Bharti Airtel Ltd. Vs ITO (Gujarat High Court)
In the case of Bharti Airtel Ltd – Through Its Constituted Attorney Vs ITO (Gujarat High Court), the issue revolved around whether Bharti Airtel Ltd (hereinafter referred to as “the appellant”) was obligated to deduct tax at source (TDS) under Section 194H of the Income Tax Act, 1961, on discounts provided to its distributors. The matter was adjudicated upon by the Gujarat High Court, with the following key points emerging from the judgment:
Background and Arguments
Appellant’s Position: Bharti Airtel Ltd is a cellular mobile telephone service provider operating under the brand name ‘Airtel’. It argued that the discounts offered to its distributors on prepaid SIM cards and recharge coupons did not constitute commission but were part of genuine business transactions. Therefore, TDS under Section 194H was not applicable.
Revenue’s Argument: The Income Tax Department contended that the relationship between Bharti Airtel and its distributors should be viewed as that of principal and agent. Hence, the discounts were akin to commission and subjected to TDS under Section 194H.
Supreme Court Precedent
Supreme Court Decision: The case referred to a judgment by the Supreme Court (Civil Appeal No. 7257 of 2011) dated 28.02.2024, where similar issues were addressed. The Supreme Court ruled that in transactions where the principal (Bharti Airtel) does not directly or indirectly pay or credit any income to the distributors, the provisions of Section 194H do not apply.
