Income Tax Appellate Tribunal - Mumbai
Bharti Airtel Ltd ( Mobility Division ), ... vs Department Of Income Tax on 28 March, 2013
ITA NO. 3681, 3682, 3877 & 3878 Mum/2011
M/s Bharti Airtel Limited, Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"B " Bench, Mumbai
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No.3681, 3682/Mum/2011
Assessment Year - 2010-2011
M/s. Bharti Airtel Limited Asstt. Commissioner of Income Tax,
Interface-7, 7th Floor, (TDS), Circle 1 (1)
Link Road, Malad (W) Vs. Mumbai.
Mumbai.
PAN: AAACB2894G
Appellant Respondent
ITA No. 3877, 3878/Mum/2011
Assessment Year 2009-2010
Asstt. Commissioner of Income Tax M/s. Bharti Airtel Limited
(TDS), Circle 1 (1) Interface-7, 7th Floor,
Mumbai. Link Road, Malad (W)
Mumbai.
PAN: AAACB2894G
Appellant Respondent
Assessee by: Shri Anil Bhalla
Respondent by: Shri Pravin Varma
Date of Hearing: 28/3/2013
Date of Pronouncement: 19/4/2013
ORDER
Per Rajendra Singh A.M. These cross appeals are directed against differenct ordres both dated 17.2.2011 of CIT (A) for assessment years 2009-10 and 2010-11. The dispute raised in these appeals relate to application of TDS provisons to the transaction of the assessee with the distributors in relation to roaming charges and inter-connect usage charges, and in Page 1 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai relation to expenses incurred on account of outsourcing of manpower supply. As the disputes raised in both the appeals are mostly common, these cross appeals are being disposed of by a single consolidated order for the sake of cconvenience.
2. We first take up the dispute relating to applicability of provisions of section 194H for deducting tax at source on transactions of the assessee with the distributors in relation to the prepaid Sim cards and e-recharge vouchers. The assessee is a cellular operator. A survey u/s 133A had been conducted in case of the assessee on 14.1.2010 and 15.1.2010 during the course of which it was noticed that the assessee was not deducting tax at source in relation to the margin money given to the distributors. In transactions relating to prepaid Sim cards and e- recharge vouchers, which was of the nature of commission. The assessee explained that the margin allowed was only discount and not of the nature of commission and, therefore, no tax was being deducted. It was also submitted that commission was being paid only in relation to post paid connections on which tax was being deducted. The AO, however, did not accept the explanation given by the assessee. It was observed by him that whether it was prepaid Sim Cards or E-recharge vouchers relating to pre paid connections there was a contract between the mobile company and the consumers for providing services and in case of any defect in the service, the consumer could claim directly from the mobile company. The Sim card was the property of the mobile company and the role of distributors/retailer was to supply Sim cards or E-recharge vouchers on behalf of the mobile company. The distributor only collected the amount on behalf of the mobile company and paid the same to it after retaining the margin. The ultimate agreement was between the mobile company and subscriber and, therefore, the role of distributor/retailer was only that of a middleman for providing certain services to mobile company. He referred to the definition of commission or brokerage given in the section 194 H read as under:-
Page 2 of 24ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai "Commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing not being securities.
2.1 The AO observed that no doubt as per the agreement the distributor was supposed to make all payments in advance but that did not change the nature of transaction which was between a principal and an agent. The AO also observed that nature of services provided by the assessee remained the same whether it was a case of prepaid connection or post paid connection, the only difference being that in case of post paid Sim card, transaction was entered into directly between assessee and the subscribers and the bill was sent periodically by the assessee to the subscriber. In case of prepaid connections, the Sim cards are sold to the consumers through the medium of distributor/retailers. The AO also noted that in case the Sim cards were not sold the same were required to be returned to the assessee who is required to make payment against the Sim cards so returned. Therefore the transaction was not that of sale but only for providing services in connection with the pre paid connection for which the distributors were given commission. The AO also referred to the judgment of Hon'ble High Court of Delhi dated 19.2.2010 in Income Tax Appeal no. 143 and 784 of 2009 in case of IDEA Cellular Ltd. in which it was held that the relation between assessee and the distributor was that of principal and agent and the payment made by the assessee was of the nature of commission, which was covered under the provisions of section 194H.
The AO, therefore, held that the margin money provided to the distributor was of the nature of the commission on which tax was required to be deducted by the assessee u/s 194H. The total tax which was required to be deducted was Rs. 171025401 in assessment year Page 3 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai 2009-10 and Rs. 102029884 in assessment year 2010-11 which the assessee had failed to deduct. The AO, therefore, treated the assessee as "assessee in default" in respect of the above amounts u/s 201 (1) of the IT Act, which the assessee was made liable to pay.
2.2 The assessee disputed the decision of the AO and submitted before CIT (A) that the provisions of section 194H could be applied only if the assessee had paid any amount by way of commission and only in such cases, tax was required to be deducted at the time of credit of such income to the account of the payee or at the time of payment whichever was earlier. Such payment is required to be made for some services rendered. In the present case it was submitted that the distributor had not rendered any service in the course of buying or selling of cards on behalf of the assessee. The distributor had purchased the prepaid cards from the assessee on payment and sold the same to the retailer. It was also submitted that the distributor was not acting on behalf of the assessee and that no payment had been made to the distributor or credited to his account on account of margin money nor the assessee had had shown any commission in the books of accounts. Therefore it was argued that the margin allowed by the assessee to the distributor was only discount in relation to the sale of Sim cards to the distributors and not commission and therefore the provisions of section 194H were not applicable. CIT(A), however, did not accept the contentions raised by the assessee. It was observed by him that the issue raised was covered by the judgment of Hon'ble High Court of Delhi in case of CIT Vs. IDEA Cellular Ltd (325ITR148) and by the judgment of Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (332 CTR 3255). In these judgments, the Hon'ble High Courts noted that there was no sale of goods involved and the entire charges collected by the assessee at the time of delivery of Sim cards or E-recharge vouchers were only for rendering services to the assessee company and the distributor was only Page 4 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai a middleman, arranging customers or subscribers for the assessee. The distributor as per the agreement enrolled the subscribers with proper verification and documentation on behalf of the assessee. The assessee was not paying any amount to the distributors for the services rendered by them like getting the subscribers identified or doing the documentation and enrolling them as mobile subscribers to the assessee. It was the assessee who was accountable to the subscribers for rendering prompt services. The unsold Sim cards were required to be returned to the assessee against which the assessee was required to make payment, which was antithesis of sale as noted by Hon'ble High Court of Delhi in case of IDEA Cellular Ltd. (Supra). The Hon'ble High Court also observed the fact that the distributor was supposed to make payment in advance did not make any difference to the nature of transactions, in view of other terms of agreement. It was thus, held in these cases that the margin money given by the assessee to the distributor at the time of delivery of Sim card and recharge coupons was nothing but commission for the services rendered as distributor was only acting as middleman, rendering services on behalf of the assessee. It was accordingly held by the High Courts that provisions of section 194 H was applicable.
2.3 Considering the above judgments, CIT (A) confirmed the decision of AO treating the assessee as "assessee in default" u/s 201 (1) of the IT Act. The assessee had also raised an alternate argument that in view of the judgment of Hon'ble Supreme Court in case of Hindustan Cocacola Beverages Pvt. Ltd. (293 ITR 226), in which it was held that in case it was established that the tax had been paid by the deductee, the same could not be collected once again from the deductor, no tax should be collected from the assessee as the deductee had paid tax. CIT (A) considered the plea and held that wherever the assessee proved that tax had been paid by the deductee, recovery of tax could not be enforced Page 5 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai against the assessee. CIT (A) further, held that in case the assessee company failed to prduce certificate from the auditors of the deductee company certifying that the tax and interest due from the deductee had been paid, the AO will be entitled to recover tax u/s 201 from the assessee. Aggrieved by the decision of CIT (A), the assessee is in appeal before tribunal in both the years.
3. Before us, the learned AR for the assessee argued that case of the assessee was Similar to the case of Ahmedabad Stamp Vendors Association (Supra) in which the Hon'ble High Court of Gujarat had held that margin allowed to licensed vendors by the Government was of the nature of discount and not commission. It was pointed out that the case of the assessee was similar to the case of stamp vendors. The assessee in this case was transferring the right to use the air time to the distributor and the air time value was captured in the pre paid cards which was Similar to the case of sale of stamp papers in which the value of stamp was captured in the stamp paper. In both the cases, it was the distributor who was responsible for loss, pilferage or damage to the Stamp paper/Sim cards. It was also submitted that the judgment of Hon'ble High Court of Gujarat has now been upheld by the Hon'ble Supreme Court as reported in 2012.TOIL-68-SC.-IT. The learned AR admitted that the judgments of Hon'ble High court of Kerala in the case of Vodafone Essar Cellular Ltd. (Supra) was against the assessee in which it has been held that relationship between the assessee and the distributor was that of a principal and an agent and the margin allowed to the distributor was commission and not discount and that there was no sale of goods involved. It was also admitted by the Learned AR that the judgment of Hon'ble High Court of Gujarat in case of Ahmedabad Stamp Vendors Association (Supra) had been considered by the Hon'ble High Court of Kerala in the case of Vodafone Essar Cellular Ltd. (332 ITR 255), and Hon'ble High court of Kolkata in the case of Bharti Cellular Ltd (244 ITR 1J) and after considering these judgments the Page 6 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai stand of revenue had been upheld. However, it was argued that at the time of delivering the judgment by the High Courts, the judgment of Supreme Court in case of Ahmedabad Stamp Vendors Association (Supra) was not available. Therefore, in view of the judgment of Hon'ble Supreme Court upholding the judgment of Hon'ble High Court of Gujarat in case of Ahmedabad Stamp Vendors Association (Supra), the position has changed and therefore following the Supreme Court judgment in case of Ahmedabad Stamp Vendors Association (Supra). it has to be held that the margin allowed to the distributors was discount and not commission.
3.1 The learned AR also referred to the judgment of Hon'ble High Court of Bombay in case of Qatar Airways (332 ITR 253) in which the agents were authorized to sell the air tickets at any rate between fixed minimum commercial price and the published price, and the difference had been treated by the revenue authorities as commission. However, the High court held that it was neither commission nor brokerage and therefore no tax was required to be deducted. Therefore it was argued that case of the assessee was also covered by the above judgment of Hon'ble High Court of Bombay in case of Qatar (Airways Supra). The learned AR further argued that in the present day of globalization the distinction between goods and services was getting blurred as held by the Hon'ble Supreme Court in case of B. Suresh (313 ITR 149). In that case the movies recorded on cassettes had been transferred to the foreign concerns as telecasting rights and the issue was whether this amounted to sale of goods or mercandise. The Hon'ble High Court held that transfer of telecasting rights would fall in the category of articles of trade and commerce, and hence, it was mercandise, eligible for deduction u/s 80 HHC. In the present case, it was pointed out that there was transfer of right to use Air Time from the service provider to the distributor and from distributor to the retailer from whom the right Page 7 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai was ultimately transferred to the customers. This amounted to sale of articles of trade in view of the judgment of Hon'ble Supreme Court in case of B. Suresh (Supra), and, therefore, the relationship between the assessee and the distributors was on principal to principal basis. It was also submitted that the fact that no Sale Tax or VAT was leviable was not fatal to the character of mercandise. The Learned AR also pointed out that the judgment of Hon'ble High Court of Delhi in case of IDEA Cellular Ltd. (Supra) had been based on the principle that the services could not be sold, which was contrary to the judgment of Hon'ble Supreme Court in case of B. Suresh (Supra) in which it has been held that there was then difference between goods and services and that the services could also be transferred. It was thus, argued that the margin allowed by cellular operators to the distributors had to be considered as only discount and not commission and therefore no tax was required to be deducted and accordingly the assessee could not be treated as default u/s 201 (1).
4. The learned DR appearing for the revenue on the other hand strongly supported the orders of authorities below. It was submitted that the case of Ahmedabad Stamp Vendors Association (Supra) was distinguishable as in that case the property in the goods passed on to the vendors who were having custody and title over the goods and therefore the transaction was principal to principal basis. The transaction in that case was also liable to sale tax but the same had been exempted by the Government. In the present case there was no sale tax leviable and transactions were only subject to service tax. In this connection it was pointed that Sim cards stocked by the distributor were the sole property of the service provider i.e. the assessee company. The distributor could not use the Sim cards and this right was only given to the ultimate consumer who activated the connection by using the secret no. provided in the Sim cards. It was only the ultimate Page 8 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai consumer or the assessee company who had the authority to uncover this secret no. and bring the card into activation. Therefore, it could not be said that once the delivery of Sim cards were given, it becomes the property of the distributor. It was also pointed out that in terms of the distribution agreement. It was the distributor who enrolled the subscriber with proper verification and documentation. The assessee was not paying any amount for this service other than the discount given at the time of supply, it was therefore clear that the role of the distributor was that of a middleman between the assessee and the consumers and the discount allowed was for rendering various services mentioned above. It was also pointed out that the unsold Sim cards were required to be returned to the assessee which could not happen in case the Sim cards had been sold to the distributors. In case of termination of the agreement, the distributor or the retailer was not entitled to any compensation for cost or expense incurred by it either for setting up or for promotion of business. It was pointed out that no such clause was necessary in case the assessee had sold the Sim cards to distributors.
4.1 The learned DR pointed out that all these factors had been duly noted by Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (Supra) and Hon'ble High Court of Delhi in case of IDEA Cellular Ltd. (Supra) and considering all these factors the High Courts had held that margin allowed was only commission and not discount. The same view had been taken by the Hon'ble High Court of calcutta in case of Bharati Cellular Ltd. (Supra) It was also pointed out that Hon'ble High Court of Kolkata in case of Bharti Cellular Ltd. and Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (Supra) had duly considered the judgment of Hon'ble High Court of Gujarat in case of Ahmedabad Stamp Vendors Association (Supra) and held that said judgment was distinguishable and not applicable to the facts of the present case. Therefore it was argued that merely because the judgment Page 9 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai of Hon'ble High Court of Gujarat in case of Ahmedabad Stamp Vendors Association (Supra) had been upheld by the Supreme Court did not make any difference to the non applicability of the said judgment to the facts of the present case. The Learned DR distinguished the judgment of Hon'ble High Court of Bombay in case of Qatar Airway (Supra) in which case it was pointed out that agent had been paid commission on the published price which was liable for deduction of tax at source. The agent had been given the liberty to sell the Air Tickets at any rate between the published price and minimum fixed price and therefore selling at lower rate, which was permitted, could not be considered as commission. It was also submitted that judgment of Hon'ble Supreme Court in case of B. Suresh (Supra) was distinguishable as in that case telecast rights were sold, whereas in the present case there was no sale of right to use the air time to the distributor. Therefore, it was argued that the above judgment did not support the case of the assessee. It was accordingly, urged that order of CIT (A) should upheld.
5. We have perused the records and considered the rival contentions carefully. The dispute is regarding applicability of provisions of section 194 H regarding deduction of tax at source in relation of the margin money allowed by the assessee to the distributors on supply of pre paid Sim cards and recharge coupons. The assessee is rendering mobile telephone services to the customers through appointment of distributors. The assessee had two different types of transactions. In the first category the assessee gave connections to customers and charged them on monthly basis by raising bills. This is called post paid scheme, In the other category falls the pre paid scheme in which the assessee collects the money in advance from the distributors who supply the pre paid Sim cards and recharge coupons to the customers through the retail chain. In both the categories, however, the ultimate users of the Sim cards are the customers whose handsets are activated through the Page 10 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai Sim cards only by the assessee who gives connection to the customers through the distributors. In both the cases, the assessee had distribution agreement with the distributors as per which the distributor gets the customers for the assessee. As per the telecom regulation, connection could be given to customer only after production of identity, proof of address etc. and this job has been entrusted by the assessee to the distributors. In the post paid scheme, the assessee pays certain charges to the distributors for all these services such as enrollment of subscribers with proper verification and documentation on behalf of the assessee. The assessee treats such payment made to the distributors in post paid scheme as commission for services rendered on which tax has been deducted at source. However, in case of pre paid scheme, the assessee allows certain margin to the distributors while supplying the Sim cards and recharge coupons and this margin is treated by assessee as discount on which no tax has been deducted at source. The assessee's claim is that it was a case of sale of Sim cards and recharge coupons to the distributors at discount and therefore the payment were not for rendering any services and thus could not be considered as commission.
5.2 We find that the same issue had been considered by the Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (Supra). The Hon'ble High Court noted that BPL Cellular Mobile Ltd. whose business was subsequently taken over by the assessee in a sale tax case had claimed that transaction of the assessee, with the distributor for supply of Sim cards and recharge coupons under the pre paid scheme was not sale and therefore the assessee did not have any sale tax liability as the same did not involve sale of goods but was only payment for rendering services. The Hon'ble High Court after referring to the judgment of the Hon'ble Supreme Court in case of BSNL and another Vs. Union of India reported in (2006) 145 STC 91 upheld the contention of Page 11 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai the assessee that there was no sale involved and therefore transaction did not attract sale tax liability and that the transactions were only for rendering mobile services. In the said judgment in WP (C) no. 29202/2005, the High Court held that the transaction with the distributor in the pre paid scheme was not sale of goods but for services rendered because as per distribution agreement, the enrollment of subscribers with proper verification and documentation was the responsibility of the distributor and the assessee had not paid any amount to the distributor in the pre paid scheme other than the margin allowed to the distributors. Therefore, the margin allowed was nothing but for services rendered by the distributor whose role was that of a middleman between the service provider and the assessee. The distributor actually canvassed business for the assessee and only through the distributors and retailers the assessee got subscribers for the mobile service. Thus the role of distributor was like an agent and the relationship between assessee and distributor was not "principal to principal". The assessee had also argued before the High Court of Kerala that the distributors were free to charge any amount from the subscribers or the retailers below the MRP and therefore the distributors could passé part of the margin to the retailers and subscribers. It was thus argued that in case tax was deducted on the margin money part of which may not be recovered by the distributor. Therefore, the deduction of tax was not justified. The High Court however, did not accept the argument advanced and observed that there was specific provision u/s 197 of IT Act as per which the assessee could apply to the department for getting certificate to receive discount or commission without deduction of tax at source or with deduction at lower rate of tax. The High court also observed that there was no difference in the service rendered by the distributor under the post paid scheme and the pre paid scheme and therefore there was no justification for non deduction of tax in case of pre paid scheme when the tax was being deducted in case of post paid scheme. The High Court accordingly upheld the decision of Page 12 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai Cochin Bench of Tribunal holding that margin money was nothing but commission for services rendered which was liable for deduction of tax at source u/s 194 H of the IT Act.
5.3 The same view has been taken by the Hon'ble High Court of Delhi in case of IDEA Cellular Ltd.(Supra), who also uphold the view taken by the Cochin bench of tribunal. The High Court also dealt with the argument raised that distributors were paying money in advance and therefore it had to be considered as sale of goods and held that payment of money in advance was only to ensure that payment was actually received from the customers who were the ultimate consumers and merely because the assessee received money in advance it could not be considered sale of goods. The Hon'ble High Court of Delhi also noted that under the distribution agreement, unsold pre paid cards were required to be returned to the assessee for which the payment was required to be made by assessee which could not be the situation in case it was a sale of goods. The High court also noted that under the distribution agreement, in case the agreement was terminated, the distributor or its authorized retailer were not entitled to any compensation for costs or expenses incurred by it in setting up or for promotion of its business. The High court observed that no such clause was required in case it was considered as sale of goods. The High Court also noted that Sim cards stocked by the distributors were sole property of the service provider and permission for right to use the Sim cards was given only to the ultimate customers who activated the connection by using the secret number provided in the Sim cards and it was the ultimate consumers or the assessee company who had the authority to uncover the secret number and bring the card into activation. Therefore mere supply of Sim cards to the distributors could not be considered as transfer of property in the Sim cards to the distributors. The assesse had also argued that in case of pre paid scheme the assessee was not Page 13 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai making actual payment and therefore the assessee had no occasion to deduct tax at source. The assessee was neither paying amount nor making any credit entry in the accounts of distributor for rendering services. The High Court however did not accept the contentions raised and observed that margin money was fixed and paid to the assessee in advance and assessee therefore could easily deduct tax at source and collect the net proceeds along with TDS from the distributors while distributing the pre paid products to the distributors. The High Court, therefore, held that margin money was nothing but commission for services rendered and it was not a case of sale of goods as it was a case of service which could not be sold or purchased but could only be rendered or provided. The high Court accordingly, held that margin money was commission on which tax was required to be deducted.
5.4 The Hon'ble High Court of Kolkata in case of Bharti Cellular Ltd. Vs. ACIT (Supra) have also taken the same view in the matter. The Hon'ble High Court while examining the issue observed that true nature of relationship between assessee and the distributor i.e. principal to principal or principal to agent has to be gathered from the nature of contract and the terminology used by the parties was not conclusive of the said relationship as held by Hon'ble Supreme Court in case of Bhopal Suger Industry Ltd. (40 STC 42). The High Court further observed that it was a settled legal position that in case of sale of goods it is to be established that property in the goods passes on to the vendor buyer without having any control or title of the seller and only then the transaction could be considered as "principal to principal". The high Court observed that in the present case though nomenclature used in the agreement was franchisee, the agreement was essentially between principal and agent. The franchisee was acting on behalf of the assessee for selling the pre paid cards and recharge coupons to the customers. The High Court accordingly held that the margin allowed to the Page 14 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai distributors was for services rendered and had to be treated as commission and not discount on which tax was required to be deducted.
5.5 The Learned AR for the assessee has strongly relied on the judgment of Hon'ble High Court of Gujarat in case of Ahmadabad Stamp Vendors Association (Supra) to argue that it was a case of sale of goods and not service. It will be pertinent to point out here that the judgment of hon'ble High court of Gujarat in case of Ahmadabad Stamp Vendors Association (Supra) has already been considered by the Hon'ble High Court of Kerala in case of Vodafone Essar Cellular Ltd. (Supra) and Hon'ble High Court of Kolkata in case of Bharti Cellular Ltd Vs. ACIT (Supra) and had been distinguished as not applicable to the facts of the present case. The learned AR has argued that since the judgment of Hon'ble Supreme Court upholding the judgment of Gujarat High Court in case of Ahmadabad Stamp Vendors Association (Supra) was not available at the time of delivery of judgments by the Hon'ble High Court of Kerala and Hon'ble High court of Kolkata in the cases mentioned above, the issue required fresh consideration. We are however unable to accept the arguments advanced. Only on the ground that judgment of Hon'ble High Court of Gujarat in case of Ahmadabad Stamp Vendors Association (Supra) has been upheld by Hon'ble Supreme Court cannot be the basis for holding that the present case is covered by the said judgment if the facts are distinguishable. In case of sale of stamps the property in the stamps passes to the licensed vendor on delivery of stamp papers to them, which is not so in this case as the property in the Sim cards is not transferred to the distributor. It has, however, been argued by the learned AR that the assessee in this case was selling the right to use the air time which was captured in Sim cards and which had been transferred to distributor which was Similar to the value of stamp captured in stamp papers which had been transferred to the licensed vendors and therefore transfer of right to use air time has to be Page 15 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai considered as the sale of goods. The learned AR has placed reliance on the judgment of Hon'ble Supreme Court in case B. Suresh ( Supra) for the said proposition. We have carefully perused the said judgment and find that the same is distinguishable. In that case the movies had been recorded on cassettes and their telecasting rights had been sold by the assessee to the foreign concerns for a certain period and the issue was whether this amounted to sale of goods or mercandise and whether the provisions of section 80HHC were applicable. The Supreme Court held that transfer of telecast rights would fall in the category of articles of trade and commerce and hence mercandise. But in that case, the foreign concerns had right to telecast the films which could be used for a certain period. It is not so in the present case as the right to use the air time could not be exercised by the distributor. Such right to use airtime vested only with the ultimate customers. Such right could be transferred to the customer only with the permission of the assessee i.e. cellular operator. Therefore the present situation cannot be considered as covered by the judgment of Hon'ble Supreme Court in case of B. Suresh. (Supra).
5.6 The learned AR has also placed reliance on the judgment of Hon'ble High court of Bombay in case of Qatar Airway (Supra) but the said case is also distinguishable. The case related to sale of air tickets by the agents who were paid 9% commission on the published price. The agents were also authorized to sell the tickets at any rate between the fixed minimum price and the published price. The revenue had treated the difference between the published price and price on which the tickets were sold as commission. The High Court noted that the air lines had discretion to sell the tickets below the published prices and therefore the permission given to the agents to sell the tickets below published price could neither be considered as commission nor brokerage. The High Court also observed that for deduction of tax at Page 16 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai source the income must be ascertainable. But in this case the airlines had no information of the exact rate at which the agents had sold the tickets, and therefore it was held that no tax was required to be deducted. The case of the assessee is different. The assessee in this case has allowed fixed margin to the distributor which is Similar to the 9% commission allowed to the air tickets agent on which the tax had already been deducted by the airlines. The fixed margin was known in advance to the assessee and there was no difficulty in deducting the tax at source. The case of Qatar air ways (Supra) therefore is not applicable to the case of the assessee.
5.7 In view of the foregoing discussion and for the reasons given earlier we hold that margin allowed by the assessee to the distributors was of the nature of commission which was liable for deduction of tax at source. Accordingly we confirm the order of CIT (A) on this issue.
6. The second dispute is regarding applicability of provisions of section 194J relating to deduction of tax at source on roaming charges and inter-connect usage charges paid by the assessee to third party service providers. These payments had been treated by the AO as payment towards professional and technical services on which tax is required to be deducted u/s 194J. Since, the assessee had not deducted tax at source, the AO treated the assessee as "assessee in default" in respect of the amounts not deducted at source u/s 201 (1) of the IT Act. The assessee was thus held in default for a sum of Rs. 145870615 in assessment year 2009-10 and Rs. 5351932 in assessment year 2010-11 in relation to roaming charges. Similarly, the AO treated the assessee in default in respect of tax not deducted at source amounting to Rs. 97904934 and Rs. 37983088 for assessment year 2009-10 and assessment year 2010-11 in relation to inter-connected usages charges Page 17 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai on which no tax had been deducted by the assessee which as per the AO was covered under the provisions of section 194 J. The assessee disputed the decision of AO and submitted before CIT (A) that provisions of section 194 J could be applied only when there was human intervention. It was argued that there was no human intervention in the roaming services and inter-connect services and therefore, the payment could not be covered towards professional ant technical services for which section 194 J was applicable. Accordingly, it was urged that the order of AO treating the assessee in default should be set aside.
6.1 CIT (A) after considering the submissions of the assessee, observed that the same issue had been considered by the Hon'ble Supreme Court in case of Bharti Cellular Ltd. ( 319 ITR 139). The issue which arose for determination by the Hon'ble Supreme Court was whether human intervention was involved in the technical operations by which the cellular service providers were providing the facility of roaming services and inter-connect services. The Hon'ble Supreme Court held that in order to find out whether any technical services were rendered, it was necessary to examine if human intervention was involved at any stage including the stage where the existing capacity was exhausted and additional capacity was urgently required. The supreme Court issued certain directions to CBDT and held that the matter should receive fresh consideration at the hands of the AO in the light of these directions. The relevant portion of the judgment of Hon'ble Supreme Court is reproduced below:-
"Before concluding we are directing CBDT to issue directions to all its officers that in such cases, the Department need not proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with the technological advancement matters such as Page 18 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai present one will keep on recurring and hence, time has come when Department should examine technical experts so that the matters could be disposed of expeditiously and further it would enable the Appellate Forums, including this court to decide legal issues based on the factual foundation. We do not know the constraints of the Department but time has come when the department should understand that when the case involves revenue running into Crores, technical evidence would help the Tribunal and Courts to decide matters expeditiously based on factual foundation The learned Attorney General who is present in Court, has assured us that our directions to CBDT would be carried out at the earliest."
6.2 CIT (A) therefore held, that the issue regarding applicability of provisions of section 194 J to roaming charges and inter-connect usage charges was required to be examined in the light of the judgment of Hon'ble Supreme Court in case of CIT Vs Bharti Cellular Ltd. (Supra). CIT (A), accordingly, set aside the order of AO and restored the matter back to him for passing afresh order after necessary examination in the light of the observation of Hon'ble Supreme Court in case of CIT Vs Bharti Cellular Ltd. (Supra) and in accordance with law. Aggrieved by the decision of CIT (A) both the parties are in appeal. The assessee has disputed the applicability of provisions of section 194 J and also has challenged the decision of CIT (A) to restore the matter to the file of the AO, whereas the department is aggrieved by the decision of CIT (A) to restore the matter to AO on the ground that CIT (A) has no power to set aside the issues to the file of the AO.
Page 19 of 24ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai 6.3 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding applicability of provision of section 194J regarding deduction of tax at source in relation to roaming charges and inter-connect usage charges paid by the assessee to other cellular operators. The AO held that these payments were for technical services rendered and therefore provisions of section 194 J were attracted as per which tax was required to be deducted, which had not been done by the assessee and, accordingly the AO treated the assessee in default u/s 201(1) of the IT Act. We find, that the same issue has already been considered by the Hon'ble Supreme Court in case of Bharti Cellular Ltd. (Supra), in which it was opined that for applicability of section 194 J, it was necessary to find out if human intervention was involved at any stage including the stage where the existing capacity was exhausted and additional capacity was required. The Hon'ble Supreme Court directed the CBDT to issue directions to all its officers that in such cases the department need not proceed only by the contracts placed before the officers and the matter should be examined with the help of technical experts. Accordingly, it was held that the issue should receive fresh consideration at the hands of the AO. Following the judgment of Hon'ble Supreme Court (Supra) that CIT (A) has restored the matter to the file of AO for fresh consideration.
6.4 The learned AR for the assessee submitted that the assessee had no grievance against matter being restored to the AO as the issue had to be examined in the light of judgment of Hon'ble Supreme Court (Supra). The objection raised by the learned DR was only technical that CIT (A) had no power to set aside the order and restore the matter to the file of the AO. The learned DR further pointed out that fresh assessment after the order of CIT (A) has already been framed by AO. In such a situation we do not found any useful purpose in setting aside the order of CIT (A) on the ground that he had no power to restore the mater to AO and Page 20 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai restoring the matter again to the file of AO at this level twhn the AO will have no option than to repeat the assessment which has already been made. The entire exercise of setting aside at this level and repeating same assessment will be an anfractuous exercise. Considering the fact that CIT (A) has set aside the matter following the judgment of Hon'ble Supreme Court and assessment has already been framed by the AO, we do not consider it a fit case to interfere with the order of CIT (A) on this issue. Accordingly, the ground raised by both the parties are dismissed.
7 The third dispute which is relevant only to the appeal by department in assessment year 2009-10 is regarding applicability of provisions of section 194J to the payments made by the assessee for outsourcing manpower supply. The AO during the assessment proceedings noted that the assessee had made the following payments towards the outsourcing expenses as under:-
I. BASL Salary and Wages and CTC reimbursement Rs. 101486330 II. BASL Non CTC reimbursement Rs. 11219182 III. Outsourced Manpower expenses Rs. Rs. 4152473 Total of Rs 116857985 7.1 The AO noted that the assessee had deducted tax at source on the above payments at the rate of 2% u/s 194 C (2). The AO observed that the provisions of section 194 C(2) were applicable only towards payment for supply of labour. However, in this case the payments had been made in connection with deployments of educated/skilled manpower to execute certain specific jobs and, therefore, these payments were nothing but fees for technical services, which had been defined in the Explanation to section 194 J as any contract for rendering any managerial, technical or consultancy services but does not include consideration for any construction, assembly, mining or like project under taken by the recipient or consideration which would be income of Page 21 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai recipient chargeable under the head salaries. The AO therefore, held that the provisions of section 194 J were applicable as per which tax was required to be deducted at the rate of 11.33%. He therefore, held that the assessee had deducted tax short by a sum of Rs. 10599109 i.e. 9.07% of 116857985. The AO therefore, treated the assessee in default in the respect of the above amount u/s 201(1) of the IT Act.
7.2 The assessee disputed the decision of AO and submitted before CIT (A) that the manpower outsourced was at the level of clerical staff. It was submitted that the assessee did not want to take on its roll the employees to render clerical support services required in the back office of the assessee company. The assessee, therefore, decided that Bharti Airtel Service Ltd would supply the non-technical and non-professional personnel required by the assessee company. The term of payment was actual reimbursement of expenses incurred on the employees by Bharti Airtel Service Ltd, such as the expenses of salary, contribution to the various funds, insurance policies etc. It was also decided that in addition to reimbursement of expenses Bharti Airtel Services Ltd. would charge administrative expenses of Rs. 350 per employee per month in respect of employees deputed to assessee company. The assessee produced the necessary invoices to substantiate the claim. It was argued that reimbursement of expenses did not attract the TDS provisions and in so far as the payment of Rs. 350 per employee was considered, it was for supply of manpower which was not covered by the definition of professional or technical services. Alternatively, it was also submitted that tax had been paid by the payee on the payments made and therefore in view of the judgment of Hon'ble Supreme Court in the case of Hindustan Cocacola Beverages ltd. (293 ITR 226) no tax was required to be deducted in case of the assessee. CIT (A) was satisfied with the explanation given. It was observed by him that the manpower supplied by the assessee was just graduate and under graduate persons and Page 22 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai work assigned to them was of clerical level or routine work. Therefore CIT (A) held that by no stretch of imagination, the work done by these persons could be classified as professional services or technical services or managerial services. The payment was for supply of manpower having no professional qualification. CIT(A), therefore, held that the provisions of the section 194 J were not applicable. Accordingly, he set aside the order of Assessing Officer, aggrieved by which, revenue is in appeal before the tribunal.
7.3 Before us, the learned AR for the assessee reiterated the submissions made before the lower authorities whereas Learned Dr placed reliance on the order of AO.
7.4 We have perused the records and considered matter carefully. The dispute is regarding applicability of provisions of section 194 J to the payments made by the assessee for outsourcing of manpower from the sister concern. The AO treated these payments for professional and technical services and accordingly applied the provisions of section 194 J as per which tax was required to be deducted at the rate of 10% in place of tax deducted at the rate of 2% by the assessee u/s 194 C of the IT Act. We find that the conclusion drawn by AO that the payments were made in connection with the educated/skilled manpower is not supported by any material on record. The claim of the assessee is that it did not want to keep on its roll the employees rendering clerical services in the back office and accordingly such staff were outsourced from the sister concerned. However, the payments were made for reimbursement of actual expenses incurred by the sister concern plus a sum of Rs. 350 per employee per month. As regards the payment for reimbursement, there is no profit element involved and therefore TDS provisions could not be applied. In so far as the payment of Rs. 350 per employee was Page 23 of 24 ITA NO. 3681, 3682, 3877 & 3878 Mum/2011 M/s Bharti Airtel Limited, Mumbai concerned the same was for supply of manpower and not for any professional and technical services. CIT (A) has also given a finding that the persons supplied by the sister concern were just graduate and under graduate and had been assigned the work at the clerical level or had been given routine work. There is nothing produced before us to controvert the finding of CIT (A). Therefore, considering the facts and circumstances of the case we see no infirmity in the order of CIT (A) holding that the payments were not for any technical services or for any professional or managerial services. The order of CIT (A) holding that the provisions of section 194 J were not applicable is therefore upheld.
8. In the result the appeal of the assessee is partly allowed whereas that of the revenue is dismissed.
Order pronounced in the open court on 19th April, 2013 Sd/- Sd/-
(VIVEK VARMA) (RAJENDRA SINGH)
JDUDICIAL MEMBER ACCOUNTANT MEMBER.
Mumbai, dated 19th April, 2013.
Sunil Kumar Sr. P.S.
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