The order of the Bench was delivered by
B.R.BASKARAN, Accountant Member:All these four appeals filed by the assessee are directed against the common order dated 30th Nov 2012 passed by the ld CIT(A)-III, Kochi and they relates to Assessment Years 2006-07 to 2009-10.
2 Since the grounds raised in these appeals are identical in nature; they were heard together and are being disposed of by this common order for the sake of convenience.
3 The solitary issue involved in these appeals is whether the ld CIT(A) was justified in holding that the relationship between the assessee company and its distributor is that of "principal agency" relationship and consequently the discount paid to the distributors constitute "commission payment" exigibile for deduction of tax at source u/s 194H of the I T Act.
3.1 The facts relevant for the issue under consideration are stated in brief: The assessee is a cellular operator under the brand name "AIRTEL" and it has appointed distributors for sale of SIM Cards and prepaid coupons (recharge coupons). Under the pre-paid scheme, the assessee sells prepaid cards i.e. the cards embedded with certain usage value. The purchaser or the prepaid card can avail airtime usage to the extent of value embedded therein. For example, a prepaid card having the face value of Rs.100/- may have the usage value of Rs. 100/- or more/less than the said amount. The subscriber of the prepaid card can use it to the extent of usage value attached to the card i.e. Rs. 100/- or less/more embedded therein. The assessee company would be selling the prepaid card to its distributor at discounted rate. For example, a prepaid card of Rs. 100/- may be sold by the assessee company to its distributor at Rs. 97/- and the distributor in turn sell the same for a price exceeding Rs. 97/-. Thus, there will be a difference between the face value of 'prepaid cads' and its selling price charged to the distributors.
The issue under consideration is whether the difference between the face value of prepaid cards and its selling price constitute "discount" or "commission". There is no dispute that tax is deductible at source u/s 194H of the Act if the said difference is categorised as commission.
For the years under consideration, the Dy Commissioner of Income Tax(TDS) (hereinafter "Assessing Officer) held that the difference between the face value of the pre paid card and the selling rate constitute commission, which is liable for deduction of tax at source u/s 194H of the Act. For this proposition, the AO placed reliance on the following cases:
i) ACIT vs Bharati Cellur Ltd (2007) 294 ITR(AT) 283 (Kol)
ii) Vodafone Essar Cellur Ltd vs ACIT (ITA Nos 106 to 113/Coch/09
Since the assessee did not deduct tax at source, the Assessing Officer raised demand u/s 201(1) of the Act and also levied interest u/s 201(1A) of the Act.
The Commissioner (Appeals) noticed that an identical issue has been considered by the Hon'ble jurisdictional High Court of Kerala in the case of Vodafone Essar Cellular Ltd (45 DTR (Ker) 217 wherein it was held that the discount paid constitute "commission payment". Accordingly, the ld CIT(A) upheld the order passed by the AO.
Aggrieved by this order, the assessee has filed these appeals before us.
We have heard the rival contentions and carefully perused the relevant material on record. We notice that the ld CIT(A) has followed the binding decision of the Hon'ble jurisdictional High Court in the case of Vodafone Essar Cellular Ltd (supra) in deciding the issue against the assessee. For the sake of convenience, we extract below the operative portion of his order:
"11 I have carefully perused the grounds of appeal, statement of facts and submission as made by the appellant as well as the impugned order the AO with reference to the facts and circumstances of this case. I have given thoughtful consideration to the assessment order and arguments put forth on behalf of the appellant. I have carefully examined the rival arguments put forth by both the parties in this case. One examination of the facts and circumstances of the appellant's case, it has transpired that the case of the appellant is identical to the issues involved in the appeal filed by M/s Vodafone Essar Cellular Ltd before the Hon'ble High Court of Kerala. In the said judgment, the Hon'ble High Court of Kerala in the case of M/s Vodafone Essar Cellular Ltd (reported in 45 DTR(Ker) 217, on similar set of facts had observed as under:
The assessee, a mobile cellular operator, carried on business through distributors, and offered the "post paid scheme" and the "pre-paid scheme" to its customers. The assessee paid charges to the distributors for services rendered. While the charges paid in respect of the "post paid services" was treated as "commission" and liable to TDS u/s 194H, payments made for services rendered under the "prepaid scheme" were treated as a sale of SIM card at a discounted value and not as "commission". The AO, CIT(A) & Tribunal treated the assessee as being in default u/s 201 on the ground that the so called "discount" was "commission" u/s 194H. On appeal by the assessee, HELD dismissing the appeal: The argument that there is a 'sale' of a SIM card is not acceptable because a Sim Card has no value or use for the subscriber other than to get connection to the mobile network. The supply of the Sim Card is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Consequently, the charges collected by the assesses at the time of delivery of SIM Cards or recharge coupons is for rendering services to ultimate subscriber. The distributors is the middleman arranging customers or subscribers for the assessee after ensuring proper identification and documentation. Besides the discount given at the time of supply of Sim Cards and recharge coupons, the assessee is not paying any amount to the distributor for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. The argument that the relationship between the assessee and the distributors is principle to principle basis is not acceptable. The distributor is an agent and canvasses business for the assessee. The terminology used by the assessee for payment to the distributors is immaterial. In substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment for services rendered to the assessee and falls within s 194H. ii) The contention that discount is not paid by the assessee to the distributor but is reduced from the price and so deduction u/s 194H is not possible is not acceptable because the assessee should have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors.
12 While considering identical grounds as in the case of the appellant, the observations made by the Hon'ble High Court of Kerala cannot be left aside. Respectfully following the decision of the Hon'ble Court cited supra, I hold that the contention of the appellant that discount is not paid by the appellant to the distributor but is reduced from the price and so deduction u/s 194H is not possible is not acceptable because the assessee should have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors. Similar view has been taken by the Hon'ble Delhi High Court on the same set of issues while considering the case of M/s Idea Cellular vs CIT reported in 203 CTR 40(Del). The grounds raised by the appellant are therefore dismissed."
We also notice that the Hon'ble Calcutta High Court has also taken the view that the discount given to the distributors of "prepaid cards" constitutes commission payment in the assessee's own case reported in Bharti Cellular Ltd (Now Bharti Airtel Ltd) vs ACIT (2013) (354 ITR 507). The ld CIT(A) has noticed that the Hon'ble High Court of Delhi has also taken identical view on this issue in the case of M/s Idea Cellular (supra).
Since the ld CIT(A) has followed the binding decision of jurisdictional High Court in deciding the issue under consideration, we do not find any reason to interfere with his order.
In the result, the appeals filed by the assessee are dismissed.
The order pronounced in the open court on 10-07-2013.