MUMBAI: In a latest ruling, the Supreme Court (SC) clarified that reductions given on the print value of prepaid SIM playing cards and recharge coupon vouchers by telecom operators to distributors won’t set off withholding tax obligations underneath the Income-tax legal guidelines.
The SC’s determination, which got here in a batch of appeals with Bharti Cellular because the lead case, settled an argument that had seen conflicting judgments from numerous excessive courts.The SC laid out a four-factor take a look at to find out if an entity qualifies as an agent, emphasizing elements resembling authorized energy to bind the principal, management over conduct, fiduciary relationship, and accountability to render accounts and obtain remuneration.
EY-India in its e-newsletter explains that, on this case, the SC discovered no principal-agent relationship between the distributors and the telecom operators, as distributors have been required to buy the SIM playing cards and vouchers at a reduced value, with the liberty to promote under the printed value with out rendering accounts to the telecom operators.
The SC clarified that telecom operators weren’t liable to withhold tax as they didn’t credit score or pay any revenue to distributors as fee. It additionally emphasised that the revenue earned by distributors from resale can’t be thought-about as oblique fee by the telecom firm.
Furthermore, the SC famous that the telecom operators, not being aware about contracts between distributors and finish clients, can’t be anticipated to withhold tax at supply. The SC advisable that the Central Board of Direct Taxes (CBDT) subject clear and potential directions or circulars to keep away from such disputes sooner or later.
The SC’s determination, which got here in a batch of appeals with Bharti Cellular because the lead case, settled an argument that had seen conflicting judgments from numerous excessive courts.The SC laid out a four-factor take a look at to find out if an entity qualifies as an agent, emphasizing elements resembling authorized energy to bind the principal, management over conduct, fiduciary relationship, and accountability to render accounts and obtain remuneration.
EY-India in its e-newsletter explains that, on this case, the SC discovered no principal-agent relationship between the distributors and the telecom operators, as distributors have been required to buy the SIM playing cards and vouchers at a reduced value, with the liberty to promote under the printed value with out rendering accounts to the telecom operators.
The SC clarified that telecom operators weren’t liable to withhold tax as they didn’t credit score or pay any revenue to distributors as fee. It additionally emphasised that the revenue earned by distributors from resale can’t be thought-about as oblique fee by the telecom firm.
Furthermore, the SC famous that the telecom operators, not being aware about contracts between distributors and finish clients, can’t be anticipated to withhold tax at supply. The SC advisable that the Central Board of Direct Taxes (CBDT) subject clear and potential directions or circulars to keep away from such disputes sooner or later.
