Incentive paid by BSNL to its franchisee is a trade discount not commission liable to TDS

Brief of the case:

ITAT held in ITO Vs General Manager Bharat Sanchar Nigam Ltd that the incentive offered by the BSNL to its franchisee was in the nature of trade discount not in the nature of commission because after the payment made by the franchisee to the BSNL all risks and rewards relate to the franchisee. There was principal to principal relation between the BSNL and franchisee because the franchisee paid the amount and collected the recharge coupon and after that recharge coupons become the property of franchisee and the obligation of the BSNL was only to the customer for the value of the services to be rendered.

Facts of the case:

The assessee sold SIM/recharge cards and top-up cards during the previous year relevant to assessment year under consideration on discounted price. The sale having been made to the franchisees at a concessional price, the differential price is treated as trade discount, and treated accordingly in the books of account of the BSNL On the other hand, the case of the Assessing Officer is that the differential amount has the attribute of commission payment falling within the meaning of S.194H of the Act, in which event, the assessee is liable to deduct tax at source and for the failure to do so, the provisions of S.201(1) and S.201(1A) get attracted.

Contention of the assessee:

Assessee was of the view that the revenue which was booked by the BSNL was net of discount given to the franchisee. It also furnished a copy of the franchise agreement and copy of the invoice raised on one of the franchisees to highlight that the discount on the face value of the discount coupon has been deducted resulting in net amount receivable, for which the franchisee had paid by demand draft in favour of BSNL.

Further assessee contented that the relation between the BSNL and the franchisee was on principal to principal basis as the franchisee paid the amount through cheque and collect the recharge coupon and all the risks and reward related to the recharge coupons got transferred to the franchisee and the obligation of the BSNL is only to the customer for the value of the services to be rendered.

Contention of the revenue:
Revenue was of the view that the nomenclature used by the BSNL in the agreement would not decide the relationship between the BSNL and the franchisees and the nature of the transaction had to be taken into consideration. He also observed that it was not the card that was sold to the customer but the code number embedded in the recharge coupon which was sold and only when the code number got activated, the ultimate customer was entitled for discounted talk time for specific period. He, therefore, assumed that the consideration paid by the ultimate customer was for the services rendered by the BSNL, which would make it clear that the franchisees were only the agents between the BSNL and the customers. Therefore any payment made to the agents was liable for TDS u/s 194H and non-compliance of the same

Held by ITAT:

ITAT relied on the decision given by Hon’ble Karnataka High Court in the case Bharti Airtel Ltd. V/s. Dy. CIT and others (372 ITR 33) in which it was held that the incentive amount between the franchisee and the service provider would be treated as a trade discount not a commission so not liable to TDS u/s 194H.ITAT also relied on the circular issued by the BSNL which depicts that the payment made by the assessee to the franchisee was in the nature of trade discount.

So the appeal of the revenue was dismissed.