Commissioner Of Income Tax Tds, Jaipur Raj v. M/S Bharti Hexacom Limited , K-21 Malviya Marg, C-Scheme,Jaipur Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 89/2018 Commissioner Of Income Tax Tds, Jaipur Raj ----Appellant Versus M/s Bharti Hexacom Limited , K-21 Malviya Marg, C-Scheme,Jaipur Raj. ----Respondent For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur For Respondent(s): Mr. Sanjay Jhanwar HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 24/07/2018 Judgment 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby tribunal hasdismissed the appeal of the department. 2.Counsel for the appellant has framed following substantialquestion of law:- 1. Whether in the facts and circumstances of the case, the Tribunal was justified in holdingthat whether the assessee is liable to deductTDS u/s 194H of the IT Act, as relationbetween assessee and distributor is that ofprincipal to agent. 2. Whether in the facts and circumstances ofthe case, the Tribunal has erred in law indeleting the demand u/s 201(1) for non 3.However, now the issue is squarely covered by the decisionof this court in ITA No.92/2018 (Commissioner of Income Tax(TDS), Jaipur vs. M/s. Idea Cellular Ltd.) decided on 12.4.2018wherein it has been held as under:- “3. Now, the issue is covered by the decision ofthis 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 TelecommunicationLtd.), and other connected matters, decided on11.07.2017, wherein it has been held asunder:- 44. Now, the first question which has come upfor our consideration is, ‘whether in the factsand circumstances of the case the learnedTribunal was right and justified in holding thatassessee was liable to withhold tax at sourceunder S. 194H of the Income Tax Act, 1961amounting to Rs.19,74,842/- (includinginterest) in respect of sales to its distributors,which are on principal to principal basis andwherein property in the goods is transferred tothe distributor’. 45. Taking into account the provisions ofSection 182 of the Contract Act and thearrangement which has been entered intobetween the company and the distributor andtaking into account the provisions of Section194H, the Tribunal while considering theevidence on record, in our considered opinion,has misdirected itself in considering the casefrom an angle other than the angle which wasrequired to be considered by the Tribunal underthe Income Tax Act. The Tribunal has travelledbeyond the provisions of Section 194H wherethe condition precedent is that the payment isto be made by the assessee and thereafter heis to make payment. In spite of our specificquery to the counsel for the department, it wasnot pointed out that any amount was paid bythe assessee company. It was only thearrangement by which the amount which wasto be received was reduced and no amount waspaid as commission. 46. In that view of the matter, if we look at theprovisions of Section 194H and even ifexplanation is taken into consideration, there isno occasion of invoking provisions of Section194H, since the amount is not paid by theassessee. 46. In that view of the matter, if we look at theprovisions of Section 194H and even ifexplanation is taken into consideration, there isno occasion of invoking provisions of Section194H, since the amount is not paid by theassessee. 47. Taking into account the conclusion whichhas been arrived at by the Tribunal ismisdirected in view of the arrangement whichhas been arrived at between the company andthe Distributor. Assuming without admitting, ifthe contention which has been raised beforethe Tribunal is accepted, the same can be atthe most expenses which are not allowableunder the Income Tax Act, if at all claimedwithout proper basis but to conclude that theyare covered under Section 194H and theincome tax or the TDS is required to bededucted is not correct and accordinglydisallowance on that basis is not correct. In ourconsidered opinion, from which amount of taxis to be deducted is a doubtful propositioninasmuch as the Management InformationSystem which has been sought to be reliedupon for alleging that expenditure has beenclaimed could not have been relied upon by theTribunal or the authorities under the IncomeTax Act. (i) The findings which are given by the Tribunalregarding Distributor being Agent in view of thediscussionmadehere-in-above,thearrangement which has been made betweenthe Company and the Distributor is on Principalto Principal basis and the responsibility is onthe basis of agreement entered into betweenthe parties. (ii) Regarding MRP, the findings which arearrived at is a price which has been fixed bythe assessee company and other expenses,namely; commission given to the retailer andeverything is to be managed by the Distributor.In that view of the matter, the restrictionswhich are put forward will not decide therelation-ship of Principal and Agent. (iii) The Distributor has all rights to reduce hismargin. He can increase the margin of retailerand will reduce the margin from 10% toanything between 1% to 10%. There is norestriction by the assessee to give commissionamount to the retailer. (iv) Regarding area of operation, it is thebusiness policy of the assessee to giveDistributor-ship for a particular area. Only onthat basis, it will be erroneous to held that it ison Principal to Principal basis. For deciding therelation-ship on Principal to Principal basis, thecriteria will not be of area of operation butagreement entered into between the parties. (v) Regarding the change in price it is alwaysbetween the assessee or the company and theDistributor to decide who will absorb the loss.In that view of the matter, the findings arrivedat by the Tribunal is erroneous. (vi) Regarding the return of goods after expirydate, it is always the understanding betweenthe manufacturer and company that theproduct is not for preparation or consumedbefore expiry date, the consumed items cannotbe allowed otherwise manufacturer will invitecriminal liability. To avoid any criminal liabilityor any criminal act is done for taking back thegoods, will not deter the relation-ship ofPrincipal to Principal basis. (vii) Regarding supervision, it is always for themanufacturer and the company to look into thematter that his Distributor or Sub-Distributor orRetailer will not induct in mal practice. (viii) Regarding goods sold to the Distributor, itis always a matter of contract how furthergoods will be distributed. Restriction onsubdistributor will not change the transactionfrom Principal to Principal. (vii) Regarding supervision, it is always for themanufacturer and the company to look into thematter that his Distributor or Sub-Distributor orRetailer will not induct in mal practice. (viii) Regarding goods sold to the Distributor, itis always a matter of contract how furthergoods will be distributed. Restriction onsubdistributor will not change the transactionfrom Principal to Principal. (ix) Regarding expenses which are describedby the Tribunal and one of the reason is that itis always for the assessee to allow any specialallowance or expenses to promote the sale. Ina competitive world to promote the sale, if theDistributor is not given any encouragement,the business will not grow. In that view of thematter, in view of the observations of theSupreme Court, the Income Tax Officer cannotenter 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 listof expenses will not decide the relation-ship ofPrincipal and Agent. 48. In our consideredopinion, Section 194H pre-supposes the payment to be made to the third party namely,Distributor or the Agency and if on a closescrutiny of Section 182, Distributor is not anagent, therefore, in our considered opinion, theprovisions of Section 194H have wrongly beeninvoked, and therefore, the first issue isanswered in favour of assessee and against theDepartment. 49. The second issue which has been raised forour consideration, as discussed hereinabove,the Management Information System was not apart of their books of accounts nor could havebeen relied upon by the Income TaxAuthorities. The basis on which the proceedingswere initiated, in our considered opinion, theStatutory Audit Report is final conclusion overthe authorities under the Income Tax Act,therefore, the second issue is required to beanswered in favour of the assessee. 50. Regarding third issue whether 201A or201(1A), in view of the decisions of differentHigh Courts, the argument canvassed bycounsel for the appellant pre-supposesdeduction out of the payment. In ourconclusion in issue No.1, the amount was notrequired to be deducted since they have notmade any payment. In that view of the matterany proceedings under Section 201 or 201(1A)are misconceived. In that view of the matter,this issue is also answered in favour ofassessee. 51. Contention regarding provisions of Section271 of the Act,in view of our answer in favourof assessee, this issue is also required to beanswered in favour of assessee. Evenotherwise as rightly held by the Supreme Courtin CIT Vs. Eli Lilly & Co. (India) P. Ltd.(supra),the penalty could not have been levied in allthe appeals filed by assessee Coca Cola. M/s Bharti Hexacom Ltd. 52. Regarding the other appeals of CellularCompanies the questions are required to beanswered as discussed hereinabove. Therelationship is not of agent. It is principal toprincipal basis. The payment is received by thecompany and the amount of commission isnever 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 theassessee is required to be adopted as persettled law. Taking into consideration the aboveconclusion, the first issue is required to beanswered in favour of assessee. 53. Regarding Section 194J of the Act, in viewof the Kerala High Court decisions, the issue isanswered in favour of assessee and third issueeven as per the statutory definition, there is noservice and Sections 201 and 194H would notapply in view of the agreement as referredhereinabove. Tata Teleservices 54. In view of agreement the issue regarding194H and 194J as held in other cases, both theissues are answered in favour of the assessee. divergent judicial views, one in favour of theassessee is required to be adopted as persettled law. Taking into consideration the aboveconclusion, the first issue is required to beanswered in favour of assessee. 53. Regarding Section 194J of the Act, in viewof the Kerala High Court decisions, the issue isanswered in favour of assessee and third issueeven as per the statutory definition, there is noservice and Sections 201 and 194H would notapply in view of the agreement as referredhereinabove. Tata Teleservices 54. In view of agreement the issue regarding194H and 194J as held in other cases, both theissues are answered in favour of the assessee. Vodafone 55. Issues regarding Sections 194H, 194J and201 of the Act, they are answered in favour ofassessee. 56. Additional questions are framed in the caseof Department. There are 5 issues in favour ofassessee (issue Nos. 1 and 2 are wronglyframed by the Court). However, in view of ourabove discussion, they are required to beanswered in favour of the assessee. 57. In case of appeal preferred by theassessee, issue No.4 is required to beanswered in favour of assessee that the CIT(A) has all jurisdiction to restore or set asidethe judgment of AO since it is a statutoryappeal, the appellate court has all powers todeal with the same. All other issues areanswered in favour of the assessee. Idea Cellular 58. As the agreement is produced, issues areanswered in favour of assessee in thedepartmental appeals. 59. Even the contention which has been raisedby the counsel for the assessee that the finaltax is paid by the Distributor and not by theagent, the revenue is not at loss in any form.”4. Hence no substantial question of law arises.The appeal stands dismissed. 4.The tribunal has followed the decision of this court in ITANo.108/2016 (Commissioner of Income Tax TDS) Jaipur vs. M/s.Bharti Hexacom Ltd.) decided on 11.7.2017. 5.In that view of the matter, no substantial question of lawarises. 6.Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS),J(K.S. JHAVERI),J Brijesh 3.