COMMISSIONER OF INCOME TAX Vs. IDEA CELLULAR LTD

JUDGEMENT

(1.) These appeals were admitted on the following question of law:

(2.) A survey under Section 133 of the Income Tax Act (hereinafter referred to as 'the Act') was conducted at the premises of the respondent-assessee (hereinafter referred to as 'the assessee'). It revealed that the assessee was not deducting tax at source. It was found that the assessee-company is engaged in the business of providing cellular telephone network through a card called Subscriber Identification Module (SIM). Prepaid or post paid connections are provided to the subscribers through distributors called 'Prepaid Market Associates (PMAs)' appointed by the assessee. The assessee offers discount for prepaid calling services to its distributors. The assessing officer noted that as per the agreement the distributors were required to store the SIM Card and Recharge Coupons in such a way as to clearly indicate at all times that prepaid SIM Card/Recharge Coupons were owned by assessee. They were not allowed to remove, obscure or delete in marks placed on prepaid SIM Card/recharge coupons. The terms of agreement further provided that without written consent of ICL the distributors (PMAs) shall not directly or indirectly:

(3.) The assessee preferred appeals before the CIT (A), but was unsuccessful, as its appeals were dismissed. However, it has succeeded in further appeals preferred before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'). The decisions of the CIT(A) as well as AO have been reversed and the issue is decided in favour of the assessee company. The Tribunal has opined that the relationship between the assessee and its distributors is that of 'principal and principal' and not 'principal and agent'. Therefore, what was paid to the PMAs was not commission or brokerage and was not subject to deduction of tax at source under Section 194H of the Act. The Tribunal has arrived at the aforesaid findings in the following manner: