Ita/1742/2009 Of Vodafone Essar Cellular Limited v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 17TH AUGUST 2010 / 26TH SRAVANA 1932 ITA.No. 1742 of 2009() ---------------------- ITA.106/COCH/2009 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- VODAFONE ESSAR CELLULAR LIMITED SHANMUGHAM ROAD, ERNAKULAM. BY SR. ADV. SRI.S.E.DASTUR ADV. SRI.NIRAJ SHETHADV. SRI.A.KUMAR RESPONDENT/RESPONDENT: ------------------------------------ THE ASSISTANT COMMISSIONR OF INCOME TAX, TDS, KOCHI. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07/07/2010, ALONG WITH ITA NO.1759 OF 2009 & CONN. CASES, THE COURT ON 17/08/2010 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &P.S.GOPINATHAN, JJ. ....................................................................I.T.A. Nos.1742, 1759, 1761, 1762, 1763,1764, 1773 and 1780 of 2009 .................................................................... Dated this the 17th day of August, 2010. JUDGMENT Ramachandran Nair, J. The questions raised in the eight connected appeals filed by thevery same assessee pertaining to the assessment years 2004-2005 to2007-2008 are the same and, therefore, the appeals were heard togetherand we proceed to dispose of the same by this common judgment. Theassessee is a mobile cellular operator which succeeded to the businessof Hutchison Essar Cellular Ltd. which had taken over the business ofBPL Mobile Cellular Ltd. which was one of the companies whichstarted mobile cellular operations in Kerala. Assessee carries onbusiness of rendering mobile telephone services to the customersthrough appointment of distributors in the State. Assessee has twotypes of transactions. Under the first category assessee givesconnections to customers and charges them on monthly basis by raisingbills for the calls made in a month, in the succeeding month. The I.T.A. 1742/09 & conn. connections are given to the customers through distribution of SimCards which on insertion in the hand set (mobile phone) of thecustomer and on activation by the assessee only gives connection tothe assessee's mobile network through the towers. Under the TelecomRegulations, connection can be given only on customer producingidentity, proof of address etc. Under the distribution agreement, thedistributor gets customers for the assessee and all work in relation tocollection of document of identity of the customer, delivery of SimCards for giving connection to the customer, collection of charges etc.,are done by the distributor and the assessee pays certain charges to thedistributor for all services rendered in regard to this service called "postpaid services". The assessee treats the payment to the distributors forthe services rendered under the "post paid scheme" as commissionwithin the meaning of Section 194H of the Income Tax Act (hereinaftercalled "the Act") and tax is deducted at source and is being remitted tothe department. However, so far as payments made for servicesrendered by the distributors under the prepaid scheme are concerned,appellant took the stand that the supply of Sim Card, Recharge coupons I.T.A. 1742/09 & conn. I.T.A. 1742/09 & conn. etc., under the prepaid scheme is sale of goods at discounted price bythe assessee and besides the discount given at the time of sale of theseitems, assessee is not paying any commission or crediting anycommission in the account of the distributors and so much so, assesseeis not liable to deduct and remit tax at source in terms of Section 194Hof the Act. The Assessing Officer on examination of the distributionagreement and after examining the nature of service rendered by thedistributor in regard to procurement and enlistment of customers andother services, found that there is no difference between the servicesrendered by the distributor under the "post paid" and under the"prepaid" schemes and so much so, he found that assessee was liable torecover and pay tax on the commission paid, though styled as discountby the assessee in the agreements with distributors. Since the assesseecommitted default in deduction of tax at source and remittance of thesame on the commission paid under the prepaid scheme to thedistributors, the Assessing Officer treated the assessee as an assessee indefault and demanded tax in terms of Section 201(1) of the Act. Forthe further consequence that is, delay on the assessee's failure to deduct and remit tax in time, the Assessing Officer levied interest throughseparate orders under Section 201(1A) of the Act. Accordingly twosets of separate orders are issued both under Section 201(1) and 201(1A) of the Act against the assessee for the assessment years 2004-2005to 2007-2008 which led to these appeals. All the lower authoritiesincluding the Tribunal consistently found against the assessee both onfacts and on questions of law and accordingly these appeals are filedbefore us wherein the substantial and the only question arising forconsideration is whether the so-called "discount" given by the assesseeto the distributors for the various services rendered by them under theprepaid scheme of getting connections and serving the subscribers ofmobile phones amounts to "commission" within the meaning of Section194H of the Act. If the answer to this question is in the affirmative, i.e.if this court holds that the discount given for the so-called sale ofservice products effected by the assessee is "commission" paid forservices rendered by the distributor in the course of mobile operationsby the assessee-company, then certainly there is violation of Section194H and so much so, the impugned orders issued under Sections 201 I.T.A. 1742/09 & conn. (1) and 201(1A) are unimpeachable as they are only consequentialorders for default. We have heard Senior counsel Sri.S.E.Dasturappearing for the assessee and Standing Counsel appearing for therespondent-department. 2. Before proceeding to consider the various arguments raised bythe appellant-assessee, we are constrained to refer to the DivisionBench judgment of this court rendered in a sales tax case filed by BPLMobile Cellular Ltd., whose business in Kerala is ultimately taken overby the assessee-company. In the judgment in the said case i.e. W.P.(C)No. 29202/2005, this court noticed that for the same transaction i.e. saleof Sim Cards and Recharge coupons through distributors under the"prepaid scheme", the assessee's predecessor namely, BPL Cellular Ltd.along with Public Sector company BSNL contested sales tax liabilitystating that transaction does not involve sale of goods, but is onlyrendering of services. In fact, this court after referring to judgment ofthe Supreme Court in BSNL & ANOTHER V. UNION OF INDIA &OTHERS reported in (2006) 145 STC 91 upheld the assessee'scontention holding that there is no sale involved in Sim Cards or I.T.A. 1742/09 & conn. I.T.A. 1742/09 & conn. Recharge coupons attracting sales tax and the transactions are forrendering mobile services because only through Sim Cards thecustomer can avail the mobile services from the assessee and Rechargecoupons are nothing but air time charges paid by customers in advancefor availing mobile services from the assessee. In other words, thefinding of this court was that there is no intrinsic value for neither theSim Cards nor the Recharge coupons and the entire collections are onlyfor rendering mobile services by the assesee. However, what hashappened is that when the assessee took over the business of the earlieroperator, assessee entered into another set of distribution agreementwherein the distributors were given freedom to charge any amount forSim Cards and Recharge coupons at below maximum retail price(MRP). In other words, if distributors so choose, they are permitted topass on part of the discount or commission received by them to retailersor customers. But for this, the terms of the distribution agreement asseen from records remain unaltered even after assessee succeeded to thebusiness of the previous company. Before the Income Tax AppellateTribunal as well as before the Assessing Officer, the assessee I.T.A. 1742/09 & conn. canvassed the position that under prepaid scheme assessee is selling theproducts namely, Sim Cards and Recharge coupons etc. at a discountedprice to the distributors and besides the discount given at the time ofsale against advance payment, assessee is neither paying anycommission or charges, nor crediting any amount in the account of thedistributors. Before the Tribunal, assessee heavily relied on thedecision of the Delhi Bench of the Income Tax Appellate Tribunal inthe case of IDEA Cellular Ltd. which was in favour of the assesee andthe department relied on the decision of the Kolkata Bench of theIncome Tax Appellate Tribunal in the case of Bharati Cellular Ltd.However, the decision of the Delhi Bench of the Tribunal in the case ofIDEA Cellular Ltd. was later reversed by the Delhi High Court and thesaid decision in COMMISSIONER OF INCOME TAX V. IDEACELLULAR LTD. is reported in (230) CTR (Del.) 43. On goingthrough the said judgment of the Delhi High Court, we find that theissue raised in that case is exactly the same raised by the assesseebefore us which is the claim that the benefit given to the distributor isonly discount and not commission. However, we find that the Delhi I.T.A. 1742/09 & conn. High Court has accepted our finding in the abovereferred decision thatsupply and delivery of Sim Cards and Recharge coupons do not amountto sale or purchase of goods, but are only for rendering services andconsequently the Court upheld the department's claim of applicabilityof Section 194H of the Act. It is not known whether the order of theKolkata Bench of the Income Tax Appellate Tribunal in favour of theDepartment in ASST. COMMISSIONER OF INCOME TAX V.BHARATHI CELLULAR LTD. reported in (2007) 105 ITD 129(KOL.) is confirmed by the High Court or not. Therefore, the positionas of now is that the findings of this court in the sales tax case in thecase of BPL Cellular Ltd. to which assessee succeeded, the judgment ofthe Delhi High Court in IDEA Cellular Ltd.'s case referred above andthe decision of the Kolkata Bench of the Income Tax AppellateTribunal in the case of Bharati Cellular Ltd., are squarely against theassessee and no other decision directly on the point is brought to ournotice. However, since Senior counsel Sri.Dastur appearing for theappellant-assessee challenged the correctness of the above decisions,we proceed to consider all the contentions raised. I.T.A. 1742/09 & conn. I.T.A. 1742/09 & conn. 3. Relying on the various clauses in the distribution agreement,the counsel for the assessee contended that assessee is making sale ofSim Cards and Recharge coupons at discounted price and againstadvance payment made by the distributors and the assessee is neitherpaying any commission or charges to the distributors nor creditingcommission or charges in the account of the distributors. However,Standing Counsel appearing for the Income Tax Departmentcontroverted this factual position canvassed by the assessee andbrought to our notice the findings of the Tribunal contained in para 59of their order. For the sake of precision, we feel it would be better toextract the finding of fact by the Tribunal with regard to accountingentries instead of stating it in our own words. Accordingly we extract hereunder the findings of the Tribunal on the accounting entries whichare the following: "The assessee company is crediting the sales account bythe gross amount and not by net proceeds. For example, theMRP of a pre-paid card is Rs.100/-; margin availed by thedistributor is Rs.20/-. The net proceeds available to theassessee is Rs.80/-. Let us see how the assessee is accountingfor the above. When the SIM Card is given to the distributor,the assessee company is crediting the sales account for anamount of Rs.100/-. Assessee is debiting the cash account I.T.A. 1742/09 & conn. with Rs.80/- being the cash paid by the distributor. Assesseecompany is debiting the commission account for Rs.20/-.This is the margin enjoyed by the distributor. As far as theassessee company is concerned, it has given a commission ofRs.20/-. On delivery of a pre-paid card of Rs.100/-, assesseeis adjusting the payment of commission through accounts andinvoice. In the first instance sale is accounted for Rs.100/-;the second cash is accounted for Rs.0/-; and the thirdcommission is accounted for Rs.20/-. It shows that as far asthe sale is concerned, it is Rs.100/- and the assessee has givena commission of Rs.20/- to the distributor and the net cashproceeds is Rs.80/-. Instead of treating the sale at the netvalue of Rs.80/-, the assessee is accounting the sales at thegross value of Rs.100/- and thereafter debiting an expensesaccount for commission paid of Rs.20/-. Therefore, in thefacts and circumstances of the case and in the light of thefinding of the Hon'ble jurisdictional High Court in the case ofM/s.BPL Mobile Cellular Ltd. (Writ Petition No.29202 of2005) that the essence of the contract between the assesseeand the distributor is that of service, we find that thedistributors are acting as agents of the assessee company andthe margin enjoyed by the distributors are thecommission/brokerage allowedby the assessee company. Counsel for the assessee sought to substantiate the position contrary tothe above finding of the Tribunal by reference to the distributionagreement which assessee has with the distributors. It is stated in theagreement that distributors are free to charge any amount from thesubscribers or retailers below the MRP. In other words, distributorsare not bound to sell the goods namely, Sim Cards or Recharge Counsel for the assessee sought to substantiate the position contrary tothe above finding of the Tribunal by reference to the distributionagreement which assessee has with the distributors. It is stated in theagreement that distributors are free to charge any amount from thesubscribers or retailers below the MRP. In other words, distributorsare not bound to sell the goods namely, Sim Cards or Recharge coupons at the MRP to treat the discount as charges or commissionreceived or receivable by the distributors. Relying on this clause in theagreement, the contention of the Senior counsel is that even if tax isrecovered at source on the discount amount, it may be on an amountthat may not ultimately be realised by the distributor at the time of theirsales to consumers or to retailers wherein they are free to pass on partof the discount received by them i.e. by selling the products at belowthe MRP. In this context Standing Counsel for the Department referredto Section 197 of the Act whereunder the payee is entitled to apply tothe department for obtaining payment without deduction of tax or withdeduction at rates lower than what is provided in the statute. We are infull agreement with this contention of the department because if it iscommission on which TDS is payable under Section 194H, thedistributors can approach the department and get certificates to receivediscount or commission without deduction or with deduction at lowerrates. Therefore, we are unable to accept the contention of the Seniorcounsel that the possibility of distributors selling the products at belowMRP leading to higher recovery of tax will stand in the way of assessee recovering tax at source or collecting tax from the distributors on thediscount passed on to them at the time of sale of the products, if thetransaction is subject to deduction at source under Section 194H of theAct. Further, it is common knowledge that recovery of tax at source isnot the actual tax payable by the recipient who is free to claim refund ofTDS amount with interest, if excess tax is recovered under TDSScheme. 4. The main question to be considered is whether Section 194H isapplicable for the "discount" given by the assessee to the distributors inthe course of selling Sim Cards and Recharge coupons under prepaidscheme against advance payment received from the distributors. Wehave to necessarily examine this contention with reference to thestatutory provisions namely, Section 194H which is extractedhereunder for easy reference: "S.194H. Any person, not being an individual or aHindu undivided family, who is responsible for paying, on orafter the 1st day of June, 2001, to a resident, any income byway of commission (not being insurance commissionreferred to in section 194D) or brokerage, shall, at the time ofcredit of such income to the account of the payee or at thetime of payment of such income in cash or by the issue of acheque or draft or by any other mode, whichever is earlier, I.T.A. 1742/09 & conn. deduct income-tax thereon at the rate of ten per cent: ........ Explanation:- For the purposes of this section,-- (i) "commission or brokerage" includes any paymentreceived or receivable, directly or indirectly, by a personacting on behalf of another person for services rendered (notbeing professional services) or for any services in the courseof buying or selling of goods or in relation to any transactionrelating to any asset, valuable article or thing, not beingsecurities; ........" I.T.A. 1742/09 & conn. deduct income-tax thereon at the rate of ten per cent: ........ Explanation:- For the purposes of this section,-- (i) "commission or brokerage" includes any paymentreceived or receivable, directly or indirectly, by a personacting on behalf of another person for services rendered (notbeing professional services) or for any services in the courseof buying or selling of goods or in relation to any transactionrelating to any asset, valuable article or thing, not beingsecurities; ........" What is clear from Explanation (i) of the definition clause above is thatcommission or brokerage includes any payment received or receivabledirectly or indirectly by a person acting on behalf of another person forthe services rendered. We have already taken note of our finding inBPL Cellular's case abovereferred that a customer can have access tomobile phone service only by inserting Sim Card in his hand set(mobile phone) and on assessee activating it. Besides gettingconnection to the mobile network, the Sim Card has no value or use forthe subscriber. In other words, Sim Card is what links the mobilesubscriber to the assessee's network. Therefore, supply of Sim Card, I.T.A. 1742/09 & conn. whether it is treated as sale by the assessee or not, is only for thepurpose of rendering continued services by the assessee to thesubscriber of the mobile phone. Besides the purpose of retaining amobile phone connection with a service provider, the subscriber has nouse or value for the Sim Card purchased by him from assessee'sdistributor. The position is same so far as Recharge coupons or ETopups are concerned which are only air time charges collected fromthe subscribers in advance. We have to necessarily hold that ourfindings based on the observations of the Supreme Court in BSNL'scase in the context of sales tax in the case of BPL Cellular Ltd.squarely apply to the assessee which is nothing but the successorcompany which has taken over the business of BPL Cellular Ltd. inKerala. So much so, there is no sale of any goods involved as claimedby the assessee and the entire charges collected by the assessee at thetime of delivery of Sim Cards or Recharge coupons is only forrendering services to ultimate subscribers and the distributor is only themiddleman arranging customers or subscribers for the assessee. Theterms of distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification anddocumentation which responsibility is entrusted by the assessee on thedistributors under the agreement. It is pertinent to note that besides thediscount given at the time of supply of Sim Cards and Rechargecoupons, the assessee is not paying any amount to the distributors forthe services rendered by them like getting the subscribers identified,doing the documentation work and enrolling them as mobilesubscribers to the service provider namely, the assessee. Even thoughthe assessee has contended that the relationship between the assesseeand the distributors is principal to principal basis, we are unable toaccept this contention because the role of the distributors as explainedabove is that of a middleman between the service provider namely, theassessee, and the consumers. The essence of a contract of agency is theagent's authority to commit the principal. In this case the distributorsactually canvass business for the assesssee and only throughdistributors and retailers appointed by them assessee gets subscribersfor the mobile service. Assessee renders services to the subscribersbased on contracts entered into between distributors and subscribers. We have already noticed that the distributor is only rendering servicesto the assessee and the distributor commits the assessee to thesubscribers to whom assessee is accountable under the service contractwhich is the subscriber connection arranged by the distributor for theassessee. The terminology used by the assessee for the payment to thedistributors, in our view, is immaterial and in substance the discountgiven at the time of sale of Sim Cards or Recharge coupons by theassessee to the distributors is a payment received or receivable by thedistributor for the services to be rendered to the assessee and so muchso, it falls within the definition of commission or brokerage underExplanation (i) of Section 194H of the Act. The test to be applied tofind out whether Explanation (i) of Section 194H is applicable or not isto see whether assessee has made any payment and if so, whether it isfor services rendered by the payee to the assessee. In this case therecan be no dispute that discount is nothing but a margin given by theassessee to the distributor at the time of delivery of Sim Cards orRecharge coupons against advance payment made by the distributor.The distributor undoubtedly charges over and above what is paid to the assessee and the only limitation is that the distributor cannot chargeanything more than the MRP shown in the product namely, Sim Cardor Recharge coupon. Distributor directly or indirectly gets customersfor the assessee and Sim Cards are only used for giving connection tothe customers procured by the distributor for the assessee. Theassessee is accountable to the subscribers for failure to render promptservices pursuant to connections given by the distributor for theassessee. Therefore, the distributor acts on behalf of the assessee forprocuring and retaining customers and, therefore, the discount given isnothing but commission within the meaning of Explanation (i) onwhich tax is deductible under Section 194H of the Act. The contentionof the assessee that discount is not paid by the assessee to thedistributor but is reduced from the price and so much so, deductionunder Section 194H is not possible also does not apply because it wasthe duty of the assessee to deduct tax at source at the time of passing onthe discount benefit to the distributors and the assessee could havegiven discount net of the tax amount or given full discount andrecovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act. This proposition is supported bythe decision of the Supreme Court cited by Standing Counsel for therespondent in J.B.BODA AND CO. PVT. LTD. V. CENTRALBOARD OF DIRECT TAXES reported in (1997) 223 ITR 271 whereinthe Supreme Court has held as follows. "A two-way traffic isunnecessary. To insist on a formal remittance first and thereafter toreceive the commission from the foreign reinsurer, will be an emptyformality and a meaningless ritual, on the facts of this case." StandingCounsel for the department referred to our decision inCOMMISSIONER OF INCOME TAX V. DIRECTOR,PRASARBHARTI, DOORDARSHAN KENDRA reported in (2010)189 TAXMAN 315 wherein this court held thatPrasarbharti/Doordarshan Kendra was liable to deduct tax on thecommission retained by advertising agencies, no matter, thecommission was not paid by Doordarshan but was allowed to beretained by the advertising agencies who recovered total advertisingcost and remitted only net amount to the Prasarbharti. We, therefore,do not find any merit in the contention of the assessee that recovery of tax is not permissible at the time of giving discount on the delivery ofproducts to the distributors. tax is not permissible at the time of giving discount on the delivery ofproducts to the distributors. 5. In view of our finding in the BPL Cellular's case in the contextof demand arising under the Sales Tax Act, the mobile serviceproviders are exonerated from sales tax liability and are liable to payservice tax to the Central Government under the Finance Act, 1994. Inview of the finality attained to the sales tax case through the abovejudgment, it would be futile for the assessee or for that matter anymobile service provider, to contend that the charges received for supplyof Sim Cards and Recharge coupons are not for services rendered butamounts to sale of goods on which admittedly assessee is not payingany sales tax to the State Government. It is strange to note thatassessee takes self-contradictory stand before the Sales Tax Authoritiesof the State and before the Central Income Tax Authority, both to resisttax-compliance. 6. Senior counsel appearing for the assessee has relied on severaljudgments, particularly two decisions of this court in M.S.HAMEED V.DIRECTOR OF STATE LOTTERIES reported in (2001) 114 I.T.A. 1742/09 & conn. TAXMAN 394 (KER.) and KERALA STATE STAMP VENDORSASSOCIATION V. OFFICE OF THE ACCOUNTANT GENERALreported in (2006) 150 TAXMAN 30(KER.), the decision of theGujarat High Court in AHMEDABAD STAMP VENDORSASSOCIATION V. UNION OF INDIA reported in (2002) 124TAXMAN 628 (GUJ.), and the decision of the Bombay High Court inCOMMISSIONER OF INCOME TAX V. QUTAR AIRWAYS inI.T.A. No.99 of 2009 dated 26.3.2009. The first decision of this courtpertains to sale of lottery tickets wherein this court held that thecommission given by way of discount at the time of sale of lotterytickets is not a commission on which tax is deductible under Section194G of the Act. The second decision of this court pertains to sale ofstamp paper by the licensed stamp vendors wherein also the finding ofthis court following the decision of the Gujarat High Court inAHMEDABAD STAMP VENDORS' case is that the transaction issale of goods and so much so, no deduction of tax is called for underSection 194G of the Act. So far as the lottery ticket is concerned, thetransaction is different and the Supreme Court has held that the transaction is sale of goods and so much so, the decision rendered bythis court has no application in regard to commission paid by theassessee to the distributors in the form of discount which we havefound to be in essence and substance for rendering services. The nextjudgment relied on by the petitioner which is in KERALA STAMPVENDORS ASSOCIATION case rendered by one of us(C.N.Ramachandran Nair, J.), relates to sale of stamp paper by thelicensed vendors. Here again, this court by relying on decision of theGujarat High Court in AHMEDABAD STAMP VENDORS case heldthat the transaction is a sale. On a reconsideration of this judgment, wefeel this court's judgment may require reconsideration becauseconsideration received by the stamp vendors for the stamp paper doesnot really represent it's value but is nothing but stamp duty. Value ofeach stamp paper may be fifty paise or even a rupee, whatever be it'squality, but what is collected depends on the amount stamped thereonwhich is nothing but stamp duty recovered by the State from theultimate user in terms of the Stamp Act. Rightly or wrongly this courtheld that the transaction is sale because loss of stamp paper is to the account of the stamp vendors, if it is lost in their custody. TheGovernment also treats the transaction as sale of goods and specificexemption is granted from payment of sales tax in terms of provisionsof the Sales Tax Act. Therefore, the finding that Section 194H is notapplicable is on the specific finding in that case that the transaction issale of goods, whereas in this case following the Division Benchjudgment of this court we have found that the distributor is paidcommission in the form of discount for services rendered to theassessee. Therefore, none of these decisions relied on by the assesseeapplies to the facts of this case which is payment of commission by wayof discount for services rendered by the distributor. Senior counsel forthe assessee has in support of his contentions relied on the followingdecisions of the Supreme Court also, ADDITIONALCOMMISSIOENR OF INCOME TAX V. SURAT ART SILK CLOTHMANUFACTURERS ASSOCIATION reported in (1980) 121 ITR 1,KEDARNATH JUTE MANUFACTURING CO. V. COMMISSIONEROF INCOME TAX reported in 82 ITR 363, COMMISSIONER OFINCOME TAX V. MOTORS 7 GENERAL STORES (P) LTD. (1967) I.T.A. 1742/09 & conn. 66 ITR 692, COMMISSIONER OF INCOME TAX V. AJAXPRODUCTS LTD. (1965) 55 ITR 741, COMMISSIONER OFINCOME TAX V. B.C.SRINIVASA SETTY (1981) 128 ITR 294,TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V.COMMISSIONER OF INCOME TAX (1997) 227 ITR 172 anddecisions of House of Lords in INLAND REVNUECOMMISSIONERS V. WESLEYAN GENERAL ASSURANCESOCIETY reported in (1948) 16 ITR 101 and another decision inREVENUE COMMISSIONERS V. DUKE OF WESTMINSTERreported in (1936) A.C. 1. However, on going through thesejudgments we do not find any of the judgment has any directapplication to the facts of this case. The very scheme of deduction oftax at source under the Income Tax Act is to trace recipients of incomeand their accountability to the department for payment of tax on varioustransactions. In fact, major portion of the income tax collection isthrough recovery of tax at source and but for the mechanism, therewould have been massive evasion of tax by the recipients of variouskinds of income. The trend in legislation is to increase coverage for recovery of tax at source and on a steady basis various services arebrought under the TDS scheme so that tax evasion is avoided. We havealready taken note of the provision under Section 197 of the Act whichmitigates against hardship if any in recovery of tax in as much as apayee is entitled to approach the department and apply for certificate toreceive any amount which would be otherwise subject to deduction oftax at source without recovery of any tax or on recovery at lesser rates.We are of the view that the grievance if any against recovery of tax bythe assessee is on the distributors, and they are already on the roles ofthe department because assessee is making deduction of tax at sourcefor payment of commission made under the post paid scheme. Asalready pointed out, if distributors have any grievance against assesseerecovering tax for the commission paid in the form of discount inrespect of prepaid services, any such distributor is free to approach thedepartment for getting his grievance redressed by filing an applicationunder Section 197 of the Income Tax Act. However, we make it clearthat this is not the ground on which we have held the assessee liable forrecovery of tax at source under Section 194H which is only because we have clearly found that the discount paid to the distributors is forservice rendered by them and the same amounts to "commission"within the meaning of that term contained under Explanation (i) toSection 194H of the Act. The impugned orders issued under Section201(1) and 201(1A) of the Act are only consequential orders passed onaccount of default committed by the assessee under Section 194H and,therefore, those orders were rightly upheld by the Tribunal. We,therefore, dismiss all the appeals filed by the assessee. have clearly found that the discount paid to the distributors is forservice rendered by them and the same amounts to "commission"within the meaning of that term contained under Explanation (i) toSection 194H of the Act. The impugned orders issued under Section201(1) and 201(1A) of the Act are only consequential orders passed onaccount of default committed by the assessee under Section 194H and,therefore, those orders were rightly upheld by the Tribunal. We,therefore, dismiss all the appeals filed by the assessee. C.N.RAMACHANDRAN NAIRJudge P.S.GOPINATHANJudge pms