Section 194H TDS on Discount allowed on recharge coupons

Section 194H of the Income-tax Act, 1961 – Deduction of tax act source – Commission or brokerage etc. (Mobile Services) – In course of appellate proceedings, Tribunal held that discount allowed by assessee to its distributors in respect of starter packs and recharge coupons for its prepaid mobile service amounted to payment of commission or brokerage requiring deduction of tax at source under section 194H – It was noted that as per terms of agreement, service providers, i.e.’P’, could not enter into any agreement with any third party which may be considered to be in competition of business of assessee – Further, ‘P’ could not transfer or assign or sub-licence any of its rights and obligations and it had to comply with all instructions and directions of assessee – Whether on facts, relationship between ‘P’ and assessee was that of an agent and principal and, thus, impugned order of Tribunal did not require any interference – Held, yes [In favour of revenue]

FACTS

■   In the course of appellate proceedings, the Tribunal held that the discount allowed by the assessee to the distributors namely in respect of starter packs and recharge coupons for its prepaid mobile service amounted to payment of commission or brokerage within the meaning of section 194H and, thus, assessee was required to deduct tax at source while making said payment.

■   On appeal:

Decision  :-

■   The agreement between the assessee and ‘Service Provider’ i.e., ‘P’ provides that the service provider has been appointed by assessee on the terms and conditions contained therein which include (a) that the service provider shall keep the premises open for the purpose of rendering and performing services during the office hours; (b) he shall maintain at least one telephone line and e-mail connectivity; (c) he shall maintain minimum support staff;(d) he shall not correct, amend or remove any signets from the products of the assessee; (e) he shall keep the assessee informed as regards any infringement or violation of the intellectual property rights of the assessee;(f) he shall maintain the branch image of assessee and shall not do anything which may tarnish or spoil or reduce the value of the assessee; (g) he shall keep the assessee informed as regards feed back received from the customers and shall also keep the assessee informed as regards the purchases and inventory; (h) he shall pay the service tax to the assessee as may be assessed and levied from time to time; (i) he shall not enter into any agreement with any third party which may be considered to be in competition of the business of the assessee; (j) he shall comply with all instructions and directions of the assessee; and (k) he shall not transfer or assign or sub-licence any of its right and obligations. [Para 12]

■   In consideration of the service to be rendered by him, he shall get a commission at the rates as per the policy to be adopted by the assessee from time to time. [para 13]

■   The terms and conditions noticed above leave no manner of doubt that the relationship between ‘P’ i.e. service provider and the assessee was that of an agent and principal. ‘P’ appears to have been employed to act on behalf of the assessee for the purpose of feeding the retailers and through them to sell the services to the consumers. [Para 14]

■   In view of aforesaid, impugned order passed by the Tribunal did not require and interference. [Para 21]