SISTEMA SHYAM TELESERVICES LTD., Jaipur V. ITO, Jaipur

ITA 64/JPR/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91860 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NOS. 64, 65 & 66/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2007-08, 2008-09 & 2009-10 M/S SISTEMA SHYAM TELESERVICES LIMITED, (FORMERLY KNOWN AS M/S SHYAM TELELINK LIMITED) 3, MTS TOWER, AMARPALI CIRCLE, VAISHALI NAGAR, JAIPUR. CUKE VS. INCOME TAX OFFICER, TDS-1, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AACCS 1709 H VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI ALOK BASANT JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJESH OJHA LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 28/05/2015 MN~?KKSK.KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 29/05/2015 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 12/10/2012 PASSED BY THE LEARNED CIT(A)-III, JAIPUR FOR A.YS. ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 2 2007-08 TO 2009-10. THE EFFECTIVE COMMON GROUNDS OF ALL THE APPEALS ARE AS UNDER:- 1 THE LD. CIT(A) HAS GROSSLY ERRED ON FACTS AND I N LAW IN UPHOLDING THE ORDER PASSED BY THE LEARNED INCOME-TAX OFFICER, TDS-1 (LD. A.O.), JAIPUR AND DISMISSING THE VARIOUS GROUNDS OF THE APPELLANT IN TERMS OF WHICH IT HAD CONTENDED THAT IT WAS NOT LIABLE TO DEDUCT TAX UNDER THE PROVISIONS OF CHAPTER XVII B OF THE ACT ON THE TRADING MARGIN THAT THE DISTRIBUTORS COULD HAVE POTENTIALLY EARNED FROM SALE OF PRE-PAID TALK TIME/PREPAID PRODUCTS AND RECHARGE COUPONS. 1.1. THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT WAS NOT RESPONSIBLE FOR PAYING ANY INCOME BY WAY OF COMMISSION TO THE DISTRIBUTORS IN RELATION TO THE DISTRIBUTION OF PRE-PAID TALK TIME AND ACCORDINGLY, THERE WAS NO OBLIGATION ON THE APPELLANT TO DEDUCT TAX UNDER THE PROVISIONS OF SECTION 194H OF THE ACT . 1.2 THE LD. CIT(A) HAS GROSSLY ERRED IN LAW IN NOT APPRECIATING THAT THE TAX DEDUCTION PROVISIONS UNDER CHAPTER XVII B AND SECTION 194H OF THE ACT IN PARTICULAR CONTEMPLATE DEDUCTION OF TAX AT THE TIME OF CREDIT OF INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME, WHICHEVER IS EARLIER, EITHER OF WHICH WAS NOT PRESENT IN THE FACTS OF THE CASE. 1.3 THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT THE RELATIONSHIP BETWEEN THE APPELLANT AND THE PRE- PAID DISTRIBUTORS IS THAT OF A PRINCIPAL AND PRINC IPAL IN THE CONTEXT OF DISTRIBUTION OF PRE-PAID TALK TIM E AND MERELY RELYING UPON THE INCORRECT ASSUMPTIONS, ALLEGATIONS OF LD. A.O. WHO IN TURN RELIED UPON IRRELEVANT AND EXTRANEOUS CONSIDERATIONS WHILE ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 3 OMITTING TO CONSIDER RELEVANT FACTS, CONSIDERATIONS AND CORRECT LEGAL POSITION. 1.4 THE LD. CIT(A) HAS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT WHEREVER ANY PAYMENTS WERE MADE TO THE DISTRIBUTORS IN FORM OF COMMISSION, INCENTIVES, ETC. BY THE APPELLANT FOR UNDERTAKING SERVICES ON BEHALF OF THE APPELLANT VIZ SALE PROMOTION, ADVERTISING SERVICES, CUSTOMER SERVICES CAMPAIGNS, DOCUMENTATION I.E. CUSTOMER APPLICATION FORMS, AFFECTING ACTIVATION ON SIMS ETC ., APPROPRIATE TAXES HAD BEEN DULY DEDUCTED AND DEPOSITED BY THE APPELLANT. 1.5 WITHOUT PREJUDICE, THE LD. CIT(A) HAS ERRED IN LAW IN NOT APPRECIATING THE LEGISLATIVE INTENT OF INSER TING THE PROVISIONS OF SECTION 194G AND 194H IN THE ACT SIMULTANEOUSLY AND IN ABSENCE OF A SPECIFIC PROVISION, THE APPELLANT WAS UNDER NO OBLIGATION TO WITHHOLD TAXES ON THE TRADING MARGIN THAT THE DISTRIBUTORS COULD POTENTIALLY MAKE FROM FURTHER SA LE OF TALK TIME. 1.6 THE LD. CIT(A) HAS GROSSLY ERRED BY NOT CONSIDERI NG THE CONTENTIONS ADVANCED BY THE APPELLANT IN ITS WRITTEN SUBMISSIONS DATED OCTOBER 8, 2012 INCLUDING THE JUDGMENT BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. AHMADABAD STAMP VENDORS ASSOCIATION, CIVIL APPEAL NO. 10270 OF 2003. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, IN PASSING THE IMPUGNED ORDER, THE LD CIT(A) HAS GROSSLY ERRED BY MERELY REFERRING TO THE DECISIONS OF THE HONBLE HIGH COURTS AND HONBLE BENCHES OF THE TRIBUNAL WITHOUT BRINGING OUT ANY SIMILARITY IN FACTS OF THOSE DECISIONS WITH THAT OF THE ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 4 APPELLANT AND WITHOUT ADDRESSING THE APPELLANTS SUBMISSIONS IN RESPECT OF SUCH DECISIONS. 3. THE IMPUGNED ORDER SUFFERS FROM GROSS VIOLATION O F NATURAL JUSTICE AND HENCE, LIABLE TO BE QUASHED. 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN PASSING THE IMPUGNED ORDER IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND DUE PROCESS OF LAW SINCE NO REASONABLE OPPORTUNITY WAS GRANTED TO THE APPELLANT TO PUT FORTH ITS CONTENTIONS WHICH IS EVIDENT FROM THE FACT THAT THE DETAILED WRITTEN SUBMISSIONS, DATED OCTOBER 8, 2012, FILED BY THE APPELLANT WERE NOT EVEN DISCUSSED NOR NEGATED IN THE IMPUGNED ORDER. 3.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN PASSING THE IMPUGNED ORDER IN HASTE AND WITHOUT PROVIDING THE APPELLANT AN OPPORTUNITY TO BE PERSONALLY HEARD AND HENCE IT RENDERS THE IMPUGNED ORDER LIABLE TO BE QUASHED. 3.3 THE IMPUGNED ORDER BY THE LD CIT(A) IS A NON- SPEAKING ORDER ON MANY ASPECTS AND THUS DESERVES TO BE QUASHED, BEING IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 4. WITHOUT PREJUDICE, THE LD. CIT(A) OUGHT TO HAVE N OT UPHELD THE APPELLANT TO BE AN ASSESSEE IN DEFAULT TO THE EXTENT OF TAXES THAT WOULD HAVE BEEN PAID BY THE PAYEE ON THEIR OWN AND OUGHT NOT TO HAVE HELD THAT THE APPELLANT HAD FAILED TO DISCHARGE ITS ONUS WHEN ADDRESSES AND PAN WERE DULY MADE AVAILABLE WITHIN THE TIME-FRAME ALLOWED BY THE LD. A.O. 5. WITHOUT PREJUDICE, THE LD. CIT(A) ERRED IN FACTS AND IN LAW IN DISMISSING THE GROUND OF THE APPELLANT THAT NO INTEREST UNDER SECTION 201(1A) OF THE ACT ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 5 CAN BE CHARGED WHEN THE TAX DUE HAS ALREADY BEEN PAID BY THE PAYEE, WITHOUT EXAMINING THE CIRCUMSTANCES AND FACTS OF THE CASE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF THE ABOVE GROUNDS AT OR BEFORE THE HEARING OF THE APPEAL 2. ONLY GROUNDS NO. 1.3, 2 AND 4 OF ALL THE APPEAL HAS BEEN PRESSED BY THE LD AR OF THE ASSESSEE. REMAINING GRO UNDS WERE NOT PRESSED, THEREFORE, THE SAME ARE DISMISSED AS NOT P RESSED. IN OTHER YEARS ALSO, THE GROUNDS ARE IDENTICAL, THEREFORE, WE ARE NOT REPRODUCING THE SAME. 3. GROUND NO. 1.3 OF THE APPEAL IS AGAINST NOT APPR ECIATING THE RELATIONSHIP BETWEEN THE APPELLANT AND THE PRE PAID DISTRIBUTORS IS THAT OF A PRINCIPAL AND PRINCIPAL AND GROUND NO. 2 OF TH E APPEAL IS AGAINST NOT CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSE E AND IN GROUND NO. 4, ALTERNATIVELY THE RECIPIENT HAD SHOWN THE RE CEIPT IN THEIR INCOME. THE ASSESSEE IS A TELECOMMUNICATION SERVICE PROVIDER COMPANY. THERE WAS A SURVEY BY TDS WHEREIN ON 05/10/200 6 AS PER ASSESSING OFFICER, THE ASSESSEE MADE PAYMENTS TO DI STRIBUTORS AS COMMISSION ON PRE PAID PRODUCT CALLED SIM AND SERVI CE TICKET/RECHARGE COUPONS. THE AR OF THE ASSESSEE SUBMITTED BEFORE THE ASSESSING ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 6 OFFICER THAT THE COMPANY HAS NOT DEDUCTED ANY TDS ON PRE-PAID SERVICES BUT DEDUCTED TDS ON POST- PAID SERVICE DIST RIBUTORS. THE DISTRIBUTORS WERE GIVEN A CERTAIN AMOUNT OF DISCOUNT FROM THE PRICE OF THESE ITEMS. THE DISTRIBUTORS THEN SOLD THESE ITEMS TO SUB- DEALERS/RETAILERS AT A PRICE NOT EXCEEDING THE MRP FIXED ON THESE ITEMS. AS PER THE ASSESSEE-DEDUCTOR, THIS IS ONLY A TRADE DISCOUNT AND NOT A COMMISSION. THE RELATIONSHIP BETWEEN THE ASSESS EE AND DISTRIBUTORS IS A PRINCIPAL TO PRINCIPAL, THEREFORE , NO TDS IS LIABLE TO BE DEDUCTED ON DISCOUNT AS NO INCOME HAS BEEN TRANSFER RED TO THE DISTRIBUTORS BY THE COMPANY. THE SUBMISSION OF ASSES SEE WAS NOT FOUND CONVINCING TO THE ITO (TDS). HE REFERRED SECTI ON 194H OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE ASSE SSEE WAS TREATED IN DEFAULT FOR NON-DEDUCTING AND DEPOSITING TDS. HE WORKED OUT THE COMMISSION FOR EACH F.Y. AS UNDER :- F.Y. 2006-07:- RS. 22,93,744/- F.Y. 2007-08:- RS. 75,17,315.7 F.Y. 2008-09:- RS. RS. 23,19,074/- THE LD AR OF THE ASSESSEE FURTHER SUBMITTED BEFORE T HE ASSESSING OFFICER AS UNDER:- ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 7 1. THAT IN THE IMPUGNED SHOW CAUSE NOTICE YOUR GOOD S ELF HAS STATED THAT ASSESSEE COMPANY HAS PAID COMMISSIO N TO VARIOUS DEALERS ON SALE OF VARIOUS PRODUCTS, HOWE VER, TDS U/S 194H HAS NOT BEEN DEDUCTED IN RESPECT OF THE ABOVE PAYMENT. YOUR GOOD SELF HAS WORKED OUT THE AMOUNT OF NON DEDUCTION FROM FINANCIAL YEAR 2006- 07/2007-08/2008-09. YOUR GOOD SELF HAS STATED THAT AS PER AGREEMENT IT IS EVIDENT THAT THERE IS PRINCIPAL AGENT RELATIONSHIP BETWEEN YOU AND YOUR DEALER AND THEREFO RE TDS IS REQUIRED TO BE MADE U/S 194H OF THE ACT. HOWEVER, YOUR GOODSELF HAS NOT PAINTED OUT ANY SPECI FIC TERMS AND CONDITION WHICH SUGGEST THAT THERE IS PRIN CIPLE AGENT RELATIONSHIP. IT IS THUS REQUESTED TO PROVIDE SPECIFIC DETAIL, SO THAT DETAILED EXPLANATION CAN B E SUBMITTED TO YOUR GOOD SELF. IT IS ALSO POINTED OUT THAT AGREEMENT SHOULD BE READ IN TOTALITY NOT ON THE BAS IS OF ONE OR TWO PARA. FROM THE ENTIRE READING OF AGREEMEN T, IT IS VERY MUCH CLEAR THAT TRANSACTION IS BETWEEN PRINCIPLE, HENCE PROVISIONS OF SECTION 194H IS NOT APPLICABLE. 2. WE HAVE OUR PRODUCTS MARKETED THROUGH THE DISTRI BUTOR NETWORK UNDER TWO CATEGORIES POSTPAID PRODUCTS AND PREPAID PRODUCTS. DISTRIBUTORS DEALING WITH PRODUCTS WILL NOT DEAL WITH PREPAID PRODUCTS EXCEPT FOR RECHARGE COUPONS AND ARE CALLED OUR CHANNEL PARTNER. BUT THE DISTRIBUTORS OF PREPAID PRODUCTS SHALL NOT DEAL WITH ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 8 POSTPAID PRODUCTS THE NUMBER OF DISTRIBUTORS OF THE PREPAID PRODUCTS IS FAR HIGHER THAN THE CHANNEL PAR TNERS. IN POST PAID CATEGORY, CHANNEL PARTNERS ACTS ON BEH ALF OF RAINBOW IN TERMS OF CREATING A CONTRACT FOR SUPPLY O F SERVICES, COLLECTS SECURITY DEPOSITS, RENDERS OUTSO URCED VALUE ADDED SERVICES TO MOBILE SUBSCRIBERS ETC. THU S THE CHANNEL PARTNERS ARE THE AGENTS OF ASSESSEE COMPANY AND THE RELATIONSHIP IS OF PRINCIPAL-AGENT. THE ASSE SSEE COMPANY HAS DEDUCTED TDS IN RESPECT OF AMOUNT OF COMMISSION SO PAID TO THESE DISTRIBUTORS. IN THE CASE OF PREPAID PRODUCTS, THE DISTRIBUTORS ARE NOT PERMITTED TO ACT ON BEHALF OF RAINBOW. WHAT THEY DISTRIBUTE IS RETAIL PACKAGE PRODUCTS LIKE PREPAID SIM CARD, RECHARGE COUPONS AND MOBILE PRODUCTS. THE ENTI RE RANGE OF PREPAID PRODUCTS TAKES THE COLOUR AND CHAR ACTER OF PRODUCTS SOLD OFF THE SHELF. THESE DISTRIBUTORS A RE NOT THE EXCLUSIVE DISTRIBUTORS FOR RAINBOW PRODUCTS AND ARE PERMITTED TO DEAL WITH OTHER COMPETITORS PRODUCTS (WI TH PRIOR PERMISSION) THUS, THE TRANSACTION BETWEEN THE COMPANY AND THE DISTRIBUTOR OF PREPAID PRODUCTS IS ON PRINCIPAL TO PRINCIPAL BASIS. 3. THE DISCOUNT MARGIN GIVEN TO THE DISTRIBUTOR ON T HE RETAIL PRICE OF THE PREPAID PRODUCTS CANNOT BE TERMED AS COMMISSION PAID, WITHIN THE MEANING OF SECTION 194H. IT IS A GENERAL TRADE PRACTICE, IN MANY LINES OF ACTIV ITIES OF TRADE, COMMERCE AND INDUSTRY, THAT WHEN THE PRODUCT S ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 9 ARE SOLD THROUGH A DISTRIBUTOR THEY ARE SOLE AT A DISCOUNTED PRICE AND SUCH DISCOUNT IS THE MARGIN FO R THE DISTRIBUTOR. THE DEFINITION OF COMMISSION IN THE SEC TION 194H PRESUPPOSES THE EXISTENCE OF A PRINCIPAL-AGEN T RELATIONSHIP WHEN A PAYMENT COULD BE TERMED AS COMMISSION OR BROKERAGE. 4. IN THE INSTANT CASE, THE DISTRIBUTORS OF PREPAID PRODUCTS ARE NOT RENDERING ANY INDEPENDENT SERVICES TO RAINB OW. NOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF PRODUCTS. THERE IS NO AGENCY RELATIONSHIP CREATED BETWEEN THE COMPANY AND THE DISTRIBUTORS. THE RELIANC E WAS PLACED ON CASES OF GUJARAT HIGH COURT IN THE CAS E OF AHMADABAD STAMP VENDORS ASSOCIATION 257 ITR 202, KERALA HIGH COURT IN THE CASE OF M.S. HAMEED 249 ITR 186 AND THE DELHI TRIBUNAL IN THE CASE OF IDEA CELL ULAR LTD. 5. THE EXPLANATION PROVIDED IN SECTION 191 CLARIFIES THAT THE PRINCIPAL OFFICER SHALL BE DEEMED TO BE AN ASSESSEE IS DEFAULT U/S 201(1A) ONLY WHEN HE DOES NOT DEDUCT THE WHOLE OR ANY PART OF THE TAX AND SUCH TAX HAS NOT BE EN PAID BY THE ASSESSEE DIRECT, CONVERSELY WHERE RECIPI ENT HAS PAID THE TAX DIRECT THE PRINCIPAL OFFICER SHALL NOT BE HELD TO BE AN ASSESSEE IN DEFAULT FOR SHORT DEDUCTI ON OF TAX AT SOURCE. IT IS ALSO A SETTLED LAW THAT WHERE ASSESSEE HAS FAI LED TO DEDUCT TAX AT SOURCE BUT THE RECIPIENT PAID ADVANCE D ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 10 TAX/SELF ASSESSMENT TAX AND THERE IS NO LOSS TO THE REVENUE IT WOULD NOT BE PROPER TO LEVY TAX U/S 201 A ND INTEREST U/S 201(1A). HE PLACED RELIANCE ON THE FOLLOWING CASE LAWS:- (I) HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS. CIT 293 ITR 226 (SC). (II) CIT VS. RAJASTHAN RAJYA VIDHYUT PRASARAN NIGAM LTD. 287 ITR 354 (RAJ.) (III) NHK, JAPAN BROADCASTING CORPORATION VS. DCIT 305 ITR 137 (DELHI). (IV) MANGLORE REFINERIES AND PETROCHEMICALS VS. DC IT 113 ITD 85/311 ITR 91 (AT)(MUM). (V) CIT VS. ELI LILLY AND COMPANY INDIA PVT. LTD. & ORS. 312 ITR 225. (VI) RAJYA VIDHYUT PRASARAN NIGAM LTD. 287 ITR 354 (RAJ.) (VII) TRO VS. BHARAT HOTELS LTD. 28 DTR 27 (BANGALOR E). AFTER CONSIDERING THE ASSESSEES REPLY, THE LD ASSE SSING OFFICER HELD THAT THE ASSESSEE HAS RELATIONSHIP WITH THE DISTRIBU TOR AS PRINCIPAL TO AGENT NOT PRINCIPAL TO PRINCIPAL. HE ALSO ANALYSED THE TERMS AND CONDITIONS MENTIONED IN THE AGREEMENT, WHICH HAS BEE N REPRODUCED BY HIM ON PAGE 8 OF THE ASSESSMENT ORDER. FINALLY H E HELD AS UNDER:- 7. IN VIEW OF THE ABOVE THE FOLLOWING INFERENCE IS DR AWN: I. THE ESSENCE OF CONTRACT OF AGENCY, AS DISTINGUISH ED FROM A CONTRACT OF SALE IS THAT AN AGENT AFTER TAKING DE LIVERY OF THE PROPERTY DOES NOT SELL IT AS HIS OWN PROPERTY BU T SELLS THE SAME AS THE PROPERTY OF THE PRINCIPAL AND UNDER HIS ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 11 INSTRUCTIONS AND DIRECTIONS. IN THE INSTANT CASE, T HE COMMODITY INVOLVED IS INEXTRICABLY LINKED TO A SET OF SERVICES WHICH ARE IDENTIFIED AND SOLD UNDER A BRAND NAME. A DISTRIBUTOR FOR STL PREPAID CARDS DOES NOT S ELL THEM AS HIS OWN PROPERTY BUT AS THAT OF THE COMPANY. WHAT IS BEING TRADED IS NOT A MERE PHYSICAL ITEM BU T ACCESS TO A CELLULAR NETWORK WHICH IS AT ALL TIMES TH E PROPERTY OF THE ASSESSEE DEDUCTOR. THE AMOUNT WHICH THE ASSESSEE DEDUCTOR CLAIMS TO BE A DISCOUNT IS TH US COMMISSION FOR SERVICES RENDERED IN THE COURSE OF S ELLING MOBILE CELLULAR TELEPHONY SERVICES OF THE ASSESSEE DEDUCTOR. II. WHILE FREEDOM OF PRICING IS NOT THE SOLE DETERM INER FOR A PRINCIPAL TO PRINCIPAL RELATIONSHIP, IT IS PERTINEN T TO NOT THAT THERE WAS NO FREEDOM OF PRICING AS PER THE AGREEMENTS BETWEEN DISTRIBUTORS AND THE ASSESSEE DEDUCTOR. III. IN A PRINCIPAL TO PRINCIPAL SALE TRANSACTION, THE PRINCIPAL BECOMES OWNER OF GOODS AND EXERTS FULL CONTROL OVER THE OPERATIONS THEREON; IN THE INSTANT CASE, THE VARIOU S RESTRICTIONS AND CONDITIONS IMPOSED ON THE DISTRIBU TORS RENDERS THEM MERE AGENTS AND NOT INDEPENDENT PRINCIPALS. IV. IN A DISCOUNT SALE, ONCE GOODS ARE SOLD THERE C ANNOT BE ANY RESTRICTION BY ONE PRINCIPAL ON ANOTHER AS TO H OW AND WHERE TO SELL THESE GOODS. THE DISTRIBUTORSHIP ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 12 AGREEMENTS IN THE INSTANT CASE CLEARLY DENOTE A GEOGRAPHICAL AREA OF OPERATION AND THE MANNER IN WHI CH THE GOODS SHOULD BE SOLD. V. IN CASE OF PURCHASE ON DISCOUNT, THERE CANNOT BE ANY RESTRICTION ON THE MANNER IN WHICH THE STOCK PURCHAS ED BY THE PRINCIPAL IS TO BE KEPT, NOR IS THERE ANY RI GHT OF ONE PRINCIPAL TO INSPECT THE STOCK MOVEMENTS. THIS I S NOT TRUE IN THE INSTANT CASE. VI. A SIGNIFICANT CLAUSE IN THE DISTRIBUTORSHIP AGR EEMENTS IS THAT OF BRAND EXCLUSIVELY. A DISTRIBUTOR, ONCE HE H AS BEEN APPOINTED A DISTRIBUTOR FOR THE ASSESSEE DEDUCTOR I S NOT TO MARKET OR DISTRIBUTE OR DISPLAY OR OTHERWISE DEAL IN SIMILAR PRODUCTS OF OTHER COMPETITORS DURING THE CONTINUANCE OF THE AGREEMENT AND FOR ONE YEAR AFTER TERMINATION. THUS, ONCE A DISTRIBUTOR SIGNS THE AGREEMENT, HE BECOMES AN EXCLUSIVE REPRESENTATIVE O F THE ASSESSEE COMPANY. SINCE THE TERMS OF THE AGREEM ENT FORBID HIM FROM DISPLAYING OR DEALING IN SIMILAR PR ODUCTS, HE CANNOT BE CONSIDERED AN INDEPENDENT PRINCIPAL. I N HIS INTERACTION WITH RETAILERS AND CUSTOMERS, HE IS A PR OMOTER AND MARKETER OF THE ASSESSEES PARTICULAR BRAND OF GOODS RATHER THAN AN INDEPENDENT PRINCIPAL. SUCH A CLAUSE RENDERS THE DISTRIBUTOR A MERE AGENT OF THE ASSESSE E SINCE HE DOES NOT HAVE THE FREEDOM TO DEAL IN OTHER PRODUCTS AS AN INDEPENDENT PRINCIPAL. ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 13 THE LD ASSESSING OFFICER CALCULATED THE TDS U/S 201 AND INTEREST U/S 201A OF THE ACT AS UNDER:- FINANCIAL YEAR TAX INTEREST 2006-07 RS. 63,815/- RS. 1,80,796/- 2007-08 RS. 2,96,332/- RS. 10,06,087/- 2008-09 RS. 1,56,513/- RS. 7,14,184/-. 4. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A), WHO HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- 02.3 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF DEPARTMENT BY THE FOLLOWING DECISIONS OF HIGH COURT AND TRIBUNAL:- 1. ACIT VS. BHARTI CELLULAR LTD. (61 DTR 225) (CAL) 2. VODAFONE ESSAR CELLULAR LTD. VS. ACIT (332 ITR 2 55) (KER) 3. CIT VS. IDEA CELLULAR LTD. (325 ITR 148) (DEL) 4. ITO VS. VODAFONE ESSAR CELLULAR LTD. (141 TTJ 4 61) (CHENNAI) IN THE AFORESAID DECISIONS, IT WAS HELD THAT THE ES SENCE OF CONTRACT BETWEEN THE SERVICE PROVIDER AND THE DISTRI BUTOR IS SERVICE SINCE THE DISTRIBUTORS ARE LINKING AGENT S IN THE CHAIN OF DELIVERY OF SERVICES TO THE CUSTOMERS. THE MARGIN PAID TO DISTRIBUTORS WAS COMMISSION PAYMENTS AND NOT ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 14 DISCOUNTS AS THERE WAS NO SALE OF ANY GOODS. TAX WAS DEDUCTABLE U/S 194H ON THE SAID MARGINS ALLOWED TO T HE DISTRIBUTORS. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, I UPHOLD THE FINDING OF THE A.O. AND DIS MISS THE GROUND OF THE APPELLANT. 03. THE APPELLANT RAISED AN ALTERNATIVE PLEA THAT TH E A.O. OUGHT NOT TO HAVE HELD THE APPELLANT AS ASSESSEE I N DEFAULT TO THE EXTENT OF TAXES PAID BY THE PAYEES IN VIEW OF THE HON'BLE SUPREME COURT DECISION IN THE CASE O F HINDUSTAN COCA COLA BEVERAGES P. LTD. (293 ITR 226). 03.1 THE CLAIM OF THE APPELLANT HAS BEEN CONSIDERED BY THE ITO, TDS AS DISCUSSED IN POINT 13 ON PAGE 14 OF HIS ORDER. APPELLANT WAS ASKED TO FURNISH DOCUMENTARY EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE DISTRIBUT ORS HAVE ALREADY PAID THE DUE TAXES ON THE MARGINS ALLOWED TO THEM ON WHICH TAX WAS DEDUCTABLE BY THE APPELLANT. SINCE THIS ONUS COULD NOT BE DISCHARGED BY THE APPELLANT, IT WAS NOT ALLOWED THE BENEFIT OF AFORESAID DECISION OF HON 'BLE SUPREME COURT. 03.2 I AGREE WITH THE ITO, TDS THAT ONUS LIES ON THE A PPELLANT TO PROVE THAT THE DUE TAXES HAVE BEEN PAID BY THE P AYEES FOR CLAIMING THE BENEFITS OF DECISIONS OF HON'BLE S UPREME COURT. SINCE THE APPELLANT FAILED TO DISCHARGE THIS ONUS, THE ALTERNATIVE PLEA RAISED BY IT, IS DISMISSED. ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 15 5. NOW THE ASSESSEE IS IN APPEALS BEFORE US. THE LD A R FOR THE ASSESSEE HAS REITERATED THE ARGUMENTS MADE BEFORE T HE LD CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEES APPEAL IS SQU ARELY COVERED BY THE RECENT DECISION DATED 13/3/2015 OF THE HONBLE JAIPUR BENCH OF ITAT IN THE CASE OF TATA TELESERVICES LTD. VS. ITO IN ITA NO. 309/JP/2012, 502 TO 505/JP/2011. THIS VERY BENCH IN TURN HAS CONSIDERED THE HONBLE KARNATAKA HIGH COURTS DECIS ION IN THE CASE OF BHARTI AIRTEL LIMITED & ORS. VS. DCIT 52 TAXMANN.COM 31, WHICH HAS EXAMINED ALL AVAILABLE JUDGMENT ON THESE ISSUES. THE BENCH AFTER ELABORATELY DEALING WITH THEM AND RELEVANT ISSUES H ELD THAT THERE IS NO LIABILITY OF TDS U/S 194H OF THE ACT ON THE ASSESSEE AND THEREBY ALLOWED THE ASSESSEES APPEAL. THE LD AR PRODUCED THE SALE BILLS TO DEMONSTRATE THAT THE SALE BILL ISSUED NET AFTER ALL OWING THE DISCOUNT ON MRP. THEREFORE, NO MONEY WAS TRANSFERRED TO DISTRIBUT ORS BY THE ASSESSEE. THE ASSESSEE HAD PAID SERVICE TAX ON IT AS SERVICES PROVIDED BY THE ASSESSEE. THE DISTRIBUTORS ONLY CAN SELL THE PREPAID SERVICES/GOODS UP TO MAXIMUM MRP TO THE RETAILERS O R CUSTOMERS DIRECTLY. HE FURTHER DRAWN OUR ATTENTION ON AUDIT RE PORT AT PAGE 25 THAT SERVICE RENDERED ARE RECOGNIZED AS SERVICE ARE RENDERED AND ARE NET OF DISCOUNT AND SERVICE TAX. THEREFORE, HE PRAY ED THAT THE ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 16 ASSESSEE WAS NOT PAYING ANY COMMISSION TO THE DISTRI BUTORS AND NOT LIABLE TO ANY TDS U/S 194H ON PREPAID SERVICES. 6. AT THE OUTSET, THE LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF THE LOWER AUTHORITIES AND DRAWN OUR ATTENTION ON AUDIT RE PORT AT PAGE 16 IN SCHEDULE 15. THE ASSESSEE HAS SHOWN DEALERS COMMI SSION, ADVERTISEMENT AND PUBLICITY EXPENSES AND SALE PROMO TION EXPENSES, WHICH SHOWS THAT THE ASSESSEE WAS PAYING THE COMMISSI ON TO THE DISTRIBUTORS. IN REJOINDER, THE LD AR SUBMITTED THA T ON THIS COMMISSION, THE ASSESSEE HAS DEDUCTED TDS AND PAID TO THE GOVERN MENT EXCHEQUER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT I S UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN ISSUING BILLS AFTER ALLO WING THE DISCOUNT ON MRP IN NET AND CHARGED SERVICE TAX ON IT. THERE IS N O TRANSFER OF INCOME FROM ASSESSEE TO DISTRIBUTORS BUT MRP IS FIX ED ON THE PREPAID SERVICES. AT THE TIME OF SALE, THE DISTRIBUTORS REC EIVED THE SALE PROCEED EITHER FROM THE RETAILERS OR CUSTOMERS. THIS BENCH I N THE CASE OF M/S. IDEA CELLULAR LTD. VS. ITO IN ITA NO. 356, 357,358 & 359/JP/2012 ORDER DATED 22/05/2015 HAS HELD AS UNDER:- ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 17 2.8 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIE W, THE FOLLOWING PROPOSITIONS ARISE FROM THE FACTS OF THE C ASE: I. ASSESSEE HAS ISSUED SALE INVOICES OF SIM CARDS TO I TS DISTRIBUTORS NET OF DISCOUNT. SIMILARLY RELEVANT EN TRIES HAVE BEEN ENTERED IN THE BOOKS NET OF DISCOUNT. II. DISCOUNT OR SO CALLED COMMISSION HAS NOT BEEN SEPAR ATELY PAID TO DISTRIBUTORS, THUS THERE IS NO PAYMENT OF A NY INCOME AS EMPHASIZED BY HONBLE KARNATAKA HIGH COUR T IN TATA TELE JUDGMENT(SUPRA). III. WHAT HAS BEEN EFFECTED BY WAY OF THESE SALE TRANSACT IONS IS SALE OF SERVICE EMBEDDED OR ENCRYPTED ON SIM CAR DS, AS HELD BY HONBLE KARNATAKA HIGH COURT AND TREATIN G SAME AS PRINCIPAL TO PRINCIPAL TRANSACTION. IV. THE FACTS AND CIRCUMSTANCES OF ASSESSES CASE ARE ON PARITY WITH OUR ITAT JUDGMENT IN THE CASE OF TATA TELE SERVICES, WHICH WE HAVE TO RESPECTFULLY FOLLOW. V. IN VIEW OF THE FACTS, CIRCUMSTANCES, RIVAL SUBMISSIO N AND MATERIAL AVAILABLE ON RECORD ASSESSEE IS NOT LIABLE FOR DEDUCTION U/S 194H. THEREFORE WE REVERSE THE ORDERS O F LOWER AUTHORITIES ON THESE ISSUES AND DELETE THE DEM AND. VI. SINCE THERE IS NO LIABILITY OF TDS U/S 194H ON THE A SSESSE THERE IS NO NEED TO GO INTO THE ASPECTS OF ALTERNAT E RELIEF AWARDED BY LD. CIT(A) AND CHALLENGED BY REVENUE, TO EXAMINE THE TAXABILITY OF DISTRIBUTORS AND APPLICAB ILITY OF ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 18 HONBLE SUPREME COURT JUDGMENT IN THE CASE OF HINDUSTAN COCA COLA (SUPRA). THE CASE LAWS RELIED ON THE LD AR ARE SQUARELY APPLI CABLE ON THE CASE OF THE ASSESSEE. BY RESPECTFULLY FOLLOWING OUR OWN DE CISION IN THE CASE OF M/S. IDEA CELLULAR LTD. VS. ITO, WE ALLOW THE ASSES SEES APPEALS ON ALL THE THREE GROUNDS AND ALL THE THREE APPEALS FOR A.Y. 2007-08 TO 2009-10. 8. THE ALTERNATIVE GROUND I.E. GROUND NO. 3 RAISED B Y THE ASSESSEE IS NOT REQUIRED ANY ADJUDICATION AS PREPARED ITEMS ARE NOT COVERED U/S 194H OF THE ACT. 9. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSE SSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/05/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 29 TH MAY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S SISTEMA SHYAM TELESERVICES LIMITED, JAIPUR ITA 64, 65 & 66/JP/2013_ SISTEMA SHYAM TELESERVICES VS. ITO 19 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, TDS-1, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 64,65 & 66/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR