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Judgment
By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby tribunal has dismissed the appeal of the
department.
Counsel for the appellant has framed following substantial question of law:-
Whether in the facts and circumstances ofthe case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s 194H
of the IT Act, as relation between assessee and distributor is that of principal to agent.
Whether in the facts and circumstances ofthe case, the Tribunal has erred in law in deleting the demand u/s 201(1) for non deduction of TDS u/s
194H on commission payment to various distributors.
However, now the issue is squarely covered by the decision of this court in ITA No.92/2018 (Commissioner of Income Tax (TDS), Jaipur vs. M/s.
Idea Cellular Ltd.) decided on 12.4.2018 wherein it has been held as under:-
“3. Now, the issue is covered by the decision of this Court in D.B. Income Tax Appeal No. 96/2016 in Commissioner of Income Tax (TDS), Jaipur
Vs. M/s. Idea Cellular Ltd. (Formerly Known As Idea Telecommunication Ltd.), and other connected matters, decided on 11.07.2017, wherein it has
been held as under:-
Now, the first question which has come upfor our consideration is, ‘whether in the facts and circumstances of the case the learned Tribunal was
right and justified in holding that assessee was liable to withhold tax at source under S. 194H of the Income Tax Act, 1961 amounting to
Rs.19,74,842/- (including interest) in respect of sales to its distributors, which are on principal to principal basis and wherein property in the goods is
transferred to the distributor’.
Taking into account the provisions ofSection 182 of the Contract Act and the arrangement which has been entered into between the company and
the distributor and taking into account the provisions of Section 194H, the Tribunal while considering the evidence on record, in our considered opinion,
has misdirected itself in considering the case from an angle other than the angle which was required to be considered by the Tribunal under the
Income Tax Act. The Tribunal has travelled beyond the provisions of Section 194H where the condition precedent is that the payment is to be made
by the assessee and thereafter he is to make payment. In spite of our specific query to the counsel for the department, it was not pointed out that any
amount was paid by the assessee company. It was only the arrangement by which the amount which was to be received was reduced and no amount
was paid as commission.
In that view of the matter, if we look at theprovisions of Section 194H and even if explanation is taken into consideration, there is no occasion of
invoking provisions of Section 194H, since the amount is not paid by the assessee.
Taking into account the conclusion whichhas been arrived at by the Tribunal is misdirected in view of the arrangement which has been arrived at
between the company and the Distributor. Assuming without admitting, if the contention which has been raised before the Tribunal is accepted, the
same can be at the most expenses which are not allowable under the Income Tax Act, if at all claimed without proper basis but to conclude that they
are covered under Section 194H and the income tax or the TDS is required to be deducted is not correct and accordingly disallowance on that basis is
not correct. In our considered opinion, from which amount of tax is to be deducted is a doubtful proposition inasmuch as the Management Information
System which has been sought to be relied upon for alleging that expenditure has been claimed could not have been relied upon by the Tribunal or the
authorities under the Income Tax Act.
(i) The findings which are given by the Tribunalregarding Distributor being Agent in view of the discussion made here-in-above, the arrangement
which has been made between the Company and the Distributor is on Principal to Principal basis and the responsibility is on the basis of agreement
entered into between the parties.
(ii) Regarding MRP, the findings which arearrived at is a price which has been fixed by the assessee company and other expenses, namely;
commission given to the retailer and everything is to be managed by the Distributor. In that view of the matter, the restrictions which are put forward
will not decide the relation-ship of Principal and Agent.
(iii) The Distributor has all rights to reduce hismargin. He can increase the margin of retailer and will reduce the margin from 10% to anything
between 1% to 10%. There is no restriction by the assessee to give commission amount to the retailer.
(iv) Regarding area of operation, it is thebusiness policy of the assessee to give Distributor-ship for a particular area. Only on that basis, it will be
erroneous to held that it is on Principal to Principal basis. For deciding the relation-ship on Principal to Principal basis, the criteria will not be of area of
operation but agreement entered into between the parties.
(v) Regarding the change in price it is alwaysbetween the assessee or the company and the Distributor to decide who will absorb the loss. In that view
of the matter, the findings arrived at by the Tribunal is erroneous.
(vi) Regarding the return of goods after expirydate, it is always the understanding between the manufacturer and company that the product is not for
preparation or consumed before expiry date, the consumed items cannot be allowed otherwise manufacturer will invite criminal liability. To avoid any
criminal liability or any criminal act is done for taking back the goods, will not deter the relation-ship of Principal to Principal basis.
(vii) Regarding supervision, it is always for themanufacturer and the company to look into the matter that his Distributor or Sub-Distributor or Retailer
will not induct in mal practice.
(viii) Regarding goods sold to the Distributor, itis always a matter of contract how further goods will be distributed. Restriction on subdistributor will
not change the transaction from Principal to Principal.
(ix) Regarding expenses which are describedby the Tribunal and one of the reason is that it is always for the assessee to allow any special allowance
or expenses to promote the sale. In a competitive world to promote the sale, if the Distributor is not given any encouragement, the business will not
grow. In that view of the matter, in view of the observations of the Supreme Court, the Income Tax Officer cannot enter into the shoes of the
assessee. (S.A. Builders Vs. Commissioner of Income Tax(2007) 288 ITR 1 (SC).
(x) Regarding providing a vehicle it was veryclear that by providing vehicle and getting list of expenses will not decide the relation-ship of Principal
and Agent. 48. In our considered opinion, Section 194H pre-supposes the payment to be made to the third party namely, Distributor or the Agency and
if on a close scrutiny of Section 182, Distributor is not an agent, therefore, in our considered opinion, the provisions of Section 194H have wrongly
been invoked, and therefore, the first issue is answered in favour of assessee and against the Department.
The second issue which has been raised for our consideration, as discussed hereinabove, the Management Information System was not a part of
their books of accounts nor could have been relied upon by the Income Tax Authorities. The basis on which the proceedings were initiated, in our
considered opinion, the Statutory Audit Report is final conclusion over the authorities under the Income Tax Act, therefore, the second issue is
required to be answered in favour of the assessee.
Regarding third issue whether 201A or201(1A), in view of the decisions of different High Courts, the argument canvassed by counsel for the
appellant pre-supposes deduction out of the payment. In our conclusion in issue No.1, the amount was not required to be deducted since they have not
made any payment. In that view of the matter any proceedings under Section 201 or 201(1A) are misconceived. In that view of the matter, this issue
is also answered in favour of assessee.
Contention regarding provisions of Section271 of the Act,in view of our answer in favour of assessee, this issue is also required to be answered in
favour of assessee. Even otherwise as rightly held by the Supreme Court in CIT Vs. Eli Lilly & Co. (India) P. Ltd.(supra), the penalty could not have
been levied in all the appeals filed by assessee Coca Cola.M/s Bharti Hexacom Ltd.
Regarding the other appeals of CellularCompanies the questions are required to be answered as discussed hereinabove. The relationship is not of
agent. It is principal to principal basis. The payment is received by the company and the amount of commission is never paid to the agent or the
Distributor. Therefore, no TDS is required to be deducted. We also accept the contention raised by Mr. Jhanwar that even otherwise in view of
divergent judicial views, one in favour of the assessee is required to be adopted as per settled law. Taking into consideration the above conclusion, the
first issue is required to be answered in favour of assessee.
Regarding Section 194J of the Act, in viewof the Kerala High Court decisions, the issue is answered in favour of assessee and third issue even as
per the statutory definition, there is no service and Sections 201 and 194H would not apply in view of the agreement as referred hereinabove.
Tata Teleservices
In view of agreement the issue regarding 194H and 194J as held in other cases, both the issues are answered in favour of the assessee.
Vodafone
Issues regarding Sections 194H, 194J and201 of the Act, they are answered in favour of assessee.
Additional questions are framed in the caseof Department. There are 5 issues in favour of assessee (issue Nos. 1 and 2 are wrongly framed by
the Court). However, in view of our above discussion, they are required to be answered in favour of the assessee.
In case of appeal preferred by theassessee, issue No.4 is required to be answered in favour of assessee that the CIT (A) has all jurisdiction to
restore or set aside the judgment of AO since it is a statutory appeal, the appellate court has all powers to deal with the same. All other issues are
answered in favour of the assessee.
Idea Cellular
As the agreement is produced, issues areanswered in favour of assessee in the departmental appeals.
Even the contention which has been raisedby the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the
revenue is not at loss in any form.†4. Hence no substantial question of law arises. The appeal stands dismissed.
The tribunal has followed the decision of this court in ITA No.108/2016 (Commissioner of Income Tax TDS) Jaipur vs. M/s. Bharti Hexacom Ltd.)
decided on 11.7.2017.
In that view of the matter, no substantial question of law arises.
Hence, the appeal stands dismissed.