No invocation of Section 201(1)/201(1A) of Income Tax Act as assessee cannot be termed “assessee in default” for non-deduction of TDS: ITAT [Read Order]

The Rajkot bench of the Income Tax Appellate Tribunal ( ITAT ) observed that no invocation of Section 201(1)/201(1A) of the Income Tax Act, 1961, as assessee cannot be termed “assessee in default” for non-deduction of Tax Deducted at Source ( TDS )

The assessee operates in the telecommunications sector, providing various telecom services. During the relevant fiscal year, the taxpayer sold prepaid vouchers and cards to distributors at rates lower than their face value. The discrepancy between the Maximum Retail Price ( MRP ) and the distribution price constitutes a trade discount passed on to retailers.

The Assessing Officer issued an order under Sections 201(1)/201(1A) of the Income Tax Act, 1961 declaring the taxpayer as an “assessee in default” due to the failure to deduct tax at source on the difference between the face value of prepaid vouchers and the amounts received upon distribution. This difference was treated as “commission” paid to distributors. Subsequently, the Tax Deducted at Source ( TDS ) Officer upheld this decision, citing Section 194H of the Income Tax Act, 1961, which requires TDS on commissions paid to distributors.

The assessee appeal against this order before the Learned Commissioner of Income Tax ( Appeals ) [CIT (A)] was dismissed. The CIT (A) ruled that distributors were acting as “agents” of the taxpayer, thus making the taxpayer liable for TDS under Section 194H of the Income Tax Act, 1961.

Additionally, the assessee filed a rectification application under Section 154 of Income Tax Act, 1961 before the CIT (A) Ahmedabad. The application contended that regardless of the characterization of the trade discount as “commission” by the Department, the assessee had indeed deducted taxes at source on such trade discount/commission to its distributors. Consequently, the assessee argued against being deemed an “assessee in default” since taxes were deducted at source on the alleged commission income. However, this application was also dismissed by the CIT (A).

The two member bench of the tribunal comprising Waseem Ahammad ( Accountant member ) and Siddartha Nautiyal ( Judicial member )  observed that the Department had not analyzed this aspect/contention of the assessee that since the assessee had already deducted taxes at source at appropriate rates, there was no question of invoking the provisions of Section 201(1)/201(1A)  of the Income Tax Act, 1961, since the assessee could not be held to be an “assessee in default” for non-deduction of TDS, when the assessee had already deducted taxes at source at appropriate rates.

Accordingly, in the interest of justice, the matter was restored to the file of the CIT (A) for carrying out the necessary verification as to whether the assessee had deducted taxes at source on such discounts/commissions given to its agents, as contended by the assessee.

Accordingly, the matter was being restored to the file of CIT (A) for carrying out the necessary verification, in the result, both the appeals of the assessee are allowed for statistical purposes

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