2025 (4) TMI 876 - HC - Income Tax

TP Adjustment - addition on account of Intra-group services - whether payment made for Intra-group services was for commercial expediency? - HELD THAT - As we find that the same would appear to be covered against the appellant in light of our order in AT T Global Network Services (India) Pvt. Ltd 2024 (7) TMI 1623 - DELHI HIGH COURT . We further note that this issue was also not canvassed in the other appeals which formed subject matter of the batch which was posted before us today. Revenue share based payment pertains to amortization of revenue share based license fee and would have to be examined in light of the decision of Bharti Hexacom Ltd. 2023 (10) TMI 786 - SUPREME COURT The aforesaid question would thus merit further consideration. Non-Deduction of TDS on Lease line expenses - Assessee was neither in possession nor control of the equipments which were used for providing internet and communication facilities and therefore. there was a clear absence of the element of leasing of equipments and therefore the provisions of section 1941 cannot be applied. Disallowance of unascertained circuit accruals which has already been admitted by us for consideration while passing orders in AT T Global Network Services (India) Pvt. Ltd. 2024 (7) TMI 1623 - DELHI HIGH COURT . This appeal shall be admitted on the following questions of law - A. Whether the Tribunal has in the facts and circumstances of the case and in law erred in deleting the disallowances on the ground that the provision for other than circuit accrual charges was made on a scientific and automated basis without appreciating that no documentary evidence/invoices were provided in support of the said accruals? B. Whether the Tribunal has in the facts and circumstances of the case and in law erred in deleting the disallowance on account of amortized revenue-share based license fee paid to the department of telecommunication by observing that such expenses were of recurring nature and benefit thereof was not of enduring nature without appreciating that the respondent-assessee is acquiring a substantial right to establish maintain and operate the mobile cellular/telecom service which is a right of enduring nature? List again on 25.02.2025.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this judgment include:

Intra Group Services Segment:

• Whether the ITAT erred in deleting the adjustment made by the TPO regarding intra-group services based on commercial expediency without proper substantiation by the assessee.
• Whether the ITAT failed to appreciate the TPO's disallowance of intra-group services due to non-compliance with Rule 10D of the IT Rules.
• Whether the ITAT incorrectly held that the TPO re-characterized the intra-group services transaction.

Circuit Accruals:

• Whether the ITAT erred in deleting disallowances related to circuit accrual charges, claimed to be made on a scientific basis, without adequate documentary evidence.
• Whether the ITAT failed to recognize that the expenses were estimates and not substantiated with invoices, contrary to the Supreme Court's ruling in Rotork Controls India P. Ltd. v CIT.

Revenue Share Based Payment:

• Whether the ITAT erred in deleting disallowance of amortized revenue-share based license fees, considering the enduring nature of the rights acquired.
• Whether the ITAT failed to appreciate the continuity of payments under the New Telecom Policy, 1999, as an extension of earlier policies.
• Whether the ITAT misinterpreted the nature of payments under the Telecom Policy, failing to apply the 'Purpose Test' from CIT v Ponni Sugars & Chemicals Ltd.

Non-deduction of TDS on Lease Line Expenses:

• Whether the ITAT erred in deleting additions due to non-deduction of TDS on lease line expenses.

ISSUE-WISE DETAILED ANALYSIS

Intra Group Services Segment:

The Court noted that the issue of intra-group services was covered against the appellant based on a prior order in a similar case. The Tribunal's decision was consistent with previous rulings where no appeal was pursued, likely due to low tax effect. The Court decided not to entertain the appeal on this issue.

Circuit Accruals:

The Court found that the issue of circuit accruals was also addressed in a prior order. The Tribunal had previously ruled in favor of the assessee, and the Court found no reason to deviate from this precedent.

Revenue Share Based Payment:

The Court acknowledged that the issue of amortization of revenue share-based license fees required further examination in light of a Supreme Court decision. The Court admitted this question for further consideration, recognizing the potential for enduring benefits from the payments.

Non-deduction of TDS on Lease Line Expenses:

The Tribunal had previously ruled that lease line payments were not subject to TDS under section 194I, as they did not involve the use of equipment. The Court upheld this interpretation, finding no justification to entertain the appeal on this question.

SIGNIFICANT HOLDINGS

The Court preserved the Tribunal's interpretation regarding the non-deduction of TDS on lease line expenses, emphasizing that payments for standard facilities without control or possessory rights do not constitute the use of assets under the Act.

The Court admitted questions related to the scientific basis of accrual charges and the nature of revenue-share based license fees for further consideration, indicating the need for a detailed examination of these issues in light of existing legal precedents and interpretations.

The appeal is scheduled for further proceedings on 25.02.2025, focusing on the admitted questions regarding accrual charges and revenue-share based payments.