The Assessee, a mobile cellular operator, carried on business through distributors, and offered the “post paid scheme” and the “pre-paid scheme” to its customers. The assessee paid charges to the distributors for services rendered. While the charges paid in respect of the “post paid services” was treated as “commission” and liable to TDS u/s 194H, payments made for services rendered under the “prepaid scheme” were treated as a sale of Sim Card at a discounted value and not as “commission”. The AO, CIT (A) & Tribunal treated the assessee as being in default u/s 201 on the ground that the so-called “discount” was “commission” u/s 194H. On appeal by the assessee, HELD dismissing the appeal:
(i) The argument that there is a “sale” of a Sim Card is not acceptable because a Sim Card has no value or use for the subscriber other than to get connection to the mobile network. The supply of the Sim Card is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Consequently, the charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is for rendering services to ultimate subscribers. The distributor is the middleman arranging customers or subscribers for the assessee after ensuring proper identification and documentation. Besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. The argument that the relationship between the assessee and the distributors is principal to principal basis is not acceptable. The distributor is an agent and canvasses business for the assessee. The terminology used by the assessee for payment to the distributors is immaterial. In substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment for services rendered to the assessee and falls within s. 194H.