Law:

Section:

Section 194H of the Income-tax Act, 1961 - Deduction of tax at source - Commission or brokerage, etc. - Assessment years 2004-05 to 2007-08 - Whether discount given by assessee, a mobile cellular operator, to distributors in course of selling of sim cards and recharge coupons under pre-paid scheme of getting a connection is, in substance, a payment for services to be rendered by distributors to assessee and, so much so, it would fall within definition of 'commission or brokerage' under section 194H - Held, yes FACTS The assessee was a mobile cellular operator which had taken over the business of the BPL Mobile Cellular Ltd., one of the companies which started mobile cellular operations in Kerala. The assessee carried on the business of rendering mobile telephone services to the customers through appointment of distributors in the State. It had two types of transactions. Under the first category, it gave connections to customers and charged them on a monthly basis by raising bills for the calls made by them in a month, in the succeeding month. Under the Telecom Regulations, connection can be given only to customers producing identity, proof of address, etc. Under the distribution agreement, the distributor got customers for the assessee and all work in relation to collection of documents of identity of the customers, delivery of sim cards for giving connection to the customers, collection of charges, etc., was done by the distributor. The assessee paid certain charges to the distributor for the services rendered in regard to that service called 'post-paid services'. The assessee treated the payment to the distributors for the services rendered by them under the 'post-paid scheme' as commission within the meaning of section 194H and tax was deducted at source and was being remitted to the department. However, so far as the payments made for services rendered by the distributors under the pre-paid scheme were concerned, the assessee took the stand that the supply of sim cards, recharge coupons, etc., under the pre-paid scheme was the sale of goods at discounted price by the assessee and, so much so, it was not liable to deduct and remit tax at source in terms of…

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