SC overturns HC orders on taxing SIM card sale discounts
What's the story
The Supreme Court of India granted significant relief to telecom companies by overturning Delhi and Calcutta High Courts' rulings on taxing discounts given during the sale of SIM cards. The apex court said telcos do not have to deduct TDS on prepaid SIM cards sold to distributors at a discounted price. Previously, the Calcutta High Court had ruled that selling SIM cards below market value constitutes an indirect commission payment.
About the issue
What is the case about?
Telecom companies sold SIM cards to distributors at a lower price than the market value. The I-T department argued this constituted a "commission" to distributors and required TDS deduction. However, the telcos, led by Bharti Airtel and Vodafone Idea, claimed it was a "discount" and didn't qualify for TDS.The crux of the controversy hinged on how to categorize the business relationship between telcos and their distributors.
Relief for telcos
Relationship between telcos and distributors of principal to principal: SC
The Supreme Court ultimately sided with the telecom companies, determining that the relationship between them and the distributors was principal to principal, not principal to agent. As a result, the discounted price didn't qualify as commission, and no TDS needs to be deducted.As per Section 194H of the Income Tax Act, when a transaction is classified as a commission, the tax is required to be deducted at the source.