The order of the Bench was delivered by
R P Tolani:-The above mentioned appeals have been filed by the assessee and the Revenue against two different orders of the ld. CIT(A)-III, Jaipur dated 20-12-2011 and 11-03-2011 for the assessment years 2005-06 and 2006-07 to 2009-10. These appeals pertains to deciding the issue of applicability of Section 194H and assessee's liability thereunder u/s 201(1) and 201(1A) of the I.T. Act.
2.1 The common grounds raised by the assessee in its appeals are as under:-
''On the facts and the circumstances of the case and in law the ld. CIT(A)-III, Jaipur, erred in:-
1. confirming the action of the AO and upholding the provisions of Section 194H of the Act are applicable on the discount on sale of recharge vouchers (RCVs) and the starter kits by the appellant to its channel partners (distributors/ dealers);
2. not appreciating that the provisions of Section 194H of the Act would apply only at the time of payment/ credit to payee's account.
3. not appreciating the true spirit of Section 194H wherein the discount allowed has to qualify as income chargeable to tax under the Act;
4. not appreciating the true spirit of Section 194H as envisaged in Chapter XVII-B (Deduction at source) of the Act, irrespective of the relationship between the deductor and the deductee.
5. holding that principal agent relationship existed between the appellant and its channel partners without appreciating the fact that the said relationship is on principal to principal basis inasmuch as starter kits/ RCVs were sold on a principal to principal basis and Sales Tax and Service Tax as applicable were levied and paid in the course of the said transactions of sale and that ownership/property in the said starter kits/RCVs passed on from the appellant to its channel partners;
6. holding that principal-agent relationship existed between the appellant and its channel partners without appreciating that various clauses of the agreement executed between the appellant with its channel partners unequivocally demonstrate that the relationship between the appellant and the channel partners is in fact on principal to principal basis.
7. not appreciating the recognition of the principal of trading in services and the concept of discount under Service Tax Law administered by Central Board of Excise and Customs, the other wing of the Ministry of Finance;
8. Without prejudice to above, holding that the interest u/s 201(1A) of the Act would be applicable for the period starting from the end of the month in which the TDS was to be paid till the date of filing of the return of income by the distributor/ channel partner.
2.2 The common grounds raised by the Revenue in its appeals are as under:-
1. The assessee company did not provide the details of deductee regarding filing of I.T. Returns before the AO (TDS) during the proceedings.
2. The details provided before the ld. CIT(A) did not reflect the correct figure of commission shown by the deductee in their I.T. Returns as the ld. CIT(A) directed the AO to verify the figures.
3. Many of the deductees did not have PAN and therefore, the claim of filing of I.T. Return by them could not have been considered.
4. Incomplete and unverified information could not have been considered as additional evidence under Rule 36A of Income Tax Rules.
2.3 Brief facts of the case are that the assessee is a telecommunication service provider, it sells its products to distributors in bulk against prior payments such as Starter Kits and the Recharge Coupon Vouchers (RCV). Starter Kits are the new connections containing a 'Removable User Identity Module'' (for short RUIM Cards/ Sim Cards). According to the assessee, the Starter Kits and the Recharge Coupon Vouchers are sold to its various distributors as per the terms of business agreements on principal to principal basis against prior payment on a discounted price than MRP. As a business policy there are different distributors for its prepaid and post-paid products. Starter Kits and RCVs are sold for pre-paid connections to distributors in bulk. They are sold to the distributors against on a discount on the M.R.P. printed MRP on these products. In other words, these products are sold to distributors at a discounted price against prior cash payment as per terms of business agreement, apart from other clauses they stipulate not be sold more than the printed M.R.P. According to the AO, the discount i.e. the difference between the MRP and the selling price to the distributor amounted to payment of commission to distributors which was liable TDS u/s 194H of the Act. Since the assessee company had not deducted the tax, show cause notice was issued in this behalf.
2.4 In reply, the assessee contended that the real nature of these transactions being of sale to distributors on principal to principal basis, the discount amounted to simply a business discount against prior payment. The transactions were purely of sale and not of principal and agent and the discount was not commission in nature. Therefore, it was not liable for TDS u/s 194H of the Act.
2.5 The AO however, rejected the assessee's explanation and held that relationship between the assessee and the distributor was that of principal and agent; discount was held as commission in nature which was liable for TDS. Assessee was consequently held to be in default u/s 201(1) and interest thereon u/s 201(1A) was also levied.
2.6 Aggrieved, the assessee preferred first appeal where the ld. CIT(A) followed his orders for assessment year 2005-06 to 209-10. Besides, the ld. CIT(A) relied on clause 7(i) of the agreement and followed the following judgments:
i. CIT vs. Idea Cellular Ltd., 230 CTR 43 (Delhi)
ii. Vodafone Essar, Cellular Ltd. vs. ACIT (2010) 235 CTR 393(Kerala)
2.7 Ld. CIT(A) thus upheld the action of the AO holding that the assessee is liable for deduction of tax u/s 194H and thereby the assessee is in default u/s 201(1) and interest liability u/s 201(1A) of the Act.
2.8 However, the ld. CIT(A) accepted the alternative plea of the assessee by admitting the additional evidences relying on Hon'ble Supreme Court decision in the case of M/s. Hindustan Coca Cola Beverages (P) Ltd. and directed the AO to verify whether the distributor had paid tax on their income qua the sale of assessee's products. It was further directed that chargeability of interest should be suitably reduced as per direction given. The relevant observations of the ld. CIT(A) are as under:-
''2.3.1 As far as the alternative grounds i.e. grounds No. 3rd and 4th are concerned, wherein the benefit of the decision of Hon'ble Supreme Court given in the case of M/s. Hindustan Coca Cola Beverage (P) Ltd. is sought for, in respect of the demand raised u/s 201(1) of the act is concerned, the same has also been found as decided by my predecessor while disposing the above referred appeal of the appellant. The findings given in this regard are being reproduced as under:-
''2.3.2 However as far as the alternative grounds i.e. Grounds No. 2,3, & 4, taken by the appellant are concerned, I find merit in the contention of the ld. AR that when the concerned distributor / channel partner of the appellant had filed its return of income for the relevant assessment year and had also certified that the total income declared therein by it was including the business income from the purchase and sale of the products of the appellant (Starter Kits and Recharge Coupon Vouchers of TTSL), then the liability u/s 201(1) of the I.T. Act should not be created in the appellant's case, in respect of payments made to such distributor/ channel partner. The above contenton of the ld. AR was found acceptable in view of the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs. CIT 293 ITR 226 (SC). Therefore, the AO is directed to delete the appellant's liability created u/s 201(1) of the I.T. Act in respect of such distributors/ channel partners who have certified that they have filed their return of income for the concerned assessment year and their total income declared therein was including the business income from the purchase and sale of prepaid products of the appellant company (Starter Kits and Recharge Coupon Vouchers of TTSL). In this regard, the ld. AR has filed a chart giving yearwise details of such distributors/ channel partners alongwith the relevant supporting documentary evidences, which were also sent to the ld. AO during the remand proceedings, and which have been admitted as additional evidences under Rule 46A of the I.T. Rules, as discussed in para 2.22. above. Therefore, the AO is directed to factually verify the correctness/ totaling etc. of the said claim, after giving an opportunity of hearing to the appellant and to allow relief according to the decision given above in this para.''
In the present appellate proceeding, the appellant submitted that during the period under consideration the discount of Rs. 4000/- only was paid to M/s. Vigil Network and they are assessed to tax. Accordingly, in view of the above decision of Hon'ble Supreme Court, the demand raised u/s 201(1), i.r.o. such discount payment need to be deleted. In the light of the above, I also tend to agree with the alternative plea of the appellant and the AO is hereby directed to give the relief i.r.o. liability of Rs. 3396/- raised u/s 201(1), after making the necessary verification of the claim made by the appellant in this regard.
2.3.2. Regarding the other alternative plea, as raised in 5th ground of appeal, towards the quantum of default period to levying the interest u/s 201(1A) is concerned, the then CIT (A) has also given his finding, in this regard, in the aforesaid earlier appellate order, as under:-
''2.3.3. As far as the alternative ground i.e. Ground No. 5 is concerned, I find merit in the contention of ld. AR that the ld. AO had erred in levying consequential interest u/s 201(1A) of the I.T. Act for the period from the due date of payment of tax to be withheld till the date of issuance of the assessment order under consideration and that instead the AO should have taken the period from the due date of filing of tax return by the payee. In this regard, on perusal of the decision given by the Hon'ble ITAT Bangalore Bench in the case of ITO vs. M/s. Intel Tech India (P) Ltd. 2009-TIOL -355-ITAT-Bang, it is seen that the Hon'ble ITAT has held in that case that ''in the instant case, the deductor was required to deduct the tax at source and therefore, the deductor was an assessee in default since a deductee has filed the return and has disclosed the transaction in the return of income and that shows no tax was payable on such transaction. Therefore, the default will end on the date when the deductee has filed the return. Hence, the deductor will be liable to interest u/s 201(1A) only upto the date of filing of return by the deductee.'' Therefore, respectfully following the said decision of Hon'ble Tribunal, it is held that the appellant is liable to pay interest u/s 201(1A) of the I.T. Act for the period starting from the end of the month in which the appellant was supposed to make TDS in the case of a distributor/ channel partner till the date of filing of the return of income for the concerned A.Y. by that distributor/ channel partner.''
While following the same analogy, the AO is hereby directed to charge the interest u/s 201(1A) for the period stated from the end of the month in which the TDS return was required to be filed by the appellant and to the date of filing of return of income by the distributor/ channel partner of the appellant.''
2.9 Aggrieved, both the parties are before us. The assessee is against rejection of its claim about its impugned transactions with distributors being sale as principal to principal and holding the same to be commission on relationship of principal and agent and liability u/s 194H. The Revenue is against admission of additional evidence and grant of relief following Hindustan Coca Cola judgment without proper verification of distributor's income tax records. The respective grounds raised by both the parties are mentioned above.
2.10 The ld. Counsel for the assessee reiterated the facts and circumstances of the case and contends that the company sells the SUK's both postpaid and prepaid, and the RCVs to the respective distributors in bulk. The distributors being the bulk purchasers, the company allows them a cash discount for buying the products in bulk i.e. the margin between the maximum retail price and the price at which the products are sold in bulk. The margin is in the nature of a cash discount as the distributors pay the agreed purchase price before the delivery of the products. The distributors are free to sell the products at any price. However, in no event, it shall be more than the maximum retail price. The distributors main the stocks of the products and replenishes the stock as per their business requirements. In case of RCVs also, the Company sells at a price which is less than a maximum retail price. Company also gives cash discount on these bulk sales. Almost every State has declared these SIM cards as item of goods and is shown as declared goods in the Schedules to the respective State Value Added Tax (for short 'VAT') leviable on sales. The States levy the VAT on the sale of these products, which pre-supposes element of sale in the transaction and levy of statutory VAT thereon. Both constitutional validity of VAT and its applicability in SUKs and RCVs has been upheld by the Superior Courts. Thus the Courts in the back drop of scope of VAT levy, have ruled that these products are liable for VAT as the nature of transaction between the assessee and its distributor was sale of simplicitor by way of transfer of property in goods in accordance with sale of goods. VAT is chargeable on the discounted sale price, keeping in view of these facts and circumstances of the case, it is self contradictory and beyond comprehension that same transaction for States of sale in nature and for Central Govt. it is not so and treated as principal agent transaction against payment of commission. More so, when the commission is not even paid by assessee as its discounted sale price against the prior payment then this approach leads to a direct contradiction on the interpretation of same transaction by the competent Courts and distorts the legal meaning of the transactions. Since the products are sold they are liable for VAT which paid by the assessee and tax collected by State Govt. and deposit to its respective treasury by valid statutory assessment. Therefore, there is no merit in the lower authorities holding the transaction between the assessee and distributors amounts to relationship of principal and agent and the discount amounted to commission which is liable for deduction of tax u/s 194H.
2.11 Ld. Counsel for the assessee further contends that the very issue i.e. the nature of relationship between the assessee and the distributors (channel partners) was in respect of sale of SKUs and RCVs came up before Hon'ble Karnataka High Court by way of batch of appeals in which the assessee was one of the party (ITA No. 158 of 2013). By a consolidated order dated 2-12-2014 published in 52 Taxman.com31 wherein Hon'ble Karnataka High Courts considered all the available judgements rendered by various judicial authorities and are referred in the said order, some of which are as under:-
(i) Bharat Sanchar Nigam Ltd. and another vs. Union of India, 282 ITR (SC).
(ii) CIT vs. Qatar Airways (2011) 322 ITR 253 (Bom.)
(iii) CIT vs. Mother Dairy India Ltd. (2013) 358 ITR 218 (Del.)
(iv) CIT vs. Singapore Airlines Ltd. and Others (2009) 224 CTR 168 (Del.)
(v) CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.)
(vi) Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.)
(vii) Bharti Cellular Ltd. vs. ACIT and another (2013) 354 ITR 507 (Cal.)
Thus Hon'ble Karnataka High Court considered all these judgments on the same issue. Besides on other principles of law relied on following judgments.
(i) Bhavani Cotton Mills Ltd. vs. State of Punjab and Another, AIR 1967 SC 1616 (SC).
(ii) Ge India Technology Cen. (P) Ltd. vs. CIT (2010) 327 ITR 456 (SC)
(iii) CIT vs. Eli Lilly and Company (India) (P) Ltd. 312 ITR 225 (S.C.)
(iv) During. Commissioner of Sales Tax (Law) Board of Revenue (Taxes), Ernakulam vs. Advani Oorlikon (P) Ltd. (AIR 1980 SC 609)
(v) Bhopal Sugar Industries Ltd. vs. Sales Tax Officer (1977) 6 CTR 284 (SC.)
(vi) Padma Sundara Rao (Dead) and Others vs. State of T.N. and Ohters (2002) 3 SCC 533)
(vii) Union of India vs. Chajju Ram (Dead) by Lrs. And Others (203) 5 SCC 568)
2.12 Referring to the case decided by Hon'ble Delhi High Court in the case of CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.) and by Kerala High Court in the case of Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.), the Hon'ble Karnataka High Court dealt with these cases while deciding the real nature of the impugned transactions. The Hon'ble High Court on the issue of relationship of telecommunication companies and other distributors qua the sale of these products held as under:-
''58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold.
59. The telephone service is nothing but service. SIM cards, have no intrinsic sale value. It is supplied to the customers for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a sim-card. When he pays for the simcard, he gets the mobile service activated. Service can only be rendered and cannot be sold. However, right to service can be sold. What is sold by the service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself. He may also sell the right to sub-distributors who in turn may sell it to retailers. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. The seller may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. However, who ever ultimately sells the said right to customers is not entitled to charge more than the MRP. The income of these middlemen would be the difference in the sale price and the MRP, which they have to share as per the agreement between them. The said income accrues to them only when they sell this right to service and not when they purchase this right to service. The assessee is not concerned with quantum and time of accrual of income to the distributors by reselling the prepaid cards to the subdistributors/ retailers. As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorized as commission. The sale is subject to conditions, and stipulations. This by itself does not show and establish principal and agent relationship.
60. The following illustration makes the point clear: On delivery of the prepaid card, the assessee raises invoices and updates the accounts. In the first instance, sale is accounted for Rs. 100/-, which is the first account and Rs. 80/- is the second account and the third account is Rs. 20/-. It shows that the sales is for Rs. 100/-, commission is given at Rs. 20/- to the distributors and net value is Rs. 80/-. The assessee's sale is accounted at the gross value of Rs. 100/- and thereafter, the commission paid at Rs. 20/- is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted.
61. However, in the first instance, if the assessee accounted for only Rs. 80/- and on payment of Rs. 80/-, he hands over the prepaid card prescribing the MRP as Rs. 100/-, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of Rs. 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted.
62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub-distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow in so far as the services to be rendered by the assessee to the customer is concerned and, therefore, it cannot be said that there exists a relationship of principal and agent. In the facts of the case, we are satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set out supra in unmistakable terms demonstrate that the relationship between the assessee and the distributor is not that of principal and agent but it is that of principal to principal.''
2.13 It is further pleaded that the the issue of accounting of the discount in terms of para 60 of Hon'ble Karnataka High Court reproduced above was not applicable to assessee and did not arise in its case. Besides, it has not been disputed by the Department that the assessee sold its products like SKUs and RCVs against advance payment at a corresponding sale price of discounted value. Thus in assessee's case what is sold is already at discounted price, therefore, it never held any income of distributors in its hand. It is further evident from the assessee's written submission at page 33 of the assessee as under-
''In the facts of the present case, the discounts offered by TTSL are neither recorded as income in its books and nor shown as receivable in the books of the Distributors/ Channel Partners. It is also relevant to note that under AS-9 on 'Revenue Recognition' issued by ICAI, which is mandatorily required to be followed by TTSL, also states that trade discounts and volume rebates received are not encompassed within the definition of revenue, since they represent a reduction of cost and should be deducted in determining revenue. Accordingly, TTSL has not considered the amount representing the Discount as its revenue and as such no payment of any income from such revenue can be said to be made by it to Distributors/ Channel Partners. It is thus submitted that since no income is paid by TTSL to Distributors/ Channel Partners, sect 194H is not applicable and the assessment order and order in appeal are required to be set aside.''
2.14 It is further contended that that Hon'ble Karnataka High Court judgment is in details and fully considered the import of CIT vs. Idea Cellular Ltd. (2010) 325 ITR 148 (Del.) and Kerala High Court in the case of Vodafone Essar Cellular Ltd. vs. ACIT (2011) 332 ITR 255 (Ker.). Therefore, it is latest judgment on the issue which holds the field on meaning and scope of the impugned transactions. Alternatively even if it is assumed that if any divergence of opinion among judicial pronouncements exist; in that case also the view which is favourable to assessee should be applied following Hon'ble Supreme Court judgments in the cases of:
i. CIT v Vegetable Products Ltd 88 ITR 192 (SC)
ii. CIT vs. Vatika Town ship (P) Ltd. 367 ITR 466 (SC)
2.15 Thus looking from every angle the nature of transaction between assessee and distributors is in the nature of principal to principal and not of principal and agent. The alleged discount is not in the commission of commission but in fact if discounted sale value against prior payment. There is no income held by the assessee on behalf of distributors; since there is no withholding of income the impugned transaction is not covered in the ambit and scope of sec. 194C, as rightly held by Hon'ble Karnataka High Court. Therefore, assessee's contentions may be upheld and orders of authorities below may be reversed on this issue.
2.16 Apropos revenue appeal is vehemently contended that it is only after ld. AOs order on holding of transaction as principal to agent assessee had to recourse to alternate legal remedy which is permissible under the law. To pursue this alternate remedy assessee had no choice but to file additional evidence. Since it was prevented by a reasonable cause of holding the belief that it transactions were of sale, ld. CIT(A) rightfully exercising powers u/r 46A admitted the same. Revenue grounds are further misconceived in as much as ld. CIT(A) has not decided the issue and asked the ld. AO to duly verify the evidence and ensure whether the relevant income tax is paid by the distributor along with direction about calculation of interest. Consequently there is no infirmity in the order of ld. CIT(A) qua the grounds agitated by the revenue.
2.17 Ld. DR on the other hand vehemently argues that Hon'ble Karnataka High Court in the above case has rendered the judgment on the basis of contracts of those units which are not similar to the terms of contracts in this case. Consequently the Karnataka High court cannot be summarily applied to assessee's case. It is pleaded that assessee's case falls in the category example set out in para 60 of the High Court order which holds that if assesses sale is accounted for Rs. 100/-, which is the first account and Rs. 80/- is the second account and the third account is Rs. 20/-. It shows that the sales is for Rs. 100/-, commission is given at Rs. 20/- to the distributors and net value is Rs. 80/-. The assessee's sale is accounted at the gross value of Rs. 100/- and thereafter, the commission paid at Rs. 20/- is accounted. Therefore, in those circumstances of the case, the essence of the contract of the assessee and distributor is that of service and therefore, Section 194H of the Act is attracted.
2.18 Thus assessee is liable for TDS u/s 194 and the demand u/s 201 and 201(1A) has been rightly raised. Besides revenue's stand is endorsed by Hon'ble Delhi and Kerala High Court in the cases of Idea Cellular and Vodafone Essar Cellular ltd. (supra). Consequently there are more judgments in favor of the revenue then assssee. It is pleaded that the order of authorities below on this issue may be upheld.
2.19 Apropos revenue appeals it is pleaded that it was for the assessee to have raised alternate claim before AO about the applicability of Hindustan Coca Cola judgment and file necessary evidence. The assessee was thus not prevented by sufficient cause, therefore, the admission of additional evidence is in contravention of the rule 46A. Therefore the same should be held to be inadmissible.
2.20 In rejoinder ld. Counsel for the assessee contends that it has been nowhere pointed by any authority that assessee accounted for the Discount in its books. It can be inferred from a simple logic that the goods are sold against advance payment of goods i.e. MRP - Discount. This has been reiterated times and again before lower authorities and demonstrated from page 33 of its written submissions before ITAT, which has not been disputed. Therefore the assessee's case squarely falls in para 61of the Hon'ble Karnataka High Court which holds that if the assessee accounted for only Rs. 80/- and on payment of Rs. 80/-, he hands over the prepaid card prescribing the MRP as Rs. 100/-, then at the time of sale, the assessee is not making any payment. Consequently, the distributor is not earning any income. This discount of Rs. 20/- if not reflected anywhere in the books of accounts, in such circumstances, Section 194H of the Act is not attracted. In view the copious material on record supporting the assessee stand and there being no rebuttal thereof, there is no substance in the plea of ld. DR that case is covered in para 60 of Karnatak High Court order. It further reflects that Hon'ble Karnatak High Court has considered all the relevant issues and earlier Judgments of Delhi and Kerala High Court which took a different view. Thus Karnataka High Court has rendered an uptodate judgment.
2.21 Rejoining the revenue appeal it is pleaded that while admitting additional evidence ld. CIT(A) followed the past history. Hon'ble Supreme Court in Hindustan Coca Cola has rejected the idea of double taxation i.e. recovering TDS again from the payer when the relevant income tax is already paid by the payee. The exercise of powers u/r 46A by ld. CIT(A) to implement supreme court order cannot be called in question more so when the AO has been restored with his power of verification. There is neither prejudice nor loss to revenue by this order and the grounds demonstrate adversarial approach of the department.
2.22 We have heard the rival contentions and perused the material available on record. Following observations emerge from the record:-
i. Assessee has claimed that as per its business agreement terms the sale price is collected in advance from distributor. The sale price is received minus discount, what is accounted for in its books is net sale price and not the commission. Assessee has demonstrated it from its pleading before lower authorities in this behalf and its written submissions filed before us. They are neither controverted by the authorities below nor by the ld. DR. Consequently the assessee's case falls in para 61 of the Hon'ble Karnatak High Court judgment and not in para 60 as proposed by ld. DR.
ii. When assessee is not holding any income payable to distributors the question of deducting TDS u/s 194H does not arise. Therefore the facts, circumstances, accounting treatment and nature of relationship between assessee and its distributors qua the impugned sales fall within the ambit and observations at para 61 of the order. In view of the foregoings we have no hesitation to hold that:
iii. What is sold by the assessee service provider to the distributor is the right to service. Once the distributor pays for the service, and the service provider, delivers the Sim Card or Recharge Coupons, the distributor acquires a right to demand service. Once such a right is acquired the distributor may use it by himself.
iv. Distributor may also sell the right to sub-distributors who in turn may sell it to retailers, thus the property in goods is transferred in favour of the distributor. It is a well-settled proposition that if the property in the goods is transferred and gets vested in the distributor at the time of the delivery then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent.
v. The assesseer may have fixed the MRP and the price at which they sell the products to the distributors but the products are sold and ownership vests and is transferred to the distributors. The discounted income accrues to distributor only when they sell this right to service and not when they purchase this right to service from assessee.
vi As at the time of sale of prepaid card by the assessee to the distributor, income has not accrued or arisen to the distributor, there is no primary liability to tax on the Distributor. In the absence of primary liability on the distributor at such point of time, there is no liability on the assessee to deduct tax at source. The difference between the sale price to retailer and the price which the distributor pays to the assessee is his income from business. It cannot be categorized as commission. Merely because sale is subject to agreed conditions and stipulations cannot convert the relationship of principal to principal into that of principal and agent relationship.
2.23. We find merit in the contention of ld. Counsel that there is no jurisdictional high court judgment on this issue. Hon'ble Karnataka High Court Judgment is elaborate, detailed, considers the previous Delhi and Kerala High Court judgment against the assessee and is latest comprehensive adjudication on the issue. Even if it is held that there exist divergence of judicial opinion a view favourable to the assessee is to be adopted as held by Hon'ble Supreme Court in Vegetable Products Ltd. And Vatika township case (supra). From this angle also in these facts and circumstances Hon'ble Karnataka High Court judgment is applicable to the assessee's case. Respectfully following the same we hold that:
a. The relationship between assessee and its distributors qua the sale of impugned products is on principal to principal basis; the consideration received by assessee is sale price simpliciter.
b. There is no relationship of Principal and agent between assessee and distributors as held by authorities below there orders are reversed.
c. Looking at the transaction being of Sale/Purchase and relationship being of principal to principal the discount does not amount to commission in terms of sec. 194H, the same is not applicable to these transactions. Therefore, assessee cannot be held in default; impugned demand raised applying sec. 194H is quashed. Assessee's grounds are allowed.
2.24 Apropos the revenue appeal since we have held that sec. 194H is not applicable there remains no substance in revenue appeals. In any case there is no infirmity in the order of Ld. CIT(A) in admitting the additional evidence in the light of Hon'ble Supreme Court judgment in the case of Hindustan Coca Cola (supra) and following his past orders. Revenue grounds are dismissed.
3.0 In the result, the appeals of the assessee are allowed and that of revenue are dismissed.
The order pronounced in the open court on 13.3.2015.