Case Law Details

Case Name : M/s. Idea Cellular Ltd. Vs ACIT (ITAT Bangalore)
Appeal Number : Income tax (Appeal) nos. 648 - 651 of 2014 and 758-761 of 2014
Date of Judgement/Order : 06/11/2015
Related Assessment Year :
Courts : All ITAT (5013) ITAT Bangalore (244)

Brief of the Case

ITAT Bangalore held In the case of M/s. Idea Cellular Ltd. vs. ACIT that there is no human intervention involved in providing roaming services, therefore, roaming charges paid by the assessee do not amount to fee for technical services u/s 194J.

On the matter of discount to distributors, it was held that in the case of Bharti Airtel Ltd. & others 372 ITR 33 jurisdictional high court held that 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. Accordingly matter remanded back to AO to decide the issue in light of this judgment.

Facts of the Case

The assessee is a telecom operator providing cellular services in the State of Karnataka. A survey u/s 133A was conducted at the business premises of the assessee on 15/12/2010 to verify the compliance of TDS provisions. The AO noted that the assessee has not deducted TDS on discount/commission allowed to distributors u/s 194H and inter-operator/national roaming charges u/s 194J. The AO was of the view that this discount represents income earned by the distributor and the nature of which in its very substance and effect is commission. The AO held that roaming costs paid to other telecom/mobile operators was fee for technical service within the meaning of sec.194J and that the assessee failed to deduct tax on such payments.

Accordingly, AO treated the assessee as ‘assessee in default’ under the provisions of sec.194H and 194J thereby worked out the amounts of tax deductable on discount allowed to the distributors, retailers and the payment towards inter-operator roaming charges. Year-wise details of payments and the deductable amount of TDS has been computed by the AO.

Contention of the Assessee

 TDS u/s 194H on discount allowed to distributors

The ld counsel of the assessee submitted that this issue is covered by the judgment of the jurisdictional High Court in the case of Bharti Airtel Ltd. Vodafone Essar South Ltd. & others vs. DCIT reported in 372 ITR 33.

He has pointed out that the jurisdictional High Court, after considering the decision of the Hon’ble Delhi High Court in the case of CIT vs. Idea Cellular Ltd. (assessee’s own case) reported in 325 ITR 148 has held that though the service cannot be sold and be rendered only however, the right to service can be sold. Thus, held that what is sold by the assessee to distributors is right to service. Once the distributor pays for service and the service provider supplies SIM card or recharge coupon, the distributor acquires a right to demand service. He further pointed out that the High Court has further held that income accrued to the distributors only when they sell this right to service and not when they purchase this right to service. Thus, learned AR of the assessee has submitted that once it is held that right to service can be sold then the relationship between the assessee and the distributor would be that of principal to principal and not a principal and agent.

He relied relied upon the decision dated 12/6/2015 of the Jaipur bench of the Tribunal in the case of Bharti Airtel in ITA No.656/2010 as well as the decision dated 22/5/2015 in the case of Idea Cellular Ltd. vs. ITO, in ITA Nos.356 to 359/2012 and 326 to 329/JP/2012. He has further submitted that the Ahmedabad bench of the Tribunal in the case of Vodafone Essar Gujarat Ltd. vs. ACIT in ITA 389/Ahd/2011 vide its decision dated 7/7/2015 has also decided the issue in favour of the assessee by following the judgment of the Hon’ble jurisdictional High Court.

 TDS u/s 194J on roaming charges paid

The ld counsel of the assessee submitted that these charges paid for roaming connectivity by the other operators to the assessee’s subscriber cannot be treated as fee for technical services as there is no human intervention in providing such roaming services by the telecom operators. In support of his contention, he has relied upon the following judgments Bharti Hexacom Ltd. vs. ITO (TDS-II) – ITA No.656/JP/2010 dt.12/06/2015 – Trib. Jaipur, M/s.Dishent Wireless Ltd. vs. DCIT – ITA Nos.320 to 329/MDS/2014 dt.20/07/2015 – Trib. Chennai and Idea Cellular Ltd. vs. ITO (TDS) – ITA Nos.9496/JP/2013 and 917/JP/2012 dt.24/07/2015 – Trib. Jaipur).

Contention of the Revenue

 TDS u/s 194H on discount allowed to distributors

The ld counsel of the revenue submitted that an identical issue has been decided against the assessee in the assessee’s own case by the Hon’ble Delhi High Court reported in 325 ITR 148 therefore, the decision of the Hon’ble Delhi High Court in the assessee’s own case is a binding precedent. He further submitted that apart from the decision of the Delhi High Court in the assessee’s own case, the decision of the Hon’ble Bombay High Court in the case of CIT vs. Qatar Airways (323 ITR 253) as well as the decision of the Hon’ble Calcutta High Court in the case of Bharati Airtel vs. CIT (354 ITR 507) the issue has been decided against the assessee.

TDS u/s 194J on roaming charges paid

The ld counsel of the revenue submitted that the AO has considered the statement of the expert in respect of the nature of services provided by the operator for roaming facility to the roaming subscriber of the other service provider. He has relied upon the orders of the authorities below.

Held by CIT (A)

The CIT (A) has given partial relief to the assessee in respect of roaming charges paid to other operator/service provider only to the extent of the alleged payment to international telecom operator for providing telecom services to roaming customers of the assessee. As regards other payment on account of discount/commission as well as roaming service provided by the domestic operators, the CIT (A) confirmed the action of the AO.

Held by ITAT

TDS u/s 194H on discount allowed to distributors

There is no dispute that initially, the issue was decided against the assessee by the Hon’ble Delhi High

Court in the decision reported in 325 ITR 148 by holding that service can be rendered and cannot be sold and therefore, the payment to distributors, who are acting as a link in the chain of service provider, cannot be a discount but the same is in the nature of commission. However, subsequently, the Hon’ble jurisdictional High Court in its decision reported in Bharti Airtel Ltd. & others 372 ITR 33 has distinguished the finding of the Hon’ble Delhi High Court and held that 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.

We further note that the Jaipur bench of the Tribunal in the assessee’s own case vide order dated 22/5/2015 has decided the issue in favour of the assessee by following the judgment of the Hon’ble jurisdictional High Court. The judgment of the Hon’ble jurisdictional High Court is a binding precedent for the Bangalore benches of the Tribunal and therefore, by following the judgment, this issue is set aside to the record of the AO for fresh consideration in the light of the direction of the Hon’ble jurisdictional High Court in the case of Bharti Airtel Ltd. & others 372 ITR 33.

TDS u/s 194J on roaming charges paid

 In the case of Bharti Hexacom Ltd. ITA No.656/JP/2010 dt.12/06/2015, Jaipur Bench of this Tribunal has decided that no human intervention is required for providing the roaming facility to the other operators/subscribers. Therefore roaming charges paid by the assessee do not amount to fee for technical services u/s 194J.

Thus it is clear that the Jaipur bench has given a finding of fact that no human intervention is required for providing roaming facility and consequently the roaming charges paid by the assessee to other service providers cannot be treated as fees for technical services. Accordingly, following the orders of the co-ordinate bench, we are of the view that the assessee cannot be held as the assessee in default for non deduction of tax at source on the roaming charges paid to other service provider domestic as well as international. This ground of the assessee is allowed.

Accordingly appeal of the assessee partly allowed.

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