject to TDS as per the provisions of section 194J read with section 9(1)(vii) of the Act as a nature of payment fall into the realm of the concerned section. Learned CIT(A) found that this issue is in favour of the assessee by several judicial pronouncements including that from Hon'ble High Courts and Tribunals. Learned CIT(A) held as under :- 3.6 Similar issue has been examined by this office in the case of the Appellant for prior years, ie. AYs 2007-08 to 2009-10. The relevant extract of the decision is reproduced below: 6 2.46. I have carefully perused the facts and submission of the appellant as well as the Assessing Officer's Order. This aspect has been examined by various Courts and Tribunals and they have held that no human intervention is necessitated in provision of roaming services. The said services are mere standard services which are provided automatically by machines without any human involvement/interface. The Hon'b'e Supreme Court in the case of CIT Vs Bharti Cellular Ltd. (330 ITR 239) while directing the Assessing Officer (TDS) to examine a technical expert from the side of the Department had specifically observed that during the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. It is a settled position that the services would qualify as fees for technical services only if human intervention is involved in rendition of the services. This aspect has been examined by various Courts and tribunals and they have held that no human intervention is necessitated in provision of Access services. The said services are mere standard services which are provided automatically by machines without any human involvement/ interface. The recent judicial pronouncements are discussed as under: 2.47. a) CIT v/s. Vodafone South Ltd. [2016] 72 taxman ri.com 347 (Karnataka HC) wherein it is held that, respectfully following the binding judgment of the Supreme Court of India, the submissions of the assesses that the payment in question cannot be considered as 'Fee for Technical Services' in terms of section 9(1)(vii) read with Explanation 2 has to be upheld b) Bharti Airtel vs ITO (TDS) [2016] 67 taxmann.com 223 (Del Trio.) - On the issue ‘Whether payment of IUC by assesses to FTOs are taxable as Fees for Technical Services under section 9(1)(viii)", it has been held that there is no human intervention at the time of traffic of calls and the payment in question cannot be considered as 'Fee for Technical Services' in terms of section 9(1)(vii) read with Explanation 2. c) Siemens Limited (ITA No.4356/Mum/2010/30 taxmann.com 200) (Mum Trb.) – Hon’ble Tribunal has held that the word "technical" has to be construed in the same sense involving direct human involvement without that, technical services cannot be held to be made available. Where simply an equipment or sophisticated machine or standard facility is provided albeit developed or manufactured with the usage of technology, such a user cannot be characterized as providing technical services. d) Vodafone East Ltd. vs. Add/. CIT[2015] 61 laxmann.com 263(Kol Trib.) wherein it is held that roaming charges did not require any human intervention and could not be regarded as fee for technical services requiring deduction of tax at source under section 194J. The Hon'ble Trib. has also held that in absence of human intervention, services rendered in context of impugned issue did not fall under definition of 'work' as defined in section 194C and, thus, provisions of 7 section 194C were not applicable to payment of roaming charges and a/so that since assesses had net used equipment involved in providing roaming facility and it was only subscribers of assessee who used equipment, payment in question did not require deduction of tax at source under section 194-1. e) Ideai Cellular Ltd. Vs CIT[2016] 65 taxmann.com 116 Pune f) Dishnet Wireless Ltd. [2015] 60 taxmann.com 329 (Chennai - Trib.) g) Bharti Hexacom Ltd. Vs ITO (Jaipur Trib.) (ITA 656/JP/2010- Order dated 12.06.2015 2.48. The subject matter has been dealt in detail namely in the decision of the Hon'ble Karnataka High Court in the case of Vodafone South Limited(241Taxman 497) and the jurisdictional Hon'ble Mumbai Tribunal in the case of Tata Teleservices (Maharashtra) Ltd. (ITA No. 2043 to 2045/Mum/2014). Apart from the above Judgements various appellate forums have held that the payment made by the telecom company to another Company for utilization of network cannot be termed as Technical service as accessing the network during calls is a fully automatic process and did not require any human intervention. There are no Technical services involved during the process of telecom/data traffic flow and hence such payments cannot be termed as "Fees for Technical Services" and therefore, no TDS was deductible on such payments. 2.49. Respectfully following the principle laid down by the Hon'ble Karnataka High Court and the Hon'ble Mumbai Tribunal decisions in favour of the appellant, the said payments are not liable for deduction of tax at source u/s. 194J of the I.T Act. Accordingly, based on above reasons and following the decisions of the various judicial precedents stated above, I agree with the contention of the Appellant that the said payments are not liable for deduction of tax at source under Section 194J of the IT Act. On this issue, the appeal is decided in favour of the appellant. " 3.7 Thus, following the order passed by this office in the prior years, this ground of appeal is decided in favour of the Appellant.” 8. Against the above order Revenue is in appeal before us. 9. We have heard both the parties and perused the record. We find that the issue in this case is covered in favour of the assessee. No contrary decision has been brought to our notice from Jurisdictional Hon'ble High Court. Hence, we respectfully follow the precedents and uphold the order of CIT(A) on this issue. Hence Revenue’s appeals are dismissed. 8 10. As regards the deductibility of TDS on discount extended to its pre-paid distributors on distribution of pre-paid talk time, learned CIT(A) has dealt with this issue as under after reproducing submission of the assessee :- “I have gone through the assessment order, sec 154 order, grounds of appeal and the appellant's submission on this issue. The Hon'ble Karnataka High Court considered the decisions of various High Court/Supreme Court, under identical circumstances -both in favour and against the assessee- and observed that the mere word "agent" or "agency" used in the agreement is not sufficient to lead to irresistible inference that the parties did, in fact, intend that the said status would be conferred. While interpreting the terms of agreement, the Court has to look to the substance rather than form. In other words, the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows otherwise; if the property in the goods is transferred and get vested in the concessionaire at the time of delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. In order to invoke the provisions of section 194H of the Act it has to be shown that the discount/ benefit given by the assessee is in nature of commission or brokerage. The Court further referred to distribution agreement to highlight that for the promotion of marketing and distribution of the products/services, the assessee availed services of distributors wherein each distributor has to provide services mentioned in the agreement and the assessee is no way liable to the customers. Therefore, the distributors agreement is on 'principal to principal' basis. According to the Hon'ble High Court the distributor purchases material from the assessee and sells the same to the customer in the form of handsets, SIM cards/recharge coupons and other products. Sales tax liability on the products sold by the distributor solely vests with the distributor. The insurance liability for the entire stock-in-trade will he of the distributor and the liability for any loss or damage of SIM Cards etc., or any loss or damage due to burglary/theft etc., will be on the distributor. The Court further observed that the distributor, in the instant case, carried on the business as an independently owned business entity and agreement does not make the distributor, its employees, associates or agent as employees for any purpose whatsoever. The distributor has no express or implied right to undertake any obligation for and on beheld of the assessee. The distributor has to pay consideration for the products supplied and thus it has to be treated as sale consideration. The Court also highlighted that there is specific clause in the agreement that after sale of the products, the distributor cannot return the goods to the assessee and it is the distributor who has to insure the products at godowns at their own cost. The Hon'ble High Court however accepted the contention of the Revenue that the telephone service is nothing but service and SIM card on its own, without service, would hardly have any intrinsic value. According to Judges a right to service can be sold. The distributor acquires a right to demand service f rom the assessee at the time when assessee sells these pre-paid cards for consideration to the distributor. The distributor does not earn any income; in fact, rattier than earning income, distributors incur expenditure the 9 purchase of pre-paid cards. It is only upon sale of those pre-paid cards, distributors derive income. In the time of sate of these pre-paid cards by the assessee, he is not in a position to earn income belonging to the distributor and therefore, the question of any income accruing/arising to a distributor, does not arise. In short, section 194H gets attracted in a case where there is income payable by the assessee to a distributor. The profit earned by distributor, sub-distributor and a retailer would be determined on the agreement between them and all of them would have to share the different amounts between the price for which it was sold to the distributor and the ultimate price fixed by the middleman, which can only be considered as discount by the assessee to the distributor, Under the terms of agreement several obligations flow so far as the services to be rendered by the assessee to the customers are concerned. Therefore it cannot be said that there exists a relationship of 'principal and agent' and thus it was concluded that it is a sale of right to service and consequently the relationship between the assessee and distributor is that of 'principal of principal'. The assessee submitted that this aspect of the matter was not looked into by other High Court including the Hon'ble Andhra Pradesh High Court. 2.14 It would be pertinent to note that the Karnataka High Court decision in the case of Bharti Airtel Ltd vs DCIT (supra), had instructed that the accounting records of the assessee should also be verified to check whether or not discount was reflected in its books of accounts. In light of the aforesaid directions, the Appellant was asked to demonstrate as to how the accounting of sale of 'right to pre-paid services' is recorded in its books of accounts, ie, how the sale price and the sale discount are reflected in the books of accounts. On receipt of response, the same was forwarded to the IDS officer for verification and comments. The TDS officer in its remand report dated 10/01/2019, 04/07/2019 and 25/07/2019, in relation to the accounting entry provided by the Appellant for AY 2012-13, has mentioned that the discount has not been recorded in the books of accounts and prepaid revenue has been recorded on net basis. Whilst the accounting records for other years were not filed before the TDS officer, the Appellant vide its submissions dated 29 July 2019 has provided only the screenshot of the accounting entries for AY 2009-10, 2010-11 and2011-12. 2.15 Accordingly, after going through the remand report of the Assessing Officer wherein he has given categorical finding that assessee could not explain the Accounting as books were not available, the benefit of doubt cannot be given to the appellant, it was the onus shifted to him to produce such records and to satisfy the AO with regard to the nature of transactions undertaken during the process. In the absence of such documents, following the above Judgement of the Hon'ble Karnataka High Court and because of non-verification of the accounting records of the Appellant, the discount allowed by Appellant to pre-paid distributors qualify as 'commission' within the meaning of the term under section 194H of the Act and hence, there will be obligation to deduct tax at source which arises on this account of transaction made.” 10 11. Against the above order the assessee is in appeal before us. We have heard both the parties and perused the records. Ld counsel for the assessee submitted that Ld.CIT(A) has passed a contradictory order. That in passing the aforesaid order ld CIT(A) has referred to the remand report of the AO and that the assessee has not been able to submit all necessary details. He submitted that this is quiet factually wrong as the assessee has submitted all necessary details and the authorities below have not properly examined the same. In this regard he referred to the submission reproduced in the ld CIT(A)’s order himself wherein the assessee’s submission have been noted. That the detail accounting procedure and the factual aspects etc. were all duly explained. Submission included that the assesee vide letter dated 31.1.2018 has given the accounting entries passed by it on sale of ‘right to prepaid services’ to the prepaid distributors and the same was explained in detail. That no discount or commission is credited to the account of the distributor and only the discounted amount of right to prepaid services (i.e. net of discount) transferred by the assessee is recorded in the distributors/control account. Relevant extracts were duly submitted. Thereafter ld counsel pointed out that ld CIT(A) has duly noted assessee’s submission in his order. The assessee has given details submission on the sales recorded and general ledger extract was also submitted. Hence ld counsel submitted that ld CIT(A) is totally incorrect in observing that the assessee has not submitted the details. Ld counsel submitted that since findings of ld CIT(A) is quiet contrary to the submission given to him, he submitted that the matter may be considered to be the remand of the AO. 12. Per contra, ld DR relied upon the orders of the authorities below. 13. Upon careful consideration, we note that Ld.CIT(A) has passed an unclear and somewhat self-contradictory order. On the issue, he initially observes about Hon’ble Karnataka High court decision being in favour of the assessee. Thereafter, he observes that some of the revenue’s contentions have been accepted by the Hon’ble High court. Thereafter, he observes that in accordance 11 with the Hon’ble High Court directions certain information was required from the assessee. After the receipt of information, he does not examine the same himself. He seeks for a remand from the AO. Thereafter disregarding the assessee’s objection he decides the issue against the assessee by observing that the necessary details have not been provided by the assessee. We find considerable cogency in the submission of the ld counsel that the details were submitted before ld CIT(A), who has not examined the same himself but has asked for the remand from the AO and he accepted the AO’s remand. He noted that the assessee could not explain accounting in the books as books were not available and benefit of doubt cannot be given to the assessee. It is evident that the details were duly submitted before ld CIT(A). What stops ld CIT(A) from giving a finding himself instead of relying upon the report on the same by the AO which were duly objected by the assessee is not understood. Hence we deem it appropriate that the matter may be remanded to the file of the AO. The AO is directed to examine the detailed submission of the assessee in this regard and thereafter decide as per law. Needless to add the assessee should be granted adequate opportunity of being heard. Hence, appeals by the assessee stand allowed for statistical purpose. 14. Grounds and facts for other years are identical to the one dealt by us in this appeal hereinabove. Our above adjudication applies mutatis mutandis to all these appeals. 15. In the result, all Revenue’s appeals are dismissed and assessee’s appeals are allowed for statistical purposes. Pronounced in the open court on 06.01.2022 Sd/- Sd/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 06 /01/2022 Copy of the Order forwarded to : 12 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai