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3.4 Per contra, The ld. DR relied on the decision in assessee's own case for the assessment years 2007-08 and 2008-09 in I.T.A. Nos. 1415 and 1416/Mds/2009 dated 01.04.2011, which was followed by the ld. CIT(A) while deciding the issue in appeals against the assessee. 3.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also carefully gone through the case filed by the assessee in the form of paper book and other judgements. The assessee, in the instant case, is engaged in the business of cellular mobile phone services and distribution of SIM cards including prepaid and postpaid services. The prepaid services are in the form of recharge coupons and SIM cards. Since the assessee has not deducted TDS from the discount offered by the assessee to their distributors, the Assessing Officer treated such discount offered by the assessee to their distributors as "commission" and treated the assessee as an assessee in default under section 201(1) r.w.s. 194H of the Act. While doing so, the Assessing Officer rejected the contention of the assessee that the relationship between the assessee and the distributors was principal to principal and not that of principal to agent. Accordingly, 10% of the discounted amount was taxed and also levied interest thereon. By following the decision of the Tribunal in assessee's own case for the assessment years 2007-08 and 2008-09, CIT(A) confirmed the order passed by the Assessing Officer.

3.7 Similarly, by referring to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Idea Cellular Ltd. in 325 ITR 148 as well as various other decisions, in the case of Vodafone Essar Cellular Ltd. v. ACIT in 332 ITR 255, in the case of Vodafone Essar Cellular Ltd. v. ACIT in 332 ITR 255, the Hon'ble Kerala High Court has held that the distributors acted on behalf of the assessee for procuring and retaining customers and, therefore, the discount given was commission within the meaning of Explanation (1) on which tax was deductible under section 194H of the Act. 3.8 Further, on similar facts and circumstances, in the case of Bharti Cellular Ltd. Vs. ACIT in 354 ITR 507, the Hon'ble Calcutta High Court has also decided the issue against the assessee by upholding the action of the Assessing Officer in treating the assessee to be an assessee in default. However, we find that the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. Vs. DCIT in 372 ITR 33 has held that sale of SIM cards/recharge coupons at discounted rate to distributors is not commission and therefore not liable to TDS under section 194H of the Act. While holding so, the Hon'ble High Court has distinguished the decision of the Hon'ble Kerala High Court in the case of Vodafone Essar Cellular Ltd. (supra), the decision of Hon'ble Delhi High Court in the case of Idea Cellular Ltd.(supra) and the decision of Hon'ble Kolkata High Court in the case of Bharti Cellular Ltd. (supra). The relevant observation of the Hon'ble Karnataka High Court reads as under :

58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold.

59. The telephone service is nothing but service. SIM cards, have no intrinsic sale value: It is supplied to the customers. for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a sim-card. When he pays for the sim-card, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be sold. What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell into retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, whoever ultimately sells the said right to customers is not entitled to charge more than the MRP: The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the sub- distributors/retailers. As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no. primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorized as commission. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship.

61. However, in the first instance, if the assessee accounted for only Rs.80/- and on payment of Rs.80/-, he hands over the prepaid card prescribing the MRP as Rs.100/-, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of Rs.20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted.

62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors: incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs.20/-, that Rs.20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs.20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal.