Income Tax Appellate Tribunal - Pune
Vodafone Cellular Ltd.,, Pune vs Assessee on 24 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri R.K. Panda, Accountant Member
and Shri Vikas Awasthy, Judicial Member
S.A. Nos.51 to 56/PN/2015
(Arising out of ITA Nos.788 to 793/PN/2015)
(Assessment Years : 2007-08 to 2012-13)
Vodafone Cellular Ltd.
(Formerly Vodafone Essar Cellular Ltd.,)
The Metropolitan F.P.No.27,
Old Pune-Mumbai Road,
Shivajinagar, Pune-411019 .. Appellant
PAN No.AAACB8614L
Vs.
Addl.CIT, TDS Range, Pune .. Respondent
Assessee by : Shri Salil Kapoor
Department by : Shri A.K. Modi
Date of Hearing : 19-06-2015
Date of Pronouncement : 24-06-2015
ORDER
PER R.K. PANDA, AM :
The assessee vide the captioned Stay Applications requests the Tribunal to stay the realisation of outstanding demand of Rs.27,93,47,377/- levied u/s.271C of the I.T. Act for the F.Yrs. 2006- 07 to 2011-12, the details of which are as under :
Financial Year Demand u/s.271C 2006-07 68,81,311/-
2007-08 2,71,24,546/-
2008-09 5,74,61,489/-
2009-10 6,35,89,628/-
2010-11 5,81,69,952/-
2011-12 6,61,20,451/-
Total 27,93,47,377/-
2. The Ld. Counsel for the assessee while explaining the case submitted that the assessee Vodafone Cellular Ltd. is a subsidiary of Vodafone India Limited and was incorporated on March 30 1995 2 under the Companies Act, 1956 having its registered office at 1045-
1046, Avinashi Road, Coimbatore, Tamilnadu. The assessee is inter alia engaged in providing Cellular Mobile Telephone Services (CMTS) in the telecom circles of Maharashtra & Goa (except Mumbai). 2.1 Under the prepaid model, the subscriber is required to pay for the talktime in advance, which is available in the form of recharge vouchers/e-top up, through internet or any other modes, either physical or electronic. The talktime is made available in different denominations and under different schemes, which can be availed by a prepaid subscriber as per his requirements.
2.2 The assessee for efficient distribution of its services has appointed distributors in its territories. The assessee's distributors have been distributing its prepaid talktime on a principal to principal basis. Under this arrangement the assessee transfers its prepaid talktime to the distributors for a consideration and the distributors in turn transfer the same to the retailers. The retailers would thereafter transfer the same to the ultimate consumer. At each level of the distribution, the party distributing the talktime retains a margin for its efforts and the risks assumed. The transfer of talktime by the Assessee to the distributor is at a discount, a part of which is, in turn, passed on by the distributor to the retailer / subscriber. A similar mechanism is followed for distribution of pre-paid connections (SIM Cards) using the same distribution network. The transaction in all aspects is akin to sale and purchase of goods as it happens in FMCG sector.
2.3 A survey under section 133A of the Act was conducted in the premises of the Assessee on April 23, 2008 in order to verify the applicability of TDS provisions. The case for FYs 2006-07 and 2007- 08 was picked up for extensive verification under section 3 201(1)/201(1A) of the Act. After verification of all the records, TDS order dated March 22, 2011 under section 201 (1)/ 201 (1A) of the Act was passed by the Deputy Commissioner of Income Tax (TDS), Pune ('TDS Officer') raising tax and interest demand of Rs 5,11,54,426 against the Assessee, on account of non-deduction of tax at source on discount extended to its pre-paid distributors. Subsequently, the case for FY 2008-09 and 2009-10 was taken up for scrutiny as well and after due verification of all the records, TDS order dated March 15, 2012 under section 201(1)/ 201( 1A) of the Act was passed by the TDS Officer raising a tax and interest demand of Rs 16,34,00.556 on the Assessee, on account of non-deduction of tax on discount extended to its pre-paid distributors. Later on, the case for FY 2010-11 and 2011-12 were also taken up for scrutiny and TDS orders dated February 11, 2013 under section 201(1)7 201(1A) of the Act were passed by the TDS Officer raising a tax and interest demand of Rs 68,749,279 and 77,589,486, respectively on the Assessee. 2.4 The assessee filed appeals against the aforesaid TDS orders passed by the TDS Officer, for FYs 2006-07 to 2009-10, before the CIT(A)-V, Pune. Subsequently, notice dated February 5, 2013 was issued by the Additional Commissioner of Income Tax, (TDS) Pune to show cause why penalty under section 271C of the Act should not be imposed on account of non-deduction of tax at source from discount extended to its pre-paid distributors.
3. However, rejecting the explanations given by the assessee the Assessing Officer has levied penalty u/s.271C of the I.T. Act which has been upheld by the CIT(A).
4
4. While explaining the prima-facie case in favour of the assessee the Ld. Counsel for the assessee submitted that the penalty order passed u/s.271C for the F.Y. 2007-08 to 2009-10 on 28-03-2014 are barred by limitation and thus nonest in law. Further, the Tribunal has already granted the stay on realisation of penalty demand on identical issue in the case of Idea Cellular Ltd. vide S.A.Nos.119 to 122/PN/2014 order dated 15-01-2015.
4.1 Referring to the decision of the Hon'ble Karnataka High Court in the case of Vodafone Essar South Ltd. vide ITA No.256 to 263 of 2012 order dated 14-08-2014 he submitted that the Hon'ble High Court in the said decision has held that withholding tax provisions u/s.194H of the Act are not applicable to discount extended to prepaid distributors.
4.2 Referring to the decision of Hon'ble Karnataka High Court the Ld. Counsel for the assessee further submitted that the Hon'ble High Court has also observed that the decision of the Hon'ble High Courts in the case of Idea Cellular Ltd. reported in 325 ITR 148 (Delhi) and Vodafone Essar Cellular Ltd. reported in 332 ITR 235 (Kerala) were based on the understanding that distributors are rendering "services" to the telecom operators which cannot be sold. However, the question of law framed before these courts did not address the issue whether the right to provide service can be sold or not which is in fact the crux of the whole issue.
4.3 Referring to the decision of Jaipur Bench of the Tribunal in the case of Tata Tele Services Ltd. Vs. ITO for F.Yrs. 2004-05 to 2008-09 vide ITA No. 309/JP/121 & ITA Nos. 502 to 505/JP/11 order dated 13-03-2015 he submitted that the Tribunal in this case relying on the decision of the Hon'ble Karnataka High Court (cited supra) has held 5 that there is no liability on the part of the assessee to deduct tax at source from discount extended to prepaid distributors. Therefore, it is clear that the position taken by the assessee that TDS provisions are not applicable to the discount extended by the assessee to its prepaid distributors is correct and clearly establishes prima-facie case for stay of demand.
4.4 Referring to the order of the Tribunal for F.Yrs. 2010-11 and 2011-12 vide Stay Application Nos.123 and 124/PN/2014 order dated 18-02-2015 he submitted that the Tribunal in assessee's own case has allowed stay in the quantum proceedings. Referring to para 9 of the stay order he submitted that the Tribunal has already considered the decision of the Hon'ble Delhi High Court which has decided the issue against the assessee. However, considering the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. and Others which has taken a different view on this issue the Tribunal has granted stay on recovery of the outstanding demand for A.Yrs. 2011-12 and 2012-13. Since in the quantum proceedings stay has been granted holding that there is a prima-facie case, therefore, the penalty proceedings are in a better footing and therefore full stay should be granted to the assessee.
4.5 Referring to the decision of the Tribunal in the case of Idea Cellular Ltd. Vs. Addl.CIT vide S.A.Nos. 119 to 122/PN/2014 order dated 15-11-2015 he submitted that under identical facts and circumstances the Pune Bench of the Tribunal has granted blanket stay to the assessee by observing as under :
"6. We have carefully considered the rival submissions. No doubt, in so far as the merit or other of the levy of penalty u/s 271C of the Act is concerned, the same shall be a subject-matter of consideration when the corresponding appeals of the assessee shall be heard by the Tribunal. So however, in so far as it is necessary to appraise the prima-facie nature of assessee's case and the balance of convenience necessary to dispose of 6 the captioned Stay Applications is concerned, the same have been noted by us. Considering the entirety of circumstances and the factual and legal matrix brought out by the Ld. Representative for the assessee, we deem it fit and proper to direct the Assessing Officer not to take any coercive measures to recover the outstanding demands.
7. Meanwhile, the corresponding appeals of the assessee pending with the Tribunal shall be posted for hearing on an out-of-turn basis before the regular Bench on 02nd March, 2015, as announced in the open Court at the time of hearing. Since the aforesaid date of hearing was announced in the open Court in the presence of both the parties, the requirement of issuance of a formal notice of hearing is hereby dispensed with. The above order restraining the Assessing Officer from taking coercive measures shall operate for a period of six months from today or till the date of order of the Tribunal in assessee's appeals, whichever is earlier."
4.6 Referring to the decision of the Hon'ble Bombay High Court in the case of UTI Mutual Fund and UTI Trustees Company Ltd. Vs. Ito reported in 260 ITR 56 he drew the attention of the Bench to the following observation :
"Where a strong prima facie case has been made out calling upon the assessee to deposit, would itself occasion undue hardship. Where the issue has raised a strong prima face case which requires serious consideration as in the present case, a requirement of predeposit would itself be a matter of hardship. Finally, we express our serious disapproval of the manner in which the Revenue has sought to brush aside a binding decision of this Court in the case of the assessee on the issue of a stay on enforcement for the previous year. The rule of law has an abiding value in our legal regime. No public authority, including the Revenue, can ignore the principle of precedent. Certainty in tax administration is of cardinal importance and its absence undermines public confidence."
4.7 Referring to various other decisions placed in the paper book he submitted that the issue has been decided in favour of the assessee in the quantum proceedings. He accordingly submitted that full stay should be granted to the assessee. He also requested for an early hearing of the appeals.
5. The Ld. Departmental Representative on the other hand while opposing the Stay Application filed by the assessee submitted that Hon'ble Calcutta High Court after considering the decision of the Hon'ble Karnataka High Court has decided the issue in favour of the 7 Revenue and against the assessee. Therefore, reliance on the decision of Hon'ble Karnataka High Court is of no use. Further, there is no financial hardship or liquidity problem in the case of the assessee. The Ld. Departmental Representative accordingly submitted that the Stay Application filed by the assessee should be dismissed and the assessee should be directed to pay the outstanding demand at least in instalments.
6. We have considered the rival arguments made by both the sides. In this case the assessee has moved the Stay Application for stay on realisation of the outstanding demand of Rs.27,93,41,377/- levied u/s.271C of the I.T.Act for the A.Yrs. 2007-08 to A.Y. 2012-13 being penalty for failure to deduct tax at source. It is an admitted fact that the quantum appeals levying interest u/s.201(1) and 201(1A) are pending for disposal before the Tribunal. The Tribunal in assessee's own case for A.Y. 2001-12 and 2012-13 in the quantum proceedings has already granted stay holding that assessee has made out a prima-facie case for grant of stay of outstanding demand. The Pune Bench of the Tribunal in the case of Idea Cellular Ltd. under identical facts and circumstances has granted stay on realisation of demand raised u/s.271C of the I.T. Act. It is also an admitted fact that different high courts have taken different views on the applicability of provisions of section 194H of the Act to the transactions in question. While Hon'ble Karnataka High Court has decided the issue in favour of the assessee the Hon'ble Delhi High Court and Hon'ble Calcutta High Court have decided the issue against the assessee. The matter is now pending before the Hon'ble Supreme Court for adjudication. However, it is also a fact that the Jaipur Bench of the Tribunal in a recent decision vide ITA Nos. 656/JP/2010 order dated 12-06-2015 in the case of M/s.Bharti 8 Hexacom Ltd. Vs. ITO, TDS-2, Jaipur for A.Y. 2009-10 has decided the issue in favour of the assessee holding that the sale of prepaid products from the company to the distributor is actually a sale of right to service and the provisions of section 194H of the Act do not apply. In the said decision the Tribunal has considered various decisions including the decisions of the Hon'ble Kerala High Court, Hon'ble Delhi High Court and Hon'ble Calcutta High Court who have decided the issue against the assessee. Therefore, we are of the considered view that the Ld. Counsel for the assessee has made out a prima-facie case in its favour so far as the realisation of the outstanding demand is concerned that too in a penalty proceeding. 6.1 The Hon'ble Bombay High Court in the case of UTI Mutual Funds and UTI Trustees Company Pvt. Ltd. (Supra) has held that where a direct prima-facie case has been made out, calling upon the assessee to deposit would itself occasion undue hardship. We therefore allow the stay petitions filed by the assessee and grant stay on realisation of outstanding demand of Rs.27,93,47,377/- for the A.Yrs. 2007-08 till 2012-13 for a period of 180 days from today or the date of the order of the Tribunal in appeal, whichever is earlier. The request of the assessee for out of turn hearing of the appeals is also accepted and the appeals are fixed for hearing on 16-09-2015. Since the date of hearing is mentioned in this stay order, therefore, this itself will be construed as notice of hearing to both sides.
7. In the result, the stay applications filed by the assessee are allowed.
Pronounced in the open court on 24-06-2015.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
satish
Pune Dated: 24th June, 2015
9
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A), Pune-10
4. The D.R, "B" Pune Bench
5. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune