TMI Blog2008 (12) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... nical 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. - R.S. PADVEKAR AND REJENDRA SINGH, JJ. Anil Sathe for the Appellant. Sanjay Agrawal for the Respondent. ORDER R.S. Padvekar, Judicial Member. - These appeals filed by the assessee are directed against the order of the ld. CIT(A), Mumbai dated 14-12-2005 for the assessment years 2003-04 to 2005-06. 2. These appeals are arising out of the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Income-tax Act. 3. The assessee has taken the following effective grounds which are common in all the appeals; "1. The ld. CIT(A)XXX, Mumbai erred in holding that the payments made by the appellant for Bandwidth Network Cost are fees for professional or technical services within the meaning of section 194J of Income-tax Act, 1961. 2. The ld. CIT(A)XXX, Mumbai erred in confirming the action of the Assessing Officer treating as the assessee in default and in levying interest under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and documents filed and also perused the order of the Assessing Officer. Admittedly, the appellant its in internet industry, carrying on the activity of internet service provider to corporate clients and consumers. For providing internet access services to its clients, the appellant has to obtain bandwidth and net work operating facility from VSNL, MTNL and other parties for which a payment in lieu of consideration of the services availed by the appellant are made which is termed as bandwidth cost and net work operating cost. The provision of section 194J refers to the payment of ( a ) fee for professional services or ( b ) fee for technical services. The services being obtained by the appellant from VSNL, MTNL and other parties, of course, cannot be categorized as professional services , the services rendered by way of allowing the appellant to have facility through bandwidth and net work operation is certainly a technical service as contemplated in Explanation II to clause ( vii ) of section 9(1) of the Income-tax Act, 1961. The facility of bandwidth and net work given to the appellant is very much a result of applied and industrial science, which is admitted by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are charges relating to interconnectivity provided between basic/cellular telephone providers and the BSNL/MTNL exchanges. This enables the private basic telephone operators or the mobile service providers to access BSNL telephone lines and vice versa . Further in para 6, interconnectivity linked charges is defined as charges for providing leased circuits and with effect from 16-7-2001, this service is stated to have been brought under the coverage of service tax. In clause ( iii ) of para, port charges is defined as something link entry charges for allowing access into the BSNL net work. The facility enjoyed by the appellant by way of bandwidth and net work operation is also similar to the service of interconnectivity or leased circuits or port charges as clarified above. This being held to be covered for service tax, the payments made for availing the service of bandwidth and net work operating are very much in the nature of technical services. When the access charges, port charges and interconnectivity charges as admitted by the appellant itself are covered under section 194J, the bandwidth and net work operating facility is bound to be covered under section 194J." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be technical services within the meaning of section 194J read with Explanation 2 to clause ( vii ) of section 9(1). Section 194J prior to amendment by the Finance Act, 2006 reads as under : "194J. Fees for professional or technical services. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of ( a )fees for professional services, or ( b )fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque of draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein : Provided that no deduction shall be made under this section (A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed ( i )twenty thousand rupees, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly." 7. As per provisions of section 194J of the Act ( i ) there should be payment in the nature of fees and ( ii ) said should be for availing the technical services. Again expression technical service has not been defined in section 194J but meaning given to the said expression has been adopted from Explanation 2 to clause ( vii ) of section 9(1). 8. The term technical service has come for the consideration before the Hon ble Delhi High Court in the case of Estel Communications (P.) Ltd. ( supra ). In the said case, the assessee was providing internet bandwidth for providing access to its subscribers. The main server, based on which the internet services were provided were located in USA. In that case, the Assessing Officer was of the opinion that the assessee should have deducted the tax at source as the payment was made for availing the technical services. Negativing the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cell Communication Ltd. ( supra ); "The use of the internet and the worldwide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions of subscribers to that facility. The internet is very much a product of technology and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. At the time the Income-tax Act was enacted in the year 1961, as also at the time when Explanation 2 to section 9(1)( vii ) was introduced by the Finance (No. 2) Act, with effect from 1-4-1977, the product of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of tech ..... X X X X Extracts X X X X X X X X Extracts X X X X
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