In Brief
This judgment determines whether cellular mobile telephone service providers must deduct income tax at source under Section 194-H on amounts paid as discounts to franchisees/distributors for prepaid services. The Supreme Court held that Section 194-H applies only when a legal principal-agent relationship exists. Here, franchisees/distributors are independent contractors earning profit from reselling prepaid products to retailers and customers, not agents receiving commission from the telecom companies. Since the telecom operators neither directly pay nor credit income to franchisees/distributors—the income arises from the franchisees'/distributors' own transactions—Section 194-H does not apply. The Court allowed appeals by telecom companies and dismissed Revenue's appeals.
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