TMI Blog2015 (7) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... e operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also signifies charges for connecting two entities. The Coordinate Bench also considered in i-GATE Computer System Ltd. [2015 (1) TMI 236 - ITAT PUNE] the Hon'ble Supreme Court decision in the case of Bharti Cellular Ltd.[2010 (8) TMI 332 - Supreme Court of India] and held that Data Link transfer does not require any human intervention and charges received or paid on account of this is not fees for technical services as envisaged in Section 194J read with Section 9(1)(vii) read with Explanation-2 of the Act. In case before us, the assessee has paid roaming charges i.e. IUC charges to various operators at ₹ 10,18,92,350/-. Respectfully following above judicial precedents, we hold that these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee’s appeal is allowed on this ground also.- Decided in favour of assessee. - ITA No. 656/JP/2010 - - - Dated:- 12-6-2015 - SHRI R.P. TOLANI SHRI T.R. MEENA, JJ. For the Appellant : Shri Anil Bhalla Shri P.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 2.2) The learned Assessing Officer (TDS) has erred both on facts and in law in charging interest of ₹ 68,75,375/- u/s 201(1A) of the Act. The learned Commissioner of Income Tax (Appeals) has further erred both on facts and in law in upholding the action of the learned Assessing Officer. 3. The appellant craves leave to add, alter or amend the ground of appeal at a later stage. 2. The ground No. 1 of the appeal is against confirming the addition on transaction of prepaid card sold to distributor and price at which the end customer buys alleging the difference to be payment of commission. Liable to be deducted TDS U/s 194H of the Income Tax Act, 1961 (in short the Act) and deemed default U/s 201(1) and interest thereon U/s 201(1A) of the Act. The ld ITO(TDS) has observed that the assessee is engaged in the business of providing cellular mobile telephone services in Rajasthan under the brand name AIRTEL . The assessee had marketed its product through the distributor network under two categories namely post paid products and prepaid produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per clause 9.2 of the agreement, it is clear that there was a principal and agent relationship between them and the assessee was paying fixed commission to these distributors in garb of discount. The entire ownership relying to such new SIM card and prepaid card always vests with the assessee as evident from different clauses of such agreement. When services are sold on discount, there cannot be any restriction imposed by one principal on the other principal in regard to the manner and the area of sales of such goods sold. In case of purchases on discount, there cannot be any restriction on the manner in which the stock purchased by one principal is kept by it. In the present case, the assessee company has got all the right to regularly monitor the operations of distributor, monitor or investigate the manner in which business operations are carried on by such distributor, which is absent in the case of sale on discount. The assessee company can direct the distributors about the manner in which such product would be sold in the market. Nomenclature given by the assessee as discount is nothing but commission paid by the assessee to distributor for service rendered by them. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discounted price, at which they were given to the distributors, was in the nature of commission and whether the appellant company was liable to make TDS u/s 194H of the IT Act in respect thereof. In this regard, I find that this issue is directly covered against the appellant company by the decision of Hon ble ITAT, Cochin Bench in the case of M/s Vodafone Essar Cellular Ltd. Vs. ACIT (2010) 35 DTR (Coh)(Trib) 393 and by the recent decision of Hon ble Delhi High Court in the case of CIT V/s Idea Cellular Ltd. (2010) 35 DTR (Del.) 219, in which the Hon ble High Court has held that the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons, which are eventually sold to the subscribers at the listed price, is commission and it is subject to TDS under S. 194-H of the Act. In the said order, the Hon ble High court has also approved the aforesaid decision of the Hon bl;e Cochin Bench of the ITAT. Therefore, respectfully following the aforementioned decisions of Hon ble Delhi High Court and Hon ble Tribunal, Cochin Bench, this issue is decided against the appellant. Accordingly, it is held that the appellant company was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is context the right to use airtime and the promise to prove airtime is a product or merchandise capable of being transferred from service provider to the distributor from the distributor to the retailer and from the retailer to the customer. The prepaid product is delivered on payment being received in advance from distributor or is received simultaneously with the supply of product. The risks and reward are that of the distributor and in case there is any loss, pilferage or damage the distributor would be responsible for such loss, pilferage or damage. This proves that the property in this case stands transferred. It is of no consequence that the service to be provided which is captured in the startup pack is to be delivered at a later stage. He also drawn our attention on sample of challan and invoice raised by the company on the distributors to show that a product or merchandise which has to right to use talk time upto a specified value has been sold. (PB 348-353). The ld AR further argued that the provisions of Section 194H is not applicable under this situation because firstly no income accrued to the distributors at the time when prepaid product is sold to distributors and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not transferred any income to the distributor but the distributor was allowed to avail the airtime to the extent of MRP price. In books of account, the assessee had credited these receipts on net basis. The finding on the case of Tata Tele Services is reproduced as under: 2.23. We find merit in the contention of ld. Counsel that there is no jurisdictional high court judgment on this issue. Hon ble Karnataka High Court Judgment is elaborate, detailed, considers the previous Delhi and Kerala High Court judgment against the assessee and is latest comprehensive adjudication on the issue. Even if it is held that there exist divergence of judicial opinion a view favourable to the assessee is to be adopted as held by Hon ble Supreme Court in Vegetable Products Ltd. And Vatika township case (supra). From this angle also in these facts and circumstances Hon ble Karnataka High Court judgment is applicable to the assessee s case. Respectfully following the same we hold that: a. The relationship between assessee and its distributors qua the sale of impugned products is on principal to principal basis; the consideration received by assessee is sale price simpliciter. b. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, they only it shall send signals to service provider of Rajasthan to authenticate the subscriber. If there is no contract between service provider of Maharashtra and Rajasthan, roaming services shall not be allowed to the subscribers. This means that starting points for roaming services is essentially a contract between two services providers. The service providers of Rajasthan circle shall then authenticate the subscriber. The service provider of Rajasthan circle has the data of subscriber which will be sent to Maharashtra circle and date of Rajasthan subscriber shall be stored in the Visitor Location register of Maharashtra circle. This data enables the services provider of Maharashtra to verify various aspects such as whether subscriber enjoys the ISD facilities or not etc. After completing this aspect, the subscriber who has gone to Maharashtra can access than network and make outgoing calls. This process requires various instruments such as MSC (Mobile Switching Centre), VLR (Visitors Location Register), Radio Network, Towers, BTS (Base Transmission Station), BSS (Base Sub Station) etc. Further, all incoming calls shall first go to Rajasthan service provider. The data availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provider to enable its subscriber to get connected in all other circles. The subscriber need not interact act for any roaming services with other service provider. It is the technology established between two service providers which executes roaming system. (6) The subscriber has to get roaming activated through Home Service Provider. Only then he can access the services of service provider of another circle. (7) Whenever the subscriber tries to access the network of service provider of other circle, service provider of other circle shall be authorized by the Home Service provider as per the agreement entered into between the two service providers. If there is no roaming agreement between two operators or if the home telecom operator does not authenticate, subscriber cannot enjoy roaming facility. (8) The subscriber does not require to change the SIM card but by using the SIM card of Home Service provide he can access other network. (9) As per the agreement the other service provider raises bill on the Home Service provider and only the Home Service provider is liable to pay the amount irrespective of payment made by subscriber. The subscriber and service provider of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Skycell Communications Ltd. and held that clearing charges paid to SBI through MICR centre by rendering managerial service which falls within the definition of technical services and liable to be deducted TDS U/s 194J of the Act. He further considered the Hon ble ITAT Ahmadabad observation that the definition of fees for technical services is very wide, which covers within its ambit any managerial, technical or consultancy services rendered by a person. The MICR facility provided by the SBI, which identified, read and cleared the cheque through its special kind of machines. Therefore, the same is fees for technical services. The service of this nature, in our opinion involves human skill as well as computerized machines. It is not automatic. In that sense it is no hiring/lasing or making available the technical equipment working on its own. But it is fully supported by services of personnel and requires human application of mind alongwith technical equipments. In the present case, the assessee used highly sophisticated machine, which was managed by the highly qualified technical staff which involves application of human mind. In view of the above finding, he held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find no merit in the submissions of the ld AR for the reasons discussed in the order of the ld A.O. The ld CIT(A) confirmed the order of the ITO(TDS) U/s 194J of the Act but allowed the benefit of Hon'ble Supreme Court decision in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT (supra). 9. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the revenues proposition is that thogh the roaming happens automatically but because equipment is used to render the roaming service, because technical manpower is needed to operate and maintain the technical equipment therefore, roaming per se is rendering of technical services and therefore, the amount paid for roaming is technical fee in terms of Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act. The ld AR explained the roaming service and submitted that Hexacom subscriber in Jaipur travels of Mumbai switches on his mobile device after reaching Mumbai. Where the subscriber travels by land he automatically receives a message transferring to the roaming network on visiting another telecom, circle. * Visiting network (e.g. Airtel in Mumbai) locates mobile device and ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com uses the network set up by the visiting circle and instead of amount being recovered from the roaming subscriber, the visiting circle sends the air minutes to be recovered from the roaming subscriber to the Home circle for recovery from the subscriber who had visited the visiting circle. Technical fees * It is an accepted fact that technical service can be said to have been rendered if there is an involvement of human element or there have been use of cerebral faculties in the provision of technical services by the recipient of fee. * This is so because the word technical comes in between the words managerial and consultancy services . Based upon the principles of nositur a sociis there has to be an element of manual intervention at the time when the service is being rendered. * Technical services should have a fact situation of imparting technical knowledge involving or concerning applied and industrial science. The ld AR further argued that finding of the ld CIT(A) are based on contract between two operators but contract has no relevancy on the nature of the service whether technical or otherwise. The ld CIT(A) partly accepted that roaming process is technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made from subscriptions U/s 194J of the Act. He further relied on the decision in the case of Jaipur Vidyut Vitran Limited Vs. DCIT (2009) 123 TTJ 888 (JP Trib) wherein it has been held that Section 194J would have application only when the technology or technical knowledge of person is made available to other and not where by using technical systems, services are rendered to others. Rendering of services by allowing use of technical system is different from charging fees for tendering technical services. The applicability of Section 194J would come into effect only when by making payment of fee for technical services, assessee acquires certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by user of such equipment, the same does not result in the provision of technical service to the customer for a fee. Therefore, he argued that in roaming charges paid by the assessee to the other operators are not fees for technical services. The ld AR further relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices and has to deduct tax at source, depended on whether the charges were for technical services, and this involved determination of whether any human intervention was involved, which could not be determined without technical assistance. Decision of the Delhi High Court in CIT v. BHARTI CELLULAR LTD. [2009] 319 ITR 139 set aside and matter remanded to the Assessing Officer with directions. After this decision, the ld Assessing Officer examined the technical expert of the C-DOT on 29/09/2010 in respect of IUC and which were cross examined on 04/10/2010 by M/s Bharti Cellular Limited, Delhi. The technical experts reexamined on 04/10/2010 on this issue and admitted that roaming services does not require any human intervention, it operates automatically. The ld AR also drawn our attention on independent opinion taken from Director CMAI, Ex- Director (C M), BSNL, Ex-Member Telecom Commission on 24/12/2010 and admitted that whole interconnected uses process, no manual intervention is required. He further drawn our attention on page No. 651 to 652 for postpaid as well as prepaid roaming charges charged between the operators from Mr. Kapoor Singh Guliani. The appellant also take ..... 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