The Bombay High Court in a significant order, held recently that TDS provisions under section 194H of the Income Tax Act, 1961 are not attracted on discounts given by telecom service provider to the distributors of prepaid SIM cards.
Division bench of Justice Ujjal Bhuyan and Justice Milind Jadhav were hearing an appeal filed by the Commissioner of Income Tax, Pune against the order of the Income Tax Appellate Tribunal wherein it was held that discounts given by the assessee (Vodafone in this case) to its distributors on prepaid SIM cards does not require deduction of tax u/s. 194H of the Act and subsequent penalty u/s.271C is not applicable.
Section 194H of the Act deals with commission or brokerage. It says that any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five percent.
Advocate Sham Walve along with Pritesh Chatterjee appeared for the appellant Commissioner and Mrunal J. Parekh instructed by DMD Advocates for Vodafone Cellular.
Court referred to the case of Pr. Commissioner of Income Tax-8, Mumbai v/s. M/s.Reliance Communications Infrastructure Ltd. decided on July 22, 2019, wherein High Court held that when transaction is between two persons on principal to principal basis, deduction of tax at source as per Section 194H of the Act would not be made since the payment was not for commission or for brokerage.
The same view has been taken by the High Court in Commissioner of Income Tax (TDS) Pune V/s. M/s.IDEA Cellular Ltd., decided on January 13, 2020.
Thus, referring to the decision in Commissioner of Income Tax-8, Mumbai v/s. M/s.Reliance Communications Infrastructure Ltd., the bench observed-
"We are of the view that the Tribunal was justified in holding that the provisions of Section 194H of the Act was not applicable on discounts given by the assessee to the distributors of prepaid SIM cards."
Thus, the appeals against ITAT order were dismissed.
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