Gajanand Agrawal(Deceased), Dhanbad V. ACIT CENTRAL CIR-3, Ranchi

ITSSA 11/RAN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9680 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MONDAL J
• Keywords: Difference of opinion; Relationship of principal and agent; TDS
• Section: 143(3); 153A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER IT (SS) A NO. 09 & 1 0 / RAN / 2017 ASSESSMENT YEAR :2002-03 & 2003-04 GAJANAND AGRAWALA (DECEASED), LEGAL HEIR SRI VIVEK AGARWAL, SREE NIWAS, NR. RANI SATI MANDIR, CHIRKUNDA, DHANBAD, JHARKHAND- 828202 [ PAN NO.AABHA 4399 B ] V/S . ACIT, CENTRAL CIRCLE- 3, RANCHI /APPELLANT .. / RESPONDENT IT(SS) A NO.11 & 13/RAN/2017 ASSESSMENT YEAR :2005-06 GAJANAND AGRAWALA (DECEASED), LEGAL HEIR SRI VIVEK AGARWAL, SREE NIWAS, NR. RANI SATI MANDIR, CHIRKUNDA, DHANBAD, JHARKHAND- 828202 [ PAN NO.AABHA 4399 B ] SHRI GAJANAND AGRAWALA (HUF) SREE NIWAS NR. RANI SATI MANDIR, CHIRKUNDA, DHANBAD, JHARKHAND-828202 [ PAN NO.AABHA 4399 B ] V/S . ACIT, CENTRAL CIRCLE- 3, RANCHI /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI DEVESH PODDAR, ADVOCATE /BY REVENUE SHRI P.K. MONDAL, JCIT-DR /DATE OF HEARING 08-01-2019 /DATE OF PRONOUNCEMENT 15-02-2019 IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 2 / O R D E R PER BENCH:- THESE SET OF FOUR APPEALS PERTAINS TO TWO ASSESSEE SHRI GAJANAND AGRAWALA (DECEASED) AND SHRI GAJANAND AGRAWALA (HUF ); RESPECTIVELY. THE FORMER ASSESSEES ALL THESE APPEALS IN IT(SS)A NO. 09, 10, 11 & 13/RAN/2017 ARISE FROM THE COMMISSIONER OF INCOME TAX (APPEALS) -3 PATNAS COMMON ORDER DATED 22.02.2017 PASSED IN CASE NO.245-249CIT (A)-3/PAT/09-10 INVOLVING PROCEEDINGS U/S 153A R.W.S. 153C IN HUF A PPEAL; RESPECTIVELY OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD MR. PODDAR AND MR. MONDAL REPRESENTING ASSESS EE AND REVENUE RESPECTIVELY. 2. WE NOTICE AT THE OUTSET THAT THESE TWO ASSESSEES HAVE CHALLENGED ADDITION(S) OF INTEREST OF RS.29,242/-, RS.18,819/- & RS.63,315/- PAID TO KOLKATA MUNICIPAL CORPORATION AND RS.3,000/- TO CHA RTERED ACCOUNTANT IN FORMER ASSESSEES THREE CASES RESPECTIVELY. THE HUF S SOLE SUBSTANTIVE GRIEVANCE ON THE OTHER HAND SEEKS TO DELETE MUNICIP AL TAX ADDITION OF RS.19,045/-. WE WISH TO MAKE IT CLEAR AT THE FIRST INSTANCE THAT THERE IS NO DISPUTE SO FAR AS THE CLINCHING FACT THAT ALL THESE ADDITION(S) ARE NOT BASED UPON ANY INCRIMINATING MATERIAL FOUND OR SEIZED DUR ING THE COURSE OF SEARCH IN ISSUE; IS CONCERNED. THE ASSESSEES BOOKS HAD ALREA DY INDICATED ALL THESE INTEREST ONWARDS RECEIVED AS WELL AS FOR PAYMENT OF TAXES AND EXPENSES. IT IS IN THIS BACKDROP THAT HON'BLE DELHI HIGH COURTS JU DGMENT IN CIT VS. KABUL CHAWLA (2016) 380 ITR 573 (DEL) HOLDS THAT SEC. 153A R.W. S. 153C PROCEEDINGS ARE NOT SUSTAINABLE AS FOLLOWS:- SUMMARY OF THE LEGAL POSITION ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW EXPLAINED IN THE AFOREMENTIONE D DECISIONS, THE LEGAL POSITION THAT EMERGES IS AS UNDER:- (I) ONCE A SEARCH TAKES PLACE UNDER SECTION 1321 OF THE ACT, NOTICE UNDER SECTION 153A(1) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR SIX ASSESSMENT YE ARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR RELEVANT TO THE AM YEAR IN WHICH THE SEARCH TAKES PLACE. (II) ASSESSMENTS AND REASSESSMENTS PENDING ON THE D ATE OF THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH ASSESSMENT YEARS W ILL HAVE TO BE COMPUTED BY THE ASSESSING OFFICERS AS A FRESH EXERCISE. IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 3 (III) THE ASSESSING OFFICER WILL EXERCISE NORMAL AS SESSMENT POWERS IN RESPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT ASSESSMENT Y EAR IN WHICH THE SEARCH TAKES PLACE. THE ASSESSING OFFICER HAS THE POWER TO ASSESS AND REASSESS THE TOTAL INCOME OF THE AFOREMENTIONED SIX YEARS IN SEPARATE ASSES SMENT ORDERS FOR EACH OF THE SIX YEARS. IN OTHER WORDS, T HERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX ASSE SSMENT YEARS IN WHICH BOTH THE DISCLOSED AND THE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX. (IV) ALTHOUGH SECTION 153A DOES NOT SAY THAT ADDITI ONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SE ARCH, OR OTHER POST-SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE ASSESSIN G OFFICER WHICH CAN BE RELATED TO THE EVIDENCE FOUND, IT DOES NOT MEAN THA T THE ASSESSMENT CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WI TH THE SEIZED MATERIAL. OBVIOUSLY, AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF THE SEIZED MATERIAL. (V) IN THE ABSENCE OF ANY INCRIMINATING MATERIAL, T HE COMPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSMENT OR REASSESS MENT CAN BE MADE. THE WORD ASSESS IN SECTION 153A IS RELATABLE TO ABATED PROCEEDING S (I.E., THOSE PENDING ON THE DATE OF SEARCH) AND THE WORD REASSESS TO THE COMPLETED ASSESSMENT PROCEEDINGS. (VI) COMPLETED ASSESSMENTS CAN BE INTERFERED WITH B Y THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT UNDER SECTION 153A ONLY ON TH E BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OF REQUISITION OF DOCUMENTS OR UNDISCLOSED INCOME OR PROPERTY DISCOVE RED IN THE COURSE OF SEARCH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCL OSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. CONCLUSION THE PRESENT APPEALS CONCERN THE ASSESSMENT YEARS 20 02-03, 2005-06 AND 2006-07. ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS ALRE ADY STOOD COMPLETED. SINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURING THE SEA RCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALREADY ASSESSED. THE QUEST ION FRAMED BY THE CURT IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE THE APPEALS ARE, ACCORDINGLY, DISMISSED BUT IN THE CIRCUMSTANCES NO ORDERS AS TO COSTS. LEARNED CIT-DR VEHEMENTLY ARGUES AT THIS STAGE THAT HON'BLE ALLAHABAD HIGH COURT IN CIT VS. KESARWAN ZARDA BHANDAR IN TAX APPE AL ITA NO. 270 OF 2014, ANIL KUMAR BHATIA VS. CIT 24 TAXMANN.COM 98, CIT VS . ST FRANC CLAY D ECOR TILES (2016) 70 TAXMANN.COM 234 (KER) HOLDS TH AT A SECTION 153A/SEC. 153C ASSESSMENT IS MEANT TO ASSESS THE EN TIRE INCOME THAN THAT BASED ONLY ON ALLEGED INCRIMINATING EVIDENCE FOUND OR SEIZED DURING THE COURSE OF SEARCH. THERE IS HARDLY ANY ISSUE THAT HO N'BLE JURISDICTIONAL HIGH COURT HAS NOT ADJUDICATED THE INSTANT LEGAL ISSUE T ILL DATE. THIS TRIBUNALS DECISION IN VODAFONE ESSAR GUJARAT LTD. VS. ACIT ITA NO. 386/AHD/2011 DECIDED ON 07.07.2015 HOLDS THAT THE ISSUE IN SUCH A BACKDROP OF CONFLICTING IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 4 JUDICIAL PRECEDENTS DESERVES TO BE DECIDED IN THE T AXPAYERS FAVOUR AS FOLLOWS:- 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE CIT(A) HAS ERRED IN UPHOLDING THE TAX LIABILITY OF RS 6,00,99,245 (EXCLUDING INTEREST UNDER SECTION 201(1A) OF THE AC T DETERMINED BY THE ASSISTANT COMMISSIONER OF INCOME TAX TDS BY TREATI NG THE APPELLANT AS AN ASSESSEE IN DEFAULT IN RESPECT OF NON DEDUCTION OF TAX AT SOURCE ON TRADE DISCOUNT OF RS 51,67,60,486 GRANTED TO PREPAID DIST RIBUTORS BY HOLDING THE SAME AS COMMISSION AND HENCE LIABLE FOR DEDUCTION O F TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194H OF THE ACT. 3. THE ASSESSEE, ENGAGED IN THE BUSINESS OF PROVIDI NG MOBILE TELEPHONE SERVICES, WAS SUBJECTED TO A SURVEY ON ITS BUSINESS PREMISES ON 26TH AUGUST 2008. DURING THE COURSE OF THIS SURVEY, IT WAS NOTED THAT THE ASSESS EE SELLS PRE-PAID VOUCHERS, OF VARIOUS FACE VALUE, TO ITS DISTRIBUTORS, AT A RATE LOWER THAN ITS FACE VALUE. IT WAS ALSO NOTED THAT THE THE DIFFERENCE (BETWEEN THE FACE VA LUE AND THE PRICE AT WHICH IS SOLD) IS NOTHING BUT COMMISSION ON WHICH NO TAX HAS BEEN DEDUCTED. IT WAS ALSO NOTED THE RELATIONSHIP BETWEEN THE .... (APPELLANT) AND THE DISTRIBUTOR WAS ON PRINCIPAL AND AGENT BASIS, AND, THEREFORE, ANY AMOUNT PAID TO THE AGENT BY WAY OF THE MARGIN IS COMMISSION. IT WAS ALSO NOTED THAT UNDER SECTION 1 94H, A PERSON MAKING PAYMENT FOR COMMISSION HAS THE OBLIGATION TO DEDUCT TAX AT SOURCE, BUT THE ASSESSEE HAS NOT COMPLIED WITH THIS STATUTORY OBLIGATION. IT WAS IN THIS BACKDROP THAT THE ASSESSEE WAS THAT THE PROCEEDINGS FOR TREATING THE ASSESSEE AS A N ASSESSEE IN DEFAULT, IN THIS RESPECT, WERE INITIATED AGAINST THE ASSESSEE. DURIN G THE COURSE OF THESE PROCEEDINGS, IT WAS EXPLAINED BY THE ASSESSEE THAT THERE IS NO P RINCIPAL AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND ITS DISTRIBUTORS, AND THAT THE ASS ESSEE SELLS THE PRODUCTS, ON THE OUTRIGHT SALE BASIS THOUGH AT A DISCOUNTED PRICE, T O ITS DISTRIBUTORS WHO, IN TURN, ARE FREE TO SELL THE SAME TO THE RETAILER AT SUCH PRICE , AS THEY MAY DEEM EXPEDIENT, WITHIN THE MRP. IT WAS ALSO EXPLAINED THAT THE DISTRIBUTOR S ARE MAKING ADVANCE PAYMENTS TO THE ASSESSEE, THAT THE DISTRIBUTORS ARE FREE TO DEC IDE THEIR TERMS AND CONDITIONS OF DOING BUSINESS WITH THE RETAILERS, AND THAT, AS PER SPECIFIC PROVISIONS IN THE AGREEMENT ENTERED INTO BY THE ASSESSEE AND THE DIST RIBUTORS, THE ASSESSEE IS NOT RESPONSIBLE FOR CREATED BY THE DISTRIBUTOR. THE REL ATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS, IT WAS THUS HIGHLIGHTED, IS ON PR INCIPAL TO PRINCIPAL BASIS. IT WAS SUBMITTED THAT SINCE DISTRIBUTOR DOES NOT RENDER AN Y SERVICE TO THE ASSESSEE, THE DIFFERENCE BETWEEN THE SALE PRICE AND THE MRP CANNO T BE TREATED AS DISCOUNT FOR THE PURPOSES OF SECTION 194H. CERTAIN JUDICIAL PRECEDEN TS WERE ALSO CITED BY THE ASSESSEE TO SUPPORT HIS CASE BUT, FOR THE REASONS W E WILL SET OUT IN A SHORT WHILE, IT IS NOT REALLY NECESSARY TO GO INTO THAT ASPECT OF THE MATTER. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE PROCEE DED TO REJECT THESE SUBMISSIONS AND HOLD THE ASSESSEE AS AN ASSESSEE IN DEFAULT, FOR NOT DEDUCTING TAX AT SOURCE FROM COMMISSION ON SALE OF PREPAID AIRTIM E, UNDER SECTION 201 OF THE INCOME TAX ACT, 1961. WHILE DOING SO, THE ASSESSING OFFICER OBSERVED AS FOLLOWS: THE ABOVE SUBMISSION OF THE ASSESSEE HAVE BEEN DULY CONSIDERED. HOWEVER, THE SAME IS NOT ACCEPTABLE ON THE FOLLOWING GROUNDS :- BEFORE MAKING ANY CONCLUSION THAT DIFFERENCE BETWEE N MRP AND SALE PRICE TO DISTRIBUTOR IS COMMISSION OR RIOT IT IS NECESSARY T O ASCERTAIN THAT WHETHER THE NATURE OF BUSINESS ENTERED INTO BETWEEN THE COMPANY AND DISTR IBUTOR ARE SALE AND PURCHASE OF GOODS OR PROVIDING SERVICE THROUGH VARIOUS DISTRIBU TORS/ AGENTS. THE HON'BLE HIGH COURTS OF KERALA WP NO. 29202/2001 IN THE CASE OF B PL MOBILE LTD. HELD THAT SIM CARD AS WELL AS RECHARGE COMPANY DELIVERED BY BPL M OBILE CELLULAR LTD IS TO BE IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 5 CONSIDERED AS TRANSACTION BETWEEN SERVICE PROVIDER & DISTRIBUTORS AND THE SAID TRANSACTION IS ONLY THAT OF SERVICE AND NOT SALE AN D PURCHASE OF GOODS. IN THE PRESENT CASE THE DEDUCTOR IS DOING EXACTLY T HE SAME BUSINESS. THEREFORE, IT IS NOT POSSIBLE TO HOLD THAT SIM CARD AND RECHARGE COU PON DELIVERED BY THE COMPANY TO DISTRIBUTORS ARE GOODS BECAUSE THE RELATIONSHIP BET WEEN THE COMPANY AND DISTRIBUTORS IS TO PROVIDE SERVICE TO CUSTOMERS THR OUGH DISTRIBUTORS. IT IS QUITE APPARENT THAT SERVICE CAN ONLY BE RENDERED AND NOT SOLD. THI S IS BECAUSE THE COMPANY HAS RIGHT TO OPERATE OF CELLULAR TELEPHONE SERVICE PROV IDED AND ULTIMATE SERVICE IS PROVIDED BY THE COMPANY TO EVERY CUSTOMERS. THE DIS TRIBUTORS ARE ACTING AND LINK IN THE CHAIN OF PROVIDING MOBILE SERVICE. ULTIMATE SER VICE ARE PROVIDED BY COMPANY TO THE PUBLIC AT LARGE. THEREFORE, ESSENCE OF SERVICE RENDERED BY THE DISTRIBUTORS ARE NOT SALE OF ANY PRODUCT OR GOODS. SINCE IT IS NOT POSSI BLE FOR THE COMPANY TO PROVIDE ALL THESE SERVICES DIRECTLY TO THE CUSTOMERS, THE DEDUC TOR HAS MADE OUT BUSINESS SOLUTION TO APPOINT DISTRIBUTORS TO TAKE CARE OF OP ERATIONAL ACTIVITY OF THE COMPANY TO PROVIDE SERVICE AND THE DISTRIBUTOR IS IMPORTANT LI NK IN THAT CHAIN OF SERVICE. MOREOVER, THE ESSENCE OF PREPAID CARD AND POSTPAID CARD, SIM CARD ETC ARE SAME TO PROVIDE SERVICE TO CUSTOMERS AND DIFFERENCE IS OF BILLING. IN PREPAID CARD AMOUNT ARE RECEIVED IN ADVANCE WHER EAS, IN POSTPAID CARD BILLS ARE BEING RAISED AFTER PROVIDING THE SERVICE. THEREFORE , IF POSTPAID CARD IS SUBJECT TO SECTION 194H, IT IS QUITE UNLIKELY THAT PREPAID SYS TEM WOULD BE OUTSIDE THE PURVIEW OF SECTION 194H. THIS VIEW HAS ALSO BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S IDEA CELLULAR LIMITED IN APPEAL NO. 2010-TIOL-139-HC-DEL-IT IN WHICH IT IS HELD THAT IT IS A CASE OF PRINCIPAL AND AGENT RELATIONSHIP AND THE COMMISSION OFFERED IN FORM OF DISCOUNT ON PRE PAID SIM CARDS IS LIABLE TO TDS U/S 194H OF THE IT ACT. IN VIEW OF THE ABOVE FACTS AND CONSIDERING THE FIND INGS IN THE CASE OF M/S. BPL MOBILE CELLULAR LIMITED (WP NO. 29202 OF 2005), AND ALSO IN VIEW OF FINDING OF DELHI HIGH COURT, THE ESSENCE OF THE CONTRACT BETWEEN COM PANY AND DISTRIBUTORS IS THAT OF SERVICE AND MARGIN BETWEEN MRP AND SALE PRICE IS NO THING BUT COMMISSION. THIS VIEW HAS ALSO BEEN UPHELD BY THE HON'BLE ITAT, COCH IN IN ITA NO. 106 TO 113/COCH/2007 IN THE CASE OF VODAFONE ESSAR CELLULA R LIMITED VS. ACIT, COCHIN (IN THE CASE OF DEDUCTOR ITSELF). THE HON'BLE ITAT HAS TAKEN INTO CONSIDERATION ALL RELEVANT FACTS AND THE DECISION CITED BY THE COMPAN Y AND HELD THAT THERE IS NO RELATIONSHIP OF PRINCIPAL TO PRINCIPAL AND DIFFEREN CE OF PRICE -IS NOTHING BUT COMMISSION. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED VIEW T HAT DEDUCTOR IS LIABLE TO DEDUCT THE TAX AT SOURCE U/S.194H ON AMOUNT OF DIFFERENCE BETW EEN MRP AND SALE PRICE PAID BY THE DISTRIBUTORS. THE SUCH DIFFERENCE IS WORKS OUT TO RS.51,67,60,486/-. THEREFORE, THE DEDUCTOR IS TREATED AS DEEMED DEFAULTER U/S,201(1) OF THE I.T. ACT TO THE ABOVE EXTENT AND ALSO LIABLE TO CHARGE INTEREST U/S.201(1A) OF T HE I.T. ACT. 4. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT MUCH SUCCESS. LEARNED CIT(A) EXTENSIVELY REPRODUCED FROM THE WRITTEN SUBMISSIONS FILED BY TH E ASSESSEE AND THEN PROCEEDED TO DISMISS THE GRIEVANCE OF THE ASSESSEE ON THE BAS IS OF THE FOLLOWING REASONING: 2.09 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AS ADVANCED BY THE AR CAREFULLY AND I HAVE ALSO GONE THROUGH THE VARIO US DECISIONS CITED BY THE AR. THE DISPUTE IN THIS GROUND IS WHETHER DISCOUNT OFFERED TO DISTRIBUTORS BY THE ASSESSEE CAN BE CONSIDERED TO BE COMMISSION SO AS TO SUBJECT TO TDS UNDER PROVISIONS OF SECTION 194H OF THE ACT. IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 6 IN MY VIEW, THE CASE OF THE APPELLANT IS SQUARELY C OVERED BY THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR CEL LULAR LIMITED REPORTED AT 235 ITR 393. THE KERALA HIGH COURT HAS, IN PARAGRAPH 6, CAT EGORICALLY HELD AS UNDER: ..BECAUSE WE HAVE CLEARLY FOUND THAT THE DISCOUNT PAID TO THE DISTRIBUTORS IS FOR SERVICE RENDERED BY THEM AND THE SAME AMOUNT S TO ' COMMISSION ' WITHIN THE MEANING OF THAT TERM CONTAINED UNDER EXP LN.(I) TO S. 194H OF THE ACT. THE IMPUGNED ORDERS ISSUED UNDER SS. 201(1) AN D 201(1A) OF THE ACT ARE ONLY CONSEQUENTIAL ORDERS PASSED ON ACCOUNT OF DEFA ULT COMMITTED BY THE ASSESSEE UNDER S. 194H AND, THEREFORE, THOSE ORDERS WERE RIGHTLY UPHELD BY THE TRIBUNAL. WE, THEREFORE, DISMISS ALL THE APPEAL S FILED BY THE ASSESSEE. THUS, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF HON'BLE KERALA HIGH COURT (IN THE CASE OF THE GROUP COMPANY OF THE APPELLANT), I AM O F THE VIEW THAT DISCOUNT OFFERED BY THE APPELLANT TO ITS PREPAID DISTRIBUTORS IS IN THE NATURE OF COMMISSION WITHIN MEANINGS OF EXPLANATION (I) TO SECTION 194H OF THE ACT. I, THEREFORE, HOLD THAT THE LEARNED AO HAS RIGHTLY HELD THAT THE APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 194H OF THE ACT ON COMMISSION GIVEN B Y THE ASSESSEE. 5. THE ASSESSEE IS NOT SATISFIED WITH THE STAND SO TAKEN BY THE LEARNED CIT(A) AS WELL, AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 7. WE FIND THAT WHAT IS SOLD BY THE ASSESSEE IS AIR TIME, WHETHER THROUGH THE PHYSICAL VOUCHERS OR THROUGH THE ELECTRONIC TRANSFER OF REFI LL/RECHARGE VALUE, TO ITS DISTRIBUTORS. IT IS THIS TRANSACTION WHICH IS SUBJECT MATTER OF D IFFERENT PERCEPTIONS, SO FAR AS TAX WITHHOLDING OBLIGATIONS OF THE SELLER ARE CONFERRED , OF THE PARTIES BEFORE US. AS A MATTER OF FACT, THE ASSESSMENT ORDER ITSELF STATES THAT THE ASSESSEE HAS SOLD THE PRE- PAID VOUCHERS, OF VARIOUS FACE VALUE, TO ITS DISTRI BUTORS, AT A RATE LOWER THAN ITS FACE VALUE , AND THAT THE DIFFERENCE (BETWEEN THE FACE VALUE AND THE PRIC E AT WHICH IS SOLD) IS NOTHING BUT COMMISSION ON WHICH N O TAX HAS BEEN DEDUCTED. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER THE PROVISIONS OF SECTION 194H WILL COME INTO PLAY IN R ESPECT OF THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE AIRTIME IS THUS SOLD TO THE DISTRIBUTORS AND ITS RECOMMENDED RETAIL PRICE TO THE END CONSUMERS. 8. THIS ISSUE IS NO LONGER RES INTEGRA. AS THE SAME BUSINESS MODEL, WITH NO OR PERIPHERAL VARIATIONS, HAS BEEN FOLLOWED BY ALMOST ALL THE OPERATORS IN THE MOBILE TELECOMMUNICATION INDUSTRY, THIS ISSUE HAS BEEN SUB JECT MATTER BEFORE VARIOUS FORUMS, AND MORE IMPORTANTLY, BEFORE VARIOUS HONBL E HIGH COURTS. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ABOVE ISSUE I N APPEAL IS SUBJECT MATTER OF DIFFERENCE OF OPINION BY VARIOUS HONBLE NON-JURISD ICTIONAL HIGH COURTS AND THAT WE DO NOT HAVE THE BENEFIT OF GUIDANCE BY HONBLE JURISDI CTIONAL HIGH COURT. 9. THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE , BY HONBLE KARNATAKA HIGH COURTS COMMON JUDGEMENT IN THE CASES OF BHARTI AIR TEL LIMITED, TATA TELESERVICES LIMITED AND VOADFONE SOUTH LIMITED, REPORTED AS BHA RTI AIRTEL LIMITED VS. DCIT [(2015) 372 ITR 33 (KAR)] WHEREIN THEIR LORDSHIPS H AVE, INTER ALIA, OBSERVED AS FOLLOWS: 62. IN THE APPEALS BEFORE US, THE ASSESSEES SELL P REPAID CARDS/VOUCHERS TO THE DISTRIBUTORS. AT THE TIME OF THE ASSESSEE SELLI NG THESE PRE-PAID CARDS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE DISTRIBUTOR D OES NOT EARN ANY INCOME. IN IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 7 FACT, RATHER THAN EARNING INCOME, DISTRIBUTORS INCU R EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. ONLY AFTER THE RESALE OF THOSE PREPAID CARDS, DISTRIBUTORS WOULD DERIVE INCOME. AT THE TIME OF TH E ASSESSEE SELLING THESE PRE-PAID CARDS, HE IS NOT IN POSSESSION OF ANY INCO ME BELONGING TO THE DISTRIBUTOR. THEREFORE, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT THE POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. THE CONDITION PRECEDENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABL E BY THE ASSESSEE TO THE DISTRIBUTOR. IN OTHER WORDS THE INCOME ACCRUED OR B ELONGING TO THE DISTRIBUTOR SHOULD BE IN THE HANDS OF THE ASSESSEES. THEN OUT O F THAT INCOME, THE ASSESSEE HAS TO DEDUCT INCOME TAX THEREON AT THE RA TE OF 10% AND THEN PAY THE REMAINING PORTION OF THE INCOME TO THE DISTRIBU TOR. IN THIS CONTEXT IT IS PERTINENT TO MENTION THAT THE ASSESSEE SELLS SIM CA RDS TO THE DISTRIBUTOR AND ALLOWS A DISCOUNT OF 21 OF RS.20/-, THAT RS.20/- DO ES NOT REPRESENT THE INCOME AT THE HANDS OF THE DISTRIBUTOR BECAUSE THE DISTRIB UTOR IN TURN MAY SELL THE SIM CARDS TO A SUB DISTRIBUTOR WHO IN TURN MAY SELL THE SIM CARDS TO THE RETAILER AND IT IS THE RETAILER WHO SELLS IT TO THE CUSTOMER . THE PROFIT 86 EARNED BY THE DISTRIBUTOR, SUB-DISTRIBUTOR AND THE RETAILER WOULD BE DEPENDENT ON THE AGREEMENT BETWEEN THEM AND ALL OF THEM HAVE TO SHAR E RS.20/- WHICH IS ALLOWED AS DISCOUNT BY THE ASSESSEE TO THE DISTRIBU TOR. THERE IS NO RELATIONSHIP BETWEEN THE ASSESSEE AND THE SUB-DISTR IBUTOR AS WELL AS THE RETAILER. HOWEVER, UNDER THE TERMS OF THE AGREEMENT , SEVERAL OBLIGATIONS FLOW IN SO FAR AS THE SERVICES TO BE RENDERED BY THE ASS ESSEE TO THE CUSTOMER IS CONCERNED AND, THEREFORE, IT CANNOT BE SAID THAT TH ERE EXISTS A RELATIONSHIP OF PRINCIPAL AND AGENT. IN THE FACTS OF THE CASE, WE A RE SATISFIED THAT, IT IS A SALE OF RIGHT TO SERVICE. THE RELATIONSHIP BETWEEN THE A SSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL TO PRINCIPAL AND, THEREFORE, W HEN THE ASSESSEE SELLS THE SIM CARDS TO THE DISTRIBUTOR, HE IS NOT PAYING ANY COMMISSION; BY SUCH SALE NO INCOME ACCRUES IN THE HANDS OF THE DISTRIBUTOR AND HE IS NOT UNDER ANY OBLIGATION TO PAY ANY TAX AS NO INCOME IS GENERATED IN HIS HANDS. THE DEDUCTION OF INCOME TAX AT SOURCE BEING A VICARIOUS RESPONSIBILITY, WHEN THERE IS NO PRIMARY RESPONSIBILITY, THE ASSESSEE HAS NO O BLIGATION TO DEDUCT TDS. ONCE IT IS HELD THAT THE RIGHT TO SERVICE CAN BE SO LD THEN THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR WOULD BE T HAT OF PRINCIPAL AND PRINCIPAL AND NOT PRINCIPAL AND AGENT. THE TERMS OF THE AGREEMENT SET OUT SUPRA IN UNMISTAKABLE TERMS DEMONSTRATE THAT THE RE LATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS NOT THAT OF PRINCIP AL AND AGENT BUT IT IS THAT OF PRINCIPAL TO PRINCIPAL. 63. IT WAS CONTENDED BY THE REVENUE THAT, IN THE EV ENT OF THE ASSESSEE DEDUCTING THE AMOUNT AND PAYING INTO THE DEPARTMENT , ULTIMATELY IF THE DEALER IS NOT LIABLE TO TAX IT IS ALWAYS OPEN TO HIM TO SE EK FOR REFUND OF THE TAX AND, THEREFORE, IT CANNOT BE SAID THAT SECTION 194H IS N OT ATTRACTED TO THE CASE ON HAND. AS STATED EARLIER, ON A PROPER CONSTRUCTION O F SECTION 194H AND KEEPING IN MIND THE OBJECT WITH WHICH CHAPTER XVII IS INTRO DUCED, THE PERSON PAYING SHOULD BE IN POSSESSION OF AN INCOME WHICH IS CHARG EABLE TO TAX UNDER THE ACT AND WHICH BELONGS TO THE PAYEE. A STATUTORY OBL IGATION IS CAST ON THE PAYER TO DEDUCT THE TAX AT SOURCE AND REMIT THE SAM E TO THE DEPARTMENT. IF THE PAYEE IS NOT IN POSSESSION OF THE NET INCOME WHICH IS CHARGEABLE TO TAX, THE QUESTION OF PAYER DEDUCTING ANY TAX DOES NOT ARISE. AS HELD BY THE APEX COURT IN BHAVANI COTTON MILLS LIMITEDS CASE, IF A PERSON IS NOT LIABLE FOR PAYMENT OF TAX AT ALL, AT ANY TIME, THE COLLECTION OF TAX FROM HIM, WITH A POSSIBLE CONTINGENCY OF REFUND AT A LATER STAGE WIL L NOT MAKE THE ORIGINAL LEVY VALID. IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 8 64. IN THE CASE OF VODAFONE, IT IS NECESSARY TO LOO K INTO THE ACCOUNTS BEFORE GRANTING ANY RELIEF TO THEM AS SET OUT ABOVE. THEY HAVE ACCOUNTED THE ENTIRE PRICE OF THE PREPAID CARD AT RS.100/- IN THEIR BOOK S OF ACCOUNTS AND SHOWING THE DISCOUNT OF RS.20/- TO THE DEALER. ONLY IF THEY ARE SHOWING RS.80/- AS THE SALE PRICE AND NOT REFLECTING IN THEIR ACCOUNTS A C REDIT OF RS.20/- TO THE DISTRIBUTOR, THEN THERE IS NO LIABILITY TO DEDUCT T AX UNDER SECTION 194H OF THE ACT. THIS EXERCISE HAS TO BE DONE BY THE ASSESSING AUTHORITY BEFORE GRANTING ANY RELIEF. THE SAME EXERCISE CAN BE DONE EVEN IN R ESPECT OF OTHER ASSESSEES ALSO. 65. IN THE LIGHT OF THE AFORESAID DISCUSSIONS, WE A RE OF THE VIEW THAT THE ORDER PASSED BY THE AUTHORITIES HOLDING THAT SECTION 194H OF THE ACT IS ATTRACTED TO THE FACTS OF THE CASE IS UNSUSTAINABLE. 10. AS WE TAKE NOTE OF THE VIEWS SO EXPRESSED BY HO NBLE KARNATAKA HIGH COURT, WE MAY ALSO NOTE THAT THIS ISSUE HAS BEEN DECIDED AGAI NST THE ASSESSEE BY, AMONGST OTHERS, HONBLE KERALA HIGH COURT, IN THE CASE OF V ODAFONE ESSAR CELLULAR LTD VS. ACIT [(2010)332 ITR 255 (KER)]. THE SAME APPROACH H AS BEEN ADOPTED BY SOME VARIOUS OTHER HONBLE NON JURISDICTIONAL HIGH COURT S AS WELL, SUCH AS IN THE CASES OF BHARTI CELLULAR LIMITED VS ACIT [(2013) 354 ITR 507 (CAL)] AND CIT VS IDEA CELLULAR LIMITED [(2010) 325 ITR 148 (DEL)]. IN THE CASE OF VODAFONE ESSAR CELLULAR LTD (SUPRA) THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS :- 4. THE MAIN QUESTION TO BE CONSIDERED IS WHETHER SE CTION 194H IS APPLICABLE FOR THE 'DISCOUNT' GIVEN BY THE ASSESSEE TO THE DIS TRIBUTORS IN THE COURSE OF SELLING SIM CARDS AND RECHARGE COUPONS UNDER PREPAI D SCHEME AGAINST ADVANCE PAYMENT RECEIVED FROM THE DISTRIBUTORS. WE HAVE TO NECESSARILY EXAMINE THIS CONTENTION WITH REFERENCE TO THE STATU TORY PROVISIONS NAMELY, SECTION 194H . WHAT IS CLEAR FROM EXPLANATION (I) OF THE DEFINITIO N CLAUSE IS THAT COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEI VABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE SERVICES RENDERED. WE HAVE ALREADY TAKEN NOTE OF OUR FINDING IN BPL CELLULAR'S CASE (SUPRA) ABOVEREFERRED THAT A CUSTOMER CAN HAVE ACCE SS TO MOBILE PHONE SERVICE ONLY BY INSERTING SIM CARD IN HIS HAND SET (MOBILE PHONE) AND ON ASSESSEE ACTIVATING IT. BESIDES GETTING CONNECTION TO THE MOBILE NETWORK, THE SIM CARD HAS NO VALUE OR USE FOR THE SUBSCRIBER. IN OTHER WORDS, SIM CARD IS WHAT LINKS THE MOBILE SUBSCRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SUPPLY OF SIM CARD, WHETHER IT IS TREATED AS SALE BY THE A SSESSEE OR NOT, IS ONLY FOR THE PURPOSE OF RENDERING CONTINUED SERVICES BY THE ASSESSEE TO THE SUBSCRIBER OF THE MOBILE PHONE. BESIDES THE PURPOSE OF RETAINING A MOBILE PHONE CON NECTION WITH A SERVICE PROVIDER, THE SUBSCRIBER HAS NO USE OR VALUE FOR TH E SIM CARD PURCHASED BY HIM FROM ASSESSEE'S DISTRIBUTOR. THE POSITION IS SA ME SO FAR AS RECHARGE COUPONS OR E TOPUPS ARE CONCERNED WHICH ARE ONLY AI R TIME CHARGES COLLECTED FROM THE SUBSCRIBERS IN ADVANCE. WE HAVE TO NECESSA RILY HOLD THAT OUR FINDINGS BASED ON THE OBSERVATIONS OF THE SUPREME C OURT IN BSNL'S CASE (SUPRA) IN THE CONTEXT OF SALES TAX IN THE CASE OF BPL CELLULAR LTD. (SUPRA) SQUARELY APPLY TO THE ASSESSEE WHICH IS NOTHING BUT THE SUCCESSOR COMPANY WHICH HAS TAKEN OVER THE BUSINESS OF BPL CELLULAR L TD. IN KERALA. SO MUCH SO, THERE IS NO SALE OF ANY GOODS INVOLVED AS CLAIM ED BY THE ASSESSEE AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS IS ONLY FOR RENDERING SER VICES TO ULTIMATE SUBSCRIBERS AND THE DISTRIBUTOR IS ONLY THE MIDDLEM AN ARRANGING CUSTOMERS OR SUBSCRIBERS FOR THE ASSESSEE. THE TERMS OF DISTRIBU TION AGREEMENT CLEARLY IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 9 INDICATE THAT IT IS FOR THE DISTRIBUTOR TO ENROLL T HE SUBSCRIBERS WITH PROPER IDENTIFICATION AND DOCUMENTATION WHICH RESPONSIBILI TY IS ENTRUSTED BY THE ASSESSEE ON THE DISTRIBUTORS UNDER THE AGREEMENT. I T IS PERTINENT TO NOTE THAT BESIDES THE DISCOUNT GIVEN AT THE TIME OF SUPPLY OF SIM CARDS AND RECHARGE COUPONS, THE ASSESSEE IS NOT PAYING ANY AMOUNT TO T HE DISTRIBUTORS FOR THE SERVICES RENDERED BY THEM LIKE GETTING THE SUBSCRIB ERS IDENTIFIED, DOING THE DOCUMENTATION WORK AND ENROLLING THEM AS MOBILE SUB SCRIBERS TO THE SERVICE PROVIDER NAMELY, THE ASSESSEE. EVEN THOUGH THE ASSE SSEE HAS CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTORS IS PRINCIPAL TO PRINCIPAL BASIS, WE ARE UNABLE TO ACCEPT THIS CONTE NTION BECAUSE THE ROLE OF THE DISTRIBUTORS AS EXPLAINED ABOVE IS THAT OF A MI DDLEMAN BETWEEN THE SERVICE PROVIDER NAMELY, THE ASSESSEE, AND THE CONS UMERS. THE ESSENCE OF A CONTRACT OF AGENCY IS THE AGENT'S AUTHORITY TO COMM IT THE PRINCIPAL. IN THIS CASE THE DISTRIBUTORS ACTUALLY CANVASS BUSINESS FOR THE ASSESSEE AND ONLY THROUGH DISTRIBUTORS AND RETAILERS APPOINTED BY THEM ASSESS EE GETS SUBSCRIBERS FOR THE MOBILE SERVICE. ASSESSEE RENDERS SERVICES TO THE SU BSCRIBERS BASED ON CONTRACTS ENTERED INTO BETWEEN DISTRIBUTORS AND SUB SCRIBERS. WE HAVE ALREADY NOTICED THAT THE DISTRIBUTOR IS ONLY RENDERING SERV ICES TO THE ASSESSEE AND THE DISTRIBUTOR COMMITS THE ASSESSEE TO THE SUBSCRIBERS TO WHOM ASSESSEE IS ACCOUNTABLE UNDER THE SERVICE CONTRACT WHICH IS THE SUBSCRIBER CONNECTION ARRANGED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE T ERMINOLOGY USED BY THE ASSESSEE FOR THE PAYMENT TO THE DISTRIBUTORS, IN OU R VIEW, IS IMMATERIAL AND IN SUBSTANCE THE DISCOUNT GIVEN AT THE TIME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY THE ASSESSEE TO THE DISTRIBUTORS IS A PA YMENT RECEIVED OR RECEIVABLE BY THE DISTRIBUTOR FOR THE SERVICES TO B E RENDERED TO THE ASSESSEE AND SO MUCH SO, IT FALLS WITHIN THE DEFINITION OF C OMMISSION OR BROKERAGE UNDER EXPLANATION (I) OF SECTION 194H OF THE ACT. THE TEST TO BE APPL IED TO FIND OUT WHETHER EXPLANATION (I) OF SECTION 194H IS APPLICABLE OR NO T IS TO SEE WHETHER ASSESSEE HAS MADE ANY PAYMENT AND IF SO, WHETHER IT IS FOR SERVICES RENDERED BY THE PAYEE TO THE ASSESSEE. IN THIS CASE THERE CAN BE NO DISPUTE THAT DISCOUNT IS NOTHING BUT A MARGIN GIVEN BY THE ASSESSEE TO THE DISTRIBUTOR AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE CO UPONS AGAINST ADVANCE PAYMENT MADE BY THE DISTRIBUTOR. THE DISTRIBUTOR UN DOUBTEDLY CHARGES OVER AND ABOVE WHAT IS PAID TO THE ASSESSEE AND THE ONLY LIMITATION IS THAT THE DISTRIBUTOR CANNOT CHARGE ANYTHING MORE THAN THE MR P SHOWN IN THE PRODUCT NAMELY, SIM CARD OR RECHARGE COUPON. DISTRIBUTOR DI RECTLY OR INDIRECTLY GETS CUSTOMERS FOR THE ASSESSEE AND SIM CARDS ARE ONLY U SED FOR GIVING CONNECTION TO THE CUSTOMERS PROCURED BY THE DISTRIB UTOR FOR THE ASSESSEE. THE ASSESSEE IS ACCOUNTABLE TO THE SUBSCRIBERS FOR FAIL URE TO RENDER PROMPT SERVICES PURSUANT TO CONNECTIONS GIVEN BY THE DISTR IBUTOR FOR THE ASSESSEE. THEREFORE, THE DISTRIBUTOR ACTS ON BEHALF OF THE AS SESSEE FOR PROCURING AND RETAINING CUSTOMERS AND, THEREFORE, THE DISCOUNT GI VEN IS NOTHING BUT COMMISSION WITHIN THE MEANING OF EXPLANATION (I) ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 194H OF THE ACT. THE CONTENTION OF TH E ASSESSEE THAT DISCOUNT IS NOT PAID BY THE ASSESSEE TO THE DISTRIBUTOR BUT IS REDUCED FROM THE PRICE AND SO MUCH SO, DEDUCTION UNDER SECTION 194H IS NOT POS SIBLE ALSO DOES NOT APPLY BECAUSE IT WAS THE DUTY OF THE ASSESSEE TO DE DUCT TAX AT SOURCE AT THE TIME OF PASSING ON THE DISCOUNT BENEFIT TO THE DIST RIBUTORS AND THE ASSESSEE COULD HAVE GIVEN DISCOUNT NET OF THE TAX AMOUNT OR GIVEN FULL DISCOUNT AND RECOVERED TAX AMOUNT THEREON FROM THE DISTRIBUTORS TO REMIT THE SAME IN TERMS OF SECTION 194H OF THE ACT.' 11. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE ABOUT THE FUNDAMENTAL LEGAL POSITION THAT IN THE HIERARCHICAL JUDICIAL SYSTEM, THAT WE HAVE IN OUR COUNTRY, LOWER TIERS OF JUDICIAL HIERARCHY HAS TO RESPECTFULLY FOL LOW THE VIEWS EXPRESSED BY THE HIGHER IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 10 TIERS OF JUDICIAL HIERARCHY. IN THE CASE OF ACIT VS DUNLOP INDIA LIMITED [(1985) 154 ITR 172 (SC)], HONBLE SUPREME COURT HAS OBSERVED, QUOTING THE HOUSE OF LORDS, AS FOLLOWS: WE DESIRE TO ADD AND AS WAS SAID IN CASSELL & CO. L TD. VS. BROOME (1972) AC 1027 (HL), WE HOPE IT WILL NEVER BE NECESSARY FO R US TO SAY SO AGAIN THAT 'IN THE HIERARCHICAL SYSTEM OF COURTS' WHICH EXISTS IN OUR COUNTRY, ' IT IS NECESSARY FOR LOWER TIER ', INCLUDING THE HIGH COURT, ' TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS '. 'IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPE LLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBERS OF TH E JUDICIARY.... BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS ALLOWED TO HAVE THE LAST WORD AND THAT LAST WORD, ONCE SPOKEN, IS LOYALLY ACCEPTED' ( SEE OBSERVATIONS OF LORD HAILSHAM AND LORD DIPLOCK IN BROOME VS.CASSELL). TH E BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM 12. THE QUESTION WHETHER THE NON- JURISDICTIONAL HI GH COURT BINDS THE TRIBUNAL BENCHES OR NOT CAME UP FOR CONSIDERATION BEFORE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GODAVARIDEVI SARAF [(1978) 113 ITR 5 89 (BOM)]. THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEISIN OF THE QUESTIO N AS TO 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN VIEW OF DECISION IN THE CASE OF A.M. SALI MARICAR & ANR. VS. ITO & ANR. [(1973) 90 ITR 116 (MAD)] THE P ENALTY IMPOSED ON THE ASSESSEE UNDER S. 140A(3) WAS LEGAL ? THE SPECIFIC QUESTION BEFORE THEIR LORDSHIPS THUS WAS WHETHER THE TRIBUNAL, WHILE SITTING IN BOMBAY, WAS JUSTIFIED IN FOLLOWING THE MADRAS HIGH COURT DECISION. IT WAS IN THIS CONTEXT THAT HO NBLE BOMBAY HIGH COURT CONCLUDED AS FOLLOWS: 'IT SHOULD NOT BE OVERLOOKED THAT IT ACT IS AN ALL INDIA STATUTE, AND IF A TRIBUNAL IN MADRAS HAS TO PROCEED ON THE FOOTING THAT S. 140 A(3) WAS NON-EXISTENT, THE ORDER OF PENALTY UNDER THAT SECTION CANNOT BE IMPOS ED BY ANY AUTHORITY UNDER THE ACT. UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT, WHICH IS BINDING ON THE TRIBUNAL IN THE STATE OF BO MBAY (AS IT THEN WAS), IT HAS TO PROCEED ON THE FOOTING THAT THE LAW DECLARED BY THE HIGH COURT, THOUGH OF ANOTHER STATE, IS THE FINAL LAW OF THE LAND..AN AUTHORITY LIKE TRIBUNAL HAS TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION ON THAT ISSUE BY ANY OTHER HIGH COURT' 13. IN THE CASE OF CIT VS SHAH ELECTRICAL CORPORATI ON [(1994) 207 ITR 350 (GUJ)], VIDE JUDGMENT DATED 23RD JUNE 1993, THEIR LORDSHIPS HAD AN OCCASION TO CONSIDER THE AFORESAID VIEWS. IT WAS IN THIS CONTEXT THAT TH EIR LORDSHIPS HAVE OBSERVED AS FOLLOWS: 3. WHAT IS CONTENDED BY THE LEARNED ADVOCATE FOR TH E REVENUE IS THAT THE TRIBUNAL DECIDED THE APPEAL ON 26TH OCT., 1976. BY THAT TIME, THE ANDHRA PRADESH HIGH COURT HAD UPHELD THE VALIDITY OF S. 14 0A(3). HE DREW OUR ATTENTION TO THE JUDGMENT OF THE ANDHRA PRADESH HIG H COURT IN KASHIRAM VS. ITO (1977) 107 ITR 825 (AP). FROM THE REPORT, IT APPEARS THAT THE SAID JUDGMENT WAS DELIVERED ON 10TH DEC., 1975. THEREFORE, THE TRIBUNAL WAS NOT RIGHT IN PROCEEDING ON THE BASIS THAT ONLY THE MADRAS HIGH COURT JUDGMENT WAS IN THE FIELD AND, THEREFORE , IT WAS OPEN TO IT TO PROCEED ON THE BASIS THAT S. 140A(3) WAS NON-EXISTENT. HE ALSO SUBMITTED THAT FOR THAT REASON, THE TRIBUNAL WAS NOT RIGHT IN FOLLOWING THE JUDGMEN T OF THE BOMBAY HIGH COURT IN GODAVARIDEVIS CASE (SUPRA). 4. IN OUR OPINION, THE LEGAL POSITION IS CORRECTLY STATED BY THE PUNJAB & HARYANA HIGH COURT IN CIT VS. VED PRAKASH (1989) 77 CTR (P&H) 116 : IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 11 (1989) 178 ITR 332 (P&H) WHEN IT OBSERVED THAT 'UNL ESS AND UNTIL THE SUPREME COURT OR THE HIGH COURT OF THE STATE IN QUE STION, UNDER ART. 226 OF THE CONSTITUTION, DECLARES A PROVISION OF THE ACT T O BE ULTRA VIRES, IT MUST BE TAKEN TO BE CONSTITUTIONALLY VALID AND TREATED AS S UCH'. 5. IN OUR OPINION, THE TRIBUNAL OF ANOTHER STATE WO ULD BE JUSTIFIED IN PROCEEDING ON THE BASIS THAT THE PROVISION HAS CEAS ED TO EXIST BECAUSE IT HAS BEEN DECLARED AS ULTRA VIRES BY THE HIGH COURT ONLY WHEN THERE IS SOME MATERIAL TO SHOW THAT THE SAID DECISION HAS BEEN AC CEPTED BY THE DEPARTMENT. . (EMPHASIS BY UNDERLINING SUPPLIED BY US) 14. A LITTLE LATER, HOWEVER, WHILE DEALING WITH A M ATERIALLY SIMILAR SITUATION, IN THE CASE OF CIT VS MAGANLAL MOHANLAL PANCHAL (HUF) [(1994) 2 10 ITR 580 (GUJ)], VIDE JUDGMENT DATED 1ST SEPTEMBER 1994, THEIR LORDSHIPS HAVE HELD AS FOLLOWS: .. AT THE TIME WHEN THE TRIBUNAL DECIDED THE APPE AL, THAT WAS THE ONLY DECISION IN THE FIELD AND, THEREFORE, IN VIEW OF WH AT THE BOMBAY HIGH COURT HAS HELD IN CIT VS. SMT. GODAVARIDEVI SARAF (1978) 113 ITR 589 (BOM) AND CIT VS. SMT. NIRMALABAI K. DAREKAR (1990) 186 ITR 2 42 (BOM), THE TRIBUNAL WAS BOUND TO FOLLOW THE SAID JUDGMENT OF THE MADRAS HIGH COUR. IT, THEREFORE, CANNOT BE SAID THAT THE TRIBUNAL COMMITTED AN ERROR IN FOLLOWING THE SAID JUDGMENT OF THE MADRAS HIGH COURT. IN VIEW OF THE S AID DECISION OF THE MADRAS HIGH COURT, THE ONLY COURSE WHICH THE TRIBUNAL COUL D HAVE FOLLOWED WAS TO DIRECT THE ITO TO CONSIDER THE PARTIAL PARTITION ON THE MERITS AND PASS AN ORDER UNDER S. 171 FIRST AND THEN UNDER S. 143(3) OF THE ACT 15. IT IS CLEAR THAT, EXCEPT ON THE ISSUE OF LEGALI TY OF THE STATUTORY PROVISION ITSELF, THE DECISIONS OF EVEN THE NON-JURISDICTIONAL HIGH COURT S ARE BINDING ON THE LOWER TIERS OF JUDICIAL HIERARCHY SUCH AS THIS TRIBUNAL. AS WE HOL D SO, WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT NON JURISDICTIONAL HIGH COURTS ARE NOT BINDING ON THE SUBORDINATE COURTS AND TRIBUNALS, AS ARTICULATED BY HONBLE PUNJAB & H ARYANA HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH [(1989) 178 ITR 332 (P&H)] BUT THEN THAT WAS A CASE IN THE CONTEXT OF VALIDITY OF A STATUTORY PROVISION, I.E. 140A(3), COVERED BY THE RIDER TO THE GENERAL PROPOSITION. THIS EXCEPTION DOES NOT COME I NTO PLAY IN THE PRESENT CASE AS WE ARE NOT, AND WE CANNOT BE, DEALING WITH THE CONS TITUTIONAL VALIDITY OF A PROVISION. CLEARLY, THEREFORE, THE VIEWS EXPRESSED BY HONBLE NON JURISDICTIONAL HIGH COURT, IN THE ABSENCE OF A DIRECT DECISION ON THAT ISSUE BY T HE HONBLE JURISDICTIONAL HIGH COURT, DESERVE UTMOST RESPECT AND DEFERENCE. 16. THE DIFFICULTY, HOWEVER, ARISES IN THE CASE IN WHICH HONBLE NON JURISDICTIONAL HIGH COURTS HAVE EXPRESSED CONFLICTING VIEWS AND THE SUB ORDINATE COURTS AND TRIBUNALS DONOT HAVE THE BENEFIT OF GUIDANCE FROM HONBLE JUR ISDICTIONAL HIGH COURT. 17. IN OUR HUMBLE UNDERSTANDING OF THE LEGAL POSITI ON AND OF THE PROPRIETY, IT WILL BE WHOLLY INAPPROPRIATE FOR US TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMENT OVER TH E VIEWS OF THE HONBLE HIGH COURTS- SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC P RINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. OF COURSE, WHEN THE MATTER TRAVELS TO HONB LE JURISDICTIONAL HIGH COURT, THEIR LORDSHIPS, BEING UNFETTERED BY THE VIEWS OF A NON-J URISDICTIONAL HIGH COURT, CAN TAKE SUCH A CALL ON MERITS. THAT EXERCISE, AS WE UNDERST AND, SHOULD NOT BE CARRIED OUT BY US. IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 12 18. THE CHOICE OF WHICH OF HONBLE HIGH COURT TO FO LLOW MUST, THEREFORE, BE MADE ON SOME OBJECTIVE CRITERION. WE HAVE TO, WITH OUR HIGH EST RESPECT OF ALL THE HONBLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECIDING A S TO WHICH OF THE HONBLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDANCE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS L TD. [(1972) 88 ITR 192 (SC)]. HONBLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THA T 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED' ALTHOUGH THIS PRINCIPLE S O LAID DOWN WAS IN THE CONTEXT OF PENALTY, AND THEIR LORDSHIPS SPECIFICALLY STATED SO IN SO MANY WORDS, IT HAS BEEN CONSISTENTLY FOLLOWED FOR THE INTERPRETATION ABOUT THE STATUTORY PROVISIONS AS WELL. IN ANOTHER SUPREME COURT JUDGMENT, PETRON ENGG. CONSTR UCTION (P) LTD. & ANR. VS. CBDT & ORS. [(1989) 175 ITR 523 (SC)] THE ABOVE PRI NCIPLE OF LAW HAS BEEN REITERATED BY OBSERVING AS FOLLOWS: COUNSEL SUBMITS THAT WHEN TWO INTERPRETATIONS ARE POSSIBLE TO BE MADE, THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSES SEE SHOULD BE ADOPTED. IN SUPPORT OF THAT CONTENTION, LEARNED COUNSEL HAS PLA CED RELIANCE UPON A FEW DECISIONS OF THIS COURT IN CIT VS. MADHO PRASAD JAT IA (1976) 105 ITR 179 (SC); CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) AND CIT VS. KULU VALLEY TRANSPORT CO. P. LTD. (1970) 77 ITR 518 (SC) : THE ABOVE PRINCIPLE OF LAW IS WELL-ESTABLISHED AND THERE IS N O DOUBT ABOUT THAT. 19. HAVING NOTED THE LEGAL POSITION AS ABOVE, IT IS APPROPRIATE, FOR THE SAKE OF COMPLETENESS, TO NOTE THE EXCEPTION TO THIS GENERAL RULE AS WELL. HONBLE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONST RUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RESOLVING A MBIGUITIES IN FAVOUR OF TAX-PAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPTION, LAID DOWN IN LI TTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD. VS. DY. COMMR. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN I NDIA LTD. VS. CCE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, ' IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A TAXPAYER DOES NOT APPLY TO A PROVISION GIVING TAX-PAYER RELIEF IN CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABILITY '. THIS EXCEPTION HAS BEEN ALSO REITERATED BY HONB LE SUPREME COURT IN THE CASE OF OIL & NATURAL GAS COMM ISSION VS CIT (CIVIL APPEAL NO. 730 OF 2007, JUDGMENT DATED 1ST JULY 2015; REPORTED IN WWW.ITATONLINE.ORG). HOWEVER, IN THE PRESENT CASE, THIS EXCEPTION HAS NO APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAVOUR OF THE ASSESSEE DOES NOT ALSO A PPLY WHERE THE INTERPRETATION IN FAVOUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISION S UNCONSTITUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. VS. DADABHOYS NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD. AIR 1972 (SC) 614. THAT IS WHAT HONBLE JURISDICTIONAL HIGH COURT HAS ALSO HELD IN THE CASE OF SHAH ELECTRICAL CORPORATION (SUPRA). NONE O F THESE EXCEPTIONS, HOWEVER, ADMITTEDLY APPLY TO THE SITUATION THAT WE ARE DEALI NG WITH AT PRESENT. 20. THERE CAN BE NO DISPUTE ON THE PROPOSITION THAT IRRESPECTIVE OF WHETHER OR NOT THE JUDGMENTS OF HONBLE NON JURISDICTIONAL HIGH COURTS ARE BINDING ON US, THESE JUDGMENTS DESERVE UTMOST RESPECT WHICH IMPLIES THAT , AT THE MINIMUM, THESE JUDGMENTS ARE TO BE CONSIDERED REASONABLE INTERPRET ATIONS OF THE RELATED LEGAL AND FACTUAL SITUATION. VIEWED THUS, WHEN THERE IS A REA SONABLE INTERPRETATION OF A LEGAL AND FACTUAL SITUATION, WHICH IS FAVOURABLE TO THE A SSESSEE, SUCH AN INTERPRETATION IS TO BE ADOPTED BY US. IN OTHER WORDS, HONBLE NON JURIS DICTIONAL HIGH COURTS JUDGMENT IN FAVOUR OF THE ASSESSEE, IN THE LIGHT OF THIS LEGAL PRINCIPLE LAID DOWN BY HONBLE SUPREME COURT, IS TO BE PREFERRED OVER THE HONBLE NON JURISDICTIONAL HIGH COURT NOT FAVOURABLE TO THE ASSESSEE. IN OUR HUMBLE UNDERSTAN DING, IT IS ONLY ON THIS BASIS, WITHOUT SITTING IN VALUE JUDGMENT ON THE VIEWS EXPR ESSED BY A HIGHER TIER OF JUDICIAL IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 13 HIERARCHY, THAT THE CONFLICTING VIEWS OF HONBLE NO N JURISDICTIONAL HIGH COURTS CAN BE RESOLVED BY US IN A TRANSPARENT, OBJECTIVE AND PRED ICTABLE MANNER. 21. IT IS VERY TEMPTING TO BELIEVE, OR PRETEND TO B ELIEVE, THAT, IN THE ABSENCE OF DIRECT DECISION ON THE ISSUE BY THE HONBLE JURISDICTIONAL HIGH COURT, WE HAVE UNFETTERED DISCRETIONS IN EXERCISE OF OUR JUDICIAL POWERS BUT THEN SUCH AN APPROACH WILL NOT ONLY BE CONTRARY TO SETTLED LEGAL POSITION, AS SET OUT A BOVE, BUT ALSO, IN A WAY, AN EXERCISE IN IMPROPRIETY. 22. WE MAY ALSO MENTION THAT A SINGLE MEMBER BENCH OF THIS TRIBUNAL, IN THE CASE OF ITO VS BHARAT SANCHAR NIGAM LIMITED AND VICE VERSA ( ITA NO 170/HYD/2010 AND CO NO 10/HYD/10 ; ORDER DATED 5TH JUNE 2015) HAS REACHED THE SAME C ONCLUSION BUT THE REASONING ADOPTED, FOR FOLLOWING HONBLE KARNAT AKA HIGH COURTS JUDGMENT IN THE CASE OF BHARTI AIRTEL LIMITED (SUPRA), WAS STATED T O BE THAT SINCE NO JURISDICTIONAL HIGH COURT DECISION IS AVAILABLE AS ON DATE, THE LA TEST DECISION OF KARNATAKA HIGH COURT, WHICH HAS CONSIDERED AND DISTINGUISHED EARLI ER RULINGS OF OTHER HIGH COURTS, DESERVES TO BE FOLLOWED. OUR CONCLUSION IS THE SAM E BUT OUR DECISION TO FOLLOW HONBLE KARNATAKA HIGH COURTS JUDGMENT IS SIMPLY T HIS JUDGMENT IS TO BE PREFERRED OVER, IN THE LIGHT OF SETTLED LEGAL PRINCIPLES SET OUT ABOVE, OTHER HONBLE HIGH COURT JUDGMENTS, BECAUSE IT IS FAVOURABLE TO THE ASSESSEE . WITH UTMOST RESPECT AND REVERENCE TO ALL THE HONBLE COURTS, IT IS NOT FOR US TO CHOOSE WHICH DECISION IS TO BE FOLLOWED BECAUSE OF ITS MERITS BECAUSE OF WHAT IT H AS DISCUSSED OR BECAUSE OF HOW IT HAS DISTINGUISHED OTHER HONBLE HIGH COURTS OR BECA USE OF ITS TIMING I.E. OF ITS BEING LATEST. EVEN WHEN A NONJURISDICTIONAL HIGH COURT DI STINGUISHES ALL OTHER DECISIONS OF HONBLE HIGH COURTS BUT HOLDS A VIEW UNFAVOURABLE T O THE ASSESSEE, THAT DECISION CANNOT NORMALLY BE PREFERRED OVER A DECISION FROM A NOTHER HONBLE NON JURISDICTIONAL HIGH COURT DECISION, OF EQUAL STATURE, IN FAVOUR OF THE ASSESSEE. THAT IS, AS WE UNDERSTAND, CORRECT APPROACH TO THE MATTER AND THAT IS THE REASON WHY WE COME TO THE SAME CONCLUSION AS THE SMC DID BUT FOR ALTOGETH ER DIFFERENT REASONS. 23. WE HAVE ALSO NOTED THAT MATERIAL FACTS OF THE C ASE AND THE TERMS OF AGREEMENTS WITH THE DISTRIBUTORS ARE THE SAME AS WERE BEFORE H ONBLE KARNATAKA HIGH COURT IN THE ABOVE CASE. A COMPARATIVE CHART OF THESE CLAUSE S IS AS FOLLOWS: SL. NO. DISCLOSURE IN THE AGREEMENT AS HIGHLIGHTED IN THE HONBLE KARNATAKA HIGH COURTS JUDGMENT - RELEVANT EXTRACTS CORRESPON DING CLAUSE IN THE AGREEMENT OF THE ASSESSEE WITH ITS PRE-PAID DISTRIB UTORS. THE AGREEMENT STIPULATES THAT THE DISTRIBUTORS HAVE TO REPRESENT TO THE CUSTOMERS THAT THE DISTRIBUTORS AGREEMENT WITH THE CUSTOMERS/ITS DEAL ERS IS ON PRINCIPAL-TO- PRINCIPAL BASIS AND ASSESSEE IS NO WAY CONCERNED OR LIABLE TO THE CUSTOMERS/DEALERS OF THE DISTRIBUTOR PAGE 68. CL AUSE 17.2 SPECIFICALLY PROVIDES THAT THE RELATIONSHIP CREATED BY THE AGREE MENT IS THAT OF A BUYER AND SELLER AND THAT THE AGREEMENT IS ON A PRINCIPAL TO PRINCIPAL BASIS AND NEITHER PARTY IS, NOR SHALL BE DEEMED TO BE, AN AGENT/PARTN ER OF THE OTHER. IT IS ALSO PROVIDED THAT NOTHING IN THE AGREEMENT SHALL BE CON STRUED TO RENDER THE DISTRIBUTOR A PARTNER OR AGENT OF THE ASSESSEE 2 DISTRIBUTOR SHALL NOT MAKE ANY PROMISE, REPRESE NTATION OR TO GIVE ANY WARRANTY OR GUARANTEE WITH RESPECT TO SERVICES AND PRODUCTS, WHO ARE NOT AUTHORIZED BY THE ASSESSEE PAGE 69. CLAUSE 1E OF ANNEXURE III TO THE AGREEMENT PROVIDES THAT THE DISTRIBUTOR SHALL NOT M AKE ANY PROMISES OR REPRESENTATION OR GIVE ANY WARRANTIES OR GUARANTEES IN RESPECT OF THE SERVICE TICKETS EXCEPT SUCH AS ARE CONSISTENT WITH THOSE WH ICH ACCOMPANY THE SERVICE TICKET OR AS EXPRESSLY AUTHORIZED BY THE AS SESSEE IN WRITING. IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 14 3 THAT THE INSURANCE LIABILITY FOR THE ENTIRE STOCK IN TRADE IN THE PREMISES AT THE ADDRESS UNDER REFERENCE WILL BE OF THE DISTRIBUTOR AND THE LIABILITY FOR ANY LOSS OR DAMAGE DUE TO ANY FIRE, BURGLARY, THEFT ETC., WI LL BE OF THE DISTRIBUTOR. PAGE 69. 4. AS PER CLAUSE (IV) OF ANNEXURE II TO THE AGREEME NT, THE ASSESSEE IS NOT LIABLE FOR ANY LOSS, PILFERAGE OR DAMAGE TO THE REC HARGE VOUCHERS/SERVICE TICKETS POST-DELIVERY OF THE SAME TO THE DISTRIBUTO RS. THE ASSESSEE DOES NOT COMPENSATE THE DISTRIBUTORS FOR ANY UNSOLD STOCK 4 THE DISTRIBUTOR HAS NO EXPRESS OR IMPLIED RIGHT OR AUTHORITY TO ASSUME OR UNDERTAKE ANY OBLIGATION IN RESPECT OF OR ON IN THE NAME OF THE ASSESSEE. PAGE 70 AGREEMENT). 5 CHANNEL PARTNER BE LIABLE TO PAY ALL THE TAXES S UCH AS SALES TAX, SERVICE TAX APPLICABLE AND PAYABLE IN RESPECT OF THE SUBJECT MA TTER OF THIS AGREEMENT AND STATUTORY INCREASE IN RESPECT THEREOF-III(B) OF ANN EXURE III TO AGREEMENT). PAGE 72. THE DISTRIBUTOR SHALL PAY ALL LICENSES, FEE, TA XES, DUTIES, SALES TAX, SERVICE TAX AND ANY OTHER CHARGES, ASSESSMENTS PENALTIES WH ETHER STATUTORY OR OTHERWISE LEVIED BY ANY AUTHORITY IN CONNECTION WIT H THE OPERATION OF DISTRIBUTORS OFFICE (CLAUSE III(B) OF ANNEXURE III TO AGREEMENT). 6. AFTER SALE OF PRODUCTS DISTRIBUTOR/CHANNEL PAR TNER CANNOT RETURN GOODS TO THE ASSESSEE FOR WHATEVER REASON PAGE 74. THE AS SESSEE SHALL NOT BE RESPONSIBLE FOR ANY POST DELIVERY DEFECT IN THE SER VICE TICKETS. NO REQUEST OF REFUND OF ANY MONEY SHALL BE ENTERTAINED BY THE ASS ESSEE IN ANY CIRCUMSTANCES (CLAUSE E-ANNEXURE I). 7 DISTRIBUTORS ARE EVEN PREVENTED FROM MAKING ANY REPRESENTATION TO THE RETAILERS UNLESS AUTHORIZED BY THE ASSESSEE. THE D ISTRIBUTOR SHALL NOT MAKE ANY PROMISES OR REPRESENTATIONS OR GIVE ANY WARRANT IES OR GUARANTEES IN RESPECT OF THE PRODUCTS (I.E. SIM CARS AND PRE-PAID VOUCHERS) (CLAUSE 1E ANNEXURE III). 24. IN THE LIGHT OF THE ABOVE DISCUSSIONS, AND PAR TICULARLY AS THERE IS NO DISPUTE THAT THE FACTUAL MATRIX OF ALL THE CASES BEFORE THE HON BLE NON JURISDICTIONAL HIGH COURTS WERE MATERIALLY THE SAME AS IN THIS CASE, IN CONFOR MITY WITH THE ESTEEMED VIEWS OF HONBLE KARNATAKA HIGH COURT IN BHARTI AIRTLELS CA SE (SUPRA), AND HOLD AS FOLLOWS: (A) ON THE FACTS OF THE CASE, AND AS IS EVIDENT FRO M A READING OF THE AGREEMENTS BEFORE US, THE ASSESSEE HAS SOLD, BY WAY OF PREPAID VOUCHERS, E- TOP UPS AND PREPAID SIM CARDS, THE RIGHT TO SERVICE ON PRINCIPAL TO PRINCIPAL BASIS TO ITS DISTRIBUTORS. AS EVIDENT FROM THE TERM S AND CONDITIONS FOR SALE, PLACED AT PAGE 136 OF THE PAPER-BOOK, NOT ONLY THAT THE SALE WAS FINAL AND THE ASSESSEE WAS NOT RESPONSIBLE FOR ANY POST-DELIVERY DEFECTS IN THE SERVICES, IT WAS SPECIFICALLY AGREED THAT NO REQUEST OF REFUND OF ANY MONEY SHALL BE ENTERTAINED BY VEGL (I.E. THE ASSESSEE) UNDER ANY C IRCUMSTANCES . (B) THE FACT THAT THERE ARE CERTAIN CONDITIONS AND STIPULATIONS ATTACHED TO THE SALE OF THIS RIGHT OF SERVICE BY THE ASSESSEE TO HI S DISTRIBUTORS DOES NOT AFFECT THE CHARACTER OF SALE ON PRINCIPAL TO PRINCIPAL BAS IS. (C) SECTION 194 H COMES INTO PLAY ONLY IN A SITUATI ON IN WHICH ANY PERSON, ..RESPONSIBLE FOR PAYING.. TO A RESIDENT, ANY IN COME BY WAY OF COMMISSION PAYS OR CREDITS SUCH INCOME BY WAY OF COMMISSION . HOWEVER, SINCE AT THE TIME OF THE ASSESSEE SELLING THESE RIG HTS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE DISTRIBUTOR DOES NOT EARN ANY INCO ME, THE PROVISIONS OF SECTION 194H DO NOT COME INTO PLAY ON THE TRANSACTION OF SA LE OF THE RIGHT TO SERVICE BY IT(SS)A NO.9,10, 11 & 13/RAN/2017 A.YS.023-03, 03-04 & 05-06 GAJANAND AGRAWAL (DECEASED)/HUF VS. ACIT C C-, RCN PAGE 15 THE ASSESSEE TO HIS DISTRIBUTORS. THE CONDITION PRE CEDENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABL E BY THE ASSESSEE TO THE DISTRIBUTOR (D) SO FAR AS THE TRANSACTION OF SALE OF RIGHT TO SERVICE BY THE ASSESSEE TO HIS DISTRIBUTOR IS CONCERNED, WHILE IT HAS INCOME POTEN TIAL AT A FUTURE POINTS OF TIME (I.E. WHEN THIS RIGHT TO SERVICE IS SOLD AT A PROFIT BY T HE DISTRIBUTOR), RATHER THAN EARNING INCOME, DISTRIBUTORS INCUR EXPENDITURE FOR THE PURC HASE OF PREPAID CARDS. THEREFORE, AT THE TIME OF THE ASSESSEE SELLING THESE PRE-PAID CAR DS, HE IS NOT IN POSSESSION OF ANY INCOME BELONGING TO THE DISTRIBUTOR. ACCORDINGLY, T HE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT THE POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. (E) IN A SITUATION IN WHICH THE ASSESSEE HAS CREDIT ED THE SALE PROCEEDS AT THE TRANSACTION VALUE (IN CONTRAST WITH THE TRANSACTION BEING SHOWN AT FACE VALUE AND THE DIFFERENCE BETWEEN FACE VALUE AND THE TRANSACTION V ALUE CREDITED TO THE DISTRIBUTOR), THE TAX DEDUCTION LIABILITY UNDER SECTION 194H DOES NOT ARISE. WHILE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE SAL E PROCEEDS ARE CREDITED AT THE TRANSACTION VALUE, THIS ASPECT OF THE MATTER IS TO BE VERIFIED BY THE ASSESSING OFFICER, AND IN CASE THE SALES IS ACCOUNTED FOR AT THE FACE VALUE, TO THAT EXTENT, THE TAX WITHHOLDING LIABILITY IS TO BE SUSTAINED, 25. GROUND NO. 1 IS THUS ALLOWED IN THE TERMS INDIC ATED ABOVE. 3. WE ADOPT THE ABOVE DETAILED DISCUSSIONS MUTATIS MUTANDIS TO CONCLUDE THAT THE IMPUGNED ASSESSMENTS NOT BASED ON ANY INCR IMINATING MATERIAL FOUND OR SEIZED DURING THE COURSE OF SEARCHES ARE NOT LIA BLE TO BE SUSTAINED. THE SAME STAND DELETED ACCORDINGLY. 4. THESE ASSESSEES FOUR APPEALS ARE ALLOWED IN ABO VE TERMS. ORDER PRONOUNCED IN ACCORDANCE WITH RULE 34(4) OF THE ITAT RULES BY PUTTING ON NOTICE BOARD ON 15/02/2019 SD/- SD/- ( ) ($% ) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) RANCHI, *DKP &- 15 / 02 /2019 RANCHI / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-GAJANAND AGRAWALA (DECEASED) (HUF)L/H SRI V IVEK AGARWAL, SREE NIWAS NR. RANI SATI MANDIR, CHIRKUNDA, DHANBAD-828202 2. REVENUE-ACIT, CENTRAL CIRCLE-2,RANCHI 3. 2 4 / CONCERNED CIT RANCHI 4. 4- / CIT (A) RANCHI 5. 7 %%2, 2, / DR, ITAT, RANCHI 6. = / GUARD FILE. BY ORDER/ , SR.PS, ITAT, RANCHI