In the present case the assessee sells the prepaid SIM Card with available talk time worth Rs.100/-at a discounted price of Rs. 70/-to the distributors. The discount charges of Rs 30/-(100-70) were disallowed by the AO on the ground that relationship between the assessee and its distributors would be that of Principal and the Agent. Accordingly, difference between the maximum retail price and discounted price i.e., Rs.30/-, amounts to commission warranting deduction of tax at source in terms of section 194H of the Act. Since, no tax was deducted on the said transaction, the AO treated the discount charges on prepaid SIM Card as not allowable in terms of section 40(a)(ia) of the Act. On the order hand the assessee contended that its relationship with the distributors is that of Principal to Principal. Accordingly, no tax would be deductible on the said discount charges.

It has been held by the Hon’ble Appellate Tribunal that the provisions of section 194H are not attracted to the discounts given to distributors. Hence, section 40(a)(ia) would not be applicable. Hence, disallowance of discount is not justified. (AY .2013-14 ,2014-15)