Commissioner Of Income Tax (Tds), Jaipur Raj v. M/S Idea Cellular Ltd. (Formerly Known As Ideatelecommunication Ltd., 1-2 Jai Jawan Colony, Tonk Road, Jaipur302018

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 90/2018 Commissioner Of Income Tax (Tds), Jaipur Raj ----Appellant Versus M/s Idea Cellular Ltd. (Formerly Known As IdeaTelecommunication Ltd., 1-2 Jai Jawan Colony, Tonk Road, Jaipur302018 ----Respondent For Appellant(s) : Mr. K. D. Mathur withMr. Prateek Kedawat on behalf ofMr. R. B. Mathur For Respondent(s): HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 12/04/2018 Order 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of Revenue and allowed the appeal ofassessee. 2.Counsel for the appellant has framed the following questionsof law:- “Whetherinthefactsandcircumstances of the case, the Tribunal wasjustified in holding that whether theassessee is liable to deduct TDS u/s. 194Hof the IT Act, as the relation betweenassessee and distributor is that of principalto agent. Whetherinthefactsandcircumstances of the case, the Tribunal haserred in law in deleting the demand u/s.201(1) for non deduction of TDS u/s 194 Hon commission payment to variousdistributors.” 3.Now, the issue is covered by the decision of this Court inD.B. Income Tax Appeal No. 96/2016 in Commissioner ofIncome Tax (TDS), Jaipur Vs. M/s. Idea Cellular Ltd.(Formerly Known As Idea Telecommunication Ltd.), andother connected matters, decided on 11.07.2017, wherein it hasbeen held as under:- “44. Now, the first question which has comeup for our consideration is, ‘whether in thefacts and 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’.up for our consideration is, ‘whether in thefacts and 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 atthe provisions 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 atthe provisions 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. Inour considered opinion, from which amount oftax is 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 theTribunal regarding Distributor being Agent inview of the discussion made here-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-Distributoror Retailer 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 on sub-distributor will not change the transaction fromPrincipal 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. (vii) Regarding supervision, it is always for themanufacturer and the company to look into thematter that his Distributor or Sub-Distributoror Retailer 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 on sub-distributor will not change the transaction fromPrincipal 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 the matter, in view of theobservations of the Supreme Court, the IncomeTax Officer cannot enter into the shoes of theassessee. (S.A. Builders Vs. Commissioner ofIncome Tax- (2007) 288 ITR 1 (SC). (x)Regarding providing a vehicle it wasvery clear that by providing vehicle and gettinglist of expenses will not decide the relation-shipof Principal and Agent. 48.In our considered opinion, Section194H pre-supposes the payment to be made tothe third party namely, Distributor or theAgency and if on a close scrutiny of Section182, Distributor is not an agent, therefore, inour considered opinion, the provisions ofSection 194H have wrongly been invoked, andtherefore, the first issue is answered in favourof assessee and against the Department. 49.The second issue which has been raised forourconsideration,asdiscussedhereinabove, the Management InformationSystem was not a part of their books ofaccounts nor could have been relied upon bythe Income Tax Authorities. The basis onwhich the proceedings were initiated, in ourconsidered opinion, the Statutory Audit Reportis final conclusion over the authorities underthe Income Tax Act, therefore, the secondissue is required to be answered in favour ofthe assessee. 50.Regarding third issue whether 201Aor 201(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 ofSection 271 of the Act,in view of our answer infavour of assessee, this issue is also requiredto be answered 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 ofCellular Companies the questions are requiredto be answered 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 ofdivergent 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 view of the Kerala High Court decisions, theissue is answered in favour of assessee andthird issue even as per the statutory definition,there is no service and Sections 201 and 194H would not apply in view of the agreement asreferred hereinabove. Tata Teleservices 54.In view of agreement the issueregarding 194H and 194J as held in othercases, both the issues are answered in favourof the assessee. Vodafone 53.Regarding Section 194J of the Act,in view of the Kerala High Court decisions, theissue is answered in favour of assessee andthird issue even as per the statutory definition,there is no service and Sections 201 and 194H would not apply in view of the agreement asreferred hereinabove. Tata Teleservices 54.In view of agreement the issueregarding 194H and 194J as held in othercases, both the issues are answered in favourof the assessee. Vodafone 55.Issues regarding Sections 194H,194J and 201 of the Act, they are answered infavour of assessee. 56.Additional questions are framed inthe case of Department. There are 5 issues infavour of assessee (issue Nos. 1 and 2 arewrongly framed by the Court). However, inview of our above discussion, they are requiredto be answered 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 are answered in favour of assessee inthe departmental appeals. 59.Even the contention which has beenraised by the counsel for the assessee that thefinal tax is paid by the Distributor and not bythe agent, the revenue is not at loss in anyform.” 4.Hence no substantial question of law arises. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J B.M.G/Gourav/88