In a major relief to the Vodafone India the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench ruled that the TDS is not deductible on the issue of recharge vouchers by cellular service providers at lower rates.
The appellant, Vodafone India is a telecom service provider engaged in providing services in Gujarat. In the course of its business, it appoints various distributors for the sale of SIM cards and recharge cards, etc. Lower authorities held that the payment made by the appellant to the prepaid distributors is in nature of the commission and liable for TDS under section 194H of the Act and treated the appellant as “ assessee in default” and raising demand.
The appellant relied on the decision of Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT wherein it was held that where tax has not been deducted at source or short deducted by the assessee then the assessee is only liable for interest and penalty. The tax amount, which was already paid by the recipients on their income, is not required to be recovered from the assessee since it would amount to taxing and recovering the tax twice.
However, AO did not agree with the plea of the assessee and held that payment made by the assessee company to the prepaid distributors is in the nature of commission liable for TDS u/s. 194H of the Act. The assessee is treated as assessee in default u/s. 201(1)/201(1A) for not deducting TDS u/s. 194H of the Act.
Therefore in appeal before the Ld. CIT(A) who confirmed the action of the Ld. AO and held that appellant is liable to deduct TDS u/s. 194H of the Act and held that assessee in default under section 201(1) or 201(1A) for not deducting under section 194H.
With regard to the deduction of TDS on prepaid SIM cards and Recharge cards, different High Courts’ have taken contrary views by holding that while the service cannot be sold, the right to service can always be sold. The Karnataka High Court did not agree with the judgment of Delhi High court wherein it is held that cellular companies are liable to deduct TDS on the commission paid to Franchise for selling of SIM cards and Recharge cards.
The coram of Accountant Member Wasim Ahmed and Judicial Member Mahavir Prasad while allowing the appeal of the assessee held that Where assessee engaged in the business of providing mobile telephone services, sold prepaid vouchers to its distributors at a rate lower than its face value, the difference between the face value and selling price of prepaid voucher could not be regarded as commission requiring deduction of tax at source under section 194H.
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