SC rules companies need not deduct tax for discounted SIM cards sales

The Supreme Court on Wednesday said that telecom companies need not deduct tax for selling discounted pre-paid SIM cards/recharge vouchers to distributors.

The court said that Section 194H of the Income Tax Act is not applicable to telecom companies.

Section 194H of the Income Tax Act deals with Tax Deduction at Source (TDS) on the payment of commission or brokerage.

This means that telecom companies need not deduct TDS for selling pre-paid SIM cards to their distributors at a rate below the market price.

The court has thus overruled contradicting judgments passed by the Calcutta High Court and Delhi High Court against which telecom companies Vodafone Idea, Bharti Airtel, and the Income Tax department had filed pleas.

The court was hearing a batch of 40 appeals.

The question was on the applicability of TDS on discounts allowed to the pre-paid distributors on the sale of SIM/recharge vouchers.

The telecom companies had argued before the court that the lower sale price offered to the distributors should be treated as a discount and not a commission. So for this reason, they are not entitled to deduct TDS.

Meanwhile, the Income Tax department argued that these were commissions and hence TDS was to be deducted. The department also said the nature of the relationship between telecom companies and the distributor was principal and agent.

Telecom companies challenged this by saying that the relationship between them and distributors was principal to principal.