Exemption to the Vodafone Idea ltd, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) stated that the Sale of prepaid sim cards/recharge vouchers to distributors could not be treated as commission to draw Section 194H of the Income Tax Act,1961 and no tax deducted at source(TDS).
Shri J D Mistry appeared for the taxpayer and Shri T Shankar appeared for the revenue.
The taxpayer would be in the business of furnishing cellular services in the telecom circles of Maharashtra, Gujarat, Andhra Pradesh, Delhi, Uttar Pradesh (West), Uttar Pradesh East, Haryana, Kerala, Rajasthan, Himachal Pradesh, and Madhya Pradesh. The company sells handsets and accessories which are an essential portion of the business.
For the assessment proceedings, the taxpayer seeks to submit the information of the commission and the discount provided to the dealers and tax deducted on that. On the perusal of the information which the taxpayer has furnished, the taxpayer deducted tax at source as seen by the AO for the commission of the payments incur but does not deduct tax for the discount permitted to the distributors.
An agreement copy is been provided to the distributors by the taxpayer and furnished the answer to AO. The taxpayer has submitted that the same would hire a distributor who bought the prepaid Starter Packs and recharge vouchers in bulk and then sell them to sub-dealers or retailers. There is a relationship between the taxpayer company and the distributors along with that the prepaid starter packs and rechange vouchers would be allotted to them at a lower cost.
From distributors, the taxpayer company obtains the sale proceeds in advance, and thereafter it furnishes the products to the distributors no matter whether they would get sold or unsold via distributors. The distributors would be free to sell the prepaid cards/recharge vouchers to any retailers, hired via them on their account (i.e. the distributors) and taxpayers do not control the company thereafter, at any cost which the distributor chooses as per the maximum retail price (MRP).
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For any poor debts, the taxpayer company does not secure any risk since the payment would be obtained through it in advance via the distributors. The same was provided that any loss suffered by the distributor on the basis of any unsold/damaged/obsolete stock is not compensated by the taxpayer company. Hence the earnings of the distributor are the difference between the cost paid to the taxpayer company and the cost at which they decide to sell the products to retailers.
Through the perusal of clauses of the agreement of the distributors, the same was seen that the relationship between the taxpayer and the distributor would merely be that of the principal to principal and not principal to the agent as the Revenue contend.
ITAT comprises Shri Vikas Awasthy, judicial member & Shri M Balaganesh, accountant member stated, the prepaid sim cards/recharge vouchers sold via taxpayer to the distributors could be considered as commission/discount for drawing the provision of section 194H of the act, no responsibility is there on the taxpayer to deduct tax at source. No disallowance u/s 40(a)(ia) of the Act is there. The petition was permitted.
| Case Title | M/s. Vodafone Idea Ltd vs Dy. Commissioner of Income Tax |
| Date | 12/10/2022 |
| Counsel for Appellant | Shri J D Mistry |
| Counsel for Respondent | Shri T Shankar |
| Citation | ITA No.2285/Mum/2014 |
| Mumbai ITAT | Read Order |
