The Indore bench of Income Tax Appellate Tribunal (ITAT), while deleting penalty against Bharti Airtel held that no Tax Deduction at Source (TDS) is applicabe under Section 194H of the Income Tax Act, 1961 on amount paid to distributors/dealers for sale of prepaid SIM card and recharge vouchers.
Assessee-Bharti Airtel Limited is a telecom service provider engaged in providing services in Madhya Pradesh and Chhattisgarh. During the course of its business the assessee appoints the distributors for issuing and sale of pre-paid SIM card and recharge vouchers.
The department initiated the proceedings under section 201 and 201(A) of the Income Tax Act due to failure on the part of the assessee to deduct tax on the amount allowed by the assessee to its distributors/dealers which in the opinion of the department was in the nature of commission and therefore was subjected to TDS under Section 194H of the Income Tax Act.
Thereafter, AO initiated the proceedings of penalty under Section 271 C of the Income Tax Act for non-Deduction of TDS on the amount allowed to the distributors/dealers being commissioned.
The assessee challenged the action of the AO before the CIT(A) but could not succeed.
Sumit Nema, counsel for the assessee submitted that assessee supplies Pre-paid SIM Card, and recharge vouchers to pre-paid distributors at a discounted price.
Thereafter, Distributors are free to re-supply to the Retailer subject to Maximum Retail Price (MRP). The retailer supplies the same to the ultimate subscriber against any price subject to MRP, he added.
Thus, the distributors have to pay discounted price in advance to the assessee before delivery of SIM and recharge coupon supplied by the assessee. The assessee would deliver the SIM/RV to the distributors only after receipt of the advance payment on discounted price, he further submitted.
Hence counsel submitted that assessee is not assuring any profit of the distributors on the transactions of sale and purchase of SIM Card/RV.
The income/loss of the distributors would be depend on the price on which they are supplying to the retailer as well as the expenditure incurred by them.
The assessee had a bonafide belief that it was not required to deduct tax on these transactions under Section 194H of the Income Tax Act.
P.K. Mishra, counsel for the revenue submitted that “assessee was very much aware about the various decisions on this issue that the assessee is under obligation to deduct TDS as per the provision of section 194H and therefore the assessee cannot take a plea that it was under bona fide belief that not required to deduct the tax at source in respect of the commission paid to the distributors.”
The tribunal, after considering the contention of both parties determined that transactions of sale of SIM Card and Recharge vouchers are in the nature of sale and discount allowed by the assessee to the distributors is not in the nature of commission attracting the provision of Section 194H Income Tax Act .
Further it was observed that assessee has reasonable cause not to deduct the tax at source. Therefore, the action of non deduction of tax in the present case will not attract the penalty under Section 271C of the Income Tax Act.
Thus, the two-member bench of Vijay Pal Rao, Judicial Member and B.M. Biyani, Accountant Member allowed the appeal filed by the assessee.
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