The Karnataka High Court has ruled that the Income-Tax (I-T) department cannot levy tax on the discount given telecom operators to the distributors on bulk pre-paid cards, related starter-kits and recharge vouchers. This comes after telecom operators Bharti Airtel, Vodafone India and Tata Teleservices approached the high court questioning the demand made by the I-T Department for payment of tax deducted at source (TDS).
The I-T department was of the view that the relationship between the service provider and the distributors/channel partners was of ?principal and agent? and, therefore, discount made to the latter was a commission liable for TDS. Thereafter the I-T department directed mobile companies to pay TDS along with penalty for not having deducted tax at source from 2005-06 onwards.
The high court has ruled that TDS cannot be applied to the case as there was no relationship of principal and agent. Further, bulk cards and vouchers sold by the service provider to the distributors is the right to service, and the income accrues to the distributors only when they sell these products.
