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2016 (4) TMI 811 - ITAT MUMBAI

2016 (4) TMI 811 - ITAT MUMBAI - TMI - TDS u/s 194J - Treatment of Roaming charges paid to various telecom operators to be in the nature of Fees for technical services and liable to Tax Deduction at source ('TDS') - 'assessee in default' u/s 201(1) - Held that:- If any person delivers any services through his skills, or experience, or make available any such services either through aid of any machines, equipment or any kind of technology, then rendering of such services can be reckoned as "techn .....

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t could be there but it is not a constant endeavour of the human in the process.

Here in this case, post Bharati Cellular Ltd.,[2010 (8) TMI 332 - Supreme Court of India ], whereby, AO was required to examine the technical experts cannot be held to be conclusive at this stage qua the concept of human involvement in the process of roaming, because in such cross examinations, as incorporated by the AO in the impugned order, there is inherent contradiction and if we go by the latest prin .....

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case of Vodafone Essar Mobile Services Ltd., which order has been quoted by the AO extensively has not stood scrutiny or concluded by any appellate authorities or any court, especially in light of any rebuttal which may come from the side of assessee. Thus, we are refraining from deciding the first issue before us.

Whether assessee can be treated as 'assessee-in-default' under section 201(1) - Held that:- we find that Ld. CIT(A) without perusing the finding of the AO as noted in the o .....

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rd. Once there is a categorical finding by the AO, then without any contrary material on record to rebut his finding or notice by the CIT(A), such a finding of the CIT(A) is wholly erroneous, which cannot be sustained. Thus, we hold that when the AO himself has held that assessee is not in default in terms of section 201(1) in wake of evidences filed before him, then without any defect or any material to rebut, there cannot be any deviation from the order of the AO and accordingly, observation a .....

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of the tax for amount paid by the deductees would entail levy of interest under section 201(1A). However, this fact as stated by the assessee needs verification from the end of the AO, whether the deductees have incurred losses during the year and whether they were not required to pay any taxes on such payments. If contention of the assessee as raised before the CIT(A) is found to be correct then no interest under section 201(1A) should be charged and accordingly relief should be given. - ITA No .....

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ising out identical set of facts, therefore, they are being taken up together. In various grounds of appeal, the assessee has raised mainly following issues:- "I. Treatment of Roaming charges paid to various telecom operators to be in the nature of Fees for technical services and liable to Tax Deduction at source ('TDS') under Section 194J of the Act. II. Treating the Appellant as 'assessee in default' u/s 201(1) by ld. CIT(A) ignoring the declarations obtained from the paye .....

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the assessee company entered into a "Roaming Agreement" with Reliance Telecom Ltd., which provides GSM services in eight telecom circles in the country where assessee-company did not had GSM license. Explaining the nature of roaming facility, the assessee's contention, in brief, before the AO was as under:- (i) Roaming is defined as the ability for a telecom subscribers to automatically make and receive voice calls, send and receive data, or access other services, including home d .....

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eements with the telecom operators having network in such geographical areas/circles, that is, in the visiting network. This enables the telecom subscribers of a particular telecom operator while travelling away from home network, to switch over automatically from the home network to the visiting network to avail uninterrupted telecommunication facility. This automatic switchover of telecom network is termed as 'roaming facility'. (ii) The roaming facility of the visiting network is used .....

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; to the visiting network telecom operator for the services availed by its subscribers, who actually becomes a pseudo subscriber of the visiting network telecom operator while roaming. Roaming is nothing but the use of standard telecom infrastructure facilities provided by telecom operator of the visiting network to the subscribers. It is not a payment in lieu of rendering or receiving of any services or discharge of any contractual obligation of technical service enjoyed by the Company and henc .....

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ervice to the home network operator so as to deduct TDS for rendering of technical services within the ambit and scope of the provisions of Section 194 J of the Act. 3. In support of the above contentions that such kind of automated standard facility cannot be reckoned as rendering of technical services because it is without much human intervention, strong reliance was placed on following decisions, which has been incorporated and discussed by the AO at pages 2 to 4 of the order:- Name of the Ca .....

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ed that in view of the decisions of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt Ltd. vs CIT, reported in 293 ITR 226 and also in the case of Bharati Cellular Ltd. (supra) if the recipient payee has paid the taxes or shown it as their income, then assessee (payer) could not be treated as "assessee-in-default" under section 201(1). The assessee's detail explanation before the AO in respect of all the contentions raised has been extensively incorporated a .....

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technical data and aid of experts. The AO noted that, in line with such a mandate of Hon'ble Apex Court, in one of the case, Vodafone Essar Mobile Services Ltd. vs ACIT, Circle -51(1), Delhi, the AO has passed the order after obtaining technical advice from the experts. He thereafter incorporated the relevant portion of the order under section 201(1) r.w.s. 201(1) passed in the case of M/s Vodafone Essar Mobile Services (order dated 31.12.2010). In the said order, question and answers in th .....

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nection, but when there are certain problems in the call-connect then certain human intervention is required, that is, if there are some technical snags in software or hardware or in the fiber optic cable etc. In the event of such technical snags and problems human effort is required to rectify the same. However, the entire systems works automatically albeit it cannot be 100% fully automated because for some faults which incur during the course of transmission it does require some corrections by .....

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from installation, activation, maintenance to up-gradation and decision making. Therefore, the payments made has to be reckoned in the nature of "fees for technical services" in terms of Explanation 2 to section 9(1)(vii) and hence liable for deduction of tax under section 194J. 6. However, he accepted the assessee's alternate submission that in view of the decision of Hon'ble Apex court in the case of Bharati Cellular Ltd. ( supra ) and Hindustan Coca Cola Beverages Pvt Ltd. ( .....

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year 2011-12. The relevant finding and observation of the AO in this regard is as under:- "I have also considered the assessee's submissions and agree with its contentions having regard to pronouncements of the Hon'ble Apex Court in case of Bharti Cellular Ltd that taxes cannot be again recovered from the assessee. In this regard, considering that the assessee has furnished the declarations from various payees and has also furnished the PAN and AO jurisdictional details in respect .....

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on account of non deduction of taxes and interest under Section 201(1A) on account of non deduction of taxes and interest under Section 201(1A) has been levied on the non deduction of TDS from the date on which when the tax was deductible to the date on which return has to be filed by the payees". 7. In the first appeal, the Ld. CIT(A) confirmed the order of the AO in so far as the issue, whether the payment made to the telecom operators on account of "roaming charges" is in the .....

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eir return of income and hence, the assessee remained in default for levy of tax under section 201(1). This observation, though on the face of it was erroneous. Regarding interest under section 201(1A) the assessee had taken a specific plea that deductees have incurred huge losses during the year and thus, there was no loss to the revenue on account of non- deduction of TDS, because in any case, no tax was payable by these deductees. In support, the assessee had relied upon the decision of Hon&# .....

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the appellant while making the payment, as in any case no tax was payable by these deductees. For the same appellant has cited decision given by Honorable High Court of Allahabad in the case of CIT versus ITC Ltd. I have gone through the same and having read the same I am in agreement with appellant that if deductees income itself was not taxable, the appellant cannot be held as an assessee in default for non-deduction of tax for the amount paid to that deductees. Thus in principle I am in agree .....

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has to be rejected. Accordingly the plea taken by the appellant against levy of tax and interest under section 201(1)/201(A) for assessment year 2010-11 as well as for assessment year 2011-12 for an amount to ₹ 78,58,690/- and ₹ 1,04,57,967/- respectively is rejected. The grounds taken in both these appeals are dismissed". 8. Before us the Ld. Counsel for the assessee, Mr. Yogesh Thar, submitted that, so far as the issue whether the roaming charges paid to other telecom operato .....

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y series of decisions, and therefore, same should be followed. 9. So far as the issue, whether the assessee can be treated as 'assessee'-in-default when declarations/certificates have been obtained from the deductees and filed before the AO, he submitted that the finding and observation of the ld. CIT(A) is contradictory to the finding of the AO, because the AO in the order himself has noted and held that, assessee has furnished the declaration from various payees and also furnished the .....

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on-deduction of TDS, and secondly , finding of CIT(A) on this score is also diverse from her own observation. If she had any doubt, then clarification should have been sought. Therefore, no interest under section 201(1A) can be levied. 10. On the other hand, Ld. DR strongly relied upon the order of the AO as well as CIT(A). On the main issue he submitted that, now in the background of the Supreme Court decision in the case of Bharti Cellular Ltd ( supra ) and in line of Supreme Court direction t .....

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egarding 201(1) and 201(1A), he submitted that the matter can be verified again by the AO. 11. We have heard the rival submissions put forth by the parties and also gone through the relevant findings given in the impugned orders. The main issue involved here in these appeals are, firstly whether the roaming charges paid by the assessee to other telecom operator is in the nature of 'fees for technical services', as defined under section 9(1)(vii) r.w. Explanation 2 thereto and thus, was l .....

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e to deduct TDS under section 194J is, ₹ 38,07,27,640/- for the assessment year 2010-11 and ₹ 58,09,98,180/- for the AY 2011-12. As stated in the foregoing paragraphs, the assessee had entered into "roaming agreement" with Reliance Telecom Ltd. for providing GSM services in the 8 telecom circles in the country where the assessee company does not have GSM licenses. In a nutshell, the roaming charges are paid for the roaming facility provided to the telecom subscribers to aut .....

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rk is not available, these telecom operator enter into "Roaming agreements", that is, telecom operators having their network in that circle. Thus, the subscribers who are traveling beyond geographical areas switch over automatically from home network to the visiting network to avail uninterrupted telecom facility. This switch from one network to another network is automatic through Cell towers, fiber optic cables, etc. The home network operators collects the 'roaming charges' f .....

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r experience. The call carriage during the roaming process is fully automated by virtue of sophisticated technological advanced telecom network. 12. The concept of human intervention/involvement stems from the meaning assigned for "income by way of fees for technical services" in section 9(1)(vii) read with Explanation 2. The explanation envisages, "- any consideration for rendering of any managerial, technical or consultancy services -." Here the word "technical service .....

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understood in the same sense. The phrase "managerial" and "consultancy" is a definite indicative of the involvement of human element. The rendering of managerial services or consultancy services can be given by human only and not by any machines or equipments. The word "rendering of" used here again signifies through human skill or experience. Therefore, the phrase "rendering of technical services" has to be construed in same sense involving direct human .....

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nical service" takes colour from the expression "managerial services" and "consultancy services" which necessarily involves human element. This decision of the Hon'ble High Court also came for consideration before the Hon'ble Supreme Court in the same case, since reported in [2011] 330 ITR 239, wherein the Hon'ble apex court held that, there is no expert report from the side of the Department that how the human intervention takes place during the process. Acc .....

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1A) by the AO case of M/s Vodafone Essar Mobile Services Ltd., wherein there has been reference to statement of oath of certain experts/employees. From the perusal of the entire statement, we find that at the face of it, nothing conclusive finding or view can be drawn that there is constant human endeavor or involvement of human interface throughout the process. In answer to certain questions, these experts have admitted that when call is connected from one operator to other, it is an automatic .....

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on or personalized human skills is involved to cater to the roaming facilities availed by the subscribers are not very clear. The AO has tried to further stretch these observations of the technical experts to the extent of holding that, each machine requires some kind of human intervention, because they have been created by the human only. However, we are too skeptical to endorse this view of the AO. If any person delivers any services through his skills, or experience, or make available any suc .....

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ogy or machine cannot per se be held as rendering of "technical services" by human skills. It is obvious that in such a situation some human involvement could be there but it is not a constant endeavour of the human in the process. Our view also gets endorsed by the latest Supreme Court decision in the case of CIT vs M/s Kotak Securities Ltd in Civil Appeal No. 3141 of 2016 arising out of SLP 14907 of 2012 vide judgment and order dated 29 th March, 2016, ( which has come post hearing o .....

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these services everyone in general. Their Lordships have laid down the test of specialized, exclusively and individual requirements for rendering of services with general or standard facilities provided to everybody. If the services provided are exclusively catering to the individual requirement then only it can be reckoned as rendering of technical services. Here in this case, post Bharati Cellular Ltd., decision by the Supreme Court, whereby, AO was required to examine the technical experts ca .....

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emantics of the controversy whether human involvement / intervention is there qua the payment of roaming charges. We are keeping this issue open and our observations made above are not final conclusion on this matter, because in the case of Vodafone Essar Mobile Services Ltd., which order has been quoted by the AO extensively has not stood scrutiny or concluded by any appellate authorities or any court, especially in light of any rebuttal which may come from the side of assessee. Thus, we are re .....

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urn of income, wherein, the said payments have been incorporated. From the perusal of the assessment order, especially, in the second last page, as noted above the AO himself has held that, the assessee could not be treated as 'assessee-in-default' in terms of section 201(1) in wake of assessee having furnished declaration from the payee in this regard. Once there is a categorical finding by the AO, then without any contrary material on record to rebut his finding or notice by the CIT(A) .....

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ted as allowed. Accordingly, second issue is decided in favour of the assessee and against the revenue. 15. So far as the liability of interest under section 201(1A), the assessee before the CIT(A) has taken a specific plea that, deductees have incurred huge losses during the year under consideration and, therefore, there is no loss to the revenue on account of non- deduction of TDS by the assessee while making the payment as no tax was payable by these deductees. Once that is so, then there is .....

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erson, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident - (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax du .....

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