Law:

Section:

Section 194H of the Income-tax Act, 1961 - Deduction of tax at source - Commission or brokerage etc. - Assessment year 2003-04 and 2004-05 - Assessee-company was engaged in business of providing cellular telephone network through a card called Subscriber Identification Module (SIM) - Pre-paid or post-paid connections were provided to subscribers through distributors called Pre-paid Market Associates (PMAs) appointed by assessee - Assessee offered discount on pre-paid calling services to its distributors - As per agreement, at all times pre-paid SIM card recharge coupons were owned by assessee; maximum price of SIM cards/recharge coupons was decided by assessee; and PMAs had to comply with all requirements of assessee in respect of invoicing and accounts, maintenance of brand image and providing monthly sale reports and other information relating to business - Minimum performance targets for distributors were also set by assessee which reserved right to terminate agreement unilaterally - Ultimate agreement was entered into between subscribers and assessee creating legal relationship between them - Whether, on facts, relationship between assessee and its distributors was that of principal and agent and, consequently, amount of discount offered by assessee to its distributors was in nature of commission liable to tax deduction at source under section 194H - Held, yes FACTS The assessee-company was engaged in the business of providing cellular telephone network through a card called Subscriber Identification Module (SIM). Pre-paid or post-paid connections were provided to the subscribers through distributors called Pre-paid Market Associates (PMAs) appointed by the assessee. It offered discount on pre-paid calling services to its distributors. As per the agreement, the distributors were required to store the SIM cards and recharge coupons in such a way as to clearly indicate at all times that pre-paid SIM cards/recharge coupons were owned by the assessee and they were not allowed to remove, obscure or to delete the marks made on pre-paid SIM card/recharge coupons. The distributors were not free to sell similar products offered by the competitors of the…

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