The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that the Vodafone Idea Ltd. is not liable to deduct TDS on discount extended to its pre-paid distributors on distribution of prepaid services.
The CIT(A) upheld the order of the TDS Officer in treating Appellant, Vodafone Idea Ltd. as ‘assessee in default’ for non-deduction of tax at source under section 194H of the Act on discount extended of INR 2,10,56,933 by the Appellant to the distributors of its pre-paid services.
As per the TDS officer the relationship between the Appellant and the pre-paid distributors is not that of ‘Principal to Principal’ and the discount allowed to them is in nature of commission liable for tax deduction at source as envisaged under section 194H of the Act.
It was urged by the appellant that the discount allowed by the Appellant is not income in the hands of its distributors and that income, if any, arises only when the pre-paid services are further distributed by the distributors.
The appellant contended that there is no flow of monies from the Appellant to the distributor of pre-paid services but rather from the distributor to the Appellant, and hence, the provisions of section 194H of the Act fail to apply.
The coram consisting of Prashant Maharishi and Amit Shukla held that there is no requirement for the Assessee to withhold taxes on the amount of discounts offered by it on prepaid services under section 194H of the IT Act and consequently the Assessee could not be treated as an assessee- in-default in terms of section 201 of the Income Tax Act.
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