In the Case, M/s Tata Teleservices Ltd vs. Income Tax Officer, Delhi bench of Income Tax Appellate Tribunal (ITAT) recently held that discount on prepaid products is in the nature of commission for which, tax deductible at source ( TDS ) under the provisions of section 194H of the Income Tax Act 1961.
The assessee in the instant case M/s Tata Teleservices Ltd engaged in the business of providing telecommunication services across the country and the Assessee providing post-paid and pre-paid telecommunication services through various channel partners under the agreements entered between them. The main business of the Assessee is selling its products Starter kits and pre-paid vouchers to distributors in bulk against advance payments.
During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee has sold some prepaid products such as recharge coupons and vouchers to its various distributors at a discount. The AO was of the view that the said discount should be termed as payment of commission to the distributors and the same was liable to TDS under section 194H of the Act. Accordingly, he brought the said amount into tax and treated the Assessee as Assessee in default.
On the other hand, the Assessee was of the view that starter kits and the recharge coupon vouchers are sold to its various distributors as per the terms of business agreements on principal to principal basis at a discounted price than MRP with the agreed rider that no product shall be sold at a price more than MRP and thus, such transactions are not liable for TDS under section 194H of the Income Tax Act. Therefore the Assessee approached the CIT(A) on appeal. The authority refused to accept the contention of the Assessee and accordingly upheld the order of the AO.
Aggrieved by the order of the lower authorities the Assessee carried the matter before the Tribunal on further appeal.
The Tribunal bench comprising of Judicial Member Bhavnesh Saini and Accountant Member L.P. Sahu observed that the transaction relating to the commission is agreed between the assessee and the channel partner/distributor, but the assessee has not been able to address as to for which segment of business, both the parties agreed to pay and receive commission.
The bench also observed that “Commission or Brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
In the present case, it is clear that the Assessee has made such transactions and also made payment of commission to the distributors. Therefore, the bench held that discount on prepaid products offered by the appellant is in nature of “commission” which does attract rigors of section 194H. while concluding the issue the bench further held that discount on prepaid products is in the nature of commission and is required to pay TDS by relying on the decision of High Court in the similar issue.
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