- (1.) The above appeal was decided to be heard by an order dated 17-8-2006 passed by the Division Bench of this Court against the judgment and order dated 4-4-2006 passed by the Income-tax Appellate Tribunal, "B" Bench in two appeals being ITA 1678 and 1679 of 2005 relating to assessment years 2003-04 and 2004-05. At the time of admission though no substantial questions of law was formulated at the hearing of the appeal this Court formulated the following substantial question of law: Whether on the facts and in the circumstances of the case and on a true and proper construction of the agreement between the assessee and the franchisee, the learned Tribunal was justified in law in holding that there exists relation of the principal and agent between assessee and franchisee and that the discount which is allowed by the assessee is a commission and section 194H of Income-tax Act, 1961 is attracted to such payment? The facts of this case leading to preferring the present appeal is summarized as follows: The appellant-assessee is engaged in the business of providing cellular mobile telephone services in Kolkata under the brand name "Airtel". The assessee provides such services through its distributors by selling to them Starter Pack and Rechargeable Coupons which is commonly known as Subscriber Identification Mobile Card (hereinafter in short 'SIM Card' and pre-paid card). These Sim cards and rechargeable coupons were purchased by the distributors/franchisees engaged by the assessee at a rate below the market price on such Sim card and the same are sold to the retailers by whom the same are ultimately sold to the customers. The Assessing Officer while going through the records namely the TDS return filed by the assessee-appellant found that assessee had paid commission on starter pack and rechargeable coupons to 16 parties herein called "Franchisees" and though the assessee had deducted TDS on commission and deposited the same during the period from April 2002 to July 2002, such deduction of tax at source however was discontinued by the assessee treating such payment to the franchisee not as commission but discount which was outside the ambit of TDS under section 194H.
(2.) Noticing above discontinuance of deduction of tax at source the Assessing Officer issued show cause notice to the assessee and after considering detailed explanation filed by the assessee along with sample copy of the agreement entered into with such franchisees he observed that these franchisees and the assessee maintained principal and agent relationship and therefore, any payment made to such franchisee was liable for deduction of tax at source under section 194H. The Assessing Officer also observed that on perusal of process of selling these Sim and pre-paid cards to respective customers, it was evident that these franchisees were only collecting information for passing on the same to the assessee and therefore, these franchisees were only agents of the assessee for which they were getting fixed percentage of commission in the name of discount in such sale from the assessee.
(3.) The Assessing Officer thereafter found that the assessee-company had paid commission of Rs. 3,08,00,435 in between 2nd August to 31-3-2003 on sale of starter packs and rechargeable coupons to 16 franchisees and such commission in the financial year 2003-04 was Rs. 5,66,76,134. The Assessing Officer has, therefore, treated the assessee a defaulter for not deducting TDS and has accordingly computed the quantum of such undeducted Tax under section 201(1) and interest chargeable thereon under section 201(1A) at Rs. 20,09,151 in the financial year 2002-03 and 32,60,471 in the financial year 2003-04.;