The Supreme Court has stated that telecom companies are not legally obligated to deduct TDS (Tax Deducted at Source) on the profits earned by distributors or franchisees from selling prepaid coupons and SIM cards to customers. Justices Sanjiv Khanna and S.V. Bhatti delivered this crucial verdict on Wednesday, hearing appeals filed by the Income Tax Department and Bharati Airtel, a telecommunications service provider.
Case Overview
This case concerns the liability of TDS under Section 194-H of the Income Tax Act, 1961, on the income earned by Bharati Airtel’s distributors or franchisees from selling prepaid coupons and SIM cards to consumers. The Income Tax Department argued that distributors generate profits, and as per agreements between franchisees or distributors and designated telecom firms, an agent is entitled to a commission.
No Mandatory TDS on Distributors’ Profits
Justice Khanna, writing the judgment on behalf of the bench, stated, “We are of the view that telecom companies, being the payers, are legally obliged to deduct TDS on the income/profit received by distributors or franchisees from third parties, i.e., customers.”
Additionally, the bench mentioned that Section 194-H of the Income Tax Act does not apply to the facts and circumstances of this case. This section mandatorily imposes TDS on a source basis.
The Income Tax Department had appealed against decisions of 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 facts and circumstances under consideration.
