ITAT: Telecom Distributor is exempt from TDS on Commission given directly to Retailers by Service Provider

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In Laxmi D. Gupta v. ITO, Mumbai [I.T.A. No. 6619/Mum/2019 Assessment Year: 2013-14 dated October 08, 2021], Laxmi Gupta (“the Appellant”) filed an appeal impugning Order passed by Commissioner of Income Tax (Appeals) (“CIT(A)”) dated July 29, 2019 in the matter of assessment framed by Assessing Officer (“AO”) under Section 143(3) of the Income Tax Act, 1961 (“the IT Act”) on February 22, 2018.

In the case, the Appellant is engaged in distribution of SIM cards and mobile recharge coupons of Uninor. During proceedings, upon perusal of financial statements, the AO disallowed the expenses claimed by the Appellant by holding that the Appellant debited commission of Rs. 40.98 Lacs.

The Appellant explained that they were purchasing the SIM cards and recharge vouchers from Uninor and selling them to around 250 retailers. Uninor was providing incentive to retailers to achieve sale target. However, Uninor would credit the account of the Appellant with incentive and deduct Tax Deduction at Source (“TDS”) under Section 194H of the IT Act.

Upon actual payment to the retailers, the account of the Appellant would be debited. Therefore, the amount of incentive was merely routed through the ledger of the Appellant. However, no incentive or commission was received from the Appellant to be paid to the retailers. According to the Appellant, the same was merely book entries for incentive paid by Uninor directly to the retailers.

After taking perusal of all the facts and evidences, the Income Tax Appellate Authority (“ITAT”), Mumbai held that the telecom service provider i.e., Uninor remunerates the Appellant and scores of retailers by way of commission and incentives. The Tribunal therefore, granted relief to the Appellant observed that telecom distributor cannot be liable for TDS on the amount of commission directly paid to the retailers by the telecom service provider.

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