The Supreme Court has ruled that telecom companies are not legally bound to deduct Tax Deducted at Source (TDS) on the 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 significant verdict on Wednesday on appeals filed by the Income Tax Department and telecom service provider Bharti Airtel.
Case Background
This case pertains to the applicability of TDS under Section 194H of the Income Tax Act, 1961, on the income earned by Bharti Airtel’s distributors or franchisees from selling prepaid coupons and SIM cards to consumers. The Income Tax Department contended that distributors earn commission from the telecom firm, as per agreements negotiated between franchisees or distributors and the designated telecom firm.
No Mandatory TDS on Distributors’ Profits
Justice Khanna, writing the decision on behalf of the bench, stated that in our opinion, telecom companies as taxpayers are only legally obligated to deduct TDS on income/profits received from third parties, i.e., customers. Additionally, the bench mentioned that Section 194H of the Income Tax Act does not apply to the facts and circumstances of this case. This provision imposes a statutory obligation on the payer of income to deduct tax at source.
The Income Tax Department had filed appeals against the decisions of the High Courts of Rajasthan, Karnataka, and Bombay. The High Courts had ruled that this section of the Income Tax Act is not applicable to the present circumstances.
