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2015 (7) TMI 778 - ITAT CHENNAI

2015 (7) TMI 778 - ITAT CHENNAI - [2016] 45 ITR (Trib) 430 - Non deduction of TDS on Provision for site restoration expenses - Held that:- Assessee had an obligation to incur the expenditure after termination of the lease period. The fact remains that the payment was not made to anyone and it is not credited to the account of any party or individual. The account does not disclose the person to whom the amount is to be paid. The contractor who is supposed to be engaged for dismantling the tower a .....

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after the expiry of lease period. Therefore, even if the assessee deducts tax, it cannot be paid to the credit of any individual as rightly pointed out by the Ld. Sr. counsel. The assessee has to issue Form 16A prescribed under Rule 31(1)(b) of the Income-tax Rules, 1962 for the tax deducted at source. The assessee has to necessarily give the details of name and address of deductee, the PAN of deductee and amount or credited. In this case, the assessee could not identify the name and address of .....

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ld that:- As find from the order of the CIT(Appeals) it appears that apart from identification and address verification, the assessee has also made provision towards ICU charges and lease line expenses, etc. From the order of the CIT(Appeals) it appears that the assessee also has to pay the various other service providers for providing value added service to its subscribers like daily horoscopes, astrology, songs, wall paper downloads, cricket scores, etc. Admittedly, the assessee made arrangeme .....

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his Tribunal is of the considered opinion that wherever the particulars and details available and amount payable could be quantified, the assessee has to necessarily deduct tax. In respect of value added services like daily horoscopes, astrology, customer acquisition forms are all from specific service providers and these value added services are monitored by system. Therefore, even on the last day of financial year, the assessee could very well ascertain the actual quantification of the amount .....

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ding roaming facility, therefore, it cannot be considered to be a technical service - Held that:- This Tribunal is of the considered opinion that human intervention is necessary for routine maintenance of the system and machinery. However, no human intervention is required for connecting the roaming calls. Therefore, as held by the Apex Court in Bharti Cellular Limited (2010 (8) TMI 332 - Supreme Court of India ), the roaming connections are provided without any human intervention and therefore, .....

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ataraman, Sr. counsel for Sh. R. Vijayaraghavan, Advocate & Sh. Prabhat Lath, CA & Sh. Deepankur Gandhi, CA For the Respondent : Dr. S. Moharana, CIT ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: All the appeals and stay petitions of the assessee are directed against the common order passed by the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 30.12.2013 and pertain to assessment years 2007-08 to 2011-12. Therefore, we heard all the appeals together and disposing the same by this .....

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ssed an order under Section 201(1) and 201(1A) of the Act for the assessment years 2007-08 to 2011-12, holding that the assessee defaulted in deduction of tax in the following account:- (1) Provision for site restoration expenses (2) Year-end provisions (3) Roaming charges 3. The assessee challenged the correctness of the orders passed by the Assessing Officer treating the assessee as assessee in default for non-deduction of tax before the CIT(Appeals). However, the CIT(Appeals) upheld the order .....

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essee would enter into long term lease for 20 years with various landlords. As per the terms of the lease deed, the assessee was required to restore the leased premises on as is basis upon expiry of the lease period. The Ld. Sr. counsel further clarified that on termination of lease agreement, the assessee was required to restore the property to the lessor in the same position as it was existing at the time when the lease was entered into. Referring to certain lease agreements, a copy of each ar .....

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Venkataraman, the Ld. Sr. counsel, further submitted that the revenue authorities disallowed the claim of the assessee on the ground that once an expenditure was kept under provision, the same would fall within the ambit of Section 194C of the Act. The revenue authorities found that it is to be presumed that the work had to be carried out by a contractor and the payment for that work had been deferred to a future date falling outside the relevant accounting year. According to the Ld. Sr. counse .....

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on as a result of past event. It also recognizes a reliable estimate can be made of the amount of the obligation. According to the Ld. Sr. counsel, in fact, the assessee made a provision with regard to site restoration expenses in the light of the Accounting Standard - 29 issued by the Institute of Chartered Accountants of India. According to the Ld. Sr. counsel, the site restoration expenses creates an asset in the books of account in the name of asset retirement obligation and simultaneously a .....

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es not form part of block of asset. Therefore, the assessee does not claim any tax deduction for site restoration expenses / asset retirement obligation in its return of income either through depreciation chart or otherwise. 7. Shri N. Venkataraman, the Ld. Sr. counsel, further submitted that the expenditure on site restoration will be incurred only upon the expiry of the lease term and it is only at that point of time the various parties / contractors would be engaged for dismantling the towers .....

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yments were made to the respective contractors, if any, the tax will be deducted and paid to the Government. However, when the provision was made in the books of account, the place, point of time at which the expenses will be actually incurred are not known. Moreover, it is also not known who will be the contractor and what will be the amount required to be paid for restoration. In fact, according to the Ld. Sr. counsel, the expenses required to be incurred only after the expiry of lease period .....

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uch details are available at page 181 of the assessee s paper-book. 8. Shri N. Venkataraman, the Ld. Sr. counsel for the assessee, further submitted that since the assessee could not identify the contractor and could not quantify the amount to be paid to the contractor for demolition of tower and restore the site, the entire mechanism for deduction of tax at source would fail. In other words, according to the Ld. Sr. counsel, the assessee could not identify the contractor and the amount of expen .....

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Section 194C was to nullify the practice prevailing at that point of time wherein the TDS provisions were being circumvented by the payers by adopting a device of crediting the sum payable to payee or any other account. The Ld. Sr. counsel further pointed out that even after introduction of Explanation to Section 194C of the Act, tax was required to be deducted only in such cases where there is a constructive credit to the account of the payee of a specified amount calculated in accordance with .....

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us, according to the Ld. Sr. counsel, the payee is not identified and it is not known which contractor would be engaged by the assessee for demolition of the tower and restoration of the cite. The sum payable to the contractor is also not ascertained. In those circumstances, according to the Ld. Sr. counsel, the assessee is not liable to deduct tax in respect of the provision made for site restoration expenses. Since the assessee is not aware of the payee, there is no question of deduction of ta .....

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e Ld. Sr. counsel, the assessee has not identified the contractor sofar, therefore, the assessee could not disclose in Form 16A the name and address of the deductee. Similarly, the PAN of deductee could not also be informed to the Department. Since the amount payable to the contractor is not ascertainable, the assessee may not be in a position to declare the amount paid/credited to the Department. Apart from them, the date of payment/credit also could not be informed since no payment was made an .....

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Sr. counsel placed his reliance on the judgment of Delhi High Court in UCO Bank v. Union of India & Others in WP(C) 3563/2012 and submitted that in the case before the Delhi High Court, certain deposits were made with a bank in the name of Registrar General of High Court, in terms of directions issued by the High Court. The issue arose before the Delhi High Court was whether the banks are required to deduct tax at source and issue certificates in the name of Registrar General. The Delhi Hig .....

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Sr. counsel, although the FD is made in the name of the Registrar General, the account represents funds, which are in custody of the Court and the Registrar General is neither the recipient of the amount credited to that account nor the interest accruing thereon. Therefore, the Delhi High Court found that the Registrar General cannot be considered as a payee for the purpose of Section 194A of the Act. The credit by the petitioner bank in the name of Registrar General would not attract the provis .....

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d by the Delhi High Court. The Ld. Sr. counsel submitted that a situation would be created for recovery of tax without corresponding income being assessed in the hands of any person. The Ld. Sr. counsel also placed his reliance on the decision of Mumbai Bench of this Tribunal in Industrial Development Bank of India v. ITO (2007) 293 ITR (AT) 267. The Ld. Sr. counsel also placed reliance on the decision of Bangalore Bench of this Tribunal in DCIT v. Telco Construction Equipment Co. Limited in I.T .....

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ious service providers for rendering services like address verification, credit certification, content development, etc. At the year end, to close the books of account, the assessee estimates the amount of expenditure incurred in the month of March with respect to various services rendered by the service providers for which invoices are yet to be received by the assessee. According to the Ld. Sr. counsel, the provisions are made on estimate basis as it is not identifiable what amount is to be pa .....

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nd, the assessee would know how many number of connections are offered in the month of March. However, the assessee would not know as to how many customer verifications have been done with each service provider engaged by the assessee. Therefore, the assessee would not know the exact amount payable to the above said service providers. Therefore, the assessee by an overall basis, estimates the customer verifications expenditure in relation to expenditure incurred in the past and make necessary pr .....

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harges the obligation cast upon it. 15. Now coming to roaming charges, Shri N. Venkataraman, the Ld. Sr. counsel for the assessee, submitted that roaming is a facility provided by the cellular provider to its customers automatically to connect and receive voice calls. The Ld. Sr. counsel clarified that when a customer of one circle visits another telecom circle, he would be automatically connected with other service provider in the visiting circle and he can make and receive voice calls and acce .....

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er at telecom circle in Ahmedabad with which the assessee has already entered into a bilateral roaming agreement. The assessee has also entered into same agreement with various other telecom provides like Bharti Airtel, Vodafone, TATA, Idea, etc. 16. Referring to the judgment of the Apex Court in CIT v. Bharti Cellular Limited (330 ITR 239), the Ld. Sr. counsel for the assessee submitted that the word technical is preceded by the word managerial and succeeded by the word consultancy . Therefore, .....

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have been rendered. The Ld. Sr. counsel invited our attention to an observation made by the Apex Court and submitted that whenever the services rendered without direct human involvement, it cannot be construed to be a technical service. The Ld. Sr. counsel has placed his reliance on the judgment of Madras High Court in Skycell Communication Limited v. CIT (119 Taxman 496) and submitted that the telecom services are not in the nature of technical services. 17. Shri N. Venkataraman, the Ld. Sr. c .....

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iding roaming services. Once configuration is completed, it is not required. In view of the above clarification of an expert in the field, according to the Ld. Sr. counsel, since the roaming services are provided without human intervention, it cannot be considered for technical service. The human intervention is required, according to the Ld. Sr. counsel, whenever customers are facing problems during roaming. The Ld. Sr. counsel further pointed out there are millions of calls which flow from one .....

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T in I.T.A. Nos. 1301 to 1303 and 1616/PN/2013, the Ld. Sr. counsel submitted that Merely because human intervention is required for maintenance that cannot lead to the conclusion that the services rendered are technical services within the meaning of Section 194J of the Act. According to the Ld. Sr. counsel, while providing roaming facility to its customers, the assessee in fact utilizing the standard facilities provided by the other telecom service provider which connects automatically once th .....

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recipients paid the tax by including the amount in the total income, there cannot be any reason to treat the assessee as assessee in default. The Ld. Sr. counsel further submitted that it is also an obligation of the TDS officer to verify whether the recipient has paid the taxes as required under the Income-tax Act. The Ld. Sr. counsel placed his reliance on Special Bench decision of this Tribunal in Mahindra & Mahindra Limited v. DCIT (2009) (313 ITR (AT) 263) and judgment of Allahabad Hig .....

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the fourth year are barred by limitation. According to the Ld. Sr. counsel, under Section 201(3)(i) of the Act, the Assessing Officer is expected to pass an order within two years from the end of the financial year in which quarterly statement was filed. Apart from that, Section 201(3)(ii) of the Act further provides that no order can be passed beyond six years from the end of the financial year in which the payment is made or credit is given, in any other case. According to the Ld. Sr. counsel, .....

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dment brought in by Finance Act, 2014, the Ld. Sr. counsel submitted that limitations for passing the order under Sections 201(1) and 201(1A) of the Act have been extended to seven years from the end of the financial year in which payment is made or credit is given. This provision is applicable prospectively with effect from 1.10.2014. Therefore, the amended provisions of Sections 201(1) and 201(1A) cannot be made applicable for the assessment years under consideration. 20. On the contrary, Dr. .....

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uct tax on the provisions made in site restoration expenses. According to the Ld. D.R., no Accounting Standard has been created to override the specific provisions of Income-tax Act. Even otherwise, according to the Ld. D.R., Accounting Standard cannot override the specific provisions of the Act. The Ld. D.R. further submitted that provision can be made in the books of account only when actual liability of expenditure has accrued but could not be spent within the relevant accounting year for bon .....

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payment for that work has to be deferred to a future date falling outside the period of relevant accounting year. Referring to Section 194C(2) of the Act, the Ld. D.R. submitted that clause (iv) of Section 194C(2) takes care of this kind of situation. By virtue of these provisions, it is crystal clear that if any amount of liability payable to the contractors is credited to any account, by whatever name it is called, then the assessee is liable to deduct tax as required under Section 194C of th .....

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ifications, credit certification charges, ICU charges and lease line expenses. The contention of the assessee is that the payees are not identifiable. The Ld. D.R. pointed out that the assessee engaged services from outsource service providers. Therefore, the contention of the assessee that the service providers are not identifiable is not acceptable. 22. Referring to the roaming charges, the Ld. D.R. pointed out that the assessee had arrangement with other cellular service providers outside the .....

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ing charges are nothing but the payments made by the assessee to other telecom service provider for rendering technical services to the assessee which would in turn be used by the subscribers of the assessee during roaming. Referring to the expert opinion said to be obtained from the Sub-Divisional Engineer of BSNL, the Ld. D.R. pointed out that regarding interconnectivity, initially human intervention is required for establishing the physical connectivity and also for doing the required configu .....

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Madras High Court in Skycell Communications Ltd. (supra) may not be applicable to the facts of the case. Referring to the decision of Authority For Advance Rulings in Ajmer Vidyut Vitran Nigam Ltd. (2012) 24 taxmann.com 300, the Ld. D.R. submitted that the Electricity Transmission Corporation made payment to another company to ensure constant voltage at distribution point. The Authority For Advance Rulings found that the amount paid was for technical services, therefore, TDS has to be made. Ref .....

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were disputed by the assessee. Therefore, the provisions of sub-section (3) of clause (ii) is not applicable at all. Therefore, the orders passed by the TDS officers are within the period of limitation. Hence, the contention of the assessee that the orders are barred by limitation has no leg to stand. 23. We have considered the rival submissions on either side and perused the relevant material on record. Admittedly, the assessee, a telecom operator, made provision for site restoration expenses, .....

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e assessee had an obligation to incur the expenditure after termination of the lease period. Revenue, however, contends that due to misconception and ignorance of law and with an intention to circumvent the statutory provisions, the assessee made the provision. The fact remains that the payment was not made to anyone and it is not credited to the account of any party or individual. The account does not disclose the person to whom the amount is to be paid. The contractor who is supposed to be eng .....

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e contractor would be identified after the expiry of lease period. Therefore, even if the assessee deducts tax, it cannot be paid to the credit of any individual as rightly pointed out by the Ld. Sr. counsel. The assessee has to issue Form 16A prescribed under Rule 31(1)(b) of the Income-tax Rules, 1962 for the tax deducted at source. The assessee has to necessarily give the details of name and address of deductee, the PAN of deductee and amount or credited. In this case, the assessee could not .....

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he contention of the Ld. D.R. Accordingly, the orders of the lower authorities are set aside and this ground of appeal is allowed. 24. Now coming to the issue of year-end provisions, the contention of the assessee is that it is engaged in various services like address verifications, credit certification, content development etc. The assessee claims that provisions are made on estimation basis since it is not identifiable as to what amount has to be paid to the service providers. In case of new s .....

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ification, the assessee has also made provision towards ICU charges and lease line expenses, etc. From the order of the CIT(Appeals) it appears that the assessee also has to pay the various other service providers for providing value added service to its subscribers like daily horoscopes, astrology, songs, wall paper downloads, cricket scores, etc. Admittedly, the assessee made arrangement with other service provides for providing these kind of value added services. There may be justification wi .....

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le could be quantified, the assessee has to necessarily deduct tax. In respect of value added services like daily horoscopes, astrology, customer acquisition forms are all from specific service providers and these value added services are monitored by system. Therefore, even on the last day of financial year, the assessee could very well ascertain the actual quantification of the amount payable and the identity of the payee to whom the amount has to be paid. To that extent, the contention of the .....

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r finds that the payee could not be identified on the last day of financial year and the amount payable also could not be ascertained, the assessee may not require to deduct tax in respect of that provision. However, in case the payee is identified and quantum is also ascertainable on the last day of the financial year, this Tribunal is of the considered opinion that the assessee has to necessarily deduct tax at source. Since the details are not available on record, the orders of the lower autho .....

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have gone through the judgment of Apex Court in Bharti Cellular Limited (supra), The Apex Court after examining the provisions of Section 9(1)(vii) of the Act, found that whenever there was a human intervention, it has to be considered as technical service. In the light of the above judgment of the Apex Court, the Department obtained an expert opinion from the Sub-Divisional Engineer of BSNL. The Sub-Divisional Engineer clarified that human intervention is required for establishing the physical .....

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omatically without any human intervention. It is due to configuration of software system in the respective service provider s place. In fact, the Sub-Divisional Engineer of BSNL has explained as follows in response to Question No.23:- Regarding roaming services as explained to question no.21. Regarding interconnectivity, initially human intervention is required for establishing the physical connectivity and also for doing the required configuration. Once it is working fine, no intervention is re .....

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