No TDS on Payments Received by Distributors/Franchisees from Third Parties

Vodafone Idea Limited Vs CIT (Calcutta High Court)

The case of Vodafone Idea Limited Vs CIT (Calcutta High Court) addresses the significant issue of tax deduction at source (TDS) obligations under the Income Tax Act on payments received by distributors and franchisees. This case, pertaining to the assessment years 2012-13 and 2013-14, raised crucial questions about the applicability of Section 194H of the Income Tax Act, 1961.

Vodafone Idea Limited (Vi) challenged the application of Section 194H of the Income Tax Act, which mandates TDS on commission or brokerage payments. The specific contention was whether the discount allowed to distributors for pre-paid sim cards and recharge coupons constituted commission, thereby requiring TDS deduction. The appeal raised two substantial questions of law:

1. Whether Vodafone Idea Limited was obligated to deduct TDS on discounts provided to distributors under Section 194H?

2. Whether Vodafone Idea Limited could be deemed an assessee in default Under Section 201 for not complying with Section 194H, thereby incurring liability for tax or interest?

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