Tata Teleservices Limited v. Income Tax Officer & Anr

$~18 to 22 IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 512/2018 & CM APPL. 17458/2018 (Interim Relief) TATA TELESERVICES LIMITED ..... Appellant Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. versus INCOME TAX OFFICER & ANR. ..... Respondents Through: Mr. Abhishek Maratha, Sr.SC. 19 + ITA 513/2018 & CM APPL. 17460/2018 (interim relief) TATA TELESERVICES LIMITED ..... Appellant Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 76(1) & ANR. ..... Respondents Through: Mr. Abhishek Maratha, Sr.SC. 20 + ITA 518/2018 & CM APPL. 17466/2018 (interim relief) TATA TELESERVICES LIMITED ..... Appellant Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 76(1) & ANR. ..... Respondents Through: Mr. Abhishek Maratha, Sr.SC. 21 + ITA 519/2018 & CM APPL. 17468/2018 (interim relief) TATA TELESERVICES LIMITED ..... Appellant Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. versus INCOME TAX OFFICER & ANR. ..... Respondents Through: Mr. Abhishek Maratha, Sr.SC. 22 + ITA 538/2018 & CM APPL. 18588/2018 (interim relief) TATA TELESERVICES LIMITED ..... Appellant Through: Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Vibhu Jain and Mr. Sumit Lalchandani, Advs. versus INCOME TAX OFFICER & ANR. ..... Respondents Through: Mr. Abhishek Maratha, Sr.SC. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV O R D E R10.04.2024 % 1.The instant appeals raise the following common questions of law: “Whether Income Tax Appellate Tribunal fell into error in its interpretation of Section 194-H of the Income Tax Act, 1961 in the facts and circumstances of the case?” 2.Undisputedly the aforesaid questions stands answered in favour of the assessee in light of the judgment rendered by the Supreme Court in Bharti Cellular Ltd. v. CIT [2024 SCC OnLine SC 198]. 3.While dealing with the same, the Court had in Bharti Cellularheld as follows: “39. Coming back to the legal position of a distributor, it is to be generally regarded as different from that of an agent. The distributor buys goods on his account and sells them in his territory. The profit made is the margin of difference between the purchase price and the sale price. The reason is, that the distributor in such cases is an independent contractor. Unlike an agent, he does not act as a communicator or creator of a relationship between the principal and a third party. The distributor has rights of distribution and is akin to a franchisee. Franchise agreements are normally considered as sui generis, though they have been in existence for some time. Franchise agreements provide a mechanism whereby goods and services may be distributed. In franchise agreements, the supplier or the manufacturer, i.e., a franchisor, appoints an independent enterprise as a franchisee through whom the franchisor supplies certain goods or services. There is a close relationship between a franchisor and a franchisee because a franchisee's operations are closely regulated, and this possibly is a distinction between a franchise agreement and a distributorship agreement. Franchise agreements are extremely detailed and complex. They may relate to distribution franchises, service franchises and production franchises. Notwithstanding the strict restrictions placed on the franchisees—which may require the franchisee to sell only the franchised goods, operate in a specific location, maintain premises which are required to comply with certain requirements, and even sell according to specified prices—the relationship may in a given case be that of an independent contractor. The facts of each case and the authority given by the “principal” to the franchisees matter and are determinative. 40. An independent contractor is free from control on the part of his employer, and is only subject to the terms of his contract. But an agent is not completely free from control, and the relationship to the extent of tasks entrusted by the principal to the agent are fiduciary. As contract with an independent agent depends upon the terms of the contract, sometimes an independent contractor looks like an agent from the point of view of the control exercisable over him, but on an overview of the entire relationship the tests specified in clauses (a) to (d) in paragraph 8 may not be satisfied. The distinction is that independent contractors work for themselves, even when they are employed for the purpose of creating contractual relations with the third persons. An independent contractor is not required to render the accounts of the business, as it belongs to him and not his employer. 41. Thus, the term “agent” denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency. In other words, the term “agent” should be restricted to one who has the power of affecting the legal position of his principal by the making of contracts, or the disposition of the principal's property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and examining the indicia mentioned in clauses (a) to (d) in paragraph 8 of this judgment. It is in the restricted sense in which the term agent is used in Explanation (i) to section 194H of the Act. 42. In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the prepaid coupons or starter-kits to the distributors. Section 194H of the Act is not applicable to the facts and circumstances of this case. Accordingly, the appeals filed by the assessee - cellular mobile service providers, challenging the judgments of the High Courts of Delhi and Calcutta are allowed and these judgments are set aside. The appeals filed by the Revenue challenging the judgments of the High Courts of Rajasthan, Karnataka and Bombay are dismissed. There would be no orders as to cost. Pending applications, if any, shall stand disposed of.” 4.In view of the aforesaid, we allow the instant appeals and set aside the orders of the Income Tax Appellate Tribunal [“ITAT”] dated 15 March 2018, insofar as the issue of Section 194H is concerned. YASHWANT VARMA, J. PURUSHAINDRA KUMAR KAURAV, J. APRIL 10, 2024/p