2008 (12) TMI 429 - AT - Income Tax

TDS u/s 194J - Whether the services are facilities availed by the assessee from VSNL/MTNL and other concerns towards bandwidth and net work operating infrastructure can be said to be technical services u/s 194J r/w Explanation 2 to clause ( vii ) of section 9(1)? - AO passed order u/s 201(1) and 201(1A) - HELD THAT - In this case the assessee has availed the bandwidth services and other infrastructure for providing the internet net excess to its customers. These are standard facilities availed by the assessee. Moreover in our opinion the assessee s case is covered by the decision of the Hon ble Delhi High Court in the case of Estel Communications (P.) Ltd. 2008 (3) TMI 327 - DELHI HIGH COURT . We therefore hold that the payment made by the assessee-company to VSNL MTNL and other concerns for availing the services of the bandwidth net work infrastructure cannot be said to be technical services within the meaning of section 194J of the Act r/w Explanation 2 to clause ( vii ) of section 9(1) of the Act. We therefore allow the appeals filed by the assessee and cancel the order passed by AO u/s 201(1) and 201(1A) of the Act.

Summary

Issues Involved:
1. Whether payments made by the appellant for Bandwidth & Network Cost are fees for professional or technical services within the meaning of section 194J of the Income-tax Act, 1961.
2. Whether the appellant should be treated as in default for not deducting tax at source (TDS) under section 201(1) and liable for interest under section 201(1A) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Classification of Bandwidth & Network Cost as Fees for Professional or Technical Services:
The primary issue revolves around whether the payments made by the appellant for Bandwidth & Network Cost to MTNL and VSNL qualify as fees for professional or technical services under section 194J of the Income-tax Act, 1961. The Assessing Officer and CIT(A) held that these payments were indeed for technical services, necessitating TDS under section 194J. They reasoned that the bandwidth and network facilities provided by MTNL/VSNL involved applied and industrial science, thus constituting technical services. The CIT(A) further distinguished the appellant's case from the Skycell Communications Ltd. case, asserting that the facilities availed were not standard and fell within the ambit of technical services as per section 194J.

2. Assessee Treated as in Default and Interest Levy:
The second issue pertains to the appellant being treated as in default under section 201(1) for failing to deduct TDS on the payments made to MTNL/VSNL, and the consequent interest levy under section 201(1A). The Assessing Officer raised a demand and levied interest, which was partially upheld by the CIT(A), who provided some relief regarding the interest calculation.

Judgment Analysis:

1. Bandwidth & Network Cost as Technical Services:
The Tribunal examined the nature of services availed by the appellant from MTNL/VSNL and other parties. It was argued by the appellant that these services were necessary for providing internet access and did not constitute technical services under section 194J. The appellant relied on precedents such as CIT v. Estel Communications (P.) Ltd., Wipro Ltd. v. ITO, HFCL Infotel Ltd. v. ITO, and Skycell Communications Ltd. The Tribunal noted that the term 'technical services' was not explicitly defined in section 194J but referred to Explanation 2 to clause (vii) of section 9(1). The Tribunal referred to the Estel Communications (P.) Ltd. case, where it was held that payments for internet bandwidth did not amount to fees for technical services. Similarly, in Wipro Ltd., payments for data transmission services were not considered fees for technical services. The Tribunal also cited the Skycell Communications Ltd. case, emphasizing that standard facilities availed by individuals or companies do not constitute technical services.

2. Assessee's Default and Interest Levy:
The Tribunal concluded that the payments made by the appellant for bandwidth and network services were standard facilities and not technical services under section 194J. Consequently, the appellant was not required to deduct TDS on these payments. The Tribunal allowed the appeals, canceling the orders passed by the Assessing Officer under sections 201(1) and 201(1A).

Conclusion:
The Tribunal held that the payments made by the appellant for bandwidth and network services did not qualify as fees for technical services under section 194J. Therefore, the appellant was not in default for not deducting TDS, and the interest levied under section 201(1A) was canceled. The appeals filed by the appellant were allowed.