Relief to Idea, No TDS on Discount to Distributors on sale of SIM Card and Prepaid Recharge Vouchers: ITAT [Read Order]

The Indore Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Idea holding that no Tax Deducted at Source (TDS) would be applicable on discount given to distributors on the sale of SIM card and prepaid recharge vouchers.

The assesseethe Idea Cellular Ltd. was a telecom service provider engaged in providing services in Madhya Pradesh and Chhattisgarh. During the course of its business the assessee appointed 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 1961 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.

The AO passed orders for various assessment years under Section 201 and 201(A) of the Income Tax Act treating the assessee as assessee in default.

Sumit Nema, on behalf of the assessee submitted that the assessee had supplied Pre-paid SIM Card, and recharge vouchers to pre-paid distributors at a discounted price. Distributors were free to re-supply then to the Retailer subject to Maximum Retail Price (MRP). He further submitted that, the income of the distributors would be dependent on the price on which they were supplying to the retailer as well as the expenditure incurred by them and the transactions of sale by the assessee and the discount allowed by the assessee to the distributors was not in the nature of commission.

P.K. Mishra on behalf of the revenue submitted that the assessee was very much aware about the various decisions on this issue that the assessee was under obligation to deduct TDS as per the provision of section 194H of the Income Tax Act, and therefore the assessee could not 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 Two Member Bench of VIJAY PAL RAO, (JUDICIAL MEMBER) AND B.M. BIYANI, (ACCOUNTANT MEMBER) observed that, a good number of other decisions had held that transaction in question would not fall in the ambit of section 194H of the Income Tax Act and thereby the assessee was not liable to deduct TDS at source on these transactions.

In view of the decision and facts and circumstances of the in assessee’s own case, Vodafone Idea Ltd. New Delhi vs. DCIT and Bharti Airtel Ltd. Vs. DCIT Bangalore, the Bench deleted the penalty levied under Section 271C of the Income Tax Act 1961.

To Read the full text of the Order CLICK HERE

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