The Supreme Court has ruled that telecom companies are not legally obligated to deduct TDS (Tax Deducted at Source) on profits earned by distributors or franchisees from selling prepaid coupons and SIM cards to customers. A bench comprising Justice Sanjiv Khanna and Justice S.V. Bhatti delivered this crucial verdict on appeals filed by the Income Tax Department and telecommunications service provider Bharti Airtel, heard on Wednesday.
The Case in Question
This case pertains to the Income Tax Act of 1961, specifically Section 194-H, concerning the obligation of TDS related to payments made to distributors of Bharti Airtel from revenue generated through the sale of prepaid coupons and SIM cards. The Income Tax Department contended that distributors earn commission from the designated telecom firm as per agreements reached between franchisees or distributors.
No Requirement to Deduct TDS on Distributors’ Profits
Justice Khanna, writing the decision on behalf of the bench, stated, “We are of the opinion that telecommunications companies as payers would be legally obligated to deduct TDS on income/profits received by distributors or franchisees from third parties, namely customers, for payment received.” Additionally, the bench noted that Section 194-H of the Income Tax Act does not apply to the facts and circumstances of this case. This provision legally mandates tax deduction at the source on commissions earned from a specified source.
The Income Tax Department had appealed against decisions from the High Courts of Rajasthan, Karnataka, and Bombay. The High Courts had ruled that this section of the Income Tax Act does not apply to the particular circumstances under consideration.
