Income Tax Appellate Tribunal - Hyderabad
Idea Cellular Ltd, Hyd, Hyderabad vs Acit, Tds Circle, Ward-1(1), Hyd, ... on 27 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA Nos. 1445 & 1446/Hyd/2015
Assessment Years: 2014-15 & 2015-16
Idea Cellular Ltd., Hyderabad. Vs. Asst. Commissioner of
Income-tax, TDS Circle,
PAN - AACB 2100P Ward - 1(1), Hyderabad.
(Appellant) (Respondent)
Assessee by : None
Revenue by : Shri P. Chandrasekhar
Date of hearing : 27-09-2017
Date of pronouncement : 27-10-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
Both these appeals filed by the assessee are directed against the orders of the learned Commissioner of Income-tax(A) - 8, Hyderabad, both, dated 30/10/2015 for AY 2014-15 and 2015-16. As the issue is identical in both the appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience.
2. Briefly the facts of the case, as taken from AY 2014-15 are that the assessee company is engaged in the business of providing cellular mobile telephone services to its customers in Andhra Pradesh & Telengana through a network of distributors. In order to verify compliance to the provisions relating to tax deduction at source, a survey u/s 133A was conducted in the case on 16/02/2015. Subsequently, proceedings u/s 201(1) and 201(1A) of the Act, were initiated by issuing a notice on 23/02/2015. In response, the 2 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
assessee furnished the information called for. On verification of the information provided, AO noticed that the assessee was not deducting tax at source in the case of commission payments of Rs. 77,27,80,277/- made to its distributors on prepaid connections, during FY 2013-14. Since the assessee was not deducting tax at source on the commission payments to agents on prepaid sim cards and recharge coupons, sold through agents, a show cause notice was issued to the assessee on 23/02/2015 to show cause as to why demand u/s 201(1) and 201(1A) should not be raised for non deduction of TDS u/s 194H on the above mentioned expenditure.
2.1 In response, the assessee submitted that the agreement with the distributors is on principal to principal basis and that the distributors pay discounted price in advance and nothing is paid by the assessee to the distributors so as to attract the provisions of section 194H.
2.2 The AO following the earlier order in assssee's own case for AY 2009-10, held that there is a principal to agent relationship between the assessee company and the distributors, the margin earned by the distributors on sim cards and other services are in the nature of commission and, therefore, the assessee is liable to deduct tax at source u/s 194H of the Act and as the assessee had not complied with the provisions, treated it as an assessee in default as per the provisions of section 201(1) and is consequently liable to pay interest u/s 201(1A) of the Act. Accordingly, he computed the TDS payable u/s 201(1) @ 10% on the commission payment of Rs. 77,27,80,277/- u/s 194H at Rs. 7,72,78,028/- and interest u/s 201(1A) thereon from April, 2013 to March, 2015 @ 1% Rs. 1,42,12,714/-.
3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) upheld the action of the AO.
3ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising five grounds of appeal, which relate to TDS on discount/ commission of Rs. 7,72,78,028/- u/s 201(1) and interest u/s 201(1A) of Rs. 1,42,12,714/-.
5. None appeared on behalf of the assessee at the time of hearing these appeals. However, we proceed to dispose of these appeals after hearing the ld. DR and on merits of the case.
6. Before us, the ld. DR relied on the order of the coordinate bench of this Tribunal in assessee's own case for AYs 2004-05 to 2009-10 in ITA Nos. 1083 to 1088/Hyd/2011, order dated 23/05/2014.
7. Considered the submissions of the ld. DR and perused the material facts on record. We find that similar issues came up for consideration before the Tribunal in assessee's own case (supra) wherein the coordinate bench has dismissed the appeal of the assessee. Recently, the coordinate bench has passed judgment in the case of M/s Vodafone Mobile Services Ltd. in ITA Nos. 1189/Hyd/104 and 1401 to 1405/Hyd/2015 and others, order dated 29/09/2017. The facts in the above case are similar to the facts of the assessee's case and the findings of the coordinate bench are reproduced below:
84. We have carefully considered the rival submissions and perused record. It is not in dispute that Hon'ble Andhra Pradesh High Court in the case of M/s. Vodafone Essar South Ltd (ITTA No.291 of 2013) followed decisions of Hon'ble Delhi High Court (325 ITR 147), Hon'ble Kerala High Court (332 ITR
255) and Hon'ble Calcutta High Court (244 CTR 185) by observing that facts of the case in all those reported judgments are identical to the case of assessee and the assessee could not distinguish the above cases in so far as the similarity of the facts and method of accounting are concerned. In otherwords it can be considered as a decision rendered on merits. The issue as to whether payment to be made by the assessee is mandatory in order to invoke provisions of section 194H, or whether sale price at the end of distributor is ascertainable, was already taken into consideration in detailed judgments 4 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
rendered by Hon'ble Delhi High Court, Kerala High Court and Calcutta High Court. It cannot be said that the decision of Andhra Pradesh High Court is not on merits. When the facts are identical there is no need for another High Court to pass a detailed order. In fact Hon'ble High Court of Andhra Pradesh categorically observed that there is no illegality or infirmity in the order passed by ITAT, Hyderabad Bench, which in turn is based upon the decisions referred to above.
85. As against this, Hon'ble Karnataka High Court had taken a diametrically opposite view with regard to need for payment to be made by assessee to distributor and the fact that computation is not possible since distributor can sell at any price subject to the maximum limit of MRP. Since Hon'ble Jurisdictional High Court had already rendered a decision on these points, we cannot reconsider the matter on those issues. Suffice to say that on the aforementioned issues we are bound by the decision of Hon'ble Andhra Pradesh High Court.
86. In fact Ld Counsel mainly focused on one issue i.e., on the aspect of "sale of service". According to Ld Counsel for the assessee this aspect of the matter was not considered either by Hon'ble Andhra Pradesh High Court or other High Courts which, in turn were referred to by Andhra Pradesh High Court. We shall now, therefore, refer to the order passed by Hon'ble Delhi High Court since Hon'ble Andhra Pradesh High Court has followed the said decision. In the case of CIT vs. Idea Cellular Ltd (supra) it was observed that connections are provided to subscribers through distributors, called "pre-paid market associates", appointed by assessee and such PMAs are not allowed to remove, obscure or delete any marks placed on prepaid SIM cards / recharge coupons and distributors are not allowed to sell similar products offered by other companies, which are in the similar line of business. Assessee reserved it's right to terminate the agreement unilaterally. If there are natural calamities or circumstances beyond the control of either party by which SIM cards / recharge coupons are destroyed, assessee agreed to replace the SIM cards / recharge coupons. Other clauses were also taken into consideration and the Court observed that cellular company has full legal and equitable title in respect of SIM cards / recharge coupons delivered to subscribers and distributors have to store the SIM cards etc., in such a way to clearly indicate at all times that pre-paid SIM cards / recharge coupons are owned by assessee. Even retailers cannot be appointed without prior approval of assessee. In fact no sales tax was even paid on the ground that there is no transfer of property to the distributor. It was always treated as service, for acting as a live link between 5 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
subscriber and assessee. Therefore, the relationship between assessee and distributor can only be considered as a relationship of "principal to agent". The Court further observed that the pricing freedom - permitting distributor to sell at any price - would not come in the way of determining the relationship between assessee and distributor so long as agent is obliged to render services for and on behalf of assessee on certain parameters and in this regard Hon'ble Delhi High Court relied upon a decision of the Apex Court in the case of Bhopal Sugar Industries Ltd vs. STO (1977) [40 STC 42] (SC). The Court also took note of the fact that legal relationship is established between assessee and the ultimate consumer / subscriber since activation of SIM cards by assessee is in the name of subscriber / consumer and service is provided to the subscriber. Merely because advance payment is received from distributor, it does not amount to 'sale of goods' since unsold SIM cards can be taken back by assessee under certain circumstances. The Court further observed that this is antithesis of "sale". The Court also observed that a service can only be rendered and it cannot be sold particularly when assessee-company is operating under the right of licence agreement entered into with the Government of India; nobody else can be given the right to operate as cellular service provider. It was thus concluded that the ultimate service is provided by assessee-company and not by distributor. SIM card / other module is only in the nature of a key to the consumer to have access to the telephone network.
87. Before parting the Court also took note of the fact that concerned distributor can always file return of income and claim credit for the payments already made on their behalf by the assessee. On the other hand, such a provision serves public purpose inasmuch as any distributor who is liable to pay tax but rather evading tax, would come under the Income Tax net and assessee is in no way affected by this.
88. Andhra Pradesh High Court also referred to decision of Hon'ble Kerala High Court in the case of Vodafone Essar Cellular Ltd (supra) wherein Court observed that terminology used by the assessee for receiving the amount payable by distributors is immaterial since the discount given to distributor is for the services to be rendered to assessee in which event it falls within the definition of 'commission' u/s 194H of the Act. The discount is nothing but a margin given by assessee to distributor at the time of delivery of SIM cards / recharge coupons. Distributor acts as an agent on behalf of assessee for procuring and retaining customers. The Court observed that 6 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
essence of contract between assessee and distributor is that of service and distributors are acting as agents of assessee- company. Here also the Court noticed that the relationship between assessee and distributor is not on 'principal to principal' basis because the distributor is only a middleman between service provider and ultimate consumer. The Court further observed that the essence of a contract of agency is the agent's authority to commit the principal. According to the Court, distributor commits assessee to subscribers to whom assessee is accountable under the service contract which is the subscriber since connection is arranged by distributor on behalf of assessee. Therefore, it was concluded that the terminology used by assessee for payment by distributors is immaterial and in substance the discount given at the time of sale of SIM cards / recharge coupons is a payment received or receivable by distributors for the services to be rendered to assessee and it falls within the definition of 'commission' u/s 194H of the Act.
89. The Court also mentioned about the scheme of deduction of tax at source and observed that the grievance, if any, against recovery of tax by assessee, should be on distributors and not on assessee / cellular operators.
90. On careful perusal of the aforecited two judgments, which in turn were followed by Hon'ble jurisdictional High Court, indicate that the essence of contract was treated as a contract between 'principal and agent' and distributor in his capacity as an agent may exercise his authority to commit the principal to render services to subscribers and this in itself cannot be termed as contract between 'principal to principal'. In otherwords the issue is as to whether there was a sale of service or not was impliedly considered by Hon'ble High Court of Kerala which in turn was followed by Hon'ble Andhra Pradesh High Court. Thus it may be difficult for us to take a different view, merely because Hon'ble Karnataka High Court had taken a different stand under identical circumstances.
91. At this juncture, we may state that in the case of CIT vs. Thana Electricity Supply Ltd (supra) Hon'ble Bombay High Court observed that the expression "two views" should be understood in the sense that the Court, which is called upon to consider the issue, should be of the opinion that the other view is reasonable. With due respect we are of the view that the only reasonable interpretation is that of the view taken by Hon'ble Andhra Pradesh High Court by following decisions of Hon'ble Delhi High Court, Kerala High Court as well as Calcutta High 7 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
Court. In otherwords, the issue as to whether the agent's right to commit assessee to render service to subscribers would change the nature of contract from 'principal to agent' to 'principal to principal', was impliedly considered by the aforementioned High Courts which, in our view is most appropriate, in the circumstances of the case. Therefore, we prefer to follow the decisions of Hon'ble Delhi High Court, Kerala High Court and Calcutta High Court.
92. Ld Counsel for the assessee referred to an order passed by SMC Bench of ITAT Hyderabad in the case of Bharat Sanchar Nigam Ltd (2015) [42 ITR (Trib) 669]. On careful perusal of the said order it indicates that the decision is essentially rendered in the light of the Circular issued by CBDT. It is well settled that the language used by the Tribunal, while disposing of the matter, particularly when it is essentially based on a Circular issued by CBDT, cannot be equated to a language used in a Statute. At any rate in the aforementioned case none appeared for the assessee. Ld DR had agreed that it is covered by the Circular as well as the latest decision of Hon'ble Karnataka High Court and thus there was no need for the Single Member to go in depth as to the nitty-gritties of the contract and the essential difference between the decision rendered by Hon'ble Andhra Pradesh High Court on one hand and the view taken by the Hon'ble Karnataka High Court on the other hand.
93. However, while giving a finding in the case on hand we have also carefully gone through the distributorship agreements. We are unable to accept the contention of the assessee that the distributor has complete right and control over the matter of providing talk-time to ultimate subscribers; distributor can of course insist upon assessee while making a request to provide talk-time through e-module etc., but the final decision has to be taken by assessee, only upon verification of consumer details which in turn has to be provided by distributor. Assessee can terminate the contract at any time by giving thirty days time without assigning any reason and distributor has to return all equipment and furniture supplied by the VESL upon termination of such contract. Other conditions such as maintaining the confidentiality and limitation of assigning rights or obligations to third party by distributor would also indicate that distributor is merely acting as an agent i.e., as a connecting link between assessee and ultimate subscriber.
94. We therefore prefer to follow the decision of Hon'ble jurisdictional High Court by holding that though distributor 8 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
commits assessee to subscribers and exercise his authority to ensure arranging connection to subscriber, it will not alter the situation since the overall context in which such power is given to distributor has to be looked into in the circumstances of the case and the role of distributor can only be said to be a middleman between service provider on one hand (assessee herein) and ultimate consumer on the other hand. In otherwords the distributor can only be termed as an agent of assessee in which event providing service to ultimate consumer through the medium of distributor cannot be said to be a sale of service by assessee to the distributor.
95. Now we shall refer to the observations of jurisdictional High Court (order dated 25.08.2015) in W.P. Nos. 2456 and batch of 2015. In the aforementioned case, the Court was concerned with granting of stay and the very fact that it has granted partial stay indicates that the decision rendered by Hon'ble Karnataka High Court was not followed. In otherwords the observations made therein are only in the context of considering balance of convenience while granting stay and such observations need not be considered as a decision doubting the correctness of the judgment delivered by earlier Bench of High Court. In fact, even in the aforecited judgment, it was admitted that the earlier Bench affirmed the order of the Tribunal by following judgments of Hon'ble Delhi High Court, Kerala High Court and Calcutta High Court and because a similar issue is pending before Hon'ble Supreme Court, apart from the fact that there is a favourable decision of Hon'ble Karnataka High Court, Hon'ble Andhra Pradesh High Court thought fit to grant conditional stay. Therefore, observations made by Andhra Pradesh High Court in W.P. Nos. 2456 and others cannot be termed as an order doubting the correctness of earlier judgment of the same High Court.
96. The ITAT Hyderabad Bench is bound to follow the order passed Hon'ble jurisdictional High Court on merits rather than interpreting / reconsidering the issue based upon certain observations made by a later Bench while granting partial stay. We already noticed that earlier decisions of Hon'ble Delhi High Court and Kerala High Court are on the premise that distributor is merely a link between assessee and ultimate consumer / subscriber and distributor can at best enforce obligation on the part of assessee to provide connection / talk-time to subscriber which itself would not change the characteristic of transaction from 'principal to agent' to 'principal to principal'. We therefore hold that the order passed by Assessing Officer, as confirmed by Ld CIT (A), by holding that assessee is a defaulter u/s 9 ITA Nos. 1445 & 1446/H/15 Idea Cellular Ltd.
201(1) and consequently liable to pay interest u/s 201(1A) of the Act, subject to certain conditions as prescribed by Hon'ble Supreme Court (Hindustan Coca Cola Beverage P. Ltd), is in accordance with law."
As the grounds and facts in the AYs under consideration are similar to the above cases (supra), following the decision therein, we dismiss ground Nos. 1 to 4 and ground No. 5 is remitted to the file of the AO for recomputation of interest u/s 201(1A) of the Act in the light of the above decision and is treated as allowed for statistical purposes.
8. In the result, both the appeals under consideration are partly allowed for statistical purposes.
Pronounced in the open court on 27 th October, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 27 th October, 2017.
Kv
Copy to:-
1) Idea Cellular Ltd., D.N. 5-9-62, Khan Lateef Khan Estate, 3 rd Floor, Fateh Maidan Road, Hyderaba.
2) ACIT, TDS Circle - Ward 1(1), 4 th Floor, B Block, IT Towers, AC Guards, Hyderabad.
3) CIT(A) - 8, Hyderabad 4 CIT (TDS), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File