Relief to Acer: No TDS on Income in payments received by distributors from Customers: Supreme Court dismisses SLP [Read Order]

In the case of M/S Acer India Pvt Ltd, the Supreme Court of India upheld that Tax deduction at source ( TDS ) does not apply to income from payment received by distributors from customers. The two-judge bench dismissed the Special Leave petition( SLP ) which arose out of impugned final judgment and order passed by the High Court of Karnataka.

Mr Rupesh Kumar, senior counsel appeared for the petitioner and submitted that the matter is covered by the decision of the Court in Bharti Cellular Limited ( Now Bharti Airtel Limited ) vs. Assistant Commissioner of Income Tax.

It was held 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 pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act does not apply 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 High Courts of Rajasthan, Karnataka and Bombay are dismissed.”

The issue was related to the liability to deduct tax at source under Section 194-H of the Income Tax Act, 1961  on the amount which, as per the Revenue, is a commission payable to an agent by the assessees under the franchise/ distributorship agreement between the assessees and the franchisees/distributors. As per the assessees, neither are they paying a commission or brokerage to the franchisees/distributors nor are the franchisees/distributors their agents. The High Courts of Delhi and Calcutta have held that the assessees were liable to deduct tax at source under Section 194-H of the Act, whereas the High Courts of Rajasthan, Karnataka and Bombay have held that Section 194-H of the Act is not attracted to the circumstances under consideration. 

The court comprising  Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar dismissed the Special Petition relying on the above-mentioned decision.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates