The Supreme Court on February 28 ruled that telecom companies need not deduct Tax Deduction at Source (TDS) for selling pre-paid SIM cards to their distributors at a rate below the market price.
In passing the judgment, the court has reconciled contradicting judgments passed by the Calcutta High Court and Delhi High Court. Telecom companies Vodafone Idea, Bharti Airtel and the income tax department filed pleas against these high court judgments.
Telcos sold SIM card starter packs to the distributors at a rate below market prices, these cards were then sold to the retailers, who in turn sold them to customers. While the department of income tax had contended that the relationship between telcos and the distributor was principal and agent, the telcos conteded that the relationship was principal to principal.
According to the telcos, the lower price offered should be treated as a discount and not a commission as a result of which the telcos are not entitled to deduct TDS. However, the revenue argued that these were commissions and hence TDS was to be paid.
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