Income Tax Appellate Tribunal - Amritsar
Gurpreet Singh Sethi, Jammu vs Assessee on 8 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. Nos.608 & 609(Asr)/2013
Assessment year:2008-09 & 2009-10
PAN :ABPPS5223F
Sh. Gurpreet Singh Sethi, Prop. vs. Income Tax Officer,
M/s. Electronics, 44-A Bahu Plaza TDS, Jammu.
Jammu.
(Appellant) (Respondent)
Appellant by:Sh. P.N.Arora, Advocate
Respondent by:Sh.Tarsem Lal, DR
Date of hearing: 08/04/2014
Date of pronouncement:15/04/2014
ORDER
PER BENCH ;
These two appeals of the assessee arise from two different orders of the CIT(A), Jammu, each dated 05.08.2013 for the assessment years 2008- 09 & 2009-10. Since, the issues in the present appeals are identical, these were heard together and therefore, these appeals are being decided by this consolidated order for the sake of convenience. The assessee has raised following grounds of appeal in ITA No.608(Asr)/2013:
2 ITA Nos. 608 & 609(Asr)/2013"1. That the Ld. CIT(A), Jammu has grossly erred both on fact and in law in confirming the orders of assessing officer in treating the assessee in default under section 201(1) and 201(1A) of the Income Tax Act and raising a demand amounting to Rs.12,22,740/- without appreciating that the assessee had furnished detailed submissions.
2. That the Ld. CIT(A) has failed to appreciate that in the instant case the assessee was a trader and transactions were on principal to principal basis and no commission was paid and therefore provisions of TDS were not applicable.
3. That the Ld. CIT(A) has failed to appreciate that the computation made by the AO was not correct and revised computation by the assessee has not been considered by the ld. CIT(A).
4. That the Ld. CIT(A) has failed to appreciate where tax has been paid by the payee then there is no liability for the payer for the same. Benefit for amounts paid by the payee has not been allowed in all the cases.
5. Except for rejecting the explanation of the assessee, the orders are of non-speaking. It is, therefore, prayed that it be held that both the initiation of proceedings and the levy of tax and interest u/s 201(1) and 201(1A) of the Act, deserves to be vacated.
6. The assessee craves leave to add or amend the grounds of appeal."
2. In ITA No.609(Asr)/2013 for the A.Y. 2009-10, the assessee has raised following grounds of appeal:
"1. That the Ld. CIT(A), Jammu has grossly erred both on fact and in law in confirming the orders of assessing officer in treating the assessee in default under section 201(1) and 201(1A) of the 3 ITA Nos. 608 & 609(Asr)/2013 Income Tax Act and raising a demand amounting to Rs.10,60,260/- without appreciating that the assessee had furnished detailed submissions.
2. That the Ld. CIT(A) has failed to appreciate that in the instant case the assessee was a trader and transactions were on principal to principal basis and no commission was paid and therefore provisions of TDS were not applicable.
3. That the Ld. CIT(A) has failed to appreciate that the computation made by the AO was not correct and revised computation by the assessee has not been considered by the ld. CIT(A).
4. That the Ld. CIT(A) has failed to appreciate where tax has been paid by the payee then there is no liability for the payer for the same. Benefit for amounts paid by the payee has not been allowed in all the cases.
5. Except for rejecting the explanation of the assessee, the orders are of non-speaking. It is, therefore, prayed that it be held that both the initiation of proceedings and the levy of tax and interest u/s 201(1) and 201(1A) of the Act, deserves to be vacated.
6. The assessee craves leave to add or amend the grounds of appeal."
3. First of all, we take up appeal of the assessee in ITA No.608(Asr)/2013 for the A.Y.2008-09. Since the facts being identical in both the appeals, the decision hereinbelow in the present appeal in ITA No.608(Asr)/2013 shall be identically application in ITA No.609(Asr)/2013 for the A.Y. 2009-10.
4 ITA Nos. 608 & 609(Asr)/20134. The brief facts in the case of the assessee during the assessment year 2008-09 in ITA No.608(Asr)/2013 are that the AO called information u/s 133(6) of the Act in the case aof M/s. Bharat Sanchar Nigam Ltd.
(hereinafter called as Company) and it was noticed that the Person Responsible was appointed Franchises for Jammu & Baribrahmana and was being allowed commission on providing telecommunication services of the above company and was in receipt of commission. Accordingly, the PR was asked to furnish information vide this office letter No.2829 dated 14.09.2011 regarding detail of Sub Dealers/Agents. Copies of Trading & Profit & Loss Account, treatment of margin allowed to the Sub Dealers etc. In response to this the PR furnished copies of P & L account for all the above financial years i.e. 2007-08 to 2010-11. A perusal of the Trading, Profit & Loss Account for the above financial year shows that Direct & Indirect receipts and expenses have been accounted for in a consolidated Trading, Profit & Loss Account. In order to give clear picture of the Trading Account results on the basis of figures of Direct Income and Expenses a Trading account of the PR is prepared as under:
Opening stock 2858460.00 Sales 505574301.21 Purchases 523561906.00 Closing stock 2186851.90 Gross Loss 18659214.11 526420366.00 526420366.00 5 ITA Nos. 608 & 609(Asr)/2013 The PR has credited commission received at Rs.28629350/- in the Profit & Loss account. Thus, by reducing the above trading loss of Rs.18659214/-, net margin has been shows at Rs.9970137/-. In order to find out the reason for showing loss in trading, the PR vide order sheet entry dated 5.12.2011 was asked to file copies of purchase and sale bills for Rs.1.00 lakh and above. On going through the copies of bills furnished by the PR for amounts ranging from 1000 to 20000 it was observed that the PR has credited the sales net of Discount allowed to the Sub Franchises.
5. The AO issued show cause notice to the PR vide letter dated 23/25.01.2012 and the said letter is reproduced at pages 2 & 3 of AO's order. The assessee PR filed the written reply dated 21.02.2012 which is reproduced by the AO at pages 4 & 5 of his order. The arguments of the PR were considered by the AO. As requested by the PR, details of rulings being relied was provided and given time till 29.02.2012 to furnish further reply, if any. On the above date the counsel for the PR made a request for adjournment. The case was finally adjourned to 9th March, 2012. On the said date the PR attended and requested for time to file further reply. The case was adjourned to 20.03.2012. On the said date the PR attended alongwith S/Sh. Rajesh Modi, Advocate and Mandeep Singh, CA. A further reply was filed by the PR alongwith details of cash sales by PR at his different 6 ITA Nos. 608 & 609(Asr)/2013 business remises, details of sales on which TDS made, details of sale where discount allowed was below the prescribed limit and copies of ITRs filed by the Sub Franchisees. The PR has sought relief of short deduction in respect of the discount which the Sub Franchisees have shown in their return of income in view of CBDT's circular and judgments of Hon'ble Supreme Court.
6. The AO did not accept the explanation of the assessee as mentioned in para 3.1 & 3.2 and thereafter given the reasons for not accepting the explanation of the assessee in para 4 & 5. The AO finally rejected the explanation of the assessee by holding in para 6, which is reproduced as under:
"6. In view of the facts of the case and above observations, it is held that the PR is engaged in providing telecommunication services and any margin earned in providing such services is commission to which provisions of section 194H of the Income Tax Act were applicable. It is, further held that the PR was liable to deduct the tax u/s 194H of the Income-tax Act, 1961 on the payment of commission allowed to the Sub Franchisees, which he has failed to do. Accordingly, the amount of tax deductible is recovered from the PR u/s 201(1) alongwith interest u/s 201(IA) of the Income Tax Act, 1961."
7. The Ld. CIT(A) confirmed the action of the A.O. and the findings of the ld. CIT(A) given in para 4.2 of his order are reproduced as under:
"4.2. Grounds of appeal No. 2 to 5 relates to contention of the appellant that the appellant is engaged in the business of sale and purchase of sim cards and top ups and accordingly, he is not liable to 7 ITA Nos. 608 & 609(Asr)/2013 deduct TDS u/s 194H of the Act even the discounts shown by the appellant are in the nature of trade discounts and not commission. I have considered the submission of the asssee and assessment order. It is observed that the appellant is engaged a franshisee of M/s. Bharat Sanchar Nigam Limited and provides sim cards and to ups to sub franchisee. The issue under consideration is whether the distribution of sim cards, recharge coupons & top ups etc. amounts to sale of goods or not. It is observed that what is delivered is the right to use the mobile phone for a particulars period of time or right to send and receive the electronic data for communication upto particular size of data. The recharge coupons, top up cards can not by itself be used for any purpose. It only contains an electronic code which when typed in the mobile phone will allow the subscriber to use the mobile service. Thus, what is delivered is not any goods for use but a symbolic key to use the services provided by the particular mobile company. It is also seen that even these symbolic cards for recharge are not required and many distributors use electronic top up or lapu-sims to transfer the recharge amounts to subscribers to allow them to use their mobile services. The Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. & Anr. vs. Union of India & Ors {2006} 201 CTR (SC) 346 has concluded that provision of mobile phone facilities by service provider to the subscriber is a service and not a sale as the massages are transmitted through electromagnetic waves and no deliverable goods are in existence and no light of user of any good, incorporeal or corporeal, other than the handset, is given to the subscriber and therefore, the imposition of sales tax is not valid. Thus, the Apex Court has very clearly held that the distribution of sim cards, recharge coupons and top ups could not be regarded as sale. Therefore, the plea of the appellant that the appellant is engaged in the trading business and the appellant trades in sim cards, recharge coupons and top ups etc. could not be accepted. Further, Hon'ble Delhi High Court in the case of CIT vs. Idea Cellular Ltd. has held in relation to commission or discount to distributors of SIM cards/recharge coupons with reference to section 194H that assessee, a cellular operator, provides prepaid connections to the subscribers through distributors called prepaid market association appointed by it. It offers discount for prepaid calling services to the distributors. Legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM car by the agents further appointed by the PMAs with the consent of the assessee. Fact 8 ITA Nos. 608 & 609(Asr)/2013 that the PMA is supposed to make the payment in advance as per the agreement does not make any difference to the nature of transaction in view of the other terms of the agreement. Even though advance payment is made to the PMA qua SIM cards are to be returned to the assessee and it is required to make payments against them. This is an antithesis of 'sale'. Therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharges coupon's which are eventually sold to the subscriber at the listed price is commission and it is subject to TDS u/s 194H. Contention of the assessee that s. 194H is not applicable as there is no payment or credit by the assessee to the distributor cannot be accepted. The observation of the Hon'ble Delhi High Court clearly establishes that the distribution of sim cards, recharge coupons and top ups does not amount to sales and the discounts offered to distributors are in the nature of commission. The appellant has argued that the agreement between the cellular company and franchisee is different from the agreement between the franchisee and sub franchisee. It is observed that the recharge coupons etc. are provided by the cellular company to the franchisee and further by franchisee to the sub franchisee. Therefore, once it is established that the provision of sim cards, recharge coupons etc. by the cellular company to the franchisee is not sale of goods, then further distributions of same Sim cards, recharge coupons etc to sub franchisee can not be regarded as sale of goods by any stretch of arguments. This plea of the assessee is vague and is not sustainable.
Further, in a recently judgment by the Hon'ble Calcutta High Court in the case of Bharti Cellular Ltd. vs. ACIT (2013) 354 ITR 507 (Cal.) the assessee was engaged in the business of providing cellular mobile telephone services through its franchisee by selling to them starter pack and rechargeable coupons, SIM and prepaid cards which were purchase by the franchisee engaged by the assessee at a rate below the market price on such sim cards and sold to retailers by whom they were ultimately sold to customers. It was held that there has been indirect payment by the assessee to the franchisee of the commission and the same is attributable u/s 194H of the Act and accordingly the demand raised u/s 201(1) and 201(1A) is justified. Therefore, these grounds of appeal are dismissed."9 ITA Nos. 608 & 609(Asr)/2013
8. The Ld. counsel for the assessee, Mr. P.N.Aora, Advocate has submitted the following written submissions in support of his case:
"This is an appeal preferred by the assessee against the order of the Commissioner of Income-Tax (Appeals), wherein the Ld. CIT (Appeals) has confirmed the order of the Assessing Officer according to which the provisions of sections 201(1) & 201(IA) of the Income- Tax act, 1961, are applicable in this case accordingly the appeal was decided against the assessee, against which the assessee has preferred an appeal before the Tribunal in which it has been categorically pointed out that the provisions of TDS are not at all applicable on the facts & circumstances of the case and as such the provisions of section 201(1)( & 201(IA) of the Income-Tax Act,1961, cannot be invoked. The written submissions were submitted before the worthy CIT(A) and a copy of the same is available at Page No.1 to 15 of the paper-book. Again, the written submissions were also submitted before the ITO (TDS) and a Photostat copy of the same is placed at Page no.16 to 26 of the paper-book. The brief facts of this case are as under:-
1. That the appellant is a franchisee of M/s. Bharat Sanchar Nigam Ltd., (BSNL) and is in the business of purchasing SIM Cards and Recharge Coupons from BSNL against payment and resells them to Sub-Contractors/Sub-Distributors/Sub-Franchisee.
2. The applicant is a franchise of BSNL, a State owned company and is neither a service provider nor a cellular operator but simply a trader. The role of Franchisee is limited to following:-
(i) Booking of new connections i.e. SIM (Subscriber Identification Module) cards.
(ii) Sale of Recharge.
Booking of new connections -- new connections (SIM cards). Contributes to less than five percent of total business. Except booking of new connections by us all the Services such as -
1. Issue of duplicate sim cards (In case of lost) .
2. Blocked or damaged SIM cards.
3. Excess billing.
10 ITA Nos. 608 & 609(Asr)/20134. Other value added services like GPRS etc are provided by service provider i.e. BSNL.
3. Our role is limited to booking of connection only. Commission after deducting TDS is given on new connections by BSNL. Similarly TDS is deducted and deposited on commission disbursed to Sub- Franchisee on account of new connections booked by them.
4. Recharge - Recharge is a sort of currency to enhance talk time. Sale of recharge contributes to more than ninety five percent of business.
It is sold to distributors, retailers and shop keepers of any trades and from our counters also. At different rates depending upon market. Recharge are sold to us by BSNL against advance payment only. It becomes our property .All-risks are ours. They are not compensated /replaced in case of damaged, theft, lost or fire. It is relevant to point out that there is no dispute about the SIM Cards/Start-up Connections because I am getting the commission from Company and they deduct TDS thereon. Similarly, we deduct TDS on the payment made to Sub- Franchisee on account of commission on SIM Cards. Thus, there is no dispute as far as the SIM Cards are concerned. The only dispute is with regard to Recharge Coupons and Top-ups.
5. That the recharge Coupons purchased by the appellant becomes the property of the appellant and whether these are lost or destroyed or are not sold the responsibility for the same rests with the appellant and BSNL does snot recoup the loss to the appellant.
Reference is made to clause 22 of the agreement. (Refer Page No. 68of the agreement dated 22/12/2004) & (Refer Page No 89 of the agreement dated 08/2008).
6. The appellant has sold the recharge coupons to sub- distributors at a price so that they also get some margin of profit. This is also to be brought on record that SIM Cards and Recharge Coupons once sold become the property of the said sub-distributor and all loss or profit is to his account and also he is free to sell the same at a price which he deems fit though the maximum price has been fixed by BSNL, but the appellant and the sub-distributor are free to sell at a price that they deem fit and as per market conditions.
11 ITA Nos. 608 & 609(Asr)/20137. In terms of clause 24.1 of agreement with BSNL, it is clearly stipulated that, "nothing contained herein shall be deemed to create any partnership, joint venture, employment or relationship of principal & agent between the parties." (Refer Page No. 68 of the agreement dated 22/12/2004) & (Refer Page No 89 of the agreement dated 08/2008)
8. The Ld. AO TDS issued a notice to the appellant and stated that any margin involved in providing Telecommunication Services is Commission. In his order he has referred to the decision in the cases of Bharti Cellular Ltd., BPL Mobile Cellular Ltd., Idea Cellular Ltd., and Vodafone Essar Cellular Ltd.. In this regard, it may be submitted that all these entities are themselves Cellular Operators and service providers and in terms of the agreement between these service provides and the franchisees, the Hon'ble Courts held that the margin provided is in the nature of Commission.
9. The cases referred to by the Ld. AO are not applicable to the appellant as he is not a service provider. He books new connections and purchase recharge Coupons from the service provider, i.e. BSNL and provide no service to subscribers. He sells recharges to the sub- distributors. The sale to sub-distributors is again on principal to principal basis and there is no relationship of principal and agent.
10. That there are no written agreements with the sub-distributors.
11. That sale bills are issued to the sub-distributors, sample copies whereof are enclosed. In these bills the appellant has given the units of items sold, their price and their total value. Neither any commission has been paid nor shown in the bill, only trade discount has been deducted.
12. That the relationship between the appellant and the sub- distributors is on principal to principal basis and there is no relationship of principal and agent.
13. As per Indian Contract Act, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person from whom such act is done is called principal.
12 ITA Nos. 608 & 609(Asr)/201314. A person who acts on his own behalf cannot be termed as an agent. If the principal has no control over the person, he is not an agent.
15. The sub-distributors are independent of the appellant and the appellant has no control as regards selling practices or sale price of the product. In these circumstances, it cannot be said that the sub- distributors are agents of the appellant.
16. The appellant in its books of accounts has shown the transactions as purchase and sale and the books of accounts are duly audited. The Ld. AO has not rejected these books of accounts and the Trading and Profit & Loss Account furnished.
17. Both the appellant and the sub-distributors are independent business entities and the appellant has no control on sale or pricing of the product, therefore there is no relationship of principal and agent.
18. That once the Recharge Coupons are sold to sub distributors it became the property of the sub-distributors.
19. That the discount allowed by the appellant to the sub- distributors is in the nature of trade discount and cannot be categorized or terms as commission.
20. That the appellant submits that the Ld. AO has erred in coming to the conclusion that the margin passed on to the sub-distributors by the appellant is commission.
21. Commission has been defined in Explanation (i) to section 194H and as per the said definition the salient features are:-
a. Payment received or receivable directly or indirectly b. By a person acting on behalf of another person, c. For services rendered, not professional services.13 ITA Nos. 608 & 609(Asr)/2013
In terms of clause a and b contemplate that the person receiving the payment should be for and on behalf of another person.
In the present case none of these conditions are satisfied. The sub- distributor is not receiving the payment on behalf of the appellant but on his own account . He is not accountable to the appellant. Once the appellant has sold the SIM Cards/Recharge coupons, the appellant has no control or liability towards the sub-distributors.
It is further relevant to point out that we have already filed the copy of the bills issued by the BSNL from which it is crystal clear that the BSNL has allowed discount in some cases and have allowed commission. It is relevant to point out that the appellant's relationship with BSNL is different from the relationships of sub- franchisee and is on principal to principal because the appellant has no control on the sub-franchisees whatsoever. The sub-franchisees are free to sell SIM Cards and Top Ups to any customer and they are also free to charge commission on the sale of SIM Cards. As regards Top Ups, once it is sold the appellant loses its control over the same.
It will be relevant to point out that we are showing the dealing in recharge and purchase & sale thereof. Copies of trading accounts of various sub-franchisees were filed before the authorities below in order to prove that the recharge and TOP UPS have been shown as purchase & sale. The authorities below did not appreciate that the Sub-Franchisees itself are showing the same as purchase & sale and the department cannot treat the same in the hands of the appellant as different when the appellant has duly been showing the same as purchase & sale and there is no question of deducting tax at source on these, whereas the assessee has paid the commission. The Assessee has duly deducted the tax at source.
This view finds support from the decision of Supreme Court of India, in the case of CIT Vs. Ahmedabad Stamp Vendors Association. In this case the vendors were allowed 0.50% to 4% discount on purchase of stamps. Held by the Hon'ble Supreme Court that provisions of section 194H are not applicable. (Refer Page No 113, 114 to 124 of the Paper Book) 14 ITA Nos. 608 & 609(Asr)/2013
21. That the appellant rely on the following judgments:-
1. CIT vs. Ahmedabad Stamp Vendors Association [Refer Page No.113, 114 to 123 of the paper-book, Relevant Page No.113,1171121 to 123] In this case, Stamp Vendors were allowed to 0.50% to 4% discount on purchase of stamps. Held by the Hon'ble Supreme Court that provisions of Sec.194H are not applicable.
2. Jagran Prakashan Ltd vs. DCIT (TDS) 73 DTR (HC) 233 [Refer Page No.164 to 254 of the paper-book, Relevant Page No.165,170,177 & 178,212,220 & 252] The assessee company was publishing Hindi Daily Newspaper and was allowing trade discount to advertising agencies, the provisions of Sec.194H were invoked by AO and on writ petition, Hon'ble High Court allowed the petition.3. Pareek Electricals vs. ACIT 81 DTR (TRB) 342 [Refer Page No.158
to 163 of the paper-book, Relevant Page No.158,160 & 162] In this case, the assessee was in the business of trading in SIM cards and recharge coupons as franchisee of BSNL. The AO invoked the provisions of Sec.194H with regard to margin given to retailers/sub- franchisees. The Hon'ble ITAT held that provisions of Sec.194H are not applicable.
4. DCIT vs. Shrawan Kumar Aggarwal [Refer Page No.125 to 149 of the paper-book, Relevant Page No.126,127,146 to 148] In this case also, the assessee was trading in SIM Cards and Recharge Coupons and with regard to the sale to retailers, provisions of Sec.194H were invoked. After detailed discussion, the Hon'ble ITAT held that the provisions of Sec.194H are not applicable.
5. ACIT vs. Pearl Bottling (P) Ltd. [Refer Page No.150 to 157 of the paper-book, Relevant Page No.150 to 154 & 156] The assessee in this case was engaged in manufacture and sale of Soft Drinks and had appointed distributors. To the distributors, discount was paid which was considered as commission and provisions of 15 ITA Nos. 608 & 609(Asr)/2013 Sec.194H invoked. Held that these are discounts and not commission and provisions of Sec.194H not applicable.
6. CIT vs. Mother Dairy India Ltd. 206 Taxman 157 Del [Refer Page No.255 of the paper-book.] The assessee was in the business of trading in milk and milk products and had appointed concessionaires. They were selling the milk at the booths owned by the assessee. The difference between MRP and price at which sold was considered as business income and not commission in terms of section 194H.
7. Ajmer Zila Dugdh Utpadak Sangh vs. ITO 126 TTJ 197 (JP) In this case similar has been held as in the case of Mother Dairy India Ltd.
8. Foster's India (P) Ltd vs. ITO 117 TTJ 346 (Pune) Held that distributors incentive, early payment discount do not constitute commission. Even if there are conditions with regard to sales, storage or marketing does not make the margins to commission.
9. In CIT vs. Living Media India Ltd., the Hon'ble Delhi High Court, the assessee was a publisher and selling space for advertising in various magazines directly and through advertising agencies. In case of advertisement through advertising agencies, the assessee was paying trade discount of 15%. The revenue held it to be commission and hence TDS deductible. It was held that the transaction was in between principal and provisions of section 194H not applicable. In this case SLP of the department stands dismissed.
10.In NMDC vs. ACIT, 133 TTJ 244, the assessee a government company supplied iron ore to another government company which was appointed as centralizing agency by the government, the later having exported the same ore in its capacity as principal, it cannot be said that the goods were exported by the other company on behalf of the assessee as agent and provisions of TDS not applicable.
16 ITA Nos. 608 & 609(Asr)/201311.Similar issue was considered by the Hon'ble ITAT, Cuttack Bench in the case of Pareek Electricals 151 TTJ 226. In this case the assessee was a franchisee of BSNL and was selling their products i.e. SIM Cards and recharge coupons and allowing trade discount. The assessing officer disallowed the claim of the assessee that it was trade discount and CIT(A) confirmed the orders. On 2nd appeal, the Hon'ble ITAT held that 'we are inclined to consider the contention of the learned counsel for the assessee for the trade discount made available to the sub-franchisee was a compensation by forgoing the part of the commission already subjected to tax at source by the service provider could not have suffered taxation u/s 194H in so far as the product never belonged to the assessee.' It may be submitted that on the issue before your goodself, the same has been settled in favour of the appellant as above and there are no case law against the appellant. Therefore, the appellant prays that this case law be relied upon and relief be allowed as prayed for.
22. In the case of Jagran Prakashan, the Hon'ble Court also considered the alternative plea that in terms of section 201 and 201(!A), it was held that the provisions relating to tax and payment of interest operate in two different areas. If tax is not deducted at source the liability is upon the assessee to pay directly and that of deductor to pay interest only. Similar has been held by Gujrat High Court in CIT Vs. Ranoli Investment Pvt. Ltd. 235 ITR 433. Also by full bench of Uttrakhand in Director of IT (Internal Taxation) Vs. Maersk & Co. 334 ITR 79. The hon'ble high court shifted the burden on revenue.
In para 79 the hon'ble cout has held,"From the above it is clear that deductor cannot be treated as assessee in default till it is found that the assessee has also failed to pay such tax directly. In the present case, the IT authorities has not adverted to the Explanation to s.191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus to declare a deducter, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay such tax directly The fact that the assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deducter can be deemed to be assessee in default in respect of such tax.
17 ITA Nos. 608 & 609(Asr)/201323. In Vodafone Essar Ltd., Vs. Dy CIT 135 TTJ 385, the ITAT allowed the assessee's appeal holding that no tax can be recovered from the assessee and it cannot be treated as assessee in default if it is found that the taxes have been fully paid by the payee, assessee having furnished the PAN'S of 19 persons and confirmation of 8 parties to whom payments were made AO to verify payments of taxes with the help of PANs.
24. Before the authorities, the appellant has furnished copies of acknowledgements of 30 sub- dealers. Out of these the ld. AO accepted 23 and with regard to others he stated that these are not supported by statement of incomes hence cannot be considered. The appellant submits that the returns are filed paperless and therefore these were not supported by statements. The ld. AO did not issue any notice to these sub-dealers for confirming the receipt of amounts and paying tax thereon, as held by Hon'ble Allahabad high court and Hon'ble Mumbai bench of ITAT. The appellant has filed further 7 acknowledgements and pray that these be accepted as additional evidence and credit allowed.
25. The ld. AO has invoked the provisions of section 201 and 201(IA) of the act. Section 201(IA) states that in case of default in deduction then the person responsible shall be deemed to be assessee in default. Provision of sub-section (IA) states that in default the person responsible shall be liable for interest. The law therefore is that if the amount is not deducted it becomes the liability of the person receiving the income the person responsible to deduct is only liable for interest. This has been so held by the full bench of Hon'ble Uttrakhand High Court in Director of Income-Tax Vs. Maersk Co. Ltd., 334 ITR 79. Similar has been held by Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd., Vs. DCIT (Taxation). In view of the above law the only liability is on account of interest and not for principal.
In contrast, the legal position when the goods are sold by principal to its distributors creating principal and principal relationship would be entirely different. On the sale of goods, the ownership passes between the manufacturer and the distributors. It is the responsibility of the distributor thereafter to sell those goods 18 ITA Nos. 608 & 609(Asr)/2013 further to the consumers the ultimate users. The principal manufacturer does not come in picture at all. Of course, he may be liable for some action by the consumer because of defective goods etc., which is the result of other enactments conferring certain rights on the consumer or common law rights in his favour as against the manufacturer.
In the instant case also, when the BSNL sold its products to franchisee i.e. to the above mentioned assessee and subsequently when those goods were sold by the franchisee to its sub franchisee/retailers then it become the property of the sub franchisee/retailers and any loss of recharge coupons in any manner is borne by the owner of such coupons at that point of time i.e. same is to be borne by sub franchisee retailers not by the above mentioned and only in some extreme cases, BSNL reimburses the same where there is a technical defect in the case.
. Thus your good-self will appreciate our contention after considering the facts enumerated below:-
S1S.No.Particulars. Franchisee Sub-Franchisee/Retailer
1. Whether Telecom Service No. Franchisee is just a No. Sub-
Provider channel; of distribution. Franchisee/ Retailer is just a channel of distribution.
2. Whether any service is No, franchisee buys No, Sub-
provided on sale of recharge recharge from BSNL Franchisee/retailer buys to customer and further sells to recharge from customers/ sub- franchisee and further franchisee/ retailer. sells to customers.
Recharge in the chain of Recharge in the chain of distribution is a cash distribution is a cash value product and the value product and the service is provided only service is provided only by the Service provider, by the service provider. i.e. by the BSNL
3. Whether stock once sold is Yes, if stock is Yes, if stock is property of Buyer. damaged/lost, the loss is damaged/lost the loss is borne by the buyer. borne by the buyer.
19 ITA Nos. 608 & 609(Asr)/2013 [7]4. Whether Responsible to No, only BSNL is No. Only BSNL Service customer for responsible to customer provider is responsible default/deficiency in service. to customer.
5. Whether Requirement to Yes. No. have Staff Office as per BSNL design and Standards.
6. In case of CAF [Customer Franchisee has to bear No Penalty leviable on Acquisition Form] that does the penalty levied by Sub-Franchisee/retailer not fulfill guidelines BSNL/TRAI in case of and the franchisee is any error made even by only liable to BSNL, the Sub-Franchisee /retailer. franchisee can not levy any penalty on Sub Franchisee/Retailer.
7. Whether Exclusive Channel Franchisee is exclusive Not Exclusive, may deal partners of BSNL. in his area of operation with any number of companies/products
8. Responsibility towards Seller Franchisee responsible Sub-Franchisee/Retailer to BSNL/ not responsible to Franchisee.
9. Whether Principal Agent No, but for limited No, the transaction is Relationship purpose, discount is done on Principal to treated as Commission Principal basis.
as per High Court decisions.
Without prejudice to the submissions made hereinabove, there are certain points detailed below for your kind consideration:-
a. That in most of the cases, the sub-franchisee/retailer is existing assessee of Income-Tax and filed their returns of Income.
b. That there are lot of cases where the discount offered is less than Rs. 2500.00 during the year.
It may be pointed out that this is a case of Tax audit and the accounts are duly audited by the Chartered Accountant, who is a 3rd and independent person and copy of the Audit Report is available at Page Nos.20 ITA Nos. 608 & 609(Asr)/2013
27 to 44 of the Paper-Book .Furthermore, it may be pointed out that I am enclosing herewith copies of the purchase bills , as are available on Page Nos. 45 to 51 of the Paper-Book, Furthermore, we have already filed a copies of the sale Invoices which are available from Page Nos. 52 to 57 of the Paper-Book, which prove that we are selling the goods to the Sub-
franchisee from principal to principal basis. Furthermore, it may be pointed out that the franchisee-ship agreements are available at Page Nos. 58 to 74 of the Paper-Book, and another franchisee ship agreement was executed on August, 2008. A copy of the same is available at Page No. 76 to 112 of the Paper-Book. I will refer the following clauses which will prove the relationship of the assessee and the sub-franchisee and this relationship will prove that the goods were sold to them by the assessee from principal to principal. The chart containing seven relevant clauses is given hereunder:-
S.No Relevant Points Relevant Page No and Relevant Page No and Para No of agreement Para No of agreement dated 22/12/2004 dated 08/2008 1 Principal to Page No 68 clause 24.1 Page No 77 clause 1.8 principal The franchisee, its In the interest of employees, agents and increasing the representatives shall customer base, the provide service as an franchisee can independent "entity" on appoint sub a exclusive basis and franchisees, retailer nothing contained solely for the purpose herein shall be deemed of booking new to create any BSNL connections partnership, joint and retailers for venture, employment or selling prepaid cards.
relationship of principal and agent between the parties hereto or between BSNL and the franchisee representatives and employed or to provide service with any right, power or authority or to provide the franchisee 21 ITA Nos. 608 & 609(Asr)/2013 with any right, power or authority, whether express or implied to create any such duty or obligation.
2 Exclusive Page No 60 clause 2 Page No 78 clause 2
Agreement
The franchisee
The franchisee
understands and agrees understands and
that this marketing and agrees that this
distribution agreement marketing and
is on exclusive basis. distribution
agreement is on
exclusive basis
3 In case of any Page No 63 clause 9.7(c Page No 81 clause loss liability is & d) 9.7(c) that of Sh.
Gurpreet Singh That the BSNL shall not That the BSNL shall and not of BSNL be liable for any loss, not be liable for any pilferage or damage to loss, pilferage or the goods stored and damage to the goods sold at the premises and stored and sold at the the merchandise shall premises and the be entire responsibility merchandise shall be of the franchisee unless entire responsibility the same is occasioned of the franchisee by willful neglect or unless the same is default of the BSNL. occasioned by willful That it shall be the neglect or default of responsibility of the the BSNL. That it franchisee to effect the shall be the sales through proper responsibility of the invoices detailing the franchisee to effect material particulars of the sales through the BSNL phones proper invoices including IMEI number. detailing the material particulars of the BSNL phones including IMEI number.
22 ITA Nos. 608 & 609(Asr)/2013 4 No compensation Page 61 & 62 Clause Page No.80 Clause to be made to the 8.3 8.3 distributor on termination of On termination of the On termination of the agreements agreement, howsoever agreement, occasioned/caused, no howsoever further compensation occasioned/caused, no shall become due to the further compensation franchisee unless the shall become due to same shall have accrued the franchisee unless prior to the date of such the same shall have termination and the accrued prior to the franchisee expressly has date of such to agree that he will not termination and the be entitled to any franchisee expressly compensation and/or has to agree that he indemnification will not be entitled to whatsoever, from the any compensation BSNL in that regard. and/or indemnification whatsoever, from the BSNL in that regard. 5 Insurance and all Page No.68 Clause 22 Page No.89 Clause 22 liabilities are that of Mr. Gurpreet The liability to insure The liability to insure Singh and not of the stocks in the the stocks in the BSNL outlet(s) and in the outlet(s) and in the possession of the possession of the franchisee will be of the franchisee will be of franchisee and the the franchisee and the liability for any loss or liability for any loss damage due to any fire, or damage due to any burglary, theft etc will fire, burglary, theft be that of the etc will be that of the franchisee. franchisee. 6. No role of BSNL Page No.64 Clause 13.3 Page No.84 Clause between 13.3 franchisee to BSNL will not be a franchisee, party between BSNL will not be a franchisee to sub- Franchisee to party between 23 ITA Nos. 608 & 609(Asr)/2013 franchisee or to Franchisee, Franchisee Franchisee to retailer to Sub-Franchisees or to Franchisee, retailers or Franchisees Franchisee to Sub- dispute of any nature Franchisees or to whatsoever it may be. retailers or Franchisees dispute of any nature whatsoever it may be.
7. Franchisee is an Page No.68 Clause 24.1 Page No.86 Clause independent 24.1 entity on The Franchisee, its exclusive basis. employees, agents and The Franchisee, its representatives shall employees, agents provide services as an and representatives independent 'entity' on shall provide services an exclusive basis and as an independent nothing contained 'entity' on an herein shall be deemed exclusive basis and to create any nothing contained partnership, joint herein shall be venture, employment or deemed to create any relationship of principal partnership, joint and agent between the venture, employment parties hereto or or relationship of between BSNL and the principal and agent franchisee between the parties representatives & hereto or between employees or to provide BSNL and the service with any right, franchisee power or authority or to representatives & provide the Franchisee employees or to with any right, power or provide service with authority, whether any right, power or express or implied to authority or to create any such duty or provide the obligation. Franchisee with any right, power or authority, whether express or implied to create any such duty 24 ITA Nos. 608 & 609(Asr)/2013 or obligation.
Furthermore, it is relevant to point out that the worthy CIT(A) has rejected the appeal and while deciding the appeal he has concluded the whole discussion in Para 4 on Page No.9 to 11 of the order of CIT(A). It may be further pointed out that the Ld. CIT(A) has relied on certain Judgments which were not at all applicable on the present facts and circumstances of the case. The CIT(A), while deciding the case, has not appreciated that a copy of Agreement was duly filed, copy of which is placed at Page No.52 to 74 of the paper-book. Furthermore, the CIT(A) has not appreciated that we are not service providers and it is very much clear from the said Agreement that we are traders and dealing with Sub-Franchisee as Principal to Principal and not as Principal to Agent. The Ld. CIT(A) has relied on two Judgments which are mentioned hereunder:-
(i) Judgment of Supreme Court of India in the case of Bharat Sanchar Nigam Ltd. & Anr. Vs. Union of India & Ors., reported in (2006) 201 CTR 346. A copy of the same is placed at Page No.280 to 318 of the paper-book.
(ii) Decision of High Court of Calcutta in the case of Bharti Cellulor Ltd. vs. CIT & Anr., reported in (2013) 354 ITR 507. A copy of the same is placed at Page No.270 to 279 of the paper-
book.
As a matter of fact, the judgments cited by the worthy CIT(A) are not at applicable to the present case for the simple reason that we are not service providers but a Traders and dealing as Principal to Principal. The CIT(A) further failed to appreciate that the Calcutta High Court has held and decided the case on the basis of Agreement whereas the terms and conditions of our agreement are quite different. Furthermore, the assessee has relied on certain Judgments which are clearly applicable on the facts and circumstances of the present case and are identical as the assessee was not liable to deduct tax at source and the provisions of section 201(1) and 201(1A) are not at all applicable in the present case.
25 ITA Nos. 608 & 609(Asr)/2013Furthermore, it is very a relevant and important fact that the assessee started this very business in connection with Assessment Year 2007-08 and a copy of the assessment order is enclosed herewith, copy of which is placed at Page No.319 to 323 of the paper- book. During this year, i.e. Assessment Year 2007-08, the system of accountancy maintained by the assessee was fully accepted by the department and there is no reason for the department to take a different view in connection with Assessment Years 2008-09 & 2009-
10. The department has to be consistent in its stand and this view was upheld by the Supreme Court of India in the case of Berger Paints reported in 266 ITR 99 and again this view was upheld by Supreme Court of India in the case of CIT vs. Excel Industries and Mafatlal Industries Ltd., reported in 358 ITR 195.
In view of these circumstances, there was no justification for the department to take a different view during the year under consideration and it is, therefore, very respectfully prayed that the appeal of the assessee may kindly be accepted as there was no liability u/s 201(1) & 201(1A) of the IT Act, 1961."
9. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.
10. We have heard the rival contentions and perused the facts of the case.
As per Revenue, the PR is engaged in providing telecommunication services and is a service provider and after providing such services, the margin so earned is termed as commission liable under the provisions of section 194H to deduct tax at source on the payment made to sub franchisee and since PR assessee has failed to do so, the same is liable u/s 201(1) alongwith interest u/s 201(1A) of the Act. On perusal of record and 26 ITA Nos. 608 & 609(Asr)/2013 arguments of both the authorities below, we are of the view that the assessee has declared himself as franchisee of M/s. Bharat Sanchar Nigam Limited (BSNL) and is in the business of purchasing SIM cards and Recharge coupons from BSNL against payment and resells them to Sub Contractors/Sub Distributors/Sub-Franchisee. The assessee is a franchisee of BSNL, who claims himself as a trader and not as service provider or cellular operator. The role of Franchisee is limited to booking of new connections i.e. Subscriber Identification Module cards and sale of Recharge. Booking of new connections i.e. SIM cards. Contributes to less than5% of total business. Accordingly, it was explained that the assessee's role is limited to booking of new connections only and commission after deducting TDS is given on new connections by BSNL and similarly, TDS is deducted and deposited on commission disbursed to Sub-Franchisee on account of new connections booked by them.. On the other hand, sale of Recharge contributes more than 95% of business and only dispute is with regard to Recharge of coupons and Top-ups. The Ld. counsel for the assessee invited our attention to page 68 & 89 of the agreement dated 22.12.2004 and August, 2009 in which the Recharge coupons purchased by the assessee becomes the property of the assessee and when the same are lost or destroyed or not sold the responsibility rests with the assessee. The BSNL 27 ITA Nos. 608 & 609(Asr)/2013 does not recoup the loss to the assessee, which is clearly mentioned in clause 22 of the agreement dated 22.12.2004. The assessee has sold the Recharge coupons to the Sub-Distributors so that they also earn some margin of profit and such Recharge coupons once sold become the property of the said Sub-
Distributor and such Sub-Distributor is free to sell the same at a price as he deems fit though the maximum price has been fixed by the BSNL with regard to the market condition. The Ld. counsel for the assessee also invited our attention at page 68 of the agreement dated 22.12.2004 and at page 89 of the agreement dated August, 2008 where in clause 24.1, it is clearly stated that there shall not be any partnership, joint venture, employment or relationship of principal and agent between parties. As regards the decisions relied upon by the AO in the cases of Bharti Cellular Ltd; BPL Mobile Cellular Ltd; Ideal Cellular Ltd; and Vodafone Essar Cellular Ltd; the ld.
counsel for the assessee distinguished the same by submitting that all these entities are themselves Cellular Operators and service providers and in terms of the agreement between these service providers and franchisees, the Hon'ble Courts held that the margin provided is in the nature of Commission. These cases are not applicable in the present case since the assessee is not a service provider, as he purchased recharge coupons from the service provider i.e. BSNL and not provides any service to the 28 ITA Nos. 608 & 609(Asr)/2013 subscribers. The assessee simply sells recharges to the sub-distributors, which is on principal to principal basis and there is no relationship of principal and agent. Further, there is no written agreement with the sub-
distributors. The sale bills are issued to the sub-distributors and copies were produced before the authorities below. The books of account are audited and transactions has been shown as sale and purchase. None of the conditions referred to in section 194H to Explanation (i) is fulfilled. But equal margin earned/profit earned as commission i.e. the sub-distributor is not receiving the payment on behalf of the assessee but on his own and he is not accountable to the assessee. Once the assessee has sold the SIM cards or Recharge coupons, the assessee has no control or liability towards the sub-
distributors. A copy of the bills filed before the authorities below issued by the BSNL show that BSNL has allowed the discount in some cases and allowed commission in other cases. The relationship with BSNL is different from the relationships of sub-franchisee and is on principal to principal basis because the assessee has no control over the sub franchisees whatsoever.
The sub franchisees are from to sell SIM cards and Top Ups to any customer at any price and once these are sold the assessee loses its control over the same. The authorities below have not appreciated that sub-franchisees themselves are showing purchase and sale, which has not been questioned or 29 ITA Nos. 608 & 609(Asr)/2013 objected to by the Department in their cases, whether the assessee has paid the commission, the assessee has duly deducted tax at source, which is not disputed. The reliance has been placed by the ld. counsel for the assessee on the cases mentioned hereinabove. On perusal of the same and the submissions of the Ld. counsel of the assessee and also cases relied upon by the AO and the Ld. CIT(A), having been distinguished and the department having accepted purchase and sale during the preceding year 2007-08 and looking to the doctrine of consistency and in view of the judgment of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT reported in 266 ITR 99, we find that the assessee is a 'Trader' and relationship is that of the principal to principal and the authorities below are not justified to hold relationship of principal and that of an agent.
Accordingly, the assessee is not liable for the provisions of Section 201(1) & 201(1A) of the Act. Thus, the order of the Ld. CIT(A) and that of the A.O. is reversed and all the grounds of the assessee are allowed.
11. Now, we take up appeal of the assessee in ITA No. 609(Asr)/2013 for the assessment year 2009-10. The facts in the present case are identical to the facts in assessee's own case in ITA No.608(Asr)/2013 for the assessment year 2008-09 and accordingly as mentioned hereinabove, our order in ITA 30 ITA Nos. 608 & 609(Asr)/2013 No. 608(Asr)/2013 is identically applicable in the present appeal and accordingly all the grounds of the assessee in ITA No.609(Asr)/2013 are allowed.
12. In the result, Both the appeals of the assessee in ITA No.608 & 609(Asr)/2013 are allowed.
Order pronounced in the open court on 15th April, 2014.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15th April, 2014
/SKR/
Copy of the order forwarded to:
1. The Assessee:Sh.Gurpreet Singh Sethi, Jammu
2. The ITO, TDS, Jammu
3. The CIT(A), Jammu
4. The CIT, Jammu.
5. The SR DR, ITAT, Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar